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Investor Jitters Bring ValuJet Stock Down

Wall Street: Shares in other upstart carriers suffer too, but those of established airlines rise.

May 14, 1996|From Times Wire Services

Shares of discount airline ValuJet and other upstart carriers tumbled Monday as investors worried about the potential financial impact of Saturday's fatal crash of a ValuJet plane near Miami.

Investors also bid up the shares of established full-service carriers on expectations that many travelers will become skittish about flying with airlines that have sprung up in recent years.

"The best-financed of the long-established airlines--UAL, Delta--are up, on the inference that the discount airlines are not as appealing to users and investors as they were before last weekend's crash," said Robert Stovall, president of Stovall/Twenty-First Advisers.

Shares of Atlanta-based ValuJet fell nearly 25% on Monday, dropping $4.19 to $13.69 a share on Nasdaq, where it was the most active issue, with more than 22 million shares changing hands.

The stock of two other start-up carriers also finished lower on Nasdaq. Western Pacific Airlines Inc. of Colorado Springs, Colo., fell 75 cents to close at $15.75 a share. Stock in 2-year-old Frontier Airlines Inc., based in Denver, was down 75 cents at $7.625 a share.

As for the established carriers, Delta Air Lines Inc., which competes directly with ValuJet on many routes out of Atlanta, saw its shares rise $3.375 to close at $83.625. UAL Corp., parent company of United Airlines, saw its shares rise $6 to $214, and stock in American Airlines parent AMR Corp. rose $2.50 to $92. All three carriers trade on the New York Stock Exchange.

The crash on Saturday that killed all 109 passengers and crew members aboard ValuJet Flight 592 has focused attention on the 2 1/2-year-old East Coast carrier's rapid growth and its safety record. The crash involved a 27-year-old DC-9 and has prompted the Federal Aviation Administration to intensify a review of the discount carrier's safety and maintenance procedures.

ValuJet President Lewis Jordan has adamantly denied that the company's expansion has been at the expense of safety, saying the airline has done its best to balance safety concerns with financial ones.

"ValuJet looked at ways we could be innovative and creative and build a company that had the highest level of safety but also be focused on passing along great fares every day," Jordan said.

How ValuJet will handle the drop in business that inevitably comes after a plane crash is a question on the minds of investors and financial analysts. Industry analysts say a crash typically hurts an airline's advance bookings for about three months.

The potential for a drop in business led Standard & Poor's Corp., a major credit-rating agency, to issue a statement Monday saying it may downgrade more than $150 million of ValuJet debt.

S&P warned that ValuJet might be more vulnerable to customer defections than most airlines because of its short track record and the fact that a large percentage of its passengers are leisure travelers, who are more likely to switch flights than business travelers.

Also potentially troubling as far as passenger traffic, S&P said, is the Federal Aviation Administration's review of ValuJet's operations after several previous, though less serious, incidents.

Working in ValuJet's favor, S&P said, is the airline's strong financial profile, which includes $120 million in cash.

Two types of debt ratings are under review: ValuJet's corporate credit rating and its rating on senior unsecured debt. Both are already at junk levels. After Flight 592 crashed, about 100 people--or 0.5% of the carrier's daily total of 20,000--canceled reservations, spokeswoman Marcia Scott said Monday. The airline was waiving its normal no-refund policy.

Kiwi International Airlines, based in Newark, N.J., said it is working with its competitor to handle travelers who don't want to fly ValuJet. Kiwi spokesman Rob Kulat said his airline served many ValuJet passengers Sunday out of Tampa, Fla.

Jim Ince of Washington said he felt a "tingle of concern" flying ValuJet to Tampa from Washington on Monday.

"Some of my friends and relatives are aghast that I would fly this, but I brush them off," he said. "The statistics are so overwhelmingly in favor of a safe trip that I'm not going to worry about it a bit."

* CRASH AFTERMATH

Divers retrieve bodies, the plane's "black box." A1

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