An Important Message from Doug Parker - December 19, 2006
Dear US Airways Employees:
By now you have likely read news coverage of Delta’s Plan of Reorganization, which was released publicly earlier today. Also today, Delta’s Board of Directors formally rejected our merger proposal and I have received a letter from Jerry Grinstein, Delta’s CEO, communicating this information.
Today’s announcement comes as no surprise to us, and based on Delta’s public comments and actions after our proposal was communicated to them last month, will likely not come as a surprise to anyone else either. Delta’s executives have been adamant about their desire to emerge as a standalone company in spite of having recently had the opportunity to compare value returned by a merged airline versus a standalone airline (US Airways vs. United). While we are disappointed that Delta has not yet accepted our request to start a due diligence process, we believe the Delta Creditors Committee and other stakeholders will ultimately insist that this process occur before selecting any go-forward plan.
Delta’s standalone plan and ensuing public comments do not alter our belief that a combined airline creates far more value than a standalone plan. Our merger proposal, which we estimate would create $1.65 billion in annual synergies that are not achievable in a standalone plan, simply provides greater value than Delta estimates for its plan. (Editor’s Note: A separate For the Record explaining valuation is coming shortly…so gather the kids, pop some popcorn and settle in for a great read!)
While the market attempts to digest Delta’s announcement, assumptions and valuation forecasts, we will remain steadfast in our resolve to return maximum value to our shareholders and to Delta’s stakeholders. We will not be distracted by emotional or irrational arguments; there is simply too much at stake to lose sight of what is really important.
We will continue to work with the Creditors Committee and other stakeholders in a methodical and deliberate process to ensure that the best go-forward plan prevails, and we will do so while adhering to the guiding principles that have led us thus far. These include communicating openly and honestly with all of our stakeholders; demonstrating continued respect for the people of Delta; and working with Delta’s creditors as they are ultimately the decision-makers for Delta’s future. Because of the $1.65 billion in synergies, we remain confident that our merger proposal will ultimately prevail.
As always, please keep an eye on Compass, theHub and company communications as we examine the Delta standalone plan and respond when appropriate. Keep those questions coming too, and those can be sent to [email protected].
Lastly, in the days ahead, thank you for taking care of our customers as they travel to visit family and friends. We have the privilege of carrying a large number of passengers over the next two weeks and your efforts to ensure our airline runs on-time and delivers baggage when promised are appreciated. Thanks again, and happy holidays!
Doug
US Airways Comments on Delta Standalone Plan - December 19, 2006
US Airways Group, Inc. today commented on the release of Delta Air Lines Inc.’s standalone plan for its Chapter 11 restructuring.
Doug Parker, US Airways’ Chairman and CEO said, “We have always expected that Delta would file a standalone plan with the Bankruptcy Court. This plan will provide Delta creditors with a benchmark against which to evaluate the competing proposals and we welcome that comparison. This is an important step in a process that we believe will result in the merger of US Airways and Delta.
“Combining US Airways and Delta will create at least $1.65 billion in annual synergies beyond the value that could be created by any standalone plan. These synergies come on top of the certainty of $4.0 billion in cash and the upside potential of 78.5 million shares of US Airways stock. These shared synergies will benefit all shareholders in the ‘New’ Delta. Factoring the synergy benefits into our offer, the current value of our proposal is significantly greater than the value of Delta’s standalone plan.
“We remain a disciplined and determined bidder for Delta. We continue to work productively with the Creditors Committee and the Ad Hoc Bondholders Committee. Finally, we recognize and appreciate the creditors’ ultimate authority in this process.â€
US Airways is the fifth largest domestic airline employing nearly 35,000 aviation professionals worldwide. US Airways, US Airways Shuttle and US Airways Express operate approximately 3,800 flights per day and serve more than 230 communities in the U.S., Canada, Europe, the Caribbean and Latin America. The new US Airways -- the product of a merger between America West and US Airways in September 2005 -- is a member of the Star Alliance, which provides connections for our customers to 841 destinations in 157 countries worldwide. This press release and additional information on US Airways can be found at www.usairways.com. (LCCG)
For The Record: Valuation (US Airways’ Periodical Merger Newsletter) - December 19, 2006
Since we announced our proposed merger with Delta, much has been written about the value of our proposal and how it would compare to the value of Delta’s standalone plan. Now that Delta has released its plan, every interested party – especially Delta’s creditors, who have the ultimate authority in this process – will have the chance to compare the competing proposals. This “valuation†of proposals is an important piece of the bankruptcy process and is key determinant of which plan will eventually prevail. Unfortunately, it’s a little complicated (although we think the investment bankers like to keep it that way so they can feel so much smarter than the rest of us!) so in this For The Record, we will try to clear up some of the confusion.
