LONDON, England (CNN) -- US Airways made a surprise $8 billion offer to buy
its bigger rival Delta Airlines, a bid that could spark a round of mergers
leaving the United States with just a handful of major airlines.
The deal, if completed, would combine two of the oldest and most storied
airlines in the United States.
Delta started as a crop duster in the 1920s and grew to make its base at
Atlanta-Hartsfield the nation's largest airport. US Air started as a mail
carrier in the 1930s and has gone through several mergers and two bankruptcies.
The offer, which US Airways said would create the No.1 trans-Atlantic carrier,
is the latest move by Chief Executive Doug Parker, who orchestrated the May
2005 takeover of then-bankrupt US Air by America West and has pushed for
consolidation in the industry.
With two major U.S. carriers -- Delta and Northwest Airlines Corp. --
operating in bankruptcy, industry watchers have been expecting a wave of
consolidation and said successful completion of a US Air-Delta deal could
jump-start the process.
"This appears to be sort of like a hostile takeover," CreditSights analyst
Roger King said. "Delta has made it clear that he doesn't want to merge. But
US Airways is appealing directly to the creditors."
The bid might prompt other offers, King added.
Under terms of the offer, Delta creditors would receive $4 billion in cash and
78.5 million shares of US Airways stock, with an aggregate value of around $4
billion based on Tuesday's closing stock price.
US Air said creditors would get 40 cents on the dollar as of Nov. 14, assuming
$16.0 billion in unsecured claims. US Air has obtained $7.2 billion in
committed financing for the deal from Citigroup.
However on the day that Delta announced the start of a new service on the
highly competitive London -- New York route, the airline has publicly rebuffed
the proposals.
"Currently the Delta team is focused on getting the airline out of bankruptcy
and getting ourselves restructured as a stand-alone carrier. That has been our
singular focus and will continue to be so," Lee Macenczak, Delta's Executive
Vice President Sales and Consumer Services told CNN.
US Airways. the seventh largest U.S.. airline with over 35,000 employees,
believes the combination will generate at least $1.65 billion in annual
savings. Delta is the third biggest airline in the U.S with over 47,000
workers, and experts believe that merger would be problematic, but not
impossible.
"The history of airline mergers is not very promising and extremely hard to
pull off with large airlines like Delta, where there is a unionized pilot
workforce who are notoriously resistant to this kind of move," Kieran Daly of
Flight Global told CNN.
"Maybe US Airways did a preemptive strike here," Ray Neidl of Calyon
Securities' said. "The big concern is government regulators, if they give the
green light. And if they do, it will probably set off a series of potential
M&A activity in the industry."
The New York JFK - London Gatwick service signals Delta's intent to remain a
stand-alone carrier. Plans to expand into the international market are in
full swing, with 50 new destinations named by the airline this year.
Delta begins its daily service on Wednesday between London and New York and
plans to add a second daily flight in April 2007.
"This is a market that is very important for our success. With the network we
are building we believe we can offer more to business travelers than any other
airline, and as a company we believe we can produce the most value as a
stand-alone," Macenczak told CNN.
"These are strange times in the airline industry and things that seemed
utterly ridiculous five years ago now seem to be plausible because so many
airlines have struggled since 9/11," said Daly.
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