US air mergers hitting fevered pitch
The merger business has whipped into a frenzy of activity among US airlines. For example:
- AirTran has made a bid for Midwest.
- And there’s a potential United-Continental tie-up.
- US Airways continues to pursue a hostile takeover of Delta.
Continental executives in the past have said they did not want a merger.
The Wall Street Journal says that “people familiar with the … airline’s strategy said Continental favors the status quo because it believes it’s better-positioned than its peers in terms of its popularity with business travelers, ability to command higher fares, strong hubs in Houston and Newark and extensive routes to Europe and Latin America.”
Some news reports said a United-Continental merger would have serious obstacles because Northwest Airlines Corp. may be able to stop it under a prior agreement with Continental.
The AirTran proposal was an apparent takeover effort that comes in the wake of a failed merger bid that it made for Midwest last October.
AirTran said the combination would create a low-cost airline that would generate more than USD$60 million in estimated cost savings.
AirTran said it had offered to buy rival Midwest for a total equity value of about USD$290 million, AirTran said.
The buyout effort would create “a national low-cost carrier with a broad network, strong fleet commonality and shared corporate culture” according to AirTran.
AirTran, a discount full-service carrier operating mainly from Orlando and Atlanta hubs, said its chief executive, Joe Leonard, had originally outlined the merger proposal to Midwest on October 20. Midwest rebuffed that proposal, AirTran said.
AirTran said Mr Leonard had sent another letter to the Midwest board this week, but the $290 million offer was rejected. Talks are ongoing, however.
The union would create a national low-cost carrier with pro forma revenue of about USD $3 billion in 2007. The merged carrier would have roughly 1,036 daily departures.
All this activity comes after the recent hostile $8.67 billion takeover bid that US Airways Group Inc. made for Delta Air Lines Inc. Top executives have rebuffed the offer.
The moves are coming because most airlines are trying to streamline and economize, say industry analysts. Seven of the 10 largest U.S airlines lost money in 2005, according to Standard & Poor’s
Report by David Wilkening
David
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