Warren Buffett has an antipathy toward airlines. He has said that "the net wealth creation in airlines since Orville Wright has been next to zero" and called his own investment in US Airways in the early 1990s one of his biggest mistakes.

David Tepper, the master of distressed investing who made billions during the financial crisis, typically enters a scenario when there is a bankruptcy involved and an opportunity to gain after others have lost. This was the case with his two big airline purchases of the first quarter: US Airways Group (LCC) and Delta Airlines (DAL). His uncanny timing led to an average gain of 82% on them to date this year.

The bigger winner was US Airways, which has gained 135.1% year to date as it has pushed to new 52-week highs. Tepper added 7,419,026 shares of the airline in the first quarter at an average of $7.40. He already held 3,238,217 shares, making a total holding of 10,657,243.

The stock's rally began in late January when the company reported its fourth-quarter results and announced that it had hired M&A advisers to possibly take over AMR, the bankrupt holding company of American Airlines.

In the fourth quarter US Airways made a fourth-quarter net profit of $21 million, compared to a fourth-quarter 2010 net profit of $28 million, mainly due to a 38% increase in consolidated fuel prices and partially offset by an approximately 10% revenue increase.

The company announced on its fourth-quarter conference call that it had been investigating a takeover of AMR for the three previous months. The first step they had accomplished was winning over three unions that represent 50,000 AMR employees to issue a joint statement in favor of a merger.

On the conference call, US Airways President Scott Kirby said that a merger of US Airways and American Airlines would "create enormous revenue synergies." Together, he said, the two companies could generate more revenue than they did individually, and save on costs without reducing facility space or management headcount by combining IT systems.

There is no guarantee the deal will go through, and US Airways has a history of at least two abortive merger attempts in its past. It made an $8 billion offer for much-larger Delta when it went bankrupt in 2006, but the deal never went through. There was another failed merger attempt with United Airlines in 2008, which went on to merge with Continental in 2010. However, Tepper is a bankruptcy specialist and has made a fortune with correct calls in similar situations.

Delta Airlines' rally also began at the start of 2012, and it has advanced 27% year to date. It started off the year announcing GAAP fourth-quarter 2011 net income of $425 million, compared to $19 million in fourth-quarter 2010. Its net income for 2011 was $1.2 billion, excluding special items, as it offset $3 billion higher fuel expenses with higher revenues and its fuel-hedging program.

On a longer-term basis, the company's top line has been improving each year since 2007. It has been generating more than $1 billion in free cash flow for the past two years and positive free cash flow in all except one year since 2007.

Reportedly, Delta also had interest in acquiring American Airlines parent AMR Corp. in January, but that has not been confirmed.

Tepper had sold out of his stake in Delta in the fourth quarter of 2011 but had renewed interested soon thereafter. He re-established a position with 6,740,189 shares in the first quarter of 2012 at an average price of $9.80 per share.

In the second quarter, Delta Airlines also took an innovative step in attempting to hedge fuel costs by purchasing its own refinery. It bought a refinery near Pennsylvania from ConocoPhillips in April for $150 million, which could save the company $300 million a year on fuel expenses.

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