UAL-AAL Merger Whispers Pick Up Steam Following Reports, But Jefferies Sees Significant Regulatory Hurdles

• United Airlines’ CEO Scott Kirby floated the idea of a potential merger with American Airlines during a meeting with Donald Trump, Reuters reported on Tuesday.
• Earlier this month, U.S. Transportation Secretary Sean Duffy said in a CNBC interview that there is room for consolidation in the airline industry.
• TD Cowen said American Airlines could seek a valuation above $20 per share, but questioned whether that is realistic.

Shares of United Airlines Holdings (UAL) and American Airlines Group (AAL) drew investor attention on Tuesday following reports indicating a potential merger, with Jefferies warning the deal would face significant regulatory hurdles despite the prospect of creating the largest U.S. airline.

Jefferies analyst Sheila Kahyaoglu said a United-American merger would likely face regulatory hurdles, including forced divestitures and restrictions on pilot contracts.

At the time of writing, AAL shares were up nearly 8% while UAL stock gained around 3%.

UAL CEO Floats Merger Idea To Trump

According to a Reuters report on Tuesday, United Airlines’ CEO Scott Kirby floated the idea of a potential merger with American Airlines during a February 25 meeting with U.S. President Donald Trump. It remains unclear whether any formal process to explore a deal is underway.

Kirby, previously President at American Airlines, told administration officials that a combined airline could better compete in global markets, noting White House’s focus on reducing U.S. trade deficits.

However, a person close to the White House expressed skepticism about the idea, citing concerns over reduced competition and higher ticket prices at a time when rising consumer costs remain a key political issue ahead of the November midterm elections, the report added.

Earlier this month, U.S. Transportation Secretary Sean Duffy said in a CNBC interview that there is room for consolidation in the airline industry, adding that former President Donald Trump has historically favored large-scale deals.

TD Cowen analyst Tom Fitzgerald told Reuters that American Airlines could seek a valuation above $20 per share based on its $14 billion in unencumbered assets, but questioned whether that is realistic.

How Did Retail Traders React?

Retail sentiment on Stocktwits was ‘bullish’ for UAL and ‘neutral’ for AAL.

One user believes the U.S. government should encourage mergers.

Another user was “shocked” at AAL’s rally, given the low chances of the merger.

Year-to-date, UAL shares have declined by 13%, while AAL shares have fallen by around 21%.

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