General Lee
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US Airways chief digs in for Delta fight
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 01/07/07
Don't mistake the relative quiet of the past two weeks for a sign that US Airways' resolve to buy Delta Air Lines is weakening, says Doug Parker, CEO of US Airways.
"We believe our offer is more than fair, and as a result, don't intend on ... backing off," Parker said in a telephone interview last week. "We certainly don't intend on pulling the offer."
Parker made his carrier's $8 billion-plus offer public on Nov. 15, and Delta — which had already rebuffed his private approaches — fired back with a volley of objections, employee anti-merger rallies and a formal plan to emerge from Chapter 11 on its own. The dust settled during the holidays.
Parker says he expects things to soon heat up again, pointing out that Delta's creditors recently hired retired Continental Airlines Chief Executive Gordon Bethune to evaluate the rivals' proposals or other potential alternatives for Delta.
"Gordon is a decisive, extremely knowledgeable individual who ... they clearly didn't bring in just to look at the stand-alone plan. They brought him in to look at strategic alternatives," said Parker.
Another potential flash point: Delta has asked for a bankruptcy court hearing Feb. 7 to begin pitching its stand-alone plan to creditors. They will ultimately vote on whatever reorganization plan Delta uses. Delta's plan values the company at $12 billion when it comes out of bankruptcy and would pay creditors with stock. US Airways argues its cash-stock offer is better for creditors and that a merger will create a stronger airline.
"I think you'll start seeing more urgency this month," said Parker during the interview from US Airways' headquarters in Tempe, Ariz. The conversation has been edited for clarity and length.
Q: Have you gotten any indication as to how the unsecured creditors committee views the US Airways offer?
A: We've met with the committee a couple of times. Their advisers have come back and asked us a number of questions. My own personal view is I think they appreciate the value of the synergies, and I believe they're doing their work now. They've just hired Gordon Bethune, which we think is a positive development — not because we have any idea what Gordon's views are, but just because I know Gordon is a decisive, independent person who knows the airline business very, very well.
Q: What has the committee asked the most questions about?
A: It doesn't seem to be one area of focus. They've spent a lot of time going through the synergy analysis, the $1.65 billion a year [in estimated annual savings from a merger], with our team. I know they've hired their own antitrust counsel to come up with their own views of the antitrust issues, which you know we feel very sanguine about and Delta feels very differently about. They obviously need to get their own views on that. ... So most of the time with us has been on our proposal and synergies.
Q: How soon do you expect the unsecured creditors committee to take some sort of position?
A: I don't know. It's really up to them. ... The process only becomes urgent to the extent that the Delta stand-alone plan is moving in a way that is inconsistent with our merger proposal. ... So long as Delta remains in bankruptcy and there aren't things being approved or disapproved by the bankruptcy court that are inconsistent with our plan, there's no urgency.
Q: There's the Feb. 7 hearing about the disclosure statement on Delta's reorganization plan. [If the statement is approved by the bankruptcy judge, Delta would be allowed to start seeking creditors' votes backing its proposal.] What does that hearing mean to the US Airways deal?
A: Right now there's a request for a hearing. If indeed that hearing took place on that date, yeah, that would drive some urgency around this process, and I think it will. ... My guess is if the creditor committee wants to support that date, they have a lot of work to get done before that date.
Q: Does that mean it might force you guys to bump up your offer? Does it mean you might have to somehow figure out how to intervene in that hearing?
A: ... It doesn't drive any additional action at this point from US Airways, but I think what it does drive is action from the committee to get themselves ready. The ball's in their court. ... The dialog will continue with the committee, and we're following their lead. ... But as we stand here today, our offer, we think, is well in excess of [Delta's] stand-alone plan in terms of value, and we don't feel any need to amend the offer.
Q: If the committee does finally come out and say we're not interested in your offer, does that kill it?
A: We'd have to reassess at that point. I don't know the answer to that and don't want to speculate.
Q: Does the hostility of Delta employees toward this deal give you or the creditors any pause?
A: It certainly doesn't give us any. I understand it. As we went through the US Airways-America West merger [in which Parker's America West bought the larger carrier and took its name, as it now proposes to do with Delta], there clearly was reluctance on the US Airways side. ... Indeed, even on the America West side, there was some concern about why we were hitching ourselves to that boat. So we had to spend a lot of time communicating with our employees about where the company is going. ... But the fact is, change creates anxiety, and anxiety can turn into fear.
In a situation where we don't have the ability to communicate [with Delta employees] ... it's not surprising at all. I expect over time as this develops for us to have those opportunities. What the employees at Delta will see is that all we're trying to do is build a better Delta Air Lines, and that's only better for the employees. ... I think the culture of Delta is one of its strongest assets and one of the things we want to build on.
Q: There seems to be a widepread belief around here that the merged carrier would be based in Tempe (America West's headquarters before it merged with US Airways, which had been based near Washington) ...Would you consider putting the headquarters in Atlanta to save the deal?
