The second largest U.S. airline Delta Air Lines Inc. (DAL) entered into a new slot-swap agreement with US Airways (LCC) for $66.5 million in cash.
Under the swap agreement, Delta will obtain rights of 132 slots pairs (the authority to operate one takeoff and one landing) at New York's LaGuardia Airport from US Airways. In exchange, Delta will provide US Airways the rights for 42 slot pairs at Washington's Reagan National as well as to operate additional daily services to Sao Paulo in Brazil, in 2015.
The swap deal will benefit both carriers. We believe expanded services in LaGuardia Airport will double Delta’s existing destinations, resulting in higher revenue. The deal will provide US Airways with expanded services in Washington. Further, the proposed transaction will enhance services, improve connectivity, and increase efficiency at both airports.
The new transaction is the amended form of the deal that was previously announced in 2009 that was rejected to encourage competition in the two regions.
We expect the new deal, pending approval from government and regulatory bodies, to be sanctioned soon as the competitive landscape has changed in both cities since 2009. The new entrants and smaller carriers such as AirTran Airways, JetBlue Airways (JBLU) and Southwest Airlines (LUV) have now access to both New York's LaGuardia and Washington's Reagan National airports.
Additionally, mergers between United Airlines and Continental Airlines as well as Southwest and AirTran have also strengthened competition on the East Coast, particularly in the New York and Washington regions.
Further, if necessary, the proposed transaction might result in the divestiture of up to 16 slot pairs at LaGuardia and 8 slot pairs at Reagan National to airlines with limited or no service at those airports in order to maintain the level of competition.
We are currently maintaining our long-term Neutral rating with the Zacks #3 (Hold) Rank on Delta Air Lines.
DELTA AIR LINES (DAL): Free Stock Analysis Report
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US AIRWAYS GRP (LCC): Free Stock Analysis Report
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