America West Shares Down On Talk Of US Air Merger
By
CHRISTOPHER SCINTA
April 20, 2005 10:45 a.m.
Of DOW JONES NEWSWIRESNEW YORK -- Despite reporting a profit for the first quarter, America West Holdings Corp. (AWA) shares slid 11% Wednesday morning after reports the company's America West Airlines Inc. was in talks to merge with rival US Airways Group (UAIRQ).
Phoenix-based America West reported net income of $33.6 million, or 62 cents a share, for the quarter ended March 31, which was the result of a $60 million gain on hedges against its fuel costs. For the first quarter of 2004, the airline saw a net loss of $1.6 million, or 4 cents a share. However, Wall Street focused on news of the merger talks.
Merrill Lynch Global Securities analyst Michael Linenberg lowered his rating on America West to neutral from buy, citing an uncertain outlook.
"Our longstanding view toward airline mergers is that, while they may be inevitable, and arguably necessary, they are nonetheless fraught with risk given the challenge of intregrating employees, systems and aircraft," he wrote in a research note.
Shares of America West recently traded at $4.25, down 55 cents. Shares of US Airways jumped 22 cents, or 34%, to 87 cents in morning trading.
=-"Even in the absence of a concrete deal, it is our opinion that (America West's) share price will be 'capped' as long as the possibility of a transaction is kept alive in the press," Merrill said.
America West representatives weren't immediately available for comment.
UBS analyst Robert Ashcroft said that "up to a point, we believe the idea (of a merger) has merit," citing both airlines' substantial ties to General Electric Co. (GE) and their debt to the federal Air Transportation Stabilization Board.
However, Ashcroft wrote airline mergers are difficult and "a merger would be very unwise without a substantial equity injection from investors yet unknown."
Any merger between the companies would have to be signed off on by the U.S. Bankruptcy Court in Alexandria, Va., which is overseeing US Airways' Chapter 11 restructuring. The Bankruptcy Code generally requires that any offer to purchase a company in Chapter 11 or its assets is subject to higher and better offers at a court-supervised auction.
Also, the ATSB has veto power over any deal because of the terms of the loan it guaranteed on behalf of America West.
An ATSB spokeswoman declined to comment on the merger talks. The agency, formed after the Sept. 11 terrorist attacks to help the struggling airline industry, currently guarantees about $645 million in loans to Arlington, Va.-based US Airways and is owed about $300 million by America West.
-By Christopher Scinta, Dow Jones Newswires; 212-938-5218;
[email protected]
