US Airways ups ante for Delta to $10.2 billion; DL board backs standalone plan

US Airways yesterday raised its takeover offer for bankrupt Delta Air Lines to $10.2 billion, promising DL's unsecured creditors $5 billion in cash and 89.5 million shares of US stock, but the Delta board quickly gave a thumbs-down to the proposal, stating that "it does not address significant concerns. . .raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1 billion."

Delta said previously that a merged airline would carry $23 billion in debt. US's first offer called for creditors to receive approximately $8.6 billion, including $4 billion in cash. DL's standalone plan, filed after US's first offer, proposes to repay 63%-80% of unsecured claims in new Delta common stock, valuing the reorganized airline at $9.4-$12 billion (ATWOnline, Dec. 20, 2006).

US said the new offer will expire Feb. 1 "unless there is affirmative creditor support for commencement of due diligence." Chairman and CEO Doug Parker told analysts yesterday, "We've set the offer to expire in order to move this process forward, instill a sense of urgency."

Parker also confirmed that he met earlier this week with former Continental Airlines Chairman and CEO Gordon Bethune, who was hired by DL's creditors' committee as an adviser. "We would note that following Bethune's meeting with US Airways this week, [US] immediately raised its offer," JP Morgan analyst Jamie Baker wrote yesterday, pointing out that Bethune has "long [been] a supporter of industry consolidation."

US said it has lined up a combined $8.2 billion in financing from Citigroup and Morgan Stanley to fund the proposed transaction, including $5 billion to cover the cash portion and $3.2 billion to refinance existing obligations at both airlines.

With consolidation talk rampant, lawmakers are taking notice. The Senate Commerce and Transportation Committee said it will hold a hearing Jan. 24 on the "state of the airline industry," focusing on the potential impact of mergers.

Adding to the speculation, The Wall Street Journal reported yesterday that executives from DL and Northwest Airlines have been meeting regularly in recent weeks to discuss a possible merger after both carriers exit Chapter 11 later this year.