Distressed 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?

February 22, 2013

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.)

Read More Distressed Investing Blog Entries

Your Financial Security is Serious Business...

so why should you trust The Turnaround Letter?

  • Ranked #1 for 15-Yr. Annualized Returns: Turnaround Letter's 13.2% vs. S&P's 2.2%
  • 28+ Years of Turnaround Investing Experience & Reliable Stock Market Advice
  • Diverse Monthly Stock Picks Personally Selected by George Putnam

Distressed Investing Blog

Distressed Investing Blog

Looking for a Year-End Bounce: Stock Profit from Artificial Selling Pressures

Looking to cash in on timely tax loss selling and portfolio window dressing? These 10 year-end bounce stock picks represent the worst performers in the S&P 500 during calendar 2014, adjusted somewhat so that there is good diversification by industry group. Read More.

Sample Issue

TL Spotlight

George Putnam has always followed the same straight-forward and highly-profitable investment philosophy. He published his first Turnaround Letter issue back in 1986, and readers have seen extraordinary long-term stock profit ever since.

 

In fact, 12 of 2014's 13 closed-out purchase recommendations saw gains--with five of those enjoying total returns greater than 100%. The Turnaround Letter's average return for 2014's stock picks is +82%:

 

2014 Closed Out Purchase Recommendations

Value Stock Picks

* Calculation includes dividends and price changes between purchase recommendation and current price.

 

Learn more.