LCC Proposes $8B merger with Delta

[PITbull]

After four gin and tonics I must pose the question to this board: "WTF? Why, Doug, on earth would you go after DAL?" What about UAL or NWA? Screw the Atlantic. The Pacific rim is where it's at. Am I alone in this sentiment?

From my perspective, I see a little man, who was a regional CEO for the past 5 years, boss of one Hub with flights circling PHX and surrounding cities... got a little taste of being in the big leagues, and now...wants to take over the world with his cohorts.

That's my view of it.

 

[aquagreen73s]

From my perspective, I see a little man, who was a regional CEO for the past 5 years, boss of one Hub with flights circling PHX and surrounding cities... got a little taste of being in the big leagues, and now...wants to take over the world with his cohorts.

That's my view of it.

Yes Pitbull...you got me. I'm a former CEO. How's life at Walmart?

aqua aka Former CEO. Six G&Ts and counting.

 

[superG]

After four gin and tonics I must pose the question to this board: "WTF? Why, Doug, on earth would you go after DAL?" What about UAL or NWA? Screw the Atlantic. The Pacific rim is where it's at. Am I alone in this sentiment?

Obviously DP doesn't care about aircraft or route compatability...merging a heavy Airbus carrier with a Boeing carrier makes no sense at all, and since both airlines have close to the same route print, what's the point of duplication. Neither carrier has an Asian presence except for DL at NRT/BOM/ICN, and again no int'l routes from the West, except to Mexico/Canada. US will gain from DL's presence in SA and Europe, but what about Asia?

 

[FCYTravis]

Listening to the Citigroup Webcast, Scott Kirby said something very interesting: the combined DL/US mainline fleet will not shrink, and could even grow slightly. It appears that the capacity reduction will come almost entirely from sending RJs to the desert.

That whooosh you heard was the value of used Canadairs falling to about the price of an aluminum pop can.

 

[deltawatch]

For ten years Delta has been pouring capacity into the mid-atlantic and NE, the heart of US Air and Old Piedmont Airlines historic region. Both company's suffered lots of red ink because of it. Deltas game plan was to run US Air out of business and it back fired. If this merger goes through look for that capacity to go away, just think what that will do to the bottom line of the combine company. This is just another way to right the industry, getting rid of over lapping service and overcapacity in the east. This way no one carrier fails as Delta had hoped.

 

[luvn737s]

Why does anyone think that the anti-trust argument has legs? Airlines price and act as an oligopoly. There is no real competition.

And Pitbull- Yes Doug was a CEO of a regional. That region consisted of the mainland US, Alaska, Hawaii, Canada, Mexico and South America.

I guess he's convinced Wall Street if he can fix the rust bucket that was USAir, he can fix just about anything.

 

[luv2fly]

May not happen at all.

Bankruptcy Court Can Be Tough
Venue for Hostile Takeovers
By MARIE BEAUDETTE and LAURA MCGANN
November 15, 2006 4:20 p.m.

US Airways Chief Executive Doug Parker faces a major handicap in his $8 billion bid to acquire unreceptive Delta Air Lines Inc.: Bankruptcy courts tend to be poor staging grounds for hostile takeovers.

Unless Delta's management can be persuaded to go along with the deal or its creditors stage a revolt in the bankruptcy court, US Airway's bid is a longshot, bankruptcy experts said Wednesday. Delta has exclusive control over its Chapter 11 case through at least early February, and bankruptcy courts seldom overrule management when things are going smoothly.

Mr. Parker "basically lobbed this Hail Mary pass up in the air to see who's going to catch it," said Fulbright & Jaworski partner William Rochelle. "To be able to have a prayer for success, he's got to be able to generate interest from creditors."

Mr. Rochelle, who represents secured creditors in airline bankruptcy cases, said Parker chose the "least offensive method" to persuade Delta to accept its proposal. Rebuffed by Delta's management, he decided to publicly court the carrier's unsecured creditors, who stand to gain a 45% stake in what would be one of the world's largest airlines.

But Mr. Parker, the America West chief who took the helm of US Airways when it merged with the Arizona-based carrier last fall, could be in for a bumpy ride as he attempts to take over a company protected by the bankruptcy court.

"If management is hostile to the US Airways proposal, US Airways may find it difficult to force its way into the room," said Reed Smith bankruptcy partner Eric Schaffer, who worked on US Airways' first Chapter 11 case. US Airways emerged from its second bankruptcy reorganization in 2005.

Ray Neidl, an airline analyst with Calyon Securities Inc., said convincing Delta's major creditors will be crucial if US Airways wants this deal to work.

"If the creditors see a better proposal, then the management would probably have to listen to them," he said.

Resisting Us Airways' Advances

For now, Delta is still resisting US Airways' advances. Chief Executive Gerald Grinstein responded Wednesday with a terse statement, making it clear that the company still plans to move forward with a stand-alone reorganization and that it intends to invoke its control over its Chapter 11 case to do so.

"The bankruptcy court has granted Delta the exclusive right to create a plan of reorganization until Feb. 15, 2007," he said. "We will continue to move aggressively toward that goal."

Delta, the nation's fourth largest airline, sought Chapter 11 protection on Sept. 14, 2005, about a month before changes to the Bankruptcy Code that sharply curbed debtor control in Chapter 11 cases took effect. Accordingly, the airline can expect to continue to drive its own reorganization process even beyond the current Feb. 15 plan filing deadline.

