US Airways Rises as AMR Pilots Reject Contract Deal

CHARLOTTE, N.C. (TheStreet) -- US Airways (LCC) shares were rising Thursday after AMR (AAMRQ.PK) pilots rejected a contract proposal by their management.

The rejection "brings American and US Airways closer together, in our view, which we believe should be positive for US Airways share price," said Deutsche Bank analyst Mike Linenberg in a Thursday morning note. "We also think an American/US Airways merger would be positive for the share prices of other US airlines."

In mid-morning trading, US Airways shares were up 47 cents, or about 4%, to $13.50, leading airline shares. US Airways shares are up about 160% year to- ate, reflecting merger speculation as well as the airline's unhedged fuel position, which enables it to benefit disproportionately from falling fuel costs. Most major airlines hedge fuel.

The American Airline Index (XAL) is up about 20% for the year.

On Wednesday, the board of the Allied Pilots Association said it voted not to send the company's final offer to membership for a vote. The move came in advance of an expected Friday bankruptcy court ruling on whether AMR can abrogate its labor contracts.

"It is expected that the judge will rule on Friday that AMR can abrogate the contracts of the flight attendants, mechanics, and pilots," Linenberg wrote. "Conversely, US Airways, which is seeking to merge with American, has reached tentative agreements with AMR's three major labor groups which are all supportive of a merger. It is our view that following the Section 1113 ruling, the merger discussions with US Airways will intensify."

As part of the bankruptcy process, contract abrogation will be followed by a period when the bankruptcy court will be "open to consider all strategic alternatives AMR may have or that creditors will bring forward," US Airways CEO Doug Parker said last week at US Airways' annual meeting. "That's all we're asking for: a level playing field, a chance to show our alternative against any others," he said.

Attendees included the leaders of American's three biggest unions, which have about 55,000 members. Parker welcomed them, saying "they are representing their constituents very well" and "doing what they are supposed to do," hiring "world class advisers" to assess the US Airways effort to merge with AMR.

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