- US Air Will Be OK, But Not Great: If antitrust concerns skunk up the merger, LCC will ride out the breakup turbulence, although the opportunity cost of US Air coming this far only to fail in the 11th hour could leave it vulnerable to Delta, United and Southwest (LUV) for the next couple of years. Investors can expect LCC shares to fall back into the $5 to $6 a share range they held before merger mania took hold.
- American Would Take A Huge Hit: A breakup would hit American harder. DOJ’s assertions aside, this far down a road to a merger with US Air, it is far more challenging for American to “thrive as a standalone competitor.” The carrier’s parent listed some $30 billion in liabilities when it filed for bankruptcy in 2011 — expect creditors to lose a sizable chunk of that change if the deal is scrapped.
- Don’t Expect a New Deal to Arise From the Ashes: Other mergers at this late date would be difficult to pull off — United and Delta are too big to clear antitrust hurdles, Southwest is in the process of integrating recently acquired AirTran, and smaller or regional carriers wouldn’t deliver the necessary economies of scale American needs. Last year, David Bonderman’s TPG Capital was widely reported to be interested in American. While it would not be Bonderman’s first time quarterbacking an airline deal (he had stunning success in the 1990s turning around the then-bankrupt Continental Airlines) it’s pretty late in the game to call that big an audible. The likeliest outcome: The bankruptcy court would give American an extension to regroup — and the airline likely would wind up liquidating assets and/or scaling back into a smaller, niche-focused carrier.
- If American Stands Alone — and Falls — Boeing Could Feel the Pinch: There’s an interesting note here for Boeing (BA) as well. American owes BA about $30 million, which leaders of the combined airline have vowed would be repaid in full with stock issued after the merger. Additionally, American ordered $20 billion in next-gen aircraft from Boeing in 2011 (and $20 billion from Airbus as well) — planes that both aircraft manufacturers are counting on big right now.
- DoJ Could Lose the Suit: The best outcome for American and US Air at this point obviously would be for DoJ to drop the lawsuit or lose the case, and the carriers could move forward with their merger plans. But high-stakes legal matters seldom are resolved quickly — best case, the airlines are looking at a forest full of legal briefs and thousands of billable hours before they can move on. Delays aren’t necessarily denials, but in the cut-throat airline business, there’s a huge opportunity cost associated with putting the brakes on a merger at such a late date. US Air could ride out the delay reasonably well because it could gain its prize eventually. But American can ill afford to spend several more months cooling its heels in bankruptcy court awaiting a verdict.
As US Air Chairman and CEO Doug Parker scrambles to save the deal of a lifetime, it couldn’t hurt to launch a charm offensive toward Capitol Hill. While loss of competition at D.C.’s Reagan National is not the only issue fueling opposition to the merger, the issue came up a lot in Senate Judiciary subcommittee hearings earlier this year.
Congress always has taken a very personal interest in operations at the conveniently located airport — and in political Washington, the interests of lawmakers and regulators have a funny way of syncing up at the darnedest times.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.