Delta Standalone Valuation
Let’s start with the value that Delta is saying their standalone plan is worth. They filed a set of financial projections this morning with the Bankruptcy Court and at the same time said their investment bankers, The Blackstone Group, believe the value of those projections to be approximately $9.4 to $12 billion. Now we don’t know exactly how they came up with that valuation, but we’ve hung out with enough investment bankers to tell you that it is not exactly rocket science (although don’t hold our selection of friends against us…some of these banker types actually DO have personalities believe it or not).
Here’s how it work’s: Generally what they do is take on of the year’s earnings estimates (say 2007) and then multiply that year’s earnings by some “multipleâ€. A company’s “multipleâ€, which is also called a price/earnings ratio, is supposed to give investors an idea of a company’s earnings power. In this case, investment bankers use an industry “multipleâ€, and that industry “multiple†is supposed to be based on how the stock market is currently valuing other similar, publicly traded companies (in this case it’s US Airways, America, United, Continental). As you might imagine, you can get some pretty wide ranges of estimates by either being aggressive with your earnings projections or being just a little generous with that volatile “multipleâ€. When it’s all said and done though, it shold look reasonable versus other publicly traded companies.
Let’s look at how Delta’s self-estimated valuation compares to the rest of us:
Airline/Valuation (in billions)
Southwest - $12.4
Delta (self evaluation) - $9.4 to $12.0
American - $6.7
United - $5.0
US Airways - $4.9$
Continental - $3.9
Anything look out of line here? Now call us skeptical, but does anybody really believe that a Delta standalone plan could be worth as much as Southwest? A more relevant comparison is probably United, because they emerged from bankruptcy in 2006, with a new balance sheet and lowered costs like Delta. They are about 25 percent larger than Delta and their profit margins (how much money they make on each dollar of revenue collected) so far in 2006 are actually higher. It is odd that Delta thinks the stock market will value them twice as much has United, and today’s announcement does not provide any light on the basis for Delta’s assertions.
Delta/US Airways Merger Valuation
But let’s not stop there; we need to focus on running our own race and that brings us to the value of our proposal. We have offered the Delta creditors (who truly won Delta because Delta is in bankruptcy) the following:
· $4.0 billion in cash
· 78.5 million shares of US Airways stock
Now the cash part is easy - $4.0 billion is $4.0 billion – no investment bankers needed for that one. However, the stock part gets a little trickier. If you read media reports, they usually take the 78.5 million shares and multiply that number by US Airways’ current stock price (say $58) and come up with a value for the stock. In this example $58 x 78.5 million shares = $4.6 billion, so you may read that our offer is worth a total of $8.6 billion dollars.
While this is all quite logical, the problem is this is not an apples-to-apples comparison to the Delta self-valuation. In order to ge a more valid comparison, we would have to:
· take our earnings estimates for US Airways standalone
· add them to Delta’s standalone earnings estimates
· add our $1.65 billion in anticipated merger synergies
· multiply that number by Blackstone’s “multipleâ€
The result of that would be a much higher number than Delta’s self-assessment. This basically means that if you calculate the value of our offer using Delta’s methodology, we estimate our offer today is worth in excess of even Delta’s $12 billion self-valuation and far more than $8.6 billion.
Stated another way, the current stock price of LCC is not a fair representation of the value the creditors will receive. WE believe that once we close this transaction and begin realizing synergies, our stock will trade well above its current value of $58 and therefore the creditors will receive much more than $4.6 billion in value for their 78.5 million shares.
Summary
So where does all of this leave us? Basically, you’ll be hearing a bunch of numbers thrown out over the coming weeks but try to keep them in perspective. We are a highly skeptical of Delta’s self-valuation and we know the media reports of the value of our offer are understated. In spite of these conflicting messages, we continue to believe in, and will continue to communicate the value of our offer, an offer that is far superior to the Delta standalone proposal.
Worth mentioning of course, is that the creditors understand all of this and ultimately, Delta’s future will be theirs to decide. That’s the way it should be, and we are confident that they and their advisors will come to the right decision and that the US Airways/Delta merger will prevail.
