This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

US Airways Saga Proves Mergers Only a Band-Aid

CHARLOTTE, N.C. -- The merger between US Airways (LCC) and America West two years ago was in many ways among the most successful airline deals in history, but it hasn't done much for long-term shareholders.

In fact, US Airways shares recently dipped below $20, their price when the airline emerged from bankruptcy in September 2005. The shares traded as high as $63.27 in November 2006. On Friday, they closed at $20.77.

To be sure, some investors made money. Most prominent among them is Boston hedge fund PAR Investment Partners, an early investor during the US Airways bankruptcy and at one time the combined airline's largest shareholder. PAR sold 6.75 million shares in May at around $36 and 6.5 million in February at about $58. It had bought about 11 million shares at $15 and another 2.75 million at around $40.

But in general, the recent story of US Airways is a cautionary chapter in the long saga of how airlines have destroyed investment value throughout the industry's history.

The US Airways and America West combination "shows that mergers work, but they work in the short term," says Morningstar airline analyst Brian Nelson. "This transaction enabled the company to extract several hundred million dollars in network synergies, but I don't think it was enough to ultimately fix the carrier or to stimulate widespread consolidation."

It is easily forgotten today, but giddiness abounded in the merger's early days. The transaction combined an airline in bankruptcy with a smaller airline closing in on bankruptcy to produce astonishing second-quarter 2006 growth in revenue per available seat mile: 28.8% at the former carrier and 18.6% at the latter. In the spring of 2006, shares surged, and JP Morgan analyst Jamie Baker set a target price of $100.

Flush with success -- or perhaps aware that it could not possibly continue -- CEO Doug Parker mounted a hostile bid to acquire Delta (DAL - Get Report). That merger would have enabled the eighth-biggest airline, measured by 2004 revenue passenger miles, to take over the seventh- and third-largest airlines in less than two years.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
LCC $0.00 0.00%
DAL $45.24 1.60%
AAPL $130.05 1.20%
FB $79.26 0.37%
GOOG $559.97 0.28%

Markets

DOW 18,221.93 +89.23 0.49%
S&P 500 2,108.22 +3.72 0.18%
NASDAQ 4,981.7070 +18.18 0.37%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs