May 05, 2007

US Airways investor cashes out

Second-largest shareholder doesn't like airlines' prospects

The Boston hedge fund that poured the most cash into the America West-US Airways merger, and then invested more as the new US Airways showed early financial success last year, has largely cashed in its chips.

The large stock sale Tuesday by PAR Investment Partners, US Airways' second-largest shareholder, underscores the airline industry's dimmed prospects.

PAR sold 6.75 million of its remaining 7 million shares on Tuesday at a price way off its highs and in some cases at or below its purchase price.

PAR partner Ed Shapiro, who also sits on US Airways' board of directors, said the fund decided to sell because many of the factors that made the industry attractive a couple of years ago - and produced hearty profits at US Airways and other airlines last year - have evaporated in the past few months.

Airlines are no longer shrinking and in some cases are growing again, creating more price competition.

A slowing economy has hurt ticket demand. Labor costs, which were slashed in airlines' bankruptcy cases, are poised to rise again.

Talk of other mergers, which reduce the supply of seats, has slowed to a murmur.

Oil prices were high then but are even higher now, and there's no "safety valve," like higher ticket prices, to offset them, Shapiro said.

"That leaves us with not a very optimistic outlook," he said.

The negative tone was in stark contrast to the firm's generally positive comments as recently as February. That's when it sold 6.5 million shares at nearly $58 a piece. It said it was selling to diversify its portfolio and took pains to note that US Airways would still be its largest investment.

But the carrier's, as well as the industry's outlook has dampened since then, sending airline stock prices plunging. The share price of Tuesday's big sale, to UBS Securities, will not be disclosed until today, but the shares closed Tuesday at $37.06.

The sale price in such a large transaction is general- ly less than the market price.

Shapiro's nature is to be a contrarian, which would generally lead him to buy a stock like US Airways when it's so far off its highs, but he said that strategy doesn't pencil out in this industry environment.

"I think the market's right" about the industry's challenges, he said. "The thought was, 'Let's move on, let's find other ideas.' "

Shapiro will remain on US Airways' board of direc- tors.

US Airways released a statement Wednesday saying that it was "pleased to see (PAR) realize a return on their investment."

While the statement did not specifically address the industry factors that led Shapiro and his partners to sell, airline officials said as recently as last week that the increasingly competitive environment and escalating fuel prices did present challenges going forward.

And even though US Airways' stock has been crushed this year, PAR still made a small fortune on its investment.

It bought nearly 11 million of its shares at $15 apiece and an additional 2.75 million shares at just under $40. It sold nearly half in the $58-per-share deal and the rest at Tuesday's prices.

"That's a very good return," Shapiro said.

Reach the reporter at d.

By: Dawn Gilbertson. Contact: or (602) 444- 8617

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