Aug 21, 2020 - Economy

Short sellers pile into American Airlines

Data: S3 Partners; Chart: Axios Visuals
Data: S3 Partners; Chart: Axios Visuals

Loaded with debt and cutting back on coronavirus safety precautions, American Airlines has attracted a lot of attention from short sellers who may be betting on a bankruptcy.

Driving the news: American’s stock fell 1.4% Thursday after it announced plans to suspend service to 15 small U.S. cities in October after the terms of its CARES Act aid requiring the flights expires.

Where it stands: The company’s $29 billion in adjusted net debt "likely leaves it crippled for years to come," Raymond James analyst Savanthi Syth said in a recent note.

  • That's especially worrisome given the decreasing likelihood for more coronavirus relief from Congress in the near term.

The intrigue: Short sellers have accumulated $2.04 billion of short interest in American, more than double the next closest airline, and have been increasing positions, despite fees to borrow that are five times higher than most other airlines.

  • Short sellers own nearly one-third of available shares.

Between the lines: American's lack of a credible safety policy during the coronavirus pandemic and announcement that it would fly full flights in July also may have weighed on the company's stock.

  • It set American apart from other major airlines, like Delta and Southwest, which had instituted in-writing restrictions on flight capacity.
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