It is well known that US Airways CEO Doug Parker would like nothing more than a merger with one of the Big Three carriers. He has publicly pursued Delta(DAL) and his pursuit of United(UAL) eventually became public. No doubt he has eyed AMR, the parent company of American Airlines.
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AMR's current plight would seem to lend itself to a renewed effort at a merger on either of two fronts.The first would be a takeover effort, given the recent steep decline in AMR's share price, which is down 69% this year. The decline means that one of the world's biggest and most important airlines now has a market capitalization well below $1 billion.The stock fell 32% on Monday, amidst bankruptcy chatter, but rebounded Tuesday. In mid-afternoon trading, American shares were up 40 cents or 20% at $2.38. The carrier's market cap was around $800 million, rebounding from a low around $600 million on Monday.Although far smaller than American, US Airways also had a market cap around $800 million around mid-afternoon on Tuesday.The second potential path to a merger with American Airlines could occur in bankruptcy court, if one assumes that the bankruptcy chatter is to be believed, which is a big step. "At this point, American's market capitalization is clearly a small enough number for a takeover bid," said Avondale Partners airline analyst Bob McAdoo, in an interview. " "In terms of investments in other industries, American is so inexpensive now that financial players would look at something like this."There is no question, in this kind of world, that there are people sniffing around trying to figure out Do we buy the place? Do we buy a chunk of it and propose alternative directors and try to shake up management a bit?," McAdoo said."Doug Parker has said repeatedly that there is one big merger left," Mike Flores, president of the US Airways chapter of the Association of Flight Attendants, told TheStreet.
"So if the ability to put the two airlines together presented itself, I believe he would pursue it," Flores said. "He sees that as the final piece for US Airways to be a survivor in the airline industry."
US Airways has actively pursued mergers since 1996, when Stephen Wolf took over as CEO. Wolf pointed out then that US Airways is neither a low cost carrier nor a global carrier with a vast international network. He once said that he approached every major airline seeking a merger, and that Northwest would have been the best partner.
Since Wolf departed in 2002, the carrier has filed bankruptcy twice and has managed to prosper, relatively speaking, since a 2005 merger with America West. But it essentially remains the outlier it has always been: Neither a low-cost carrier nor a global carrier.The 2005 merger occurred in bankruptcy court. Parker has said repeatedly that bankruptcy court is a good place for mergers because bankrupt carriers can not only reduce labor costs but also shed unwanted aircraft, enabling them to reduce capacity.Flores said that if American were to seek bankruptcy protection, "It would primarily be to void themselves of the pension burden and retiree medical cost burden, rather than because they are running out of money." The problem for a company in bankruptcy court, he said, is that those companies turn over control to the judge. "Bad things happen to companies in bankruptcy," he said. "If there is an economic downturn, or if fuel prices go way up, you can burn through your cash quickly and you will need someone to bail you out."In a report issued Tuesday morning, McAdoo upgraded AMR shares to market outperform from underperform and set a price target of $6.50. He said the market cap fell Tuesday to 3% of revenue, a number it approached only in 2003, when bankruptcy seemed close, and in 2009, amid the financial market collapse. By contrast, Delta's market cap is 17% of revenue, United's market cap is 18% of revenue, and AMR was at similar levels as recently as last year. >To follow the writer on Twitter, go to http://twitter.com/tedreednc.>To submit a news tip, send an email to: tips@thestreet.com.
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