Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Bankruptcy/Chapter 11 / Bonds / Mid Cap / Post-Bankruptcy Stocks / Transportation

AMR-USAir Merger: More Benefit for Competitors?

One of the top stories in the bankruptcy and turnaround investing world over the past few weeks has been the merger of US Airways with AMR Corp. (the parent of American Airlines). Most of the press coverage has discussed the effect on the two airlines that are merging. We believe that, in the short run at least, the principal beneficiaries of the merger may be their competitors, particularly Delta and United.

When large airlines merge, the integration of the two carriers usually proves much more difficult than anticipated. We saw this several years ago when US Air merged with America West and again more recently when United and Continental came together. Each airline has many key components--such as aircraft fleets, reservation systems, union contracts and myriad other things--and integrating these disparate components can cause headaches for the merger partners. For example, a large percentage of United Continental’s flights were grounded one day a few months ago when glitches appeared after the company tried to integrate the two legacy computer systems.

We expect that for at least the next several years, the costs of the USAir-AMR merger will be greater, and the synergies will be less, than the managements expect. Moreover, there could be significant snafus that will drive away customers, sending them to competitors.

These possible snafus are not the only potential benefits for the other airlines. They will also benefit from the reduced competition in the industry, as the number of major carriers is reduced by one.

For these reasons, we suggest that investors may want to focus more on the stocks of Delta and United Continental (both of which are on our Purchase Recommended List) than on US Air or AMR. At worst, Delta and United will get a small boost from industry consolidation. At best, they might get a big boost if integration problems at USAir-AMR drive customers away from the merged carrier to other airlines.

(Disclosure Note:  Accounts managed by an affiliate of the Publisher have positions in the securities of all four airlines.)

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The Turnaround Letter In The News: Equities.com & Forbes

With more than 30 years of turnaround investing and market-beating results, it's no surprise that media and market pundits often seek George Putnam's commentary, stock picks and unique contrarian expertise. Most recently, both Forbes and Equities.com praised The Turnaround Letter. Read More.

Market-Beating Profit: The 200+ Club

Turnaround stocks present a unique opportunity for savvy investors to buy in at bargain prices. Take a look at this list of just a few of our purchase recommendations that have realized a return rate of 200% or better:

Value Investing Stock Profit

* Bristow remains in our active portfolio (currently as a Hold), and 1,390% gain is as of 7/19/17.

Here's Why You Should Invest in Asset Managers

 

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This Forbes article cites a recent MoneyShow write-up that recommends investors take advantage of the strong stock market and potential interest rate hike by "putting some of your investment assets into the shares of asset management stocks."

 

The article praises The Turnaround Letter's OAK purchase recommendation and quotes George Putnam: "As the corporate debt binge that we’ve experienced since 2009 comes to an end, Oaktree will benefit from a growing number of restructurings and bankruptcies."  

 

Learn more about Putnam's investing success with turnaround stocks.