Standard and Poors' take on DL/US

[GogglesPisano]

Delta: We'll Chart Our Own Course
The Atlanta airline announced its plan to emerge from bankruptcy, spurning US Airways' takeover offer

Delta Air Lines' (DALRQ) CEO Gerald Grinstein on Dec. 19 announced a plan for the carrier to escape bankruptcy this spring -- and gave another brush-off to US Airways Group's (LCC) recent merger bid. But US Airways CEO Doug Parker isn't giving up yet.

After having made two overtures to no avail, Parker on Nov. 15 made a hostile takeover offer for Delta amounting to more than $8 billion. He was essentially saying he would pay Delta's unsecured creditors a 40% premium for their debts, with their support of such a deal.

Now Grinstein has released a five year business plan on Dec. 19 for Delta to emerge from bankruptcy this spring, including an estimate from his financial advisor, The Blackstone Group, that his company is worth between $9.4 billion to $12.0 billion. Those values would result in a recovery for Delta's unsecured creditors ranging from 63% to 80% of their allowed claims, Delta said in a statement on Dec. 19. (Those recoveries assume claims against Delta amounting to $15 billion.)

Delta's board unanimously rejected U.S. Airways' bid. "The Board concluded that Delta's standalone plan will provide the Company's creditors with superior value and greater certainty on a much faster timetable than the US Airways proposal," Delta said in the statement.

Delta added that US Airways' proposal would hurt consumers by stifling competitive forces. Meanwhile Delta would be forced to remain in bankruptcy longer, if US Airways' proposal went through and the Department of Justice had to review it for its impact on the market. The Air Line Pilots Association, which has a unit representing Delta's more than 6,000 pilots, has said Delta's pilot contract would prohibit the combined company from doing the capacity reductions that U.S. Airways wants.

Also, Delta warned that such a combination would burden the new company with a "precariously high debt load" of around $23 billion, the highest total debt load in the airline industry. US Airways' proposal relies on claimed synergies that are premised on flawed economic assumptions, Delta said in its statement, among other things.

Tempe (Ariz.)-based US Airways counters that a combination would generate at least $1.65 billion annually from things like improved efficiencies (the two airlines have many overlapping domestic routes.) "Factoring the synergy benefits into our offer, the current value of our proposal is significantly greater than the value of Delta's standalone plan," CEO Parker said in a statement Dec. 19. "We remain a disciplined and determined bidder for Delta."

With his new business plan, Grinstein is gunning for his company's return to profitability in 2007 and an increase in net income, after profit sharing, from around $500 million in 2007 to $1.2 billion in 2010. And he means to cut net long-term debt by more than 50% to around $7.5 billion in 2007.

Parker said he had always expected Delta to file a standalone plan with the bankruptcy court and that this will give Delta creditors a benchmark against which to evaluate the competing proposals.

Investors bid up U.S. Airways' shares 3.1% to $57.50 per share near closing time Dec. 19 on the New York Stock Exchange.

Standard & Poor's credit analyst Philip Baggaley says that Delta's proposed reorganization plan involves less risk than US Airways' merger proposal. "[The plan] would not face antitrust review by the Department of Justice, would not involve potentially difficult labor integration, and would not require the issuance of $4 billion in acquisition debt," said Baggaley in a Dec. 19 note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

However, Baggaley noted, "Delta's stand-alone plan foregoes potentially significant merger synergies and, like US Airways' acquisition forecast, rests on assumptions, some of which appear overly optimistic."

Baggaley pointed out that Delta is assuming it will fully close its historical gap in revenue generation against peers, in spite of factors like ongoing improvements at its competitors. Also, Delta foresees further reductions in its nonfuel expenses, maintaining its lead as the lowest-cost of the legacy carriers.
Atlanta-based Delta filed for bankruptcy last September, after buckling under numerous challenges. Since then Grinstein has been racing against the clock to save his company. He's had to rebuild Delta's management ranks, after many of the former CEO Leo Mullin's hires opted to exit in anticipation of the airline's bankruptcy. He's fixed problems like the airline's money-losing Cincinnati hub, which with more than 600 daily flights was sending up too many half-empty planes (see BusinessWeek, 12/4/06, "Flight Plan"). As of Sept. 30, Delta had managed to reach 85% of its goal set out in Sept. 2005 to realize $3 billion in annual financial improvements by the end of 2007.

"Delta is well along in the process of a top to bottom transformation -- implementing changes that have made a vast improvement in our performance," Grinstein said in his statement. "Our plan for a fundamentally new and different airline is working and is creating real value."

