Multi-billion dollar airline merger up in the air
The impact of US Airways acquiring Delta Air Lines for $8 billion would make the combined company the largest airline in the United States, rivaling American Airlines, and it would create the largest trans-Atlantic carrier.
The result would also be to create the largest carrier in the American west, and the No. 2 airline serving the Caribbean, according to news reports.
Delta’s executives, however, were described in news reports as “cool” to the proposal.
For consumers, the most likely impact would be higher prices because of less competition, airline analysts said.
The proposed “New Delta” would have about $28.5 billion a year in revenues.
Delta is currently under bankruptcy-court protection.
US Airways said the merger would save at least $1.65 billion in operating costs each year by combining facilities at some airports, eliminating overlapping flights and cutting capacity by about 10 percent.
W. Douglas Parker, the airline’s chief executive, said in a conference call with analysts and reporters that the figure could be even greater.
“This is not value that either of our companies could create independently,” he said. “This only happens when the companies get together, and that’s why this is so important.”
“The combined company will be a more effective and profitable competitor in the current fragmented marketplace,” Mr Parker said in a press release.
Mr. Parker had previously contacted his counterpart at Delta, Gerald Grinstein, as long ago as the spring of this year to suggest a merger. But Mr Grinstein resisted the idea, saying that Delta preferred to reorganize and emerge from bankruptcy on its own, according to news reports.
The widespread expectation in the industry had been that Delta would find a merger partner after emerging from bankruptcy, not before. It was also believed that the airlines it has relationships with at this time would be the most likely partners. Those are Northwest and Continental.
In September 2005, US Airways emerged from its latest stay in Chapter 11 bankruptcy protection, and simultaneously merged with America West. Shares of the combined company have risen sharply since then.
The Us proposal led to a soaring rise in general in airline stocks.
US Airways also said its offer would yield more value for Delta’s unsecured creditors than Delta could deliver by reorganizing on its own.
Last year, Delta flew approximately 78 million passengers in the United States, according to the Air Transport Association, slightly fewer than American. US Airways flew about 37 million passengers.
Both airlines have struggled with labor unions and coping with low-price competitors such as JetBlue and Southwest.
Mr Parker predicted the proposed combination would be acceptable under antitrust laws. “There are no antitrust issues that can’t be resolved,” he said.
Report by David Wilkening
David
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