The proposed merger of
US Airways Group Inc.
) and American Airlines Inc, a subsidiary of AMR Corporation
suffered a setback following opposition raised by the U.S.
Justice Department along with attorneys general of six states and
the District of Columbia.
The regulatory body stated that the merger will pose substantial
harm for travelers through concentration of power in the hands of
a few airlines. With major and legacy airlines of U.S. joining
hands, the total number of carriers operating within the industry
is becoming less. This is resulting in less competition,
reflecting higher airfares and increased fees.
Both US Airways and American Airlines, now, have the option to
either contest the federal in court, or go for concessions that
will compel the regulators to approve the merger.
However, this piece of news has hurt the shares of both the
airlines. US Airways Group Inc. shares registered a steep fall of
$2.46, or 13.07% to close at $16.36 on Tuesday Aug 13. The shares
of AMR Corp. that trades over the counter slipped $2.64, or 45%,
Fort Worth, Texas-based AMR Corp. filed for bankruptcy in Nov
2011, citing unmanageable labor issues that drastically increased
the company's expenses. Soon after, AMR shares were removed from
the New York Stock Exchange.
In mid February, the board of directors of the aforesaid airlines
gave the nod to the pending merger agreement. Following the
completion of the deal, AMR stakeholders will control 72%
interest of the new entity, while the remaining 28% will be owned
by US Airways shareholders.
In April, the U.S. Bankruptcy Judge Sean Lane gave his green
signal for the $11 billion unification. A few months later, in
July, the European Union (EU) approved of the deal.
The amalgamation of US Airways Group and AMR Corp. will create
the largest global carrier - American Airlines Group Inc. This
company will likely have nearly 6,700 flights daily and generate
annual revenues of roughly $40 billion.
Following the success of this merger, 80% of the U.S. aviation
market will be controlled by four largest carriers - American
United Continental Holdings Inc.
Delta Air Lines Inc.
Southwest Airlines Co.
). The last three airlines have also born out of mergers since
Currently, US Airways has a Zacks Rank #1 (Strong Buy), while
Delta holds a Zacks Rank #2 (Buy). United and Southwest are Zacks
Rank #3 (Hold) stocks.
DELTA AIR LINES (DAL): Free Stock Analysis
US AIRWAYS GRP (LCC): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
UNITED CONT HLD (UAL): Free Stock Analysis
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