By Bill Barnhart
Wall Street liked first-quarter results at US Airways Group (LCC), sending shares up more than 3 percent last Wednesday after the airline posted record first quarter revenue and a less than forecast quarterly loss.
In the glow of improved, non-fuel cost-cutting and strong demand for business travel, CEO Doug Parker used the financial report conference call for more jawboning about the desirability of putting the much larger American Airlines, now in bankruptcy, into the US Airways hanger.
Last week, Parker won agreements with AMR’s three major unions, representing nearly 55,000 employees, to support a merger. He’s also negotiating with AMR’s unsecured creditors, including Boeing (NYSE:BA). Boeing CEO James McNerney told his company’s quarterly conference call, “American is working through the process now and we support them emerging from this thing (bankruptcy) as a stronger airline. If at that point, a merger makes sense to the two managements of the companies, we'll support that as well.”
In his presentation to analysts, Parker stressed, “We are doing quite well on our own. We don’t need to do anything. We’re doing real well stand-alone.” The remarks seemed aimed at AMR’s contention that US Airways is in no position to lead a successful merger. In the debt-fueled world of airlines, anything seems possible, though US Airways' market cap is less than $2 billion.
Aside from such give-and-take from executive suites, the question is whether a post-bankruptcy AMR will acquire US Airways or US Airways takes AMR. Either way, Parker continues to put skin in the game. In the last five years, buying mostly in April of each year, he has acquired nearly 2.5 million US Airways shares, including $471,520 shares purchased this month.
LCC data by YCharts
Buying in anticipation of a merger rarely works as a value-oriented investment strategy, especially where the perennially troubled airline industry is concerned. Nonetheless, U.S. Airways’ recent revenue gains and the recent stability of jet fuel prices form a comforting backdrop to the merger hopes of Parker and his management team. A payoff of some sort seems likely for them and other current US Airways shareholders before the end of the year. The low-low PE ratio at US Airways may seem reassuring. And it is, until the airline industry goes into another nosedive.
US Gulf Coast Jet Fuel Spot Price data by YCharts