The Deal: An Unscheduled Departure
The DOJ in building its case against the deal includes projections from American's standalone reorganization proposal, which was built as a rival to US Airways' overtures. Vaughn Cordle, a partner at Ionosphere Capital LLC, said that relying on those rosy forecasts is a mistake.
"No serious analyst believed American's former executives when they said they would aggressively grow their key hubs after they emerged from bankruptcy as an independent airline," Cordle wrote. "It was a narrative designed to help the American CEO and core team remain in control and also placate various stakeholders, especially labor."
If American is forced to go it alone and does expand as planned, Cordle said that the growth would destroy shareholder value which in turn would force management to reverse course.
"Hence this growth story was pure fantasy; a fantasy that the DOJ now ironically uses as their own evidence that the airline could remain viable and strong as an independent airline," he said.All in, analysts have concluded that either by settlement or after victory in court the deal is likely to be consummated, with a settlement seemingly more palatable to regulators. "We think there is still an excellent chance this case never goes to trial since it can and should be resolved with a negotiated settlement, but if it does we expect the airlines to prevail," Vicki Bryan, a senior high-yield analyst at Gimme Credit LLC, said in a recent note. But a number of antitrust practitioners take the opposite view -- that there is no way this case doesn't go to trial. If there is a settlement, the agreement will likely only address DOJ concerns that are easily addressed, such as concentration at Reagan National Airport or reduced competition along specific routes, which could be fixed by divestitures to other airlines. From the airlines' court filings, in fact, it appears they tried to do just that. While antitrust sources said that a settlement on those issues is still possible, such a move would serve only to narrow the issues at trials. There is not obvious settlement for the DOJ's conviction that eliminating US Airways and American as separate network carriers would harm competition and that US Airways has a unique hub system that makes it a disruptive player in the market.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV