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American Airlines-U.S. Airways Merger, Despite Turbulence, Will Get Done

Stocks in this article: AAMRQ LCC DAL

NEW YORK ( TheStreet) -- American Airlines parent AMR (AAMRQ) may be facing another wrench in the works of its merger agreement with US Airways (LCC).

The Justice Department filed papers late Friday "objecting to certain employee wage increases, as well as a proposed $19.9 million exit package for AMR's chief executive," writes The Wall Street Journal. Tracy Hope Davis of the U.S. Trustee's office said in a court filing Friday -- the deadline for objections to the proposed compensation plans in the merger agreement -- that the company failed to explain "why the sweeping changes to their various employee compensation plans are permissible" under the U.S. bankruptcy code.

Well, nothing like waiting until the last minute.

Now all the momentum surrounding the American Airlines/US Airways merger could fall flat depending on what happens next regarding the Justice Department's objections to the proposed compensation plans in the merger agreement. On Monday, shares in AMR dipped from an open of $3.75 to a day low of $3.43 before recovering to a relatively flat price, while US Airways saw a small boost, around 2%, bringing the share price to an intraday high of $16.33, nearing its 52-week high of $16.54.

A U.S. Airways spokesperson confrims that analysts' average one-year price target is $19.32. I am confident it will reach that mark, if not pass it completely, but getting there may take a little longer as the merger details are ironed out again. A little patience will go a long way here. Even buying in at $16, if the company reaches the target price, investors would receive a better than 20% return. Just keep in mind, the stock will likely be a little volatile between now and then, so pay attention and look for those moments when momentum or enthusiasm is low.

AMR and U.S. Airways announced their merger in mid-February. It was touted as a way for AMR to exit bankruptcy protection, and the markets were abuzz with all that a merger of the two airlines could mean -- both for passengers and investors. Moody's cautioned that "the merger of American Airlines and U.S. Airways to form the world's largest air carrier threatens the credit quality of U.S. airports ... as the combined airline may eliminate routes or push up ticket prices." At the same time, Delta (DAL), currently the second-largest carrier in the U.S. but would slip to third place after the American Airlines merger, announced upcoming service upgrades on popular routes in an effort to maintain its position.

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