Delta Air Lines has secured creditor support for its own reorganisation plan, persuading US Airways to withdraw at the end of January its unsolicited $10 billion takeover bid.
While some, such as United Airlines head Glenn Tilton, are calling for consolidation to cure what ails the industry, others see at least a hiatus before mergers make the headlines again. Prudential analyst Bob McAdoo sees none "in the near future", while Standard & Poor's analyst Phil Baggaley expects activity will resume within a year or two.
The flurry of possible combinations that arose after the US Airways bid consisted largely of defensive or reactive counterproposals such as the tentative move by Delta to propose a link with Northwest. Analysts say a next round, if it happens, would be less defensive, while Tilton hopes to see US laws relaxed to allow international mergers.
The proposed Delta/US Airways combination focused not just on the benefits of consolidation, but also the advantages of bankruptcy. US Airways chief executive Doug Parker argued the deal, unveiled at $8 billion in November and raised to $10 billion in January, had to be done quickly because his strategy relied on using the advantages of bankruptcy to shed costs while integrating the two carriers.
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Delta has fended off the US Airways bid |
This was his strategy in 2005 when his carrier America West took US Airways out of Chapter 11 and he created the profitable combination it is now.
But Delta chief executive Jerry Grinstein says that "using bankruptcy process the right way, Delta people have transformed their company's business model". With $2.5 billion in exit financing from Wall Street heavyweights Merrill Lynch and Goldman Sachs, Grinstein won a definitive commitment from his creditors to prepare Delta to leave reorganisation, possibly as early as May. It plans to emerge as a strong standalone carrier with a major transatlantic operation.
Still pending is AirTran's smaller, unsolicited, $345 million takeover bid for Midwest Airlines. While that proposal pales in comparison to the dimensions of the Delta-US Airways deal, it has as much conflict. Milwaukee-based Midwest is trying to fend off Orlando-based AirTran with emotional hometown support. AirTran is mustering tactics such as lawsuits and a direct appeal to Midwest shareholders to oust management and accept AirTran's offer.
Source: Airline Business
