Keep Delta My Delta !!!

The Atlanta Journal-Constitution 20DEC 

US Airways boss decries ‘irrational‘ merger fears 

US Airways CEO Doug Parker says the airline won’t be deterred by “irrational or emotional arguments” in pursuit of a merger with Delta Air Lines, as the rhetoric between the two management teams grows more heated. 

Parker’s comment came in a letter to US Airways workers after Delta on Tuesday filed a standalone reorganization plan aimed at launching the Atlanta carrier out of Chapter 11 next year.   

DELTA’S PLAN 

• Values company at $9.4 billion to $12 billion 

• Sees Chapter 11 exit in mid-2007 

• Creditors get newly issued stock for their claims, but no upfront cash at this point 

• Current stock wiped out 

• Exit financing to be negotiated 

• Forecasts profits with existing strategy 

• Delta remains Atlanta-based 

US AIRWAYS’ PROPOSAL 

• Values company at about $8.4 billion 

• Creditors get $4.4 billion worth of stock in merged company, plus $4 billlion in cash 

• US Airways and Delta will integrate operations, generating $1.65 billion in savings or revenue via ’synergies’ 

• Merged airline called Delta, but US Airways’ top management in charge 

WHAT’S NEXT 

Delta’s fate is largely in the hands of its creditors, who will decide whether they like its standalone plan better than US Airways’ merger proposal. US Airways could also sweeten its bid. 

Check out Delta’s official reorganization plan at deltadocket.com . 

Delta executives also bluntly ridiculed US Airways’ $8.5 billion buyout proposal in a series of interviews and appearances that coincided with the plan’s filing in bankruptcy court. They said the hostile bid offers less payback to creditors, that a merger would never survive antitrust review , who estimated the Atlanta-based carrier is worth about $5.5 billion. “The US Airways deand that it would be unworkable even if it did. 

“There’s nothing they can do to make a non-starter start,” CEO Gerald Grinstein told a crowd of workers at an anti-merger petition-signing at the Atlanta airport, timed to coincide with the filing. During a call with analysts, Grinstein termed US Airways “the worst of all potential merger partners.” 

On Wednesday, Delta ran a full-page ad in the Atlanta Journal-Constitution, thanking Atlanta and Georgia supporters for “locking arms” with the company in opposition to the merger, which most believe would result in Delta’s headquarters moving to Arizona. 

Ball in creditors’ court 

Now the ball is in the court of Delta’s creditors. They must approve Delta’s reorganization plan for the airline to get out of bankruptcy, and they could still pressure the airline to consider the merger. US Airways could boost its odds by sweetening its bid, some suggested, and other big carriers could jump into the bidding game. 

The Wall Street Journal reported Wednesday that people close to US Airways say no immediate sweetener is planned. 

Delta’s reorganization plan values the company at $9.4 billion to $12 billion, promises creditors recovery on up to 80 percent of their claims through newly issued stock and contends Delta will make robust profits in coming years. 

But Parker shot back in a statement that his company’s proposal puts a higher value on the company once projected savings are taken into account and is better for creditors, who would get $4 billion in upfront cash and $4.5 billion in stock. Delta’s plan has no upfront cash component at this point. 

“Combining US Airways and Delta will create at least $1.65 billion in annual synergies beyond the value that could be created by any standalone plan,” Parker said in a statement. “Factoring the synergy benefits into our offer, the current value of our proposal is significantly greater than the value of Delta’s standalone plan.” 

Parker said US Airways remains “a disciplined and determined bidder for Delta.” 

Darryl Laddin, a bankruptcy attorney with Arnall Golden Gregory in Atlanta, predicted further maneuvering to win over the creditors — by both sides. 

“It puts a premium on the next 30 days of so,” said Laddin, adding that Delta eventually may also have to offer at least some cash. In bankruptcy, “cash is king,” he said. 

The airline’s creditors are represented in the case by a committee composed of big suppliers, financial institutions and Delta’s pilots union. The committee has heard presentations from US Airways but hasn’t indicated a position, although pilot union leaders are vocally opposed. 

“I certainly expect the creditors to support this. I think we need to give them time to analyze this,” Delta’s top finance executive, Ed Bastian, said in an interview. Delta executives said they expect creditors to vote on their plan in February or March, but that assumes they don’t push the airline in a different direction before then. 

‘Hot and heavy merger action’ 

US Airways’ shares rose $1.70 Tuesday to $57.50, boosting its offer’s market value to $8.5 billion. However, its shares have fallen back markedly from a surge right after the merger proposal was announced Nov. 15. 

