AMR Corporation (AAMRQ), US Airways Group, Inc. (LCC): Betting on a Bankrupt Airline Is Risky Business

As I argued back in February, at $15, US Airways shares were already trading based on a generous valuation for the new American Airlines Group. Airline valuations have moved significantly higher since then, but it is unclear whether those moves are really sustainable.

If the scenarios laid out in AMR Corporation (OTCMKTS:AAMRQ)’s disclosure statement are accurate, AMR shares would be worth roughly $3.83 based on US Airways’ Thursday closing price of $16.64. US Airways Group, Inc. (NYSE:LCC) shares could conceivably go higher before the merger goes into effect, but they could just as easily move lower. Extreme volatility is the price paid by AMR shareholders. As a result, this is a stock that most retail investors should avoid: the downside is too great to justify the potential upside.

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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