 

[General Lee]

Where again are these "synergies" Parker is talking about? Parker is just afraid of the newer version of Delta coming out of BK. And, some mergers can be good for carriers, especially if they are FOR them, like the AWA/US merger. That really was a good fit route, hub, and airplane wise. That is not the case with the proposed takeover of DL.

Bye Bye--General Lee

 

[grog_sit_reserv]

Thanks for putting the key points in BOLD type, I wouldn't be able to make out any of the important points with out your "cliff noting."

Yawn

 

[General Lee]

Thanks for putting the key points in BOLD type, I wouldn't be able to make out any of the important points with out your "cliff noting."

Yawn

Thanks, I didn't do that, but some of you actually need the bold face to read what is important. You seem tired with your yawning and all, you might miss something. Get some sleep now, ya hear?


Bye Bye--General Lee

 

[General Lee]

More of what DL thinks about the DL takeover from US

Company said that the U.S. Airways proposal was structurally flawed and could not be executed as claimed by U.S. Airways because of erroneous economic assumptions, higher debt-loads (needed to fund the merger), and, labor and antitrust issues. Insurmountable hurdles to the U.S. Airways deal include, but are not limited to the following:

1. The flawed economic assumptions underpinning the “synergies” in the US Airways proposal would result in vastly lower value than claimed by US Airways.
2. The combined company would have the highest total debt load in the airline industry -approximately $23 billion - seriously limiting its financial flexibility and ability to withstand the volatility of the airline industry (and would force the new entity to cut some 10,000 jobs).\
3. There are overwhelming labor issues that would preclude the combination from attaining the claimed synergies. The Delta unit of the Air Line Pilots Association, the union representing Delta’s more than 6,000 pilots, has said - and Delta agrees - that Delta’s pilot contract (which runs from June 1,2006 – December 31, 2009) would prohibit the combined company from implementing capacity reductions that US Airways asserts are the economic foundation of the proposed transaction. 4. The transaction is not likely to receive antitrust clearance from regulators because it would result in loss of competition, thereby, negatively impacting consumers and their communities: (i) The proposed merger would eliminate or reduce competition on thousands of domestic city pairs (origin and destination cities/airports), impacting millions of passengers per year; (ii) the combined entity would operate 52% of slots and 40% of gates at major East Coast airports; (iii) there would be no competitive low cost carrier presence (> 5% passenger share) at any of the 71 U.S. cities dominated by the merger; (iv) and, the deal would substantially reduce competition at Boston-Logan, New York-LaGuardia, and Washington-Reagan National airports (share position analysis based on passenger traffic); Ergo, city pair concentration and route dominance would lead to reduced competition, fewer discounted seats, and higher passenger fare levels—subjecting the US Airways proposal to a lengthy Department of Justice review process, during which Delta would be forced to remain in bankruptcy.


Bye Bye--General Lee

 

[grog_sit_reserv]

Delta says this, Grinstein says that blah, blah, blah....

I am trying to sleep, but you guys keep waking me up with this stuff... look, I agree, it ain't gonna happen.

Look most of this article is not Standard and Poor's take on the merger, but rather it is Delta's and Grinstein's take on the merger. Standard and Poors article is 3 paragraphs long and doesn't scream like an endorsment of the DL Board's take on things is all that great. I highlighted there as well so goggles can find it quikly; in fact, I've done some of my own highlighting for effect just like Goggles and GL....

Now, please let me go back to the cave and get some sleep!


Delta: We'll Chart Our Own Course
The Atlanta airline announced its plan to emerge from bankruptcy, spurning US Airways' takeover offer

Delta Air Lines' (DALRQ) CEO Gerald Grinstein on Dec. 19 announced a plan for the carrier to escape bankruptcy this spring -- and gave another brush-off to US Airways Group's (LCC) recent merger bid. But US Airways CEO Doug Parker isn't giving up yet.

After having made two overtures to no avail, Parker on Nov. 15 made a hostile takeover offer for Delta amounting to more than $8 billion. He was essentially saying he would pay Delta's unsecured creditors a 40% premium for their debts, with their support of such a deal.

Now Grinstein has released a five year business plan on Dec. 19 for Delta to emerge from bankruptcy this spring, including an estimate from his financial advisor, The Blackstone Group, that his company is worth between $9.4 billion to $12.0 billion. Those values would result in a recovery for Delta's unsecured creditors ranging from 63% to 80% of their allowed claims, Delta said in a statement on Dec. 19. (Those recoveries assume claims against Delta amounting to $15 billion.)

Delta's board unanimously rejected U.S. Airways' bid. "The Board concluded that Delta's standalone plan will provide the Company's creditors with superior value and greater certainty on a much faster timetable than the US Airways proposal," Delta said in the statement.

