US Airways undeterred by Delta reorganization plan

US Airways yesterday dismissed Delta Air Lines' intention to remain a standalone carrier, with US Chairman and CEO Doug Parker saying that DL's reorganization plan (see story above) is nothing more than a "benchmark against which to evaluate the competing proposals" and that it is DL's creditors who remain "the ultimate authority in this process."

"We remain a disciplined and determined bidder for Delta," Parker said. He did not address directly the fact that DL's plan values the airline at $9.4-$12 billion, which exceeds US's $8.6 billion bid, but did say the merger would create "at least" $1.65 billion in annual synergies "beyond the value that could be created by any standalone plan" and in addition to the $4 billion in cash and 78.5 million shares of US stock that constitute the buyout offer. "Factoring the synergy benefits into our offer, the current value of our proposal is significantly greater than the value of Delta's standalone plan," he declaired.

Credit agency Standard & Poor's in a brief report on the Delta proposal said that DL should achieve "substantially improved operating performance [and] greatly reduced debt and leases," but that "some of [its] forecast assumptions and plans carry risks."

S&P noted that DL's effort to close the "historical gap in revenue generation" with its network peers "may prove challenging, given its disproportionate exposure to competitive domestic leisure markets and ongoing improvements at its competitors."

On the other hand, S&P said the synergies created by a potential merger will "likely not [be] on the scale projected by US Airways" and Delta's plan may be more attractive to unsecured creditors who do not want to wait for regulatory approval. Those creditors, however, would have to be content with shares in the new standalone DL rather than the combination of cash and stock offered by US Airways.

"It is possible that either Delta and/or US Airways may amend their proposals, or that another airline could make a competing bid for Delta if it appears that unsecured creditors favor a sale of the company," S&P concluded.