Remember when the DoJ said it wouldn’t make a deal with US Airways (LCC) and AMR Corp. (AAMRQ)? Well, it looks like they’re willing to make a deal after all.
Associated PressThe Wall Street Journal has the details:
U.S. antitrust authorities want to see a broad package of divestitures from AMR Corp. and US Airways Group Inc. as part of any deal to settle the government’s challenge to their merger plan, people familiar with the matter said.
The people said talks are under way between the two sides three weeks before a trial of the antitrust challenge is set to open in Washington…
A person familiar with the Justice Department’s thinking said department lawyers insist that any settlement should include divestitures at key airports throughout the U.S. The department believes that the two airlines would need to divest assets at those airports to ensure that their merger wouldn’t limit consumer choices on nonstop and connecting flights or harm consumers by raising fares, this person said.
Shares of AMR Corp. have jumped 23% to $9.70 at 12:11 p.m., while US Airways has gained 4% to $23.35. They’re not the only one’s gaining today, as Delta Air Lines (DAL) has risen 3.8% to $27.65, Spirit Airlines (SAVE) has advanced 3% to $44.16 and United Continental (UAL) is up 2.3% at $36.37.
Morgan Stanley’s John Godyn and team see the good times continuing for airline stocks. They write:
It continues to be abundantly clear that we’re in an airline bull market supported by two key pillars: (1) an airline macro goldilocks scenario based on the view that fuel prices are likely to trend flat to down while US GDP is upwardly biased favoring domestically levered companies, and (2) belief in the power of industry discipline, long a pillar of our Stronger For Longer thesis on the cycle. With commentary suggesting these pillars will remain intact for the foreseeable future, we reiterate our Attractive Industry View…
Amplifying this upside is what we believe is a strong case for multiple expansion. Margin stability and healthier balance sheets have materially altered tail-risk across airlines and this has yet to be priced in. Simply put, as airline fundamentals converge toward higher valued peers, so should their multiples.
Godyn says United, Delta and Spirit are “poised to move significantly higher” through the end of 2014.
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