- The Washington Times - Tuesday, December 19, 2006

1:27 p.m.

Delta Air Lines today rejected an $8.4 billion buyout offer from rival US Airways, saying it is committed to remaining an independent carrier once it emerges from bankruptcy in 2007.

Delta said the proposed acquisition, which was unanimously rejected by its board of directors, would unlikely pass federal antitrust clearance. The Atlanta airline also said that US Airways’ plan was “structurally flawed” because it contained significant labor issues, depends on faulty economic assumptions and would saddle Delta with a precariously high debt load.

The company added that marrying the two airlines would cause “merger-related risks,” saying that the 2005 takeover of US Airways by America West Airlines has caused significant integration problems.

US Airways did not immediately return a telephone call for comment.

Delta filed its five-year business strategy with the U.S. Bankruptcy Court in New York today, 15 months after the airline sought Chapter 11 protection. The plan would let unsecured creditors recover 63 percent to 80 percent of their claims. The Blackstone Group, a financial adviser, estimates the airline’s value at $9.4 billion to $12 billion.

The carrier said it would leave bankruptcy in the first half of next year and forecast net income of about $450 million in 2007 and $1.2 billion in 2010.

Delta’s “standalone plan or reorganization will provide superior value as well as a faster recovery and much greater certainty of execution,” the company’s board said.

Airline analyst Ray Neidl, of Calyon Securities of New York, said Delta’s reorganization plan is strong and feasible.

“We believe that this cost structure would make the airline competitive not only with other [major] airlines but, to a certain degree, with the low-cost carriers as well,” he said. “Combined with the strong system that Delta, its regional feed and its partnership alliances create, the company will have good national and worldwide coverage.”

Many industry watchers have been skeptical of US Airways’ proposal. A merger of the two airlines would create a cumbersome system with eight hubs — far too many to be cost-effective, they have said.

And at some airports, combining Delta, the third-largest U.S. airline after American and United, with US Airways of Tempe, Ariz., the nation’s seventh-biggest, would create a near-monopoly.

Delta’s shares fell 12 cents, or 8.2 percent, to $1.35 late this morning in over-the-counter trading. US Airways shares fell 46 cents to $55.34 in New York Stock Exchange composite trading.

The US Airways-Delta proposal is one of several for airlines in recent weeks.

AirTran Holdings Inc. last week made a $290 million stock-and-cash bid for Midwest Air Group Inc., the parent company of Midwest Airlines, an Oak Creek, Wis., carrier with hubs in Milwaukee and Kansas City, Mo.

Continental and United airlines reportedly have been talking about a merger.

And Australia’s Qantas Airways staved off a recent takeover bid led by an investment bank and two private-equity firms.

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