US Airways Makes Hostile Bid For Delta
US Airways, still devouring (or, technically speaking, being devoured by) America West Airlines, has decided to launch a hostile $8 billion bid for bankrupt Delta Airlines:
The combined company would carry more passengers each year than any other airline in the world, eclipsing American Airlines, the current leader.
The offer, extended to Delta’s bankruptcy lenders, is an attempt by the chief executive of US Airways, W. Douglas Parker, to circumvent Delta’s top management, who rebuffed two earlier approaches from Mr. Parker about merging the two airlines. …
A Delta-US Airways merger would further consolidate an industry that has already shrunk considerably — and painfully — over the past five years. Rising oil prices, plummeting profits, a wave of bankruptcies and disruptive labor strife have roiled the nation’s airlines since the Sept. 11 attacks. And as the old-line carriers have struggled to cope with an onslaught from low-fare airlines like JetBlue and Southwest, analysts have predicted that there would be fewer airlines flying over American skies by the end of the decade.
US Airways said the merger would save at least $1.65 billion in operating costs each year by combining facilities at some airports, eliminating overlapping flights and cutting capacity by about 10 percent…
Under the terms of the deal that US Airways proposed today, the new airline would adopt the Delta name, with Mr. Parker as chief executive leading a combined management team. Nothing was said about a role for [Delta CEO Gerald] Grinstein.
Like Andrew Samwick, I’m a bit baffled by this takeover proposal, although I suppose $8 billion is pretty cheap for a full airline.
The most obvious hurdle to the merger, as noted in this more recent Times article, is the overlapping route systems in the southeast, although it is not an unmanageable one–the combined airline could duplicate American’s strategy upon acquiring TWA (which led to the downsizing of the former TWA hub in St. Louis) by making higher-capacity Atlanta the regional hub and replacing mainline non-stop flights from Charlotte with regional jet service, essentially resulting in a “de-hubbing.”
The second big question is “who’s next”? Delta’s fellow bankrupt airline Northwest would seem like an obvious take-over target, probably by existing code-share partner Continental, which has a reasonably complementary route network (although, again, operating full hubs at both Detroit and Cleveland seems unlikely by a combined airline).