Companies in Chapter 11 protection are given an exclusive period of time to file a Chapter 11 reorganization plan, but can seek extensions if negotiations with creditors are moving forward. Although last year's bankruptcy law changes limit those to a maximum of 18 months, Delta could potentially enjoy unlimited extensions -- as did UAL Corp., the parent of United Airlines, which spent more than three years in bankruptcy.

Creditors can seek to end a company's exclusive control over its Chapter 11 case so they can file their own reorganization proposals. But bankruptcy experts say Delta's creditors would face an uphill battle wresting control from a team of competent executives managing a viable company.

Over the last year or so, Delta has negotiated deals to terminate its pilots' pension plan, obtained $280 million in annual wage-and-benefit concessions from its pilots, and said it's "on track" to exit Chapter 11 proceedings by the middle of 2007. The airline has also recalled 1,000 flight attendants in preparation for a major expansion of its international routes.

"Bankruptcy courts don't terminate exclusivity easily or quickly," Mr. Rochelle said. "It takes a lot of banging on the door before things happen."

In the absence of a deal with management, convincing a pivotal group of unsecured creditors -- the official committee that represents them in the airline's Chapter 11 case -- will be key.

The panel, formed early in every Chapter 11 case and usually made up of the largest unsecured creditors, has significant influence in a bankruptcy case and can be instrumental in swaying the court to second-guess a debtor company's business judgment.

The Delta committee, which includes aircraft financier Boeing Capital Corp., the federal Pension Benefit Guaranty Corp., Bank of New York Co. and the Air Line Pilots Association, hasn't yet shown its hand. Calls to committee members and the attorney who represents them weren't returned Wednesday.

US Airways could choose to buy Delta's unsecured claims in order to gain a foothold in the case and command the committee's attention, a move potential buyers often employ in smaller Chapter 11 cases.

For example, the hedge fund Harbinger Capital Partners forced an exclusivity battle in the bankruptcy of West Coast jewelry chain Crescent Jewelers and ultimately won control of the company post-bankruptcy. Harbinger later merged the company with another company it bought out of Chapter 11 -- East Coast chain Friedman's Inc.

Financier Ron Burkle's Yucaipa Cos. has bought up unsecured debt of rival auto-hauling companies Allied Holdings Inc. and Performance Transportation Services Inc., which are both operating under Chapter 11 protection, and is expected to attempt to merge them post-bankruptcy.

US Airways, whose smooth merger last fall with America West had management backing, has the experience of two past Chapter 11 cases as it moves forward with its proposal.

The airline could ally itself with other major creditors to force Delta -- or the Manhattan bankruptcy court -- to move toward a merger
"Management will have to consider what the creditors want," Mr. Neidl said. "It's the most important element of the company now, and they'll at least have to listen to their opinion."

But Mr. Rochelle of Fulbright & Jaworski said he'd be surprised if Delta and its major creditors "ran off in different directions."

He also questioned whether US Airways' Mr. Parker, widely regarded as a savvy executive who saved his airline from extinction, would want to be the architect of a deal built on a bitter battle between Delta and its creditors.

"I don't know whether Doug Parker would want to do it on a highly adversarial basis," Mr. Rochelle said. "That would really not create the kind of an effective working environment you need to integrate three airlines.

 

[Travels2mch]

Driving
Every
Loyal
Traveler
Away

Working for an Atlanta based company (and a former Gold Medallion), I have been more familiar with:
Doesn't
Ever
Leave
The
Airport

 

[whlinder]

Why does anyone think that the anti-trust argument has legs? Airlines price and act as an oligopoly. There is no real competition.

Then why in God's name can't this industry make money?

The anti-trust issues will not kill this deal. It might not happen, but it won't be due to anti-trust concerns.

 

[pit_needs_help]

I think the short time period until Delta exits will kill the attempted deal.

 

[Singleflyer]

And lets not forget


D on'r
E xpect
L uggage
T o
A rrive

This should fit in well with PHL

 

[JS]

I think this is a terrible idea. Delta is a good airline and US sucks.

I hope the DOJ kills the proposal on the overlap of service on the East Coast. Selling one Shuttle isn't going to cut it.

 

[PITbull]

Why does anyone think that the anti-trust argument has legs? Airlines price and act as an oligopoly. There is no real competition.

And Pitbull- Yes Doug was a CEO of a regional. That region consisted of the mainland US, Alaska, Hawaii, Canada, Mexico and South America.

I guess he's convinced Wall Street if he can fix the rust bucket that was USAir, he can fix just about anything.

Yes. The deal has to pass anti-trust hurdles. And they are hurdles because the other legacies will be coming forward to prevent this transaction. Remember July 2001...United and USAirways merger failed the littman test of "not being a monopoly"....and there was no plan B for either carrier...forcing both into BK by 2002.

And if it is decided, and a precedence is set, it will bring a whole slew of consolidations that will limit competition for the consumer. To me, those are quite large hurdles.

 

[tadjr]

Delta is a good airline and US sucks.

Thats not what the Medallion member who walked up to our counter and bought a one way ticket to Pittsburgh yesterday said. She said DL has lost about $3000 in business from her in the last two months. Hmm, sounds kind of familiar around here doesnt it? h34r:

 

[whlinder]

I think this is a terrible idea. Delta is a good airline and US sucks.

I hope the DOJ kills the proposal on the overlap of service on the East Coast. Selling one Shuttle isn't going to cut it.

What happened to your libertarian ideals?

(Or do you just not want to fly US?)