American Airlines’ stock rose earlier this week during market volatility around struggling companies, and now the airline is using the opening to sell up to $1.1 billion in new shares.
American said Friday that it reached an agreement with lenders including Goldman Sachs and Citigroup on the offering. Shares fell more than 6 percent after American’s disclosure, which would dilute the value of existing stock.
A spokesman said the company had no further comment on the timing of the potential stock sale, and would not make any executives available for comment.
Small investors who congregate on Reddit have rallied to defend companies that have been targeted by short sellers who make bets that certain stocks will fall in price. In the most notable case, shares of GameStop soared more than 1,500 percent in the last three weeks.
American is by far the mostly heavily shorted stock among publicly traded major US airlines, at 25.5 percent of its total shares, according to FactSet. Among the six largest US airlines, JetBlue Airways is next at 5.1 percent.
Chester Spatt, a finance professor at Carnegie Mellon, said American should tell potential investors that its price may be inflated by current market turmoil, but also said that it was “natural” for the company to make an offering.
“If a company feels that its stock price is elevated, it’s reasonable for a company to issue securities,” Spatt said.
Since the start of the pandemic that has devastated the travel industry, analysts have generally identified American as the most troubled US carrier and the most likely to eventually seek bankruptcy protection if travel remains severely depressed. American went into the pandemic with more debt than other leading US airlines and has added to its burden with billions more in borrowing from private sources and the federal government.
American’s shares jumped by as much as 31 percent on Thursday before giving up most the increase and closing up more than 9 percent. The rise occurred the same day that American reported a record annual loss of $8.9 billion for 2020 and gave a grim outlook for the first quarter of 2021.
On Thursday, American CEO Doug Parker began a call with analysts and reporters by saying that the company would not answer questions about the unusual movement in its stock price.