Does Slot Deal Impact US Airways Merger Hopes?

If US Airways(LCC) is stronger today than it was yesterday because of progress on a proposed slot swap with Delta(DAL), then perhaps it is a stronger merger candidate as well.

The slot swap, first proposed more than two years ago, seemed to move a step closer on Tuesday, as it won approval from the U.S. Transportation Department. However, another snag quickly surfaced as the U.S. Justice Department said late Tuesday that it plans to investigate anti-trust implications of the agreement at Washington's Reagan National Airport.

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The deal helps both carriers in key markets. Delta gains in New York, the world's largest aviation market, which has four dominant U.S. carriers: American(AMR), United Continental(UAL) and JetBlue(JBLU). US Airways, meanwhile, strengthens its hold on National, perhaps the best Northeast airport because of its easy access to a major city, and long a profit center for the airline.In the deal, US Airways would get 42 daily takeoff and landing slots at National, while Delta would get 132 slots at LaGuardia, and US Airways would get $66 million. The carriers must turn over 16 slots at LaGuardia and eight at National to smaller rivals. Still, the Justice Department said it's concerned about anti-trust issues at National, but not at LaGuardia.In terms of a potential merger between American and US Airways, which has been the subject of speculation, the slot deal has pluses and minuses, experts say.The deal "would reduce US Airways losses at LaGuardia and (provide) some cash, (so) directionally it's a positive for US Airways value, but it's still a work in progress," said aviation consultant Robert Mann."The big winner is Delta, who has now essentially won the battle for New York," Mann said. In the New York region, United has about 25% of the market; Delta has about 19%, and American and JetBlue each have about 13.5%, according to 2010 statistics compiled by the Port Authority of New York.Aviation consultant Sandy Rederer said that American "might prefer a LaGuardia buildup, which will no longer be an option after the slot swap, but the strong National presence certainly will be valuable, and US Airways had no way to make LaGuardia profitable."

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A merger between US Airways and American "would make strategic sense (but) it can't happen without an American bankruptcy," Rederer said. "The labor costs are simply unbearable and integrating the two carriers would cost money that couldn't be raised before reorganization."

Bankruptcy chatter overwhelmed American shareslast week, but most experts have subsequently dismissed the concept, at least for the near term.

In terms of the assets brought to such a merger, Rederer added, American's hubs in Miami and Dallas and US Airways' dominance at National are "terrific" assets, while the hubs in Chicago and Charlotte are "decent." As for global alliances, he said, "US Airways has no place in Star Alliance and probably should move to Oneworld even without an American merger."In early afternoon trading, US Airways shares were up about 8%, leading the airline sector. Its shares were up 49 cents to $6.33. Meanwhile, Delta shares were up 23 cents to $8.44. American shares were up 12 cents to $2.84. >To follow the writer on Twitter, go to http://twitter.com/tedreednc.>To submit a news tip, send an email to: tips@thestreet.com.

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