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Mergers in the Wings: DAL, LCC, AMR

Stocks in this article: LCC UAL DAL LUV AMR RYAAY

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Insider Monkey) -- When it comes to domestic airlines, there are four main players in the U.S.: Delta Airlines (DAL), US Airways (LCC), United Continental (UAL) and American Airlines, which filed for bankruptcy protection in November. However, if DAL has its way, that all could soon change.

DAL, a member of the SkyTeam Alliance, is the world's largest airline by traffic when counting domestic and international travel according to the International Air Travel Authority. It transports just under 111.16 million passengers on domestic and international flights a year, 90.13 million of which are domestic. Delta has been studying US Airways (LCC) as a possible acquisition target according to the Wall Street Journal.

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In comparison, LCC carries roughly 51.81 million passengers (domestic and international combined), 45.53 million of which are domestic. If the number of passengers carried stays the same, an acquisition of LCC could put DAL at 135.66 million domestic passengers a year, easily beating out domestic rival Southwest Airlines (LUV) as the number one domestic carrier in the U.S. The deal would also push the number of Delta's passengers carried internationally to the sixth in the world, up from its current eighth-place ranking.

The $1.45 billion market cap LCC is priced low relative to its earnings, with a forward P/E ratio of just 3.65, but it is priced a little high relative to its book value -- Yahoo Finance reports LCC's P/B ratio at 9.84 -- however, its price-to-sales ratio is more encouraging at 0.10. LCC recently traded at $8.99 a share, on a mean one-year target estimate of $12.95. David Tepper's Appaloosa Management is a fan of LCC.

DAL has not approached LCC. According to the Wall Street Journal, it "is still weighing which deal if any would make most sense and have the best odds of success." DAL's last acquisition was Northwest Airlines in 2008. Ken Heebner's Capital Growth Management initiated a $135.08 million position in DAL during the third quarter, suggesting the savvy fund manager is hopeful for what lies ahead for the company. Heebner also opened a holding in LCC during the third quarter, a position worth roughly $26.84 million.

Delta-American

Delta isn't stopping there though. According to the Wall Street Journal, DAL has also been considering a similar move with AMR Corp., the parent company of Delta's rival American Airlines. AMR entered bankruptcy protection in late-November.

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