JP Morgan analyst Jamie Baker, in a research note, said he thinks Delta’s independence is “slightly more likely” in light of its reorganization plan and the strong anti-merger campaign it’s waging. 

But he thinks airline consolidation is still likely to occur, even if Delta finds a different dance partner. 

“We still believe Delta would look more favorably upon an other merger partner with a better long-term (route system) fit,” he said. 

“We expect more hot and heavy merger action in 2007,” he wrote, suggesting American may look at Northwest Airlines, while United might make a bid for Continental or try to outbid US Airways for Delta. 

Other experts, however, think such speculation is overblown and that deals among the biggest airlines are unlikely to fly — even if Wall Street likes them — because of daunting antitrust issues and consumer and political opposition. The last such merger considered by the U.S. Justice Department, a 2000 pairing of United and US Airways, was effectively scuttled by the DOJ. 

For now, though, the focus is on Delta’s creditors as they consider whether to back the airline’s standalone plan or force it to enter merger talks with US Airways. Laddin said they will want to know certain details that Delta’s filing doesn’t disclose, such as valuation calculations and planned compensation levels for the airline’s future management team. 

Delta’s executives say they are already 85 percent finished with the recovery plan launched when the airline entered Chapter 11 about 15 months ago, following a 5-year financial crisis. They say it will produce an independent Delta that will be one of the most profitable and valuable airlines in the industry. 

Vaughn Cordle, chief analyst at Airline Forecasts, said Delta overstated the economic benefits of remaining a standalone company and minimized the synergies of a US Airways merger. 

“Delta’s valuation doesn’t pass the economic test,” said Cordleal creates much more value.” 

Delta’s profit projections are “quite high by airline standards,” said Standard & Poor’s analyst Philip Baggaley. 

But Delta’s plan looks “impressive,” said Calyon Securities analyst Ray Neidl in a report, boosting his earnings forecast to match Delta’s projection of a $456 million profit in 2007. Wall Street has forecast a far lower figure. 

US Airways’ proposal calls for Delta’s creditors to have 45 percent ownership. The merged airline — the world’s biggest — would keep the Delta name but be run by Parker. 

But Delta said the merger proposal is “structurally flawed and cannot be executed as claimed due to overwhelming antitrust and labor issues” — which would make the $4 billion cash offer illusory, executives added. 

US Airways still digesting deal 

The current US Airways was formed by the 2005 acquisition of that carrier by Parker-led America West Airlines, which adopted the larger carrier’s name and moved its headquarters to Tempe, Ariz. Delta said US Airways is still tied up in integration issues from that merger and could not manage another with a much larger Delta. 

Integration snarls would likely wipe out US Airway’s projected savings, Delta executives said, and Delta’s pilot union contract would likely block post-merger capacity cuts. 

Delta also said the deal would burden the company with $23 billion in debt — a “precariously” heavy debt load. Delta’s plan calls for debt levels of about $7.5 billion, although assets and revenue also would be smaller. 

Despite his praise for the financial aspects of US Airways’ proposal, Cordle said the steadfast opposition among Delta labor groups, managers and political backers is likely to stop the deal from happening. 

“The creditors are going to want to take the bird in hand,” he said. “I think US Airways has about a one-in-five chance of completing the deal over that much opposition.” 

“They’ll take what’s behind Grinstein’s Door No. 1,” agreed veteran industry consultant Mike Boyd. “They know it doesn’t involve the Justice Department, congressional hearings, labor unions or disparate aircraft fleets and IT systems.” 

Delta held a major rally last week that drew 3,000 people, and on Tuesday, Grinstein and Bastian briefed members of the Georgia House and Senate transportation and economic development committees at the state Capitol. Many Georgia officials fear Delta’s Atlanta headquarters would be shuttered after a merger. 

Grinstein didn’t ask for specific help but told lawmakers their voices are important. Committee members said they will sign an anti-merger petition to the U.S. Department of Justice, which would conduct an antitrust review. 

At the airport event, pilot union Chairman Lee Moak said workers are “just getting started” in their efforts to fight the takeover. 

“I think Doug Parker [the US Airways chief] thought the employees of Delta would silently go along,” he said. “He underestimated us.”Grinstein told workers that he is gratified by their unity and spirit. But he added, “This is not likely to be the end of the battle.” 

Staff writer Carlos Campos contributed to this article