US Airways Group, Inc. (LCC): 3 Reasons To Nix This Merger

Third, there is a better way.  Delta Air Lines just bought 49% of Virgin Atlantic from Singapore Airlines for $360 million.  Singapore Airlines paid $965 million for its Virgin Atlantic investment holding in 1999.  Southwest Airlines has been very adept at this manner of expanding, profiting from the mistakes of others.  From the bankrupt ATA Airlines, Southwest acquired 14 landing slots at LaGuardia Airport, yielding an initial presence in the lucrative New York City market.  US Airways should be looking to expand by picking up the best assets from other carriers, rather than taking on an entire bankrupt entity like American Airlines.

US Airways should also heed the advice of Laura Glading, President of the Association of Professional Flight Attendants, who warned that, “American needs to merge.  We think American is going to be in jeopardy if it manages to emerge (from bankruptcy) as a standalone.”  That could be a major factor why there are no other parties reported to be interested in American Airlines.

If there are doubts that American could not make it on its own, US Airways should take a pass as it will very likely have to take on substantial debt to finance any transaction.  Foolish investors should avoid US Airways stock if it does acquire American Airlines in a deal that requires increasing its debt load, already higher than the industry average of 5.36 at 6.02. US Airways will most likely rally in the short term, but the long term outlook will be negative.

The article 3 Reasons To Nix This Merger originally appeared on Fool.com and is written by Jonathan Yates.

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