According to an analyst update from Dahlman Rose & Co., American Airlines and US Airways are expected to announce a merger this week.
The ownership of the combined company, which would generate $38 billion in revenues, is to include a 72 percent stake for creditors of American’s parent company. US Airways shareholders would take the remaining 28 percent.
The combined company would be valued at $8.5 billion, which a number analysts see as too high.
“We believe the valuation could be aggressive given the combined company would lack a presence in Asia, the fastest-growing aviation market in the world, and a market where United is a dominant name,” the analysts wrote.
The new airline would be entering an aviation world recently crippled by oil prices, and analysts don’t believe prices will be getting better anytime soon. The price of Brent crude has risen from $105 per barrel in the middle of December to nearly $119 per barrel in recent weeks. This could signal trouble for the airline industry; the analysts write that a spike in crude is a major concern for airlines in 2013.
“We have long stated the airlines operate best in a market where crude prices are stable to slightly rising,” the Dahlman Rose analysts wrote. “Higher crude prices force the airlines to maintain capacity discipline and enables the airlines to gradually raise fares.” - Jon Ross