American Airlines set to issue new stock after price run-up

DALLAS (AP) — 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 USD1.1 billion in new shares.

American said on Friday that it reached an agreement with lenders including Goldman Sachs and Citigroup on the offering. Shares fell more than six per cent 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 targetted 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 per cent in the last three weeks.

American is by far the mostly heavily shorted stock among publicly traded major United States (US) airlines, at 25.5 per cent of its total shares, according to FactSet. Among the six largest US airlines, JetBlue Airways is next at 5.1 per cent.

Finance professor at Carnegie Mellon Chester Spatt 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.