US Airways: Hell-Bent on Creating History's Worst Airline

You know we've all had that friend at some point in our lives that just can't stand to be single. It doesn't matter if the person they're with is right for them -- they simply need the comfort of a relationship. National airline US Airways (NYSE: LCC  ) is the corporate equivalent of that friend.

After suffering not one, but two bankruptcies over the past decade and failing to get approval to merge with Delta Air Lines in 2006, US Airways has now taken to bringing flowers on a daily basis to AMR's American Airlines. On top of this, US Airways has the stinging reminder that United completely snubbed the company when it merged a few years ago to create United Continental Holdings (NYSE: UAL  ) .

To be clear, US Airways hasn't officially endorsed that it's seeking a merger with American Airlines, but the labor unions on each side have come to an agreement that it's in the best interests of both companies to eventually merge. The merger, they contend, will save up to 6,200 of the 14,000 jobs that AMR has planned to cut in response to its bankruptcy reorganization. With few overlapping routes, it's also likely that the merger would garner antitrust approval.

But what would you really be getting with this possible merger? The worst airline in history!

Worst... airline... ever!
The combination would result in a company with nearly $6 billion in cash, but – get this – almost $16 billion in debt! Not to mention this combined entity would have declared bankruptcy three times in the past decade (once for AMR, twice for US Air). However, this is just the beginning of their problems.

The airline industry has witnessed a definitive shift in recent years away from national carriers and toward regional providers. The reason for this shift is that regional airlines like Allegiant (Nasdaq: ALGT  ) and Spirit Airlines (Nasdaq: SAVE  ) can offer teaser prices that undercut the national airlines. These regional airlines also have more route flexibility and rarely have the same expense structure as national carriers since they often purchase older planes for their fleet.

This would probably be a good time to mention that AMR inked a deal with Boeing and Airbus in July, just months before its bankruptcy, to purchase 460 new planes valued around $40 billion! American Airlines justified this purchase by claiming that it needs these new planes in order to be price competitive with fuel costs rising. Clearly, it's worth spending about $2 billion per year for new planes when fuel costs are losing the company less than $2 billion each year. Go ahead... reread that sentence. That's what I refer to as "airline industry math."

Another way of putting it: AMR did not pass go and went directly to jail and US Airways is going to be there to bail them out -- debt and all.

Here's an even more telling tale of what you'd get with an American Airlines and US Airways merger: $12.8 billion in total cash outflows over the past decade! With American Airlines losing money in eight of the past 10 years and US Airways having a cash outflow in seven of the past 10 years, I feel it wouldn't be giving investors and Vegas casinos enough time to get our bankruptcy bets in before the company found itself in a liquidity crunch again.

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There are bad ideas, and then there's this. I can't say I care for US Airways stock here at all, but I really hope, for the shareholders' sake, the company doesn't proceed in merger discussions with American.

Is this the worst idea ever in the airline industry? Tell me about it in the comments section below.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He's just waiting for the day he winds up on the no-fly list because of a scathing report on the airline sector. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 23, 2012, at 11:36 AM, TMFGemHunter wrote:

    I must have missed when hurling epithets around became a substitute for stock analysis. There are too many inaccuracies in here for me to even get close to truth, but I'll just throw out a few.

    1. $40 billion plane order=value at list prices. AA is probably paying $25-$30 billion for buying in such bulk.

    2. $16 billion in debt: not sure where you got this number. Perhaps you're including pension liability. Perhaps you overlooked the fact that AA can reject much of its debt and unwanted leases in bankruptcy court.

    3. The whole point of bankruptcy is to shed costs that are unnecessary. The fact that US Airways and AMR have both gone through bankruptcy in the last 10 years makes them more competitive, not less. It's also not fair to include pre-bankruptcy cash outflows in an analysis of future prospects.

    4. Spirit and Allegiant combined are something like 10% of the size of the combined carrier. They can be very nimble and profitable, but aren't big enough to compete on every route and thus can't do much harm to the legacy carriers.

    I'll leave it there...

  • Report this Comment On April 23, 2012, at 2:28 PM, Listeningtofools wrote:

    Motley Fool has been completely and flatly wrong on American Airlines and as far as it's financial situation and as to whether it would go bankrupt that I pose the question, why would anyone listen to what these fools have to say about the merger to begin with?

  • Report this Comment On April 23, 2012, at 7:49 PM, sharkflyt wrote:

    Spirit Airlines and Allegiant are not regional carriers. They are mainline. A regional carrier are less than 99 seats. This is a fact!

  • Report this Comment On April 23, 2012, at 8:00 PM, sharkflyt wrote:

    Right now based on financial statements, my bet is on Spirit Airlines since they have a route structure which does not rely on a hub and spoke system. Allegiant right now has taken a risk and is following Spirit a little too late in the game. The reality is that eventually all airlines who want to survive will have to charge for all bags regardless of the fame to claim they deceive the public with such as Southwest Airlines! Southwest does not offer the lowest fares and not even an option for those who travel light without kitchen sinks. Spirit at least gives me an option and will eventually remain as a top performer because they charge.

    People complain about fees but again they want everything for free and that does not create jobs! If people understood that then they would understand bag fees. Travel light and your fares will be rock bottom on Spirit. Travel heavy and don't be shocked. I don't see Us Airways, American, or Delta surviving the business. New companies without debt will take over the friendly skies and people will get used to paying for things since it was those carriers whom charged extremely too much for fares and screwed business travelers royally!!!

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