A: I won't speculate on negotiating tactics and really don't want to speculate on where the headquarters might be. The answer is we just don't know right now. ... We don't even know what the management team's going to look like, so to decide where it's headquartered is just premature at this point. What we do know is that both Phoenix and Atlanta are going to be extremely important to this new airline, and there are going to be a lot on management people in both cities.
Q: Why is it so hard to figure out where the headquarters will be?
A: Well, you need to know what the management structure looks like when you're done. ... I think there's a view that ... it will be a US Airways management team that prevailed, and that's certainly not my view. What I know is that we put together US Airways and America West, and most people see me and [a few other high-ranking executives] are all America West, [but] the fact is a third of our officers came from US Airways, and that percentage gets higher as you move on down the ranks.
But you don't know what that management team looks like until you start figuring out who wants to be part of the team and who doesn't, and how it all fits best. In the case of US Airways-America West, it was a good bit easier because their headquarters in Crystal City, Va., consisted of like two or three floors of people. ... That's not the case in Atlanta. It's a much harder decision to make.
Q: What odds do you give yourself of getting this deal through?
A: I feel very good about our chances. The market has clearly spoken in favor of our transaction. The bonds of Delta are at 70 percent [of face value]. The day we announced this transaction they got all that [gain] in the first day, and they stayed there. So I feel extremely good about the market reaction, and I feel very good as a result about where it's going to end up. [The value of Delta's bonds jumped more than 50 percent when US Airways announced its proposal on Nov. 15 and about 10 percent more shortly before Delta disclosed its stand-alone plan.]
If I go back to Nov. 15, is there any disappointment? The only thing I would say is six weeks later, we still haven't begun due diligence [on the proposed merger with Delta] despite that market reaction.
Q: We noticed that Julius Maldutis [a longtime airline securities analyst and consultant] this week was quoted as saying he doesn't think US Airways will go forward with the deal ... because of Delta employees' hostility. When you talk to creditors, is that a concern?
A: They haven't mentioned it to us. ... That has not come up as an issue.
Q: As time goes on, does that help or hurt your proposal?
A: There's nothing that gets worse with time with our proposal. The only thing that gets worse is if Delta emerges stand-alone.
Q: At least from the outside, it looks like Delta has done pretty well at lining up potential support on the unsecured creditors committee. (Delta has settled with its pilots union, Boeing and the Pension Benefit Guaranty Corp., all committee members.) Isn't that making your job harder?
A: If you accept the premise, yeah — which I don't. The committee has a fiduciary obligation to the creditors. They recognize as much as we do what's happened to the bond prices since our proposal came out, and they need to do what's best for the creditors of Delta, which is who they represent. I don't know what it means to be making progress with individual members of the committee, because the committee in itself represents all creditors.
cont......
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 01/07/07
Don't mistake the relative quiet of the past two weeks for a sign that US Airways' resolve to buy Delta Air Lines is weakening, says Doug Parker, CEO of US Airways.
"We believe our offer is more than fair, and as a result, don't intend on ... backing off," Parker said in a telephone interview last week. "We certainly don't intend on pulling the offer."
Parker made his carrier's $8 billion-plus offer public on Nov. 15, and Delta — which had already rebuffed his private approaches — fired back with a volley of objections, employee anti-merger rallies and a formal plan to emerge from Chapter 11 on its own. The dust settled during the holidays.
Parker says he expects things to soon heat up again, pointing out that Delta's creditors recently hired retired Continental Airlines Chief Executive Gordon Bethune to evaluate the rivals' proposals or other potential alternatives for Delta.
"Gordon is a decisive, extremely knowledgeable individual who ... they clearly didn't bring in just to look at the stand-alone plan. They brought him in to look at strategic alternatives," said Parker.
Another potential flash point: Delta has asked for a bankruptcy court hearing Feb. 7 to begin pitching its stand-alone plan to creditors. They will ultimately vote on whatever reorganization plan Delta uses. Delta's plan values the company at $12 billion when it comes out of bankruptcy and would pay creditors with stock. US Airways argues its cash-stock offer is better for creditors and that a merger will create a stronger airline.
"I think you'll start seeing more urgency this month," said Parker during the interview from US Airways' headquarters in Tempe, Ariz. The conversation has been edited for clarity and length.
Q: Have you gotten any indication as to how the unsecured creditors committee views the US Airways offer?
A: We've met with the committee a couple of times. Their advisers have come back and asked us a number of questions. My own personal view is I think they appreciate the value of the synergies, and I believe they're doing their work now. They've just hired Gordon Bethune, which we think is a positive development — not because we have any idea what Gordon's views are, but just because I know Gordon is a decisive, independent person who knows the airline business very, very well.
Q: What has the committee asked the most questions about?
A: It doesn't seem to be one area of focus. They've spent a lot of time going through the synergy analysis, the $1.65 billion a year [in estimated annual savings from a merger], with our team. I know they've hired their own antitrust counsel to come up with their own views of the antitrust issues, which you know we feel very sanguine about and Delta feels very differently about. They obviously need to get their own views on that. ... So most of the time with us has been on our proposal and synergies.
Q: How soon do you expect the unsecured creditors committee to take some sort of position?
