Time to Buy Airlines?

Doug Parker must be crazy.

He must be; no one in his right mind would buy shares of a legacy carrier right now. Yet Parker spent $551,464 on Monday to acquire 197,000 shares of US Airways (NYSE: LCC  ) , the airline he runs.

Among Fools, Parker appears to be alone. Those who follow US Airways in our 110,000-strong Motley Fool CAPS community see a crash coming:

Metric

US Airways

CAPS stars (out of 5 max)

*

Total ratings

525

Bullish ratings

231

Percent Bulls

44%

Bearish ratings

294

Percent Bears

56%

Bullish pitches

49

Bearish pitches

48

Data current as of June 20.

Pros have a somewhat different take. Legendary investor Bill Miller was buying as of March, for example. The stock is down more than 66% since. Ouch.

Miller also had big positions in UAL (Nasdaq: UAUA  ) , Delta Air Lines (NYSE: DAL  ) , and American Airlines parent AMR (NYSE: AMR  ) , which, in April, got my vote as the industry's "screaming short."

Planes for sale! Planes for sale!
There hasn't been much good news to report since. In May, US Airways pilots said they'd oppose a merger deal with United. Earlier this month, Parker told investors that his carrier would cut capacity by 6%-8% this year and 7%-9% next. And yesterday, per-barrel oil prices closed at $136, up 42% so far this year.

How is Parker buying in an environment like this? Value investing isn't supposed to be the financial equivalent of Russian roulette.

Airline president Scott Kirby told CNBC yesterday that he feels "great about U.S. Airways' stand-alone prospects." Really, sir? My read of your company's most recent 10-K annual report says that US Airways had hedged for only 22% of its anticipated 2008 fuel needs as of December.

What's more, according to Reuters, you agree with the CEOs of soon-to-be-combined Delta and Northwest Airlines (NYSE: NWA  ) , who together asserted in April that prices would have to increase by 15%-20% because most cost-cutting measures have been exhausted.

That's good thinking. Trouble is, when US Airways joined peers, such as Continental (NYSE: CAL  ) , in raising fares recently, the net result was a ... $20 increase per passenger per roundtrip. Talk about chump change; it costs $299 in fuel to fly just one roundtrip passenger. As Kirby put it recently, "There's a lot of tickets that are getting sold for $299 or less."

Not much good can come from that. Unless, of course, you're hoping to book a cheap vacation.

To be fair, US Airways looks cheap. So do its peers. Behold:

Carrier

Price-to-Book Value

American

0.79

Continental

1.12

Delta

0.42

Northwest

0.50

United

0.73

US Airways

0.48

Source: Capital IQ, a division of Standard & Poor's.

Nevertheless, I see this as a classic value trap. Too much of book value is tied to intangible assets such as goodwill. Here's what happens when you re-evaluate these carriers on the basis of tangible book value -- derived from assets such as facilities and aircraft.

Carrier

Price-to-Tangible BV

American

1.45

Continental

2.11

Delta

Not material

Northwest

0.63

United

Not material

US Airways

2.98

Source: Capital IQ, a division of Standard & Poor's.

Not so cheap anymore, are they? US Airways, especially.

Good luck, Mr. Parker. I really hope it works out. But, on this trade, you're on your own.

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