Weekend airline bomber incident fails to jolt holiday-bound market

By Paul Deckelman

New York, Dec. 24 - With market participants counting down the hours till the Christmas holiday break (which resulted in an abbreviated session Monday and shuttered U.S. financial exchanges Tuesday), even a weekend near-disaster involving a would-be bomber aboard an American Airlines flight couldn't shake junk players out of their pre-holiday lethargy.

"You'd think you would have seen a little bit of action in the airlines maybe - but nothing," a trader said, adding that overall, he'd had "just one odd-lot trade the whole damn day. Being here was a total waste of my time!"

Another trader quipped that "only the cleaning lady was here today."

Over the weekend, a passenger on board an American Paris-to-Miami flight tried to detonate plastic explosives hidden in his shoes. Only some quick action by an alert flight attendant and brave response by fellow passengers who subdued the would-be bomber prevented what could have been a mid-air explosion which might have brought the plane down over the Atlantic. The flight was diverted to Logan Airport in Boston, where the suspect was taken into custody.

Even though this incident was a case of all's well that ends well, the widely reported story hits too close to home for an airline industry still reeling from the Sept. 11 terrorist attacks. It raises nagging new questions about whether all of the seemingly stern measures enacted after that atrocity by the airlines and the government will be able to keep the flying public truly safe. The immediate answer would appear to be "no," given the ease with which the suspect managed to slip his C-4 bomb aboard the aircraft undetected - and the fact that he was able to board a trans-Atlantic flight at all with no luggage other than a small carry-on bag and after having paid for his one-way ticket in cash - two supposed red flags which should have alerted security people that something was wrong. Indeed, they had felt uneasy enough about him to have detained him for intense questioning the previous day, which caused him to miss his initial flight.

If it's a black eye for the airline industry as a whole, it looks like a whole black cloud over the corporate head of American and parent company AMR Corp. The Dallas-based airline giant lost two passenger-laden jets in the Sept. 11 terrorist attacks and then suffered a catastrophic crash in New York on Nov. 12. That disaster remains under investigation, with preliminary government statements attributing the crash to mechanical failure of the Airbus 300 jet. The latest incident, coming just as American has tried to put its recent misfortunes behind it, again focuses an uncomfortable spotlight on whether its security procedures are thorough enough, the key question on the minds of air travelers these days. As of press time, AMR had said little about the incident, other than a terse three-paragraph news release issued Saturday night alluding to the incident in only the most general of terms and referring all further inquiries to law enforcement officials.

AMR shares fell 3.2% percent in light, holiday-shortened trading on Monday, closing down 70 cents $21.19. Several other airline issues were also on the downside.

But debt traders said they had seen no activity in the bonds of the beleaguered sector - either AMR's own notes or those of such rival carriers as United, Delta, Northwest, or Continental Airlines, or USAir. All have been have been beaten down into a range of anywhere from the 50s to the 70s for senior debt, given the effects that Sept. 11 and the New York crash have had on an industry that was already struggling even before Sept. 11. The only airline-sector quote heard Monday was a three-point retreat in Northwest's 7 7/8% notes due 2008, to around 75.

"I think airlines are going to get smacked again" once normal bond market trading resumes, a trader said, noting that the air carrier's shares were all weaker Monday. He explained that for instance, his wife, a typical air traveler, questioned whether it was worth it to put their family to considerable inconvenience, or even possible danger, in order to get somewhere.

The fallout, he opined, might also impact the lodging industry - which, along with the airlines, headed south in the days after Sept. 11, as people canceled trips which required them to fly somewhere. It would be some weeks until investors in the hotel sector - along with the airlines and other travel-dependent industries - would be able to recover some of their post-Sept. 11 losses.

But he also speculated that the problems of the air travel industry might provide opportunities to companies offering competing modes of transportation, suggesting that the bonds of issuers such as Sea Containers Ltd. "might pop up on Wednesday," although he added that this belief was based solely on a 1-point gain he had seen its stocks, a rise not yet reflected in the bonds, "that's for sure." Sea Containers operates railroads and marine transportation.

Elsewhere, Lucent Technologies Inc. and CSG Systems International Inc. said that CSG is buying Lucent's billing and customer care assets for $300 million in cash.

Denver-based CSG also agreed to provide the struggling Murray Hill, N.J.-based telecommunications equipment giant with billing and customer care software for its networking solutions.

Lucent said it has decided to focus on its backbone - network infrastructure - instead of back office services such as billing. About 1,300 Lucent employees will be affected by the transaction.

Lucent shares were up 8 cents, or 1.33%, to $6.09 on the NYSE. For most of the abbreviated session, the bonds were unmoved, its 7¼% notes due 2006 hovering just below 86 bid, on light dealings, although in the final hour, prices were heard having pushed up to the 89 bid level. No activity was seen in Lucent's 6.45% debentures due 2029, which ended Friday quoted at 68 bid.

Also in the telecommunications-related sphere, Level 3 Communications Inc.'s benchmark 9 1/8% senior notes due 2008 were quoted three points higher (albeit on light trading of under $400,000 of bonds) at 51 bid. There was no specific news out about the Broomfield, Colo.-based telecom operator, although The New York Times reported Monday that despite the problems that the high-speed Internet access industry has had over the past year, with a number of broadband providers (not including Level 3) having gone bankrupt, "nothing has deterred an increasing number of Americans from signing up for high-speed - or broadband - internet access." The article did not specifically mention Level 3 by name.

There was some activity in Lyondell Chemical Co. debt, with about $6.6 million of its 9 5/8% notes due 2007 having traded according to the Nasdaq FIPS high yield market tracking service - about half of the total $12 million of bonds turning over on the Nasdaq FIPS 50 index. But there was little price movement in the Houston-based chemical company's notes, which continue to trade around their recent 102 bid level. Late last week, the company announced that German-based chemicals and pharmaceuticals giant Bayer AG had agreed to buy part of Lyondell's polyurethane chemicals business for an undisclosed sum. Lyondell also announced that its 2002 capital spending budget would be about 25% lower than its 2001 capital spending.

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