A: I don't know. It's really up to them. ... The process only becomes urgent to the extent that the Delta stand-alone plan is moving in a way that is inconsistent with our merger proposal. ... So long as Delta remains in bankruptcy and there aren't things being approved or disapproved by the bankruptcy court that are inconsistent with our plan, there's no urgency.
Q: There's the Feb. 7 hearing about the disclosure statement on Delta's reorganization plan. [If the statement is approved by the bankruptcy judge, Delta would be allowed to start seeking creditors' votes backing its proposal.] What does that hearing mean to the US Airways deal?
A: Right now there's a request for a hearing. If indeed that hearing took place on that date, yeah, that would drive some urgency around this process, and I think it will. ... My guess is if the creditor committee wants to support that date, they have a lot of work to get done before that date.
Q: Does that mean it might force you guys to bump up your offer? Does it mean you might have to somehow figure out how to intervene in that hearing?
A: ... It doesn't drive any additional action at this point from US Airways, but I think what it does drive is action from the committee to get themselves ready. The ball's in their court. ... The dialog will continue with the committee, and we're following their lead. ... But as we stand here today, our offer, we think, is well in excess of [Delta's] stand-alone plan in terms of value, and we don't feel any need to amend the offer.
Q: If the committee does finally come out and say we're not interested in your offer, does that kill it?
A: We'd have to reassess at that point. I don't know the answer to that and don't want to speculate.
Q: Does the hostility of Delta employees toward this deal give you or the creditors any pause?
A: It certainly doesn't give us any. I understand it. As we went through the US Airways-America West merger [in which Parker's America West bought the larger carrier and took its name, as it now proposes to do with Delta], there clearly was reluctance on the US Airways side. ... Indeed, even on the America West side, there was some concern about why we were hitching ourselves to that boat. So we had to spend a lot of time communicating with our employees about where the company is going. ... But the fact is, change creates anxiety, and anxiety can turn into fear.
In a situation where we don't have the ability to communicate [with Delta employees] ... it's not surprising at all. I expect over time as this develops for us to have those opportunities. What the employees at Delta will see is that all we're trying to do is build a better Delta Air Lines, and that's only better for the employees. ... I think the culture of Delta is one of its strongest assets and one of the things we want to build on.
Q: There seems to be a widepread belief around here that the merged carrier would be based in Tempe (America West's headquarters before it merged with US Airways, which had been based near Washington) ...Would you consider putting the headquarters in Atlanta to save the deal?
A: I won't speculate on negotiating tactics and really don't want to speculate on where the headquarters might be. The answer is we just don't know right now. ... We don't even know what the management team's going to look like, so to decide where it's headquartered is just premature at this point. What we do know is that both Phoenix and Atlanta are going to be extremely important to this new airline, and there are going to be a lot on management people in both cities.
Q: Why is it so hard to figure out where the headquarters will be?
A: Well, you need to know what the management structure looks like when you're done. ... I think there's a view that ... it will be a US Airways management team that prevailed, and that's certainly not my view. What I know is that we put together US Airways and America West, and most people see me and [a few other high-ranking executives] are all America West, [but] the fact is a third of our officers came from US Airways, and that percentage gets higher as you move on down the ranks.
But you don't know what that management team looks like until you start figuring out who wants to be part of the team and who doesn't, and how it all fits best. In the case of US Airways-America West, it was a good bit easier because their headquarters in Crystal City, Va., consisted of like two or three floors of people. ... That's not the case in Atlanta. It's a much harder decision to make.
Q: What odds do you give yourself of getting this deal through?
A: I feel very good about our chances. The market has clearly spoken in favor of our transaction. The bonds of Delta are at 70 percent [of face value]. The day we announced this transaction they got all that [gain] in the first day, and they stayed there. So I feel extremely good about the market reaction, and I feel very good as a result about where it's going to end up. [The value of Delta's bonds jumped more than 50 percent when US Airways announced its proposal on Nov. 15 and about 10 percent more shortly before Delta disclosed its stand-alone plan.]
If I go back to Nov. 15, is there any disappointment? The only thing I would say is six weeks later, we still haven't begun due diligence [on the proposed merger with Delta] despite that market reaction.
Q: We noticed that Julius Maldutis [a longtime airline securities analyst and consultant] this week was quoted as saying he doesn't think US Airways will go forward with the deal ... because of Delta employees' hostility. When you talk to creditors, is that a concern?
A: They haven't mentioned it to us. ... That has not come up as an issue.
Q: As time goes on, does that help or hurt your proposal?
A: There's nothing that gets worse with time with our proposal. The only thing that gets worse is if Delta emerges stand-alone.
Q: At least from the outside, it looks like Delta has done pretty well at lining up potential support on the unsecured creditors committee. (Delta has settled with its pilots union, Boeing and the Pension Benefit Guaranty Corp., all committee members.) Isn't that making your job harder?
A: If you accept the premise, yeah — which I don't. The committee has a fiduciary obligation to the creditors. They recognize as much as we do what's happened to the bond prices since our proposal came out, and they need to do what's best for the creditors of Delta, which is who they represent. I don't know what it means to be making progress with individual members of the committee, because the committee in itself represents all creditors.
cont......
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