US Air's Offer for Delta Loses
More Ground With Creditors
By COREY DADE, SUSAN CAREY and MELANIE TROTTMAN
January 23, 2007
As a U.S. Senate committee prepares to take testimony tomorrow on consolidation in the airline industry, US Airways Group Inc.'s hostile $10.1 billion bid for Delta Air Lines Inc. appears to be losing traction among creditors who will determine the fate of the Atlanta airline, according to people familiar with the matter.
After digging into the details of the US Airways offer -- which was sweetened 20% less than two weeks ago -- and hiring former Continental Airlines Inc. Chairman Gordon Bethune to help analyze its prospects, the Delta creditors' committee has grown skeptical of the proposed merger, these people said.
Delta and Northwest Airlines Corp. senior management recently held several meetings to explore a possible combination after Delta creditors pushed the airline to explore all merger options, according to people familiar with the matter. A combination of Delta and Northwest "is a very viable option," according to one of those people, but is likely to be pursued only after both airlines emerge from bankruptcy protection this year. Delta intends to leave Chapter 11 proceedings in April and has made its own proposal to creditors to emerge as a stand-alone company. Northwest hopes to emerge from bankruptcy-court protection in the second quarter.
The discussions between Delta and Northwest were "detailed, specific conversations" about potential structures, processes and timetables for a transaction, said a person knowledgeable about the matter. However, those talks have concluded without a framework for a deal and without specific plans for further negotiations, according to people familiar with the thinking of both sides.
In a flurry of behind-the-scenes meetings over the past week, representatives from the creditors' committee and Delta have been trying to iron out issues related to the airline's hope to emerge from bankruptcy protection as an independent airline. Issues have included how the Delta board will be selected, compensation for senior management, and how to compensate nonunion front-line Delta employees, according to several people close to the discussions.
Delta and the creditors are expected to soon begin negotiations on the selection process for board members, these people said. Spencer Stuart & Associates Inc. recently spent more than a day interviewing current board members, some of whom likely will remain on the board. The unsecured creditors' committee also has begun assembling a slate of potential directors, according to several people close to the process.
The makeup of a board would be pivotal if Delta Chief Executive Officer Gerald Grinstein keeps his pledge to retire after guiding the airline out of bankruptcy protection. The creditors' committee is seeking a strong hand alongside Delta's in selecting the directors, preferring members open to a future merger that would keep Delta competitive in an anticipated wave of industry consolidation.
In his testimony tomorrow, Mr. Grinstein is expected to reprise his criticisms of the US Airways deal, which he says would cost thousands of Delta employees their jobs, diminish competition in many U.S. markets, and fail to pass antitrust scrutiny due to both airlines' concentrated operations on the East Coast. Some people involved in the Delta case believe the creditors are cooling on the US Airways offer because they expect Delta management wouldn't cooperate with the antitrust review and other steps required to push through the transaction.
Mr. Grinstein also must explain that his airline would consider tying up with a different carrier that offers a network that complements Delta's. For example, Northwest's Midwest and China routes fit well Delta's East Coast and European prowess.
Mr. Grinstein is expected to face questions from lawmakers at tomorrow's hearing on whether his airline is entertaining talks with other suitors besides US Airways. Northwest declines to comment on the Delta discussions.
As for US Airways' chairman and CEO, Doug Parker, he is expected to defend what he believes are the merits of the merger, including $1.65 billion in cost and revenue synergies he promises will create a more-efficient and financially secure airline much like the merger he engineered in 2005 between America West Holdings Corp. and US Airways, he said.
Mr. Parker, who has said the new airline would operate on a low-fare carrier's cost structure, is expected to address speculation that fares would rise and air service would diminish in several markets.
Mr. Parker said he has had no indication Delta creditors are lining up against the US Airways bid. "We're in regular contact with the creditors' committee," Mr. Parker said, adding he is confident the creditors will support US Airways' request to conduct due diligence on Delta's finances. "We're working nicely and productively with the creditors' committee, so I'm confident that by the time our [Feb. 1] deadline comes around, they'll allow us to continue," he said.
