US Airways makes $8 billion bid for Delta

As for other possible offers, a spokesman for AMR Corp.’s American Airlines said the company was studying the US Airways proposal but had no further comment. Said Jake Brace, chief financial officer of United’s parent, “We think consolidation is good for the industry. If it makes sense for us to participate in it, we will.” Northwest spokesman Kurt Ebenhoch declined to comment on the proposed deal. Southwest declined to say whether it would enter the bidding for Delta.

$28 billion in annual revenue
The combination of US Airways and Delta would create a company with about $28 billion in annual revenue, leapfrogging the airline past the current No. 1 U.S. carrier, American. The projection is based on revenue figures through the first nine months of 2006. It’s unclear how any divestitures would affect combined Delta-US Airways’ revenue.

Delta is currently the third-largest U.S. carrier in terms of revenue, while US Airways is the sixth.

Parker said the combined company would have about 85,000 employees. He said he would anticipate flying with 10 percent fewer planes, but “the plan is not predicated on any job cuts.”

During a conference call, some analysts were skeptical of US Airways’ confidence it can get the deal done if Delta is hostile to the bid.

They also questioned why US Airways is bidding for Delta, as opposed to another airline, like Northwest, which also is in bankruptcy.

Parker said the Delta bid makes more sense because of the savings that can be realized. He also said he is confident the deal can clear all the hurdles it needs to and “would prevail over any other bid if there were any.”

US Airways has hubs in Phoenix, Philadelphia and Charlotte, N.C. Delta’s hubs are in Atlanta, Cincinnati and Salt Lake City.

The deal makes the most sense only if it is consummated through the bankruptcy process, rather than waiting until after emergence to reach agreement, Parker said. That’s because of further cost cuts that could be gained through the bankruptcy court.

As for employees, Parker said “we happen to have similar labor costs on both sides.” He did not discuss pilot pay.

US Airways has received a commitment from Citigroup Inc. to provide $7.2 billion in new financing for the deal.

The funding would be used to refinance Delta’s debtor-in-possession credit facility, refinance US Airways’ existing senior secured facility with GE Capital, and provide funds for the $4 billion cash portion of the offer.

All other allowed secured debt and administrative claims would be assumed or paid in full. As of the end of May, Delta owed $7.49 billion to holders of secured claims, according to a court filing.

US Airways said the offer is a 25 percent premium over the current trading price of Delta’s pre-petition unsecured claims as of Tuesday, and a 40 percent premium over the average trading price for Delta unsecured claims over the last 30 days.

According to letters filed with the Securities and Exchange Commission, Parker originally had a conversation with Grinstein about a combination of the two airlines in the spring and followed up with a letter to Grinstein on Sept. 29.

In a letter to Parker dated Oct. 17, Grinstein said he and Delta’s board “believe it would not be productive to engage in the type of exploratory discussions that you proposed at the time.”

US Airways, which was created after US Airways emerged from bankruptcy and was acquired by America West last year, said the new deal is expected to generate $1.65 billion in annual savings from optimization of the airlines’ networks and combining facilities in overlap airports.

US Airways sent a letter touting the Delta buyout to its frequent flyers, claiming the deal would reduce fares and combine the two airlines’ frequent flyers programs, making it easier to redeem miles.

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