US Airways Investors Live in A Fantasy World

It is what happened the first time US Airways was reorganized under Chapter 11. The old stock became worth no more than the paper it was printed on, valuable only to collectors of stock certificates.

But still, somebody keeps buying it.

On May 19, US Airways' shares jumped 61 percent -- from 77 cents a share to $1.24 -- based on the faulty premise that somehow stockholders would benefit from the restructuring worked out by the Arlington-based airline, its creditors and new investors.

The shares have since sunk back, closing at 84 cents Friday, but even that reflects false hopes.

The merger plan is very specific about who will own the new airline. America West shareholders will get 45 percent. A group of new investors will get 41 percent. U.S. Airways creditors will get 14 percent.

US Airways shareholders aren't on the list because their investments will be wiped out.

I've had to explain all too often to anguished shareholders in companies going through bankruptcy: You made the mistake of investing in a business that went broke. Because the company couldn't pay its debts, the creditors essentially repossessed it. They own it now; you're out of luck.

As airline analyst Raymond E. Neidl wrote of US Airways and United Airlines, which is also reorganizing in bankruptcy: "We believe that the stocks have no value in bankruptcy regardless of the chances of success or failure of the restructuring."

Once in a blue moon, shareholders come out of Chapter 11 bankruptcy with a few crumbs even though they're always at the back of the line, behind all the creditors. The final outcome of a bankruptcy reorganization is never known until the day the judge signs the order.

That is one reason why stock market regulators allow shares of companies that have filed for reorganization to continue to trade. Theoretically they might be worth something.

The regulators warn investors that a company is going through bankruptcy reorganization by labeling their stocks with a big letter Q.

US Airways stock used to trade on the Nasdaq Stock Market under the symbol UAIR. Now it's UAIRQ. That's Q, as Elmer Fudd would say, because you must be qwazy to buy this stock.