Two American business icons have been forced to defend themselves against rumours of impending bankruptcy as the US economy slides closer to what many predict will be a recession.
Photography giant Eastman Kodak’s share price plunged late last week after reports that the company had hired restructuring firm Jones Day as an adviser and that bankruptcy was one of the options the company was examining.
Shares in Kodak – which has not made a profit since 2004 – fell from $US2.38 on September 23 to 78c at Friday's close.
But the stock recovered ground overnight, rising more than 72% to $1.34 after a company spokesman issued a strong denial of the bankruptcy talk.
"We certainly reiterate that we have no plans to file for bankruptcy and are committed to meeting our obligations,” he says.
“In fact, as you know, we made a coupon payment today on the debt. We can't comment on what others choose to do."
But the company’s share price remains 69% lower than at the start of the year and reports from Reuters suggest that the company’s creditors – who hold $US1.5 billion worth of Kodak debt – are talking to their strategic advisers and may seek to form a committee to push for change at the company.
With estimates suggesting that Kodak is burning through more than $US600 million cash a year there are calls for the business to start selling assets, including its valuable patents, which means speculation will continue.
"It's hard to see how, even if they do restructure their debt, that it can function as a going concern given the amount of free cash flow they are burning through this year," Fitch Ratings analyst John Witt told Reuters.
American Airlines’ parent company AMR Corporation is another operation being hit by bankruptcy rumours.
Its share price fell by as much as 40% last night before recovering to finish 33% down at $US1.98 – the first time the stock has traded below $US2 since March 2003.
The Wall Street Journal said the company had been hit by a number of factors, including continued warnings about the state of the global aviation industry and a report showing US air travel and cargo movements have fallen.
But worst of all were calls from analysts for the company to seek bankruptcy protection as a way to reduce costs.
Morningstar airlines analyst Basili Alukos was among those making the call and pointed to an "abnormal" number of pilot retirements in the past two months, with pilots seeking to sell stocks in the company due to fears that it would fail.
"There is a lot of speculation that they were trying to sell their shares as fast as they could, before the company faces more financial problems and files for bankruptcy," Alukos said.
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