ValuJet Shares Rebound After Deadly Crash
ValuJet Inc. shares ended a five-day slide after an aircraft maintenance company said it mislabeled as empty a box of oxygen generators that may have caused last week’s plane crash that killed all 110 people aboard.
Shares in the no-frills airline rose $1.875, or 17%, to $13.125 in trading of 6.8 million shares, making it the fifth most-active U.S. stock.
Meanwhile, discount carrier Nations Air, stung by plummeting reservations in the wake of the ValuJet crash, dropped service between three major cities Tuesday.
Despite the rebound in ValuJet shares, the stock is still down 27% from May 10, the day before Flight 592 crashed in the Florida Everglades. The maintenance company’s admission won’t completely repair the no-frills airline’s reputation with travelers, investors and analysts said.
“ValuJet’s got to convince the public that its 27-year-old planes are OK to fly,” said John Cabell, co-manager of the USAA Aggressive Growth Fund, which owns 150,000 shares of the airline’s stock. “There’s still a nagging credibility problem.”
Attorneys also said the admission by the aircraft maintenance company, Miami-based SabreTech, doesn’t eliminate ValuJet’s legal liability in the crash.
ValuJet also acknowledged Tuesday that co-founder Timothy Flynn sold 25% of his stake in the airline nine days after the crash to satisfy a margin call.
Flynn, one of four founders of the Atlanta-based airline and a board member, sold 1.5 million shares, raising $16.9 million. Flynn still owns 4.5 million shares.
Flynn sold the shares to satisfy a margin call, said Gregg Kenyon, ValuJet spokesman. Kenyon declined to say how much margin debt was owed.
A margin call is a broker’s demand for additional cash or securities so that an investor can continue to borrow from the broker to buy securities.
The shares Flynn sold--worth $52 million in November--would have been worth $19.5 million after the close Tuesday, with the stock’s rebound.
ValuJet’s stock won’t likely rebound to the upper teens, where it traded before the crash, said Steve Lewins, an analyst at Gruntal & Co. in New York.
“Probably because of all the publicity, it will take them a year to grow out of this,” Lewins said.
Meanwhile, the pullout of Nations Air came after only 16 months of service between Pittsburgh, Philadelphia and Boston and was expected to drive up fares sharply, leaving only one to two other airlines handling flights between the cities.
The Atlanta-based carrier, which was planning to add a third plane to its fleet next month to handle flights from Philadelphia to Orlando, Fla., saw bookings plunge 28% the day after the ValuJet crash.
