US Airways has made a formal merger proposal to Delta Air Lines, under which it is offering to invest $8 billion in cash and stock to combine the two carriers and operate under the Delta brand name.
The announcement follows conversations in the spring between US Airways chairman and CEO Doug Parker and Delta CEO Gerald Grinstein, during which Parker initially proposed merging the two carriers. This approach was rebuffed by Grinstein, who last month declined to enter negotiations with US Airways.
Laying out its proposal, US Airways says it is offering a 25% premium over the 14 November trading price of bankrupt Delta’s pre-petition unsecured claims. The carrier, which was formed through the merger of America West Airlines and US Airways in September 2005, is offering to pay Delta’s creditors $4 billion in cash, as well as $4 billion worth of US Airways stock.
"We believe that the combination of US Airways and Delta, like the US Airways/America West merger, is extremely compelling and will create significant value for each of our stakeholders," says Parker.
"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."
US Airways adds that a merger would result in a 10% reduction in the combined airlines’ capacity, which it says will reduce unprofitable flying and improve the mix of traffic. The carrier has committed $7.2 billion in financing from Citigroup, representing $4 billion for the cash offer and $3.2 billion in refinancing at both airlines.
Delta could not immediately be reached for comment.
Blog: How one Delta executive got the news.
Source: Flight International
