Delta Air Lines today held firm to its goal to emerge from bankruptcy as a stand-alone carrier with the filing of its reorganization plan that rejects US Airways' unsolicited $8.4 billion takeover offer.
Countering US Airways' proposal, Delta said its version of reorganization would offer its creditors "superior value as well as a faster recovery and much greater certainty of execution." US Airways launched its bid last month, claiming the deal would be beneficial to Delta's creditors, customers and the aviation industry at large
(BTN, Dec. 4).
Delta said US Airways' proposal would not match the consolidated value of the company, which Delta financial adviser Blackstone Group estimated to be between $9.4 billion and $12 billion. Delta also claimed the proposal to be "structurally flawed," as US Airways faces antitrust hurdles, has "overwhelming labor issues" and still is integrating American West, adding that the deal is premised on "faulty economic assumptions" and would "erode" the Delta brand.
In a letter to US Airways CEO Doug Parker, Delta CEO Gerald Grinstein today highlighted these reasons for rejecting the bid, and also agreed with the assessment of many travel buyers that a Delta-US Airways merger would spark pricing and frequency problems. "Your proposal radically overestimates synergies and erroneously states there is an urgent need to complete a transaction while Delta is still in bankruptcy. At the same time, it downplays the impact on employees and the traveling public, all of whom would suffer from less service and resulting higher prices to many destinations."
Delta in its filing today with the Bankruptcy Court for the Southern District of New York said it plans to emerge from Chapter 11 in the spring of 2007. In its five-year plan, the carrier said it would return to profitability next year, setting the stage for a "profitable, long-term future," while improving margins and cutting costs. The carrier estimates net income next year to hit $500 million and exceed $1 billion by 2010.
In a research note released today, Calyon Securities airline analyst Ray Neidl said the reorganization plan "is strong and the results are achievable."
As Delta moves to stunt the takeover's progress, US Airways still must enter a merger agreement, file with the Department of Justice, submit a reorganization plan with Delta's bankruptcy court, gain approval from Delta's creditors and get the nod from US Airways shareholders.
The prospect of a Delta-US Airways merger already has prompted other carriers to explore joining forces, as evidenced by last week's reports of talks between Continental Airlines and United Airlines, as well as AirTran's rejected $290 million offer to buy Midwest Airlines
(BTNonline, Dec. 13).
Neidl today said the Delta-US Airways proposal is the lynchpin to the timing of further merger prospects and the stance of regulators. "Until there is a better read on how the regulators (DOT and DOJ) will react to the US Airways proposal for Delta, we believe that there will not be any other major deals proposed among the majors. If the US Airways deal looks like it will get a positive nod from regulators, we believe that other bids may develop for Delta, setting off a frenzy of M&A activity that would involve most of the airlines."