Should This Airline Launch a Share Buyback?

There’s precedent

Although airlines do not have a history of shareholder-friendliness, some of them are buying back shares today. Alaska Air Group, Inc. (NYSE:ALK), parent company of Alaska Airlines, is about a quarter of the way through a $250 million stock buyback, planned to finish by the end of 2014. Even legacy carrier Delta Air Lines has announced its own $500 million stock buyback to be run over the next few years.

Both Alaska Air Group and Delta Air Lines are financially stable enough and have sufficient earnings power to pay a dividend in addition to their respective buybacks. I think debt levels at both airlines are under control, and combined with strong earnings, Delta and Alaska Air’s buybacks should be beneficial to shareholders. And looking at US Airways’ cash position and earnings expectations, the airline appears to fit the requirements for financial stability.

A good value

Compared to most other airlines, US Airways is highly undervalued, but also has the financial power to repurchase shares at these low rates. If the airline were to launch a buyback, I would view it as highly accretive to shareholders. Whether US Airways ever does it still entirely uncertain-especially since the airline is diverting as many resources as possible to completing its merger with AMR. Nonetheless, examining US Airways shares in this light shows that the airline has another major option for building shareholder value, whether or not the merger succeeds.

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Alexander MacLennan owns shares of Air Canada, AMR, Delta Air Lines, and Gol Linhas. He is also long the following options: $22 January 2015 Delta calls, $25 January 2015 Delta calls, $30 January 2015 Delta calls, $17 January 2015 US Airways calls. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. 

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