Failed US/DL merger likely to mute consolidation talk for now

USA320Pilot

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Failed US/DL merger likely to mute consolidation talk for now

Friday February 2, 2007

NEW YORK (ATWOnline) - Airline merger talk in the US market is expected to cool following US Airways' withdrawal of its offer for Delta Air Lines, particularly with many carriers posting their best earnings since the late 1990s.

US's attempt to acquire DL (ATWOnline, Feb. 1) forced other airlines to survey the landscape and explore merger possibilities themselves; American Airlines, Northwest Airlines, Continental Airlines and United Airlines all reportedly hired merger advisers. But with DL and NWA apparently on track to emerge from Chapter 11 later this year, the consolidation window may be closing, at least for the near term.

US Chairman and CEO Doug Parker said earlier this week that once DL emerges from bankruptcy, "I don't think you're going to see any consolidation in this business until the next down cycle." Several analysts said yesterday that merger talks are unlikely for at least six months to a year.

NWA President and CEO Doug Steenland said this week that the airline, a subject of merger speculation, plans to submit a plan of reorganization this month that will be "predicated on Northwest being a standalone, independent airline."

But US airline executives likely will continue eyeing mergers over the long term, particularly if earnings fall off. "Over the last two years I have met with almost every major airline CEO and I have heard most of them advocate for consolidation within the industry," Senate aviation subcommittee Chairman Jay Rockefeller (D-W.Va.) said, noting that cost-cutting "has been brutal...I know that our nation needs a financially healthy airline industry."

USA320Pilot asks: Will Doug Parker go after Northwest before the Eagan-based company emerges from bankruptcy? If so, he would need to do so in the not-to-distant future.

Regards,

USA320Pilot
 
Failed US/DL merger likely to mute consolidation talk for now


USA320Pilot asks: Will Doug Parker go after Northwest before the Eagan-based company emerges from bankruptcy? If so, he would need to do so in the not-to-distant future.

Regards,

USA320Pilot

Why didn't Doug go after DL and NW earlier in the BK process? It has been speculated by several industry analysts that doing so would have increased his chances of success in the proposed DL merger.
It would appear to me that NW's BK timeline is closely paralleling DL's, and as such, would present some of the same disadvantages for Parker.
 
Luv2fly,

I agree with your point.

However, if Northwest agreed to a consensual deal and included the merger in the revised POR/Disclosure Statement, then I believe a deal between US Airways and Northwest could proceed in about 6 months and the Delta parallel timeline would not be an issue. For this to happen, a deal would need to be struck soon because Northwest is finalizing its bankruptcy emergence.

I know US Airways' "executive suite" has looked at merging with Northwest, but in light losing their bid to acquire Delta I'm not sure of senior management's sentiment on further M&A action.

But, there is one important point to consider.

There is no question that a merger with a bankrupt company can provide tremendous profit potential over two non-bankrupt companies combining because if a company is operating under court protection there is significant financial flexibility provided by the "formal reorganization" process to cancel excess contracts due to the corporate combination.

If US Airways goes after Northwest (since it has its M&A financing already in place provided by Citigroup and Morgan Stanley) and is successful at acquiring the Eagan-based company, then the other four legacy carriers would be at a tremendous disadvantage.

This action could place US Airways and Northwest in a commanding position in the U.S. marketplace, which would put the four legacy carriers at an extreme disadvantage.

For discussion purposes, if US Airways obtained just two thirds of $1.65 billon in annual synergies provided by the Delta merger or $1.1 billion, this could equate to about $700 million in annual profits and make the new combined business enterprise easily the most profitable U.S. airline for years-and-years to come.

This undoubtedly would be good news for employees of both companies because it would provide more money to boost pay, benefits, and DC Plan contributions.

With all of that said, I believe the only way a US Airways/Northwest deal could proceed is for the deal to be consensual. US Airways and the industry learned how difficult it can be to complete a hostile takeover.

Meanwhile, I believe it is important to note that Northwest did hire Evercore, the New York-based boutique bank run by Roger Altman, to study its strategic options. In a court filing, Northwest specifically refers to the possibility of an "M&A transaction" as an outcome of the process. But, with the collapse of the US Airways – Delta deal, nobody except maybe US Airways’ Board and Northwest’s Board, as well as the “executive suitesâ€￾, truly knows if there is consensual interest in moving forward with a merger.

Also noteworthy, I believe a US Airways - Northwest deal would be less profitable than US Airways - Delta, but on the other hand there would likely be less antitrust issues, less Congressional resistance due to less overlap, and the potential for less resistance from Northwest than with Delta.

Regards,

USA320Pilot
 
Didn't Doug/Kirby come straight out and say that Northwest isn't an option? I know not to believe what ya hear but they DID say it.
 
Travelpro 72,

I did not see Doug Parker or Scott Kieby say that. If they did, can you find the article and post it? Furthermore, was that before or after US Airways pulled its merger offer?

Regards,

USA320Pilot
 
I think NWA/LCC would be good operationally and open up market opportunities, but I don't think it would be 'commanding' or cause great concern to the big three. And I still think it would not be well positioned to succeed in the next down turn. Down turn= sustained $100/barrel oil, or (god forbid) an attack.
 