Delta: US Air deal would hike fares – No. 3 carrier rejects hostile bid, arguing regulators would block proposed $8.4 billion merger, but rival says it’s not going away
See Story
Regards,
USA320Pilot
Dear US Airways Employees:
By now you have likely read news coverage of Delta’s Plan of Reorganization, which was released publicly earlier today. Also today, Delta’s Board of Directors formally rejected our merger proposal and I have received a letter from Jerry Grinstein, Delta’s CEO, communicating this information.
Today’s announcement comes as no surprise to us, and based on Delta’s public comments and actions after our proposal was communicated to them last month, will likely not come as a surprise to anyone else either. Delta’s executives have been adamant about their desire to emerge as a standalone company in spite of having recently had the opportunity to compare value returned by a merged airline versus a standalone airline (US Airways vs. United). While we are disappointed that Delta has not yet accepted our request to start a due diligence process, we believe the Delta Creditors Committee and other stakeholders will ultimately insist that this process occur before selecting any go-forward plan.
Delta’s standalone plan and ensuing public comments do not alter our belief that a combined airline creates far more value than a standalone plan. Our merger proposal, which we estimate would create $1.65 billion in annual synergies that are not achievable in a standalone plan, simply provides greater value than Delta estimates for its plan. (Editor’s Note: A separate For the Record explaining valuation is coming shortly…so gather the kids, pop some popcorn and settle in for a great read!)
While the market attempts to digest Delta’s announcement, assumptions and valuation forecasts, we will remain steadfast in our resolve to return maximum value to our shareholders and to Delta’s stakeholders. We will not be distracted by emotional or irrational arguments; there is simply too much at stake to lose sight of what is really important.
We will continue to work with the Creditors Committee and other stakeholders in a methodical and deliberate process to ensure that the best go-forward plan prevails, and we will do so while adhering to the guiding principles that have led us thus far. These include communicating openly and honestly with all of our stakeholders; demonstrating continued respect for the people of Delta; and working with Delta’s creditors as they are ultimately the decision-makers for Delta’s future. Because of the $1.65 billion in synergies, we remain confident that our merger proposal will ultimately prevail.
As always, please keep an eye on Compass, theHub and company communications as we examine the Delta standalone plan and respond when appropriate. Keep those questions coming too, and those can be sent to [email protected].
Lastly, in the days ahead, thank you for taking care of our customers as they travel to visit family and friends. We have the privilege of carrying a large number of passengers over the next two weeks and your efforts to ensure our airline runs on-time and delivers baggage when promised are appreciated. Thanks again, and happy holidays!
Doug
US Airways Comments on Delta Standalone Plan - December 19, 2006
US Airways Group, Inc. today commented on the release of Delta Air Lines Inc.’s standalone plan for its Chapter 11 restructuring.
Doug Parker, US Airways’ Chairman and CEO said, “We have always expected that Delta would file a standalone plan with the Bankruptcy Court. This plan will provide Delta creditors with a benchmark against which to evaluate the competing proposals and we welcome that comparison. This is an important step in a process that we believe will result in the merger of US Airways and Delta.
“Combining US Airways and Delta will create at least $1.65 billion in annual synergies beyond the value that could be created by any standalone plan. These synergies come on top of the certainty of $4.0 billion in cash and the upside potential of 78.5 million shares of US Airways stock. These shared synergies will benefit all shareholders in the ‘New’ Delta. Factoring the synergy benefits into our offer, the current value of our proposal is significantly greater than the value of Delta’s standalone plan.
“We remain a disciplined and determined bidder for Delta. We continue to work productively with the Creditors Committee and the Ad Hoc Bondholders Committee. Finally, we recognize and appreciate the creditors’ ultimate authority in this process.â€
US Airways is the fifth largest domestic airline employing nearly 35,000 aviation professionals worldwide. US Airways, US Airways Shuttle and US Airways Express operate approximately 3,800 flights per day and serve more than 230 communities in the U.S., Canada, Europe, the Caribbean and Latin America. The new US Airways -- the product of a merger between America West and US Airways in September 2005 -- is a member of the Star Alliance, which provides connections for our customers to 841 destinations in 157 countries worldwide. This press release and additional information on US Airways can be found at www.usairways.com. (LCCG)
For The Record: Valuation (US Airways’ Periodical Merger Newsletter) - December 19, 2006
Since we announced our proposed merger with Delta, much has been written about the value of our proposal and how it would compare to the value of Delta’s standalone plan. Now that Delta has released its plan, every interested party – especially Delta’s creditors, who have the ultimate authority in this process – will have the chance to compare the competing proposals. This “valuation†of proposals is an important piece of the bankruptcy process and is key determinant of which plan will eventually prevail. Unfortunately, it’s a little complicated (although we think the investment bankers like to keep it that way so they can feel so much smarter than the rest of us!) so in this For The Record, we will try to clear up some of the confusion.
