American Airlines and US Airways are ready for take off

Its seems as though the merger between US airways and American Airlines will result in the largest operator of airlines in the world after the US supreme court ruled that the merger is legal and rejected the appeal by a consumer group which had the case the merger will grant more power to the new company in an industry where the only other competitors are United Continental and Delta Air lines (DAL). After the merger, the new company will be keep name American Airlines and will be traded on NASDAQ under the ticker AAL and will begin trading on December 9. The company will be part of the American Airlines Group and the head quarter will be in Dallas-Fort Worth, Texas.

According to Barron’s which recently released a list of stocks to own in 2014, US Airways was one of the top 10 stocks to own based on 2014 earnings and profits expectations. The list also includes other companies, the list is considered highly reliable as last year the companies on the list grew at 35% combined rate which is 9% higher than the returns by S&P 500. The stock of the American Airline holding company AMR Corp has increased since the news of the merger surfaced. Both AMR and US Airways stock prices have increased as a result of the merger news, AMR Corp stock grew 1300% Year to date while US Airways stock climbed 67% year to date. These stocks have also beaten the industry averages over the same period. The average P/E of the industry was 10.2x while these stocks have a current P/E of 6.8x and the 52 week price range is $12.6 to $25.49 and a 2014 forward multiple of 6.36x. The major competitors for the newly merged company will be Delta Air lines (DAL). Dal stock market prices has grown 8.1% over the past year.

The current month has been tough for US Airways which is currently trading at 37.3% discount. The company only grew 3% over the previous month while its competitors like Delta Air lines (DAL), Southwest Airlines (LUV), and United Continental (UAL) stock prices went up by an average of 4%. Delta Airline which is one of the weaker competitors in the industry has also fared better as dal stock market prices has also grown 4% over the previous month. Currently dal stock market prices is $31.25. As far as distribution of shares is concerned, 72% of the fully diluted common shares will be received by AMR shareholders, while the rest of the 28% shares will be retained by US Airways shareholders. The value of AMR shares will be determined by a 20 day trading closing price average of $23.48 per share. The merger is definitely good news for both companies and the shareholders as American Airlines and US Airways expect the equity of the new company to be around $11 billion. The operational efficiency of both companies combined will generate $1 billion cost efficiencies because of combined synergies. As far as revenues are concerned, the group expectation for revenue is $40 billion in 2014 which is based on 2013 revenue projections combined for both companies.

US Airways is expected to close the year on sales of $14.6 billion. The company revenue grew 6% in 2012 YoY when revenues were $13.8 billion. As far as customers are concerned, the passengers will still have to make bookings and reservations with US Airways and American Airlines names as there has been no confirmation on when the two airlines will combine their ticketing and reservation systems.