Luv2fly,

I agree with your point.

However, if Northwest agreed to a consensual deal and included the merger in the revised POR/Disclosure Statement, then I believe a deal between US Airways and Northwest could proceed in about 6 months and the Delta parallel timeline would not be an issue. For this to happen, a deal would need to be struck soon because Northwest is finalizing its bankruptcy emergence.

I know US Airways' "executive suite" has looked at merging with Northwest, but in light losing their bid to acquire Delta I'm not sure of senior management's sentiment on further M&A action.

But, there is one important point to consider.

There is no question that a merger with a bankrupt company can provide tremendous profit potential over two non-bankrupt companies combining because if a company is operating under court protection there is significant financial flexibility provided by the "formal reorganization" process to cancel excess contracts due to the corporate combination.

If US Airways goes after Northwest (since it has its M&A financing already in place provided by Citigroup and Morgan Stanley) and is successful at acquiring the Eagan-based company, then the other four legacy carriers would be at a tremendous disadvantage.

This action could place US Airways and Northwest in a commanding position in the U.S. marketplace, which would put the four legacy carriers at an extreme disadvantage.

For discussion purposes, if US Airways obtained just two thirds of $1.65 billon in annual synergies provided by the Delta merger or $1.1 billion, this could equate to about $700 million in annual profits and make the new combined business enterprise easily the most profitable U.S. airline for years-and-years to come.

This undoubtedly would be good news for employees of both companies because it would provide more money to boost pay, benefits, and DC Plan contributions.

With all of that said, I believe the only way a US Airways/Northwest deal could proceed is for the deal to be consensual. US Airways and the industry learned how difficult it can be to complete a hostile takeover.

Meanwhile, I believe it is important to note that Northwest did hire Evercore, the New York-based boutique bank run by Roger Altman, to study its strategic options. In a court filing, Northwest specifically refers to the possibility of an "M&A transaction" as an outcome of the process. But, with the collapse of the US Airways – Delta deal, nobody except maybe US Airways’ Board and Northwest’s Board, as well as the “executive suitesâ€￾, truly knows if there is consensual interest in moving forward with a merger.

Also noteworthy, I believe a US Airways - Northwest deal would be less profitable than US Airways - Delta, but on the other hand there would likely be less antitrust issues, less Congressional resistance due to less overlap, and the potential for less resistance from Northwest than with Delta.

Regards,

USA320Pilot


"NWA President and CEO Doug Steenland said this week that the airline, a subject of merger speculation, plans to submit a plan of reorganization this month that will be "predicated on Northwest being a standalone, independent airline."


"USA320Pilot asks: Will Doug Parker go after Northwest before the Eagan-based company emerges from bankruptcy? If so, he would need to do so in the not-to-distant future."

Your wishful thinking has got to stop.

What part of STANDALONE,INDEPENDANT do you not get. You sure talk a lot of bravado for someone at a carrier that was on it's death bed a year ago. "US is going to GO AFTER this one and that one, Or US is going to ACQUIRE this airline or that airline. (no disrespect to the fine employees of US AIR)

Why do you think (after what we have gone through at NW) we would be interested in giving it away to another carrier, one that can't even give it's merged employees a single contract. I can only speak for myself.

THIS IS THE KICKER:

"There is no question that a merger with a bankrupt company can provide tremendous profit potential over two non-bankrupt companies combining because if a company is operating under court protection there is significant financial flexibility provided by the "formal reorganization" process to cancel excess contracts due to the corporate combination."

You have a lot of nerve to speak publicly about "canceling excess contracts" of another airline. I will refrain from spewing my real feeling. You will be lucky to be here after two of the most formidable competitors in the industry comes out of BK lean and hungry. My suggestion to you....back away from NW while you still have legs.

NW will be just fine ALONE, on it's OWN. I personally know NO NW employee interested in merging with ANY airline let alone be "acquired"...that will not happen anytime soon. (this crowd is far more experienced in the trenches than Delta was). Forget about it.

US can be a great carrier by it's self...once it completes it's first merger.
 
Luv2fly,


I know US Airways' "executive suite" has looked at merging with Northwest, but in light losing their bid to acquire Delta I'm not sure of senior management's sentiment on further M&A action.

Regards,

USA320Pilot
B.O.B.

No need to worry as I'm sure that doogie will call you and let you know, or better yet make a special effort to fly with you so he can pass on information to you. After all you are the mouth of management on this board.

You are destined to be wrong again. A fool keeps repeating the same actions while expecting a different result each time. The fool is also unwilling to learn from those results and just continues on......
 
I don't think Doug will try again too soon. He needs time for the government to hold an election and put more Republicans in office before he can attempt another takeover.

Think it's a bizarre statement? Check out to whom he makes campaign donations.
 
Why didn't Doug go after DL and NW earlier in the BK process? It has been speculated by several industry analysts that doing so would have increased his chances of success in the proposed DL merger.
It would appear to me that NW's BK timeline is closely paralleling DL's, and as such, would present some of the same disadvantages for Parker.
They did...

Just not hostile takeover-ish.

And IMO they will not move on NWA unless NWA managers are onboard (read: expect big personal gain)