Delta Standalone Valuation
Let’s start with the value that Delta is saying their standalone plan is worth. They filed a set of financial projections this morning with the Bankruptcy Court and at the same time said their investment bankers, The Blackstone Group, believe the value of those projections to be approximately $9.4 to $12 billion. Now we don’t know exactly how they came up with that valuation, but we’ve hung out with enough investment bankers to tell you that it is not exactly rocket science (although don’t hold our selection of friends against us…some of these banker types actually DO have personalities believe it or not).
Here’s how it work’s: Generally what they do is take on of the year’s earnings estimates (say 2007) and then multiply that year’s earnings by some “multipleâ€. A company’s “multipleâ€, which is also called a price/earnings ratio, is supposed to give investors an idea of a company’s earnings power. In this case, investment bankers use an industry “multipleâ€, and that industry “multiple†is supposed to be based on how the stock market is currently valuing other similar, publicly traded companies (in this case it’s US Airways, America, United, Continental). As you might imagine, you can get some pretty wide ranges of estimates by either being aggressive with your earnings projections or being just a little generous with that volatile “multipleâ€. When it’s all said and done though, it shold look reasonable versus other publicly traded companies.
Let’s look at how Delta’s self-estimated valuation compares to the rest of us:
Airline/Valuation (in billions)
Southwest - $12.4
Delta (self evaluation) - $9.4 to $12.0
American - $6.7
United - $5.0
US Airways - $4.9$
Continental - $3.9
Anything look out of line here? Now call us skeptical, but does anybody really believe that a Delta standalone plan could be worth as much as Southwest? A more relevant comparison is probably United, because they emerged from bankruptcy in 2006, with a new balance sheet and lowered costs like Delta. They are about 25 percent larger than Delta and their profit margins (how much money they make on each dollar of revenue collected) so far in 2006 are actually higher. It is odd that Delta thinks the stock market will value them twice as much has United, and today’s announcement does not provide any light on the basis for Delta’s assertions.
Delta/US Airways Merger Valuation
But let’s not stop there; we need to focus on running our own race and that brings us to the value of our proposal. We have offered the Delta creditors (who truly won Delta because Delta is in bankruptcy) the following:
· $4.0 billion in cash
· 78.5 million shares of US Airways stock
Now the cash part is easy - $4.0 billion is $4.0 billion – no investment bankers needed for that one. However, the stock part gets a little trickier. If you read media reports, they usually take the 78.5 million shares and multiply that number by US Airways’ current stock price (say $58) and come up with a value for the stock. In this example $58 x 78.5 million shares = $4.6 billion, so you may read that our offer is worth a total of $8.6 billion dollars.
While this is all quite logical, the problem is this is not an apples-to-apples comparison to the Delta self-valuation. In order to ge a more valid comparison, we would have to:
· take our earnings estimates for US Airways standalone
· add them to Delta’s standalone earnings estimates
· add our $1.65 billion in anticipated merger synergies
· multiply that number by Blackstone’s “multipleâ€
The result of that would be a much higher number than Delta’s self-assessment. This basically means that if you calculate the value of our offer using Delta’s methodology, we estimate our offer today is worth in excess of even Delta’s $12 billion self-valuation and far more than $8.6 billion.
Stated another way, the current stock price of LCC is not a fair representation of the value the creditors will receive. WE believe that once we close this transaction and begin realizing synergies, our stock will trade well above its current value of $58 and therefore the creditors will receive much more than $4.6 billion in value for their 78.5 million shares.
Summary
So where does all of this leave us? Basically, you’ll be hearing a bunch of numbers thrown out over the coming weeks but try to keep them in perspective. We are a highly skeptical of Delta’s self-valuation and we know the media reports of the value of our offer are understated. In spite of these conflicting messages, we continue to believe in, and will continue to communicate the value of our offer, an offer that is far superior to the Delta standalone proposal.
Worth mentioning of course, is that the creditors understand all of this and ultimately, Delta’s future will be theirs to decide. That’s the way it should be, and we are confident that they and their advisors will come to the right decision and that the US Airways/Delta merger will prevail.
Delta: US Air deal would hike fares – No. 3 carrier rejects hostile bid, arguing regulators would block proposed $8.4 billion merger, but rival says it’s not going away
See Story
Regards,
USA320Pilot
