US Airways proposes $8bn Delta merger

US Airways Group has put forward a plan for an £8 billion merger with Delta Air Lines.

The combination of US Airways and Delta would create one of the world’s largest airlines and would operate under the Delta name, the proposal from Us Airways said.

“Customers would benefit from expanded choice as well as the reach and services of a large-scale provider within the cost structure of a low-fare carrier. 

“As a combined company, the enlarged Delta would be the number one airline across the Atlantic and the second largest airline to the Caribbean.” 

If Delta agrees to the deal, the combined carrier would serve more than 350 destinations across five continents, including North and South America, Europe, Asia and Africa. 

Delta CEO Gerald Grinstein responded to the proposed merger offer, saying: “We received a letter from US Airways this morning and will of course review it.

“Delta’s plan has always been to emerge from bankruptcy in the first half of 2007 as a strong, stand-alone carrier. Our plan is working and we are proud of the progress Delta people are making to achieve this objective.

“The Bankruptcy Court has granted Delta the exclusive right to create the plan of reorganisation until February 15, 2007. We will continue to move aggressively towards that goal.”

US Airways believes the combination would generate at least $1.65 billion in annual savings, including $935 million in “network synergies”, mainly from optimisation of the airlines’ complementary networks, including rationalization of network overlap.

This would result in a 10% reduction of the combined airlines’ capacity, reducing unprofitable flying and improving the mix of traffic. 

“In addition, $710 million in net cost synergies will be achieved by combining facilities in overlap airports and eliminating redundant systems and overhead,” a statement said.

“Significantly, the opportunity to generate more than half of these synergies could be lost if a merger is delayed until after Delta emerges from bankruptcy.”

US Airways chairman and CEO Doug Parker said: “We believe that the combination of US Airways and Delta, like the US Airways/America West merger we completed in September 2005, is extremely compelling and will create significant value for each of our stakeholders. 

“The combined company will be a more effective and profitable competitor in the current fragmented marketplace, with the ability to better meet the continuing evolution of the airline industry. 

“We will be flying under the Delta brand name, which is recognised around the world.

“Delta creditors will receive significantly greater value under this proposal than they would under any standalone plan for Delta. US Airways shareholders and Delta creditors will benefit from the significant upside potential of the combined company through their respective ownership stakes.

“Even with a 10% reduction in capacity, all existing US destinations served today by US Airways and Delta will remain part of the new, improved network. 

“Consumers will have the advantages of a larger, full-service airline with the cost structure of a low-fare carrier, and the communities we serve, as well as those Delta serves, will have access to a wider range of network options.”

Report by Phil Davies