Airlines’ default risk soars

The cost of protecting airline bonds from default soared and bond prices plunged as oil reached a record $135 a barrel, stoking concern that carriers will run out of cash as jet-fuel prices surge.

Credit-default swaps tied to the bonds of American Airlines parent AMR Corp., Continental Airlines, JetBlue Airways and United Airlines parent UAL increased to records, signaling investors are growing more concerned that companies won’t be able to repay their debt. AMR bonds due in 2024 dropped below 77 cents on the dollar Friday. Continental bonds due in 2011 fell below 72 cents on the dollar.


A 94 percent increase in the price of jet fuel the past year may push some airlines into bankruptcy, Soleil Securities Corp. analyst James M. Higgins said Wednesday.

”We now expect AMR to have trouble avoiding bankruptcy by sometime in 2009,” Higgins wrote in a note to clients. ”UAL is too close to that possibility for our comfort,” and Continental is “close to our comfort threshold.”

Surging jet-fuel prices may help produce a record full-year loss for the largest U.S. airlines of $7.2 billion, JPMorgan Chase & Co. analyst Jamie Baker estimated this week. That estimate is 57 percent wider than Baker’s previous projection for the industry’s 2008 deficit.

Bloomberg