US Air Shares Hit By AMR’s Union Vote – 8.08.12

By David Benoit

http://blogs.wsj.com/deals/2012/08/09/us-airways-shares-hit-by-amrs-union-rejection/

US Airways stock is slumping this week as more trouble emerged between AMR and its unions, raising doubts for some about the status of U.S. Airways attempts to buy the bankrupt competitor.

AMR‚s pilot union rejected a contract proposal on Wednesday and today the head of the union, who had supported the contract, resigned.

Shares of U.S. Airways are down 2.9% to $10.10 today and have lost 7.3% this week including an 8% swoon on Tuesday, which analysts attributed to concerns about the looming union vote. US Airways shares have ebbed and flowed with the news on this potential deal, mostly rising when it seems likely and falling when doubts creep in.

The lack of a union contract is concerning because it leaves doubts about how the creditors of AMR will react to any plan to exit bankruptcy, analysts said. Creditors would likely be happier if AMR was getting along with its unions and had a fixed plan for what AMR‚s employment costs would be like. This could delay AMR‚s exit from bankruptcy and delay its ability to talk with US Airways about mergers.

But analysts are saying the market has overreacted and a merger with US Airways remains the most likely end to this story.

„While there is some potential loss of „time value‰ to the optionality of a potential LCC/AMR combination, it is modest,‰ Sterne Agee wrote before the vote‚s failure was final. „The failure/success of a labor contract vote only changes the likely time line by months or weeks, but is unlikely to change the final outcome.‰

UBS analysts added that, while the process may be slowed, the „vote against the contract as the vote can be seen as a vote of no confidence in AMR [management] by AMR pilots.‰

And Wolfe Trahan writes that with AMR‚s plan to emerge from bankruptcy likely facing greater scrutiny, US Airways own plan may now have a chance of being presented to the court for approval.