- The Washington Times - Tuesday, December 19, 2006

Delta Air Lines yesterday rejected an $8.4 billion buyout offer from rival US Airways, saying it is committed to remaining an independent carrier when it emerges from bankruptcy protection next year.

Delta has been cool to the idea of merging with US Airways since the offer was presented Nov. 15. US Airways, the nation’s sixth-largest airline, had said combining with Delta, the nation’s third-biggest, would create annual benefits of $1.65 billion.

But Delta’s board unanimously voted down the offer, saying it was of “substantially inferior value” for its creditors compared with its own plan, which Delta’s financial adviser, the Blackstone Group, estimates at $9.4 billion to $12 billion.

Delta called the Tempe, Ariz., airline’s offer “structurally flawed,” saying it contained significant labor issues, depended on faulty economic assumptions and would saddle Delta with a precariously high debt load.

“If our industry has learned anything, it is that having a precariously high level of debt on the balance sheet is not the way to prudently run an airline,” said Delta Executive Vice President and Chief Financial Officer Edward Bastian.

But US Airways says it won’t back down from its plans to buy Delta.

“We remain a disciplined and determined bidder for Delta,” said US Airways’ Chairman and Chief Executive Doug Parker.

Delta said 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.

The Atlanta airline also said the plan was unlikely to pass federal antitrust clearance.

Delta filed its five-year business strategy with the U.S. Bankruptcy Court in New York yesterday — 15 months after the airline sought Chapter 11 protection. The plan would let unsecured creditors recover 63 percent to 80 percent of their claims.

Delta’s initial September 2005 restructuring plan called for $3 billion in financial improvements by the end of 2007. As of the end of September, the airline says it had met 85 percent of that goal and had $2.8 billion of unrestricted cash equivalents and short-term investments.

The carrier has forecast a net income of $450 million in 2007 and $1.2 billion in 2010.

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.

Mr. Parker said US Airways’ offer of $4 billion in cash and 78.5 million company shares is worth significantly more than Delta’s reorganization plan, and that Delta’s creditors will demand that the deal proceed.

“We have always expected that Delta would file a stand-alone plan with the Bankruptcy Court,” he said. “This plan will provide Delta creditors with a benchmark against which to evaluate the competing proposals, and we welcome that comparison.”

Many industry watchers have been skeptical that US Airways would be able to work out a deal with Delta, as a merger of the two airlines would create a cumbersome system with eight hubs — far too many to be cost effective, they say.

US Airways’ shares gained $1.70, or 3 percent, to close at $57.50 on the New York Stock Exchange. Delta’s shares declined 9 cents to $1.38 in over-the-counter trading.

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

AirTran Holdings Inc., parent company of AirTran Airline, made a $290 million bid last week for Midwest Airlines parent company. And UAL Corp.’s United Airlines has held talks with Continental Airlines Inc.

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