Delta added that US Airways' proposal would hurt consumers by stifling competitive forces. Meanwhile Delta would be forced to remain in bankruptcy longer, if US Airways' proposal went through and the Department of Justice had to review it for its impact on the market. The Air Line Pilots Association, which has a unit representing Delta's more than 6,000 pilots, has said Delta's pilot contract would prohibit the combined company from doing the capacity reductions that U.S. Airways wants.

Also, Delta warned that such a combination would burden the new company with a "precariously high debt load" of around $23 billion, the highest total debt load in the airline industry. US Airways' proposal relies on claimed synergies that are premised on flawed economic assumptions, Delta said in its statement, among other things.

Tempe (Ariz.)-based US Airways counters that a combination would generate at least $1.65 billion annually from things like improved efficiencies (the two airlines have many overlapping domestic routes.) "Factoring the synergy benefits into our offer, the current value of our proposal is significantly greater than the value of Delta's standalone plan," CEO Parker said in a statement Dec. 19. "We remain a disciplined and determined bidder for Delta."

With his new business plan, Grinstein is gunning for his company's return to profitability in 2007 and an increase in net income, after profit sharing, from around $500 million in 2007 to $1.2 billion in 2010. And he means to cut net long-term debt by more than 50% to around $7.5 billion in 2007.

Parker said he had always expected Delta to file a standalone plan with the bankruptcy court and that this will give Delta creditors a benchmark against which to evaluate the competing proposals.

Investors bid up U.S. Airways' shares 3.1% to $57.50 per share near closing time Dec. 19 on the New York Stock Exchange.

Standard & Poor's credit analyst Philip Baggaley says that Delta's proposed reorganization plan involves less risk than US Airways' merger proposal. "[The plan] would not face antitrust review by the Department of Justice, would not involve potentially difficult labor integration, and would not require the issuance of $4 billion in acquisition debt," said Baggaley in a Dec. 19 note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

However, Baggaley noted, "Delta's stand-alone plan foregoes potentially significant merger synergies and, like US Airways' acquisition forecast, rests on assumptions, some of which appear overly optimistic."

Baggaley pointed out that Delta is assuming it will fully close its historical gap in revenue generation against peers, in spite of factors like ongoing improvements at its competitors. Also, Delta foresees further reductions in its nonfuel expenses, maintaining its lead as the lowest-cost of the legacy carriers.

Atlanta-based Delta filed for bankruptcy last September, after buckling under numerous challenges. Since then Grinstein has been racing against the clock to save his company. He's had to rebuild Delta's management ranks, after many of the former CEO Leo Mullin's hires opted to exit in anticipation of the airline's bankruptcy. He's fixed problems like the airline's money-losing Cincinnati hub, which with more than 600 daily flights was sending up too many half-empty planes (see BusinessWeek, 12/4/06, "Flight Plan"). As of Sept. 30, Delta had managed to reach 85% of its goal set out in Sept. 2005 to realize $3 billion in annual financial improvements by the end of 2007.

"Delta is well along in the process of a top to bottom transformation -- implementing changes that have made a vast improvement in our performance," Grinstein said in his statement. "Our plan for a fundamentally new and different airline is working and is creating real value."

 

[YourPilotFriend]

If I were on the creditors committee, I would want delta to emerge as a stand alone company. I would take my 80% claim and then demand delta to start talking to other airline about a merger. That should send the stock through the roof.

 

[Flys4Fun]

Delta Board of Directors to Doug Parker : We reject your offer.

Doug Parker to Delta Board of Directors : Shut up, no one asked you.

 

[General Lee]

Delta Board of Directors to Doug Parker : We reject your offer.

Doug Parker to Delta Board of Directors : Shut up, no one asked you.

Delta creditor committee to Doug Parker: No thanks, but we will keep options open for NWA or someone else who might pass DOJ scrutiny...


Bye Bye---General Lee


NEW YORK, Dec 20 (Reuters) - Bankrupt Delta Air Lines Inc.'s official creditor committee said on Wednesday it supported the carrier's decision to file a reorganization plan, but it would continue to consider potential alternatives.
Delta (DALRQ.PK: Quote, Profile , Research), which has been operating under Chapter 11 protection since September 2005, rejected a takeover offer from rival US Airways Group Inc. (LCC.N: Quote, Profile , Research) on Tuesday and filed a business plan that would see it exit bankruptcy as an independent carrier.
A number of issues, including those left open in the plan, will be the focus of continuing discussions between creditors and Delta over the coming weeks, the official committee of unsecured creditors said in a brief statement.
But the committee added that it would continue to look at alternatives at the same time to maximize recoveries for unsecured creditors.