Private investment funds have pumped hundreds of millions of dollars into the revitalization of US Airways (search), which just put its second bankruptcy behind it and closed its merger with America West Airlines.

Now that the company is again listed on the New York Stock Exchange (search), should regular investors follow suit?

Wall Street has yet to clear US Airways stock for takeoff.

With America West's top executive at the helm in Tempe, Ariz., the combined company is seeking to forge money-losing US Airways and profitable America West into the fifth biggest domestic airline.

The goal is a lofty one: Create a massive low-cost airline known as US Airways that can offer flights to Europe or Hawaii and still turn a profit even if jet fuel stays pricy and cutthroat competition keeps fares low.

A week ago, "LCC" (LCC) started trading on the New York Stock Exchange, replacing the pink-sheets listed US Airways stock and America West's NYSE-traded shares.

Though the ticker represents a unified company, operationally there are years of work that lie ahead. From repainting all its planes in the new company livery to integrating unionized work groups among the approximately 38,000 employees with different levels of seniority to setting up one Web site, the scope of the tasks is daunting.

So far, so good. Since its Sept. 27 debut, the stock is up about 15%. On Tuesday, it added 66 cents, or 3%, to end at $22.16.

Stuck in neutral

Despite US Airways' sweeping cost cuts covering everything from debt to aircraft after two stints in bankruptcy and the merger's promised efficiencies, the combined company is going to have to prove itself on both the cost and revenue sides of its business.

According to Prudential Equity Group, which has a $15 price target and a neutral rating on US Airways shares, the stock is already overvalued.

Prudential's Bob McAdoo expects the company to lose $220 million during the fourth quarter, a figure that includes reorganization expenses.

"We believe the excitement of the merger and recent offerings has driven the valuations to a level that is inconsistent and overpriced versus some of the other larger airlines," wrote McAdoo. He points out that the US Airways market cap is twice that of Continental Airlines (CAL) .

As it was before bankruptcy, Southwest Airlines (LUV) , the perennially profitable low-cost operator, is a major competitor in hub markets for US Airways.

"Thus, LCC's revenue stream is driven by the economics of [Southwest] and not by the economics of other legacy airlines," McAdoo said.

US Airways has boldly predicted the combined company's revenue will reach $10 billion a year, using a slimmed down fleet of just 361 aircraft in its mainline operations, down from the 419 kept in the air by both companies at the start of the year.

Even if the airline has to grapple with Southwest, Goldman Sachs' Glenn Engel notes that Delta Air Lines' capacity cutbacks will help US Airways. Engel now has an in-line rating and a neutral coverage view on the stock and narrowed his loss estimate for 2006 to $2 a share, from $7.80, and forecasts a 50-cent profit in 2007, instead of a $5.50 a share loss.

Bear Stearns' airline analyst David Strine agreed that Delta's contraction will help. He has put a $25 price target on US Airways stock and rates it outperform.

"While costs and the balance sheet are not stellar (industry mid-point), the carrier is in a unique position to benefit from capacity cutbacks and more aggressive pricing in '06," Strine wrote.

When it comes to revenue, Strine said he expects the airline to tweak its fares for more profit while benefiting from rivals like Southwest, who may need to raise ticket prices to cover soaring fuel costs.

"In other words, it is not so much what US Airways is doing that makes the stock compelling, it is what others are doing," he wrote.

Calyon Securities' Ray Neidl, who rates US Airways shares neutral, said that persistently high fuel prices could eat up the company's cash pile.

"Revenue assumptions seem reasonable; however, if fuel stays above $65 a barrel, with $1 of fuel equating to an extra $40 million in expenses annually, cash levels would fall to $600 million by the end of 2007 without ticket price increases, the raising of additional cash, or cost cuts in other areas," Neidl wrote.

Trying times

Airline investors have suffered through one of the roughest patches in the stock market over the past few years, with bankruptcies carving billions of dollars from the sector's market capitalization.

And while this summer shaped up as a banner season, with record numbers of passengers taking to the skies, a steep spike in energy prices spoiled the comeback.

Record high jet fuel prices after Hurricane Katrina helped tip not just Delta Air Lines into bankruptcy, but Northwest Airlines (NWACQ) too. UAL Corp. (UALAQ) won't clear Chapter 11 protection until next year.

The Air Transport Association (search) estimates that the industry will spend more than $30 billion this year for about 452 million barrels of fuel.

"Perhaps it goes without saying these days, but we must note that the high fixed cost, commodity equivalent nature of the airline business makes investing in the equities extremely risky," wrote Bear Stearns' Strine. "Over the long term, the industry destroys shareholder value."