Did James Dondero Know US Airways Would Purchase American Airlines?

Hindsight is always 20/20! When Highland Capital President James Dondero lead the charge to buy up American Airlines securities, how many supported his actions? Now, with the airline’s recovery he is “flying the profitable skies.”


“Legacy Airline Mergers”


Certain strategic assets require government assistance, like transportation. We have seen this in the Chrysler bailout and legacy US airlines. Some would argue that the American Airlines recovery was inevitable, since the government was likely to help.


In that case, betting on American Airlines was a good bet. It is kind of like how the FDIC backstops American banks. The US government would not let its top legacy airlines fail. And it didn’t.


In 2005, American Airlines was #1 in the industry in terms of market share at 20%. After United Airlines merged with Continental Airlines and Delta merged with Northwest Airlines, American Airlines was suddenly #3. When, American Airlines merged with US Airways, it became #1 again and James Dondero’s investment paid off handsomely.


“Profitable Educational Securities”


One of the stocks, which Highland Capital has been keen on is K12 (LRN) with a market cap of $880 million and 5.5 times EBITDA, which makes it rather cheap. According to James Dondero, K12 is a charter school management firm, which continues to win “mandates from municipalities.”


“Charitable Educational Programs”


Just like with K12, Jim Dondero is betting on the educational success of children. He and Highland Capital have supported purchasing computers for low income Dallas youth to help them improve their math scores. This is called the “Reasoning Mind” program. Just like with all his endeavors, Mr. Dondero is hoping to make a big impact.


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