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Crash Landing for Airline Merger
By Ian Cooper
Intense merger speculation in the airline industry is nothing new. US Airways and Delta Air Lines’ deal looks to be off. And Northwest Airlines’ CEO just reiterated the company’s desire to exit bankruptcy as a standalone airline. As of now, Northwest (due to file reorganization details by February 15, 2007) has no plan to merge before exiting bankruptcy protection.
US Airways just dropped its $9.75 billion cash and stock bid for Delta Air Lines after the offer failed to win over the support of Delta’s Official Unsecured Creditors’ Committee. While we view it as a bad move for Delta, it’s a victory for the Delta’s management and pilots union who believed that Delta should pursue plans that’ll allow it to emerge from Chapter 11 as an independent airline.
According to The New York Times, “While US Airways claimed a merger would produce $1.65 billion in synergies and an airline with a dominant position in East Coast routes, Delta has raised concerns about potential antitrust problems and the debt that a combined Delta-US Airways would carry.” Delta currently carries $13 billion in debt as compared to US Airways’ $2.97 billion debt.
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Also interesting to note, US Airways, according to the Wall Street Journal, “had expressed a willingness to add another $1 billion in cash if the creditors committee agreed to demand that Delta open its finances to due diligence by US Airways, support the start of a federal antitrust review and petition the bankruptcy court for a 30-day postponement of the Feb. 7 hearing on Delta’s restructuring plan.”
All merger speculation is off for now… but stay tuned. We wouldn’t be surprised to see a resurgence of airline merger speculation pop up again in the near term.
Ian L. Cooper
Editor, Early Alert Trader