More Ground With Creditors
By COREY DADE, SUSAN CAREY and MELANIE TROTTMAN
January 23, 2007
As a U.S. Senate committee prepares to take testimony tomorrow on consolidation in the airline industry, US Airways Group Inc.'s hostile $10.1 billion bid for Delta Air Lines Inc. appears to be losing traction among creditors who will determine the fate of the Atlanta airline, according to people familiar with the matter.
After digging into the details of the US Airways offer -- which was sweetened 20% less than two weeks ago -- and hiring former Continental Airlines Inc. Chairman Gordon Bethune to help analyze its prospects, the Delta creditors' committee has grown skeptical of the proposed merger, these people said.
Delta and Northwest Airlines Corp. senior management recently held several meetings to explore a possible combination after Delta creditors pushed the airline to explore all merger options, according to people familiar with the matter. A combination of Delta and Northwest "is a very viable option," according to one of those people, but is likely to be pursued only after both airlines emerge from bankruptcy protection this year. Delta intends to leave Chapter 11 proceedings in April and has made its own proposal to creditors to emerge as a stand-alone company. Northwest hopes to emerge from bankruptcy-court protection in the second quarter.
The discussions between Delta and Northwest were "detailed, specific conversations" about potential structures, processes and timetables for a transaction, said a person knowledgeable about the matter. However, those talks have concluded without a framework for a deal and without specific plans for further negotiations, according to people familiar with the thinking of both sides.
In a flurry of behind-the-scenes meetings over the past week, representatives from the creditors' committee and Delta have been trying to iron out issues related to the airline's hope to emerge from bankruptcy protection as an independent airline. Issues have included how the Delta board will be selected, compensation for senior management, and how to compensate nonunion front-line Delta employees, according to several people close to the discussions.
Delta and the creditors are expected to soon begin negotiations on the selection process for board members, these people said. Spencer Stuart & Associates Inc. recently spent more than a day interviewing current board members, some of whom likely will remain on the board. The unsecured creditors' committee also has begun assembling a slate of potential directors, according to several people close to the process.
The makeup of a board would be pivotal if Delta Chief Executive Officer Gerald Grinstein keeps his pledge to retire after guiding the airline out of bankruptcy protection. The creditors' committee is seeking a strong hand alongside Delta's in selecting the directors, preferring members open to a future merger that would keep Delta competitive in an anticipated wave of industry consolidation.
In his testimony tomorrow, Mr. Grinstein is expected to reprise his criticisms of the US Airways deal, which he says would cost thousands of Delta employees their jobs, diminish competition in many U.S. markets, and fail to pass antitrust scrutiny due to both airlines' concentrated operations on the East Coast. Some people involved in the Delta case believe the creditors are cooling on the US Airways offer because they expect Delta management wouldn't cooperate with the antitrust review and other steps required to push through the transaction.
Mr. Grinstein also must explain that his airline would consider tying up with a different carrier that offers a network that complements Delta's. For example, Northwest's Midwest and China routes fit well Delta's East Coast and European prowess.
Mr. Grinstein is expected to face questions from lawmakers at tomorrow's hearing on whether his airline is entertaining talks with other suitors besides US Airways. Northwest declines to comment on the Delta discussions.
As for US Airways' chairman and CEO, Doug Parker, he is expected to defend what he believes are the merits of the merger, including $1.65 billion in cost and revenue synergies he promises will create a more-efficient and financially secure airline much like the merger he engineered in 2005 between America West Holdings Corp. and US Airways, he said.
Mr. Parker, who has said the new airline would operate on a low-fare carrier's cost structure, is expected to address speculation that fares would rise and air service would diminish in several markets.
Mr. Parker said he has had no indication Delta creditors are lining up against the US Airways bid. "We're in regular contact with the creditors' committee," Mr. Parker said, adding he is confident the creditors will support US Airways' request to conduct due diligence on Delta's finances. "We're working nicely and productively with the creditors' committee, so I'm confident that by the time our [Feb. 1] deadline comes around, they'll allow us to continue," he said.
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