Is United Airlines looking for a suitor?

Is United Airlines looking for a suitor?
Posted Nov 23rd 2007 12:45PM by Michael Fowlkes
Filed under: Deals, Rumors, Management, Competitive strategy, UAL Corp (UAUA), Delta Air Lines (DAL)

Earlier this month, rumors hit the market that United Airlines (NYSE: UAUA) and Delta Air Lines (NYSE: DAL) were considering a possible merger. Shortly afterward, Delta officially denied the rumors, but not surprisingly, United Airlines CEO Glen Tilton did not deny that they were considering merger options, as many industry analysts believe that United is the perfect company for a possible merger.

The airline, which took flight in 1930, filed for bankruptcy following the 2001 terrorist attacks and has appeared to be preparing for a sale ever since emerging from its bankruptcy proceedings. United came out of bankruptcy last year, but the company is still up to its eyeballs in debt, and boasts a miserable 2% profit margin over the past year.

When looking at United a couple of factors jump out at you pointing to the notion that the company feels a merger is the best avenue to explore:

Unlike most of the other large airline companies, United has decided not to add to its fleet. Currently the company has 460 jets in its fleet and it plans to rely on this existing fleet until 2015 or 2016. By this time, the company's planes will have an average age of twenty years. According to the company's official statement, it is just waiting for the next generation of planes, but to industry insiders this is a red flag that the company is trying to make sure it remains as favorable as possible to a takeover, and a long list of plane orders will not help that goal. The company has been looking at ways to get as much debt as it possibly can off the table. It is considering the possibility of selling off its frequent flyer program, worth about $7.5 billion. Consider that United currently has a market cap of slightly under $5 billion. It is also considering the sale of its partial ownership in its maintenance operations along with a possible sale of its cargo business to private-equity investors, bringing in billions in cash and, once again, making the company more favorable to a possible buyer.
Industry insiders have estimated that after the possible spin-offs, the company's stock value could balloon up towards $80 a share. That would be right at a 100% jump from its current selling price of $40.15 a share.

What are your thoughts? Should United look for a favorable suitor?