US Airways Investors Live in A Fantasy World

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By Jerry Knight
Monday, May 30, 2005

Attention investors: The captain has turned on the seat-belt light. Please prepare for landing.

Please be sure that your seat belts are fastened, your wallets are closed and your investment portfolios are in the full uptight position. And please refrain from buying any airline stocks until we are parked at the gate and the analysts have turned off the warning lights.

Now that the merger of US Airways Group Inc. of Arlington and America West Holdings Corp. of Tempe, Ariz., is preparing for landing, some investors are showing the same impatience that many passengers exhibit at the end of a flight.

America West's stock price has jumped 30 percent since word of the pending deal leaked out, but the two carriers have yet to convince Wall Street analysts that combining airlines would create a winner in the ruthlessly competitive industry.

Seven of the eight analysts who follow America West stock (AWA on the New York Stock Exchange) rate the shares "neutral." The eighth calls it a "sell."

Whether Wall Street believes the merger will work isn't what's important, America West's chairman and chief executive, W. Douglas Parker, told analysts recently. "The people that have invested believe it, or they wouldn't be investing."

Obviously, the analysts' reservations haven't kept a lot of investors from buying America West stock. Maybe the buyers think they're smarter than the professionals who study the airline industry. Maybe they're willing to take risks that analysts would avoid. Maybe they're right. Or maybe they just don't know what they are doing.

That is almost certainly true of investors who have been buying US Airways stock, which will become worthless the day the merger with America West is consummated.

Let me repeat that: US Airways stock is going to be worthless.

The company has said it again and again. "The transaction anticipates that the existing shares of U.S. Airways will be canceled," the airline said in announcing the merger plan.

The analysts all say it.

Everybody who understands the way bankruptcy works knows it.


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© 2005 The Washington Post Company

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