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).

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Chris Lawrence
About Chris Lawrence
Chris teaches political science at Middle Georgia State University in Macon, Georgia. He has a Ph.D. in political science (with concentrations in American politics and political methodology) from the University of Mississippi. He began writing for OTB in June 2006. Follow him on Twitter @lordsutch.

Comments

  1. Original Article syndicated via RSS from Outside The Beltway | OTB

  2. US Airways Offers $8B To Buy Delta…

    US Airways Group Inc. is hoping to buy Delta Airlines in a deal that would create one of the world’s…

  3. John Burgess says:

    For what it’s worth, here’s what US Air sent to all its frequent flyers:

    By now you may have heard that US Airways has made a proposal to merge with Delta Air Lines. Over the coming days there will certainly be much discussion in the media about this proposal, and in advance of that I’d like to make clear our company’s motivation for initiating this process and explain how we believe it would provide enormous benefits for you, one of our frequent flyers.

    The merger of America West and US Airways has provided us with a sound platform to grow our business and provide additional opportunities for our customers. We believe a merger with Delta is the right type of opportunity that can positively benefit all of our stakeholders — customers, employees, and investors. The combination will provide an even stronger base from which the merged airline can compete with other domestic and international airlines.

    For you, our customer, there will be benefits similar to what you’ve already experienced with the new US Airways:

    * A much larger network of routes and frequencies to simplify your travel
    * A history of reducing fares and eliminating unfriendly fare rules like Saturday-night stays
    * A global frequent flyer program that would combine your Dividend Miles and Delta SkyMiles balances
    * Participation in one of the world’s largest airline alliances, opening up even more of the world for your travel
    * Peace of mind that you are building a travel rewards investment in a company that will be here for the long term, and that your miles will be here when you’re ready to redeem them

    Of course, we don’t overlook the operational challenges inherent with this kind of transaction. Using our experience with the America West/US Airways merger we will work hard to mitigate transition difficulties, particularly with technology online and at the airports. In the short term we know there will be challenges, but in the long run you will be