JPMorgan downgrades US Airways, United Airlines

DALLAS (AP) -- An analyst for JPMorgan Chase says a merger between American Airlines and US Airways "may be imminent," and he downgraded US Airways' shares because a deal might not add much bounce to the recent surge in its stock price.

"We expect (a merger) to happen," said the analyst, Jamie Baker, in a note to clients Tuesday. "The problem is so does everybody else."

The analyst also downgraded United Continental Holdings Inc.

Expectation of a merger has helped propel US Airways shares from less than $6 a year ago to a closing price of $14.67 on Monday, a gain of 149 percent, nearly triple the percentage gains for United, Delta, Southwest or JetBlue stock. That surge has made US Airways' shares less of a bargain, or as Baker put it, "suggests limited potential upside from here" even with a merger.

Baker lowered US Airways Group Inc. shares to "neutral" from "outperform."

American and parent AMR Corp. are operating under bankruptcy protection. AMR has been negotiating over a potential merger for several months, and CEO Thomas Horton said this month that a decision on whether to merge or remain independent was just weeks away.

Among the issues still to be settled are who would run the combined company and how much stock would be owned by AMR's creditors and how much would go to US Airways shareholders. Baker said that he expects US Airways shareholders to get between 23 percent and 27 percent of the merged company.

Baker also downgraded United to "neutral" from "outperform," noting that the shares are nearing his target price of $30 — they closed Monday at $25.99. He trimmed his estimate of United's 2013 earnings by 4 percent but added, "We expect big things from United this year, including industry-topping margin improvement."

United, the world's biggest airline since combining with Continental in 2010, struggled with technology issues and on-time performance in 2012.

In morning trading Tuesday, US Airways shares were down 38 cents, or 2.6 percent, to $14.30. United shares fell 23 cents to $25.75.

Shares of AMR, which were taken off the New York Stock Exchange but still trade over the counter, rose 3 cents, or 2.1 percent, to $1.47. AMR's bankruptcy lawyer said last week that the shares might have some value when the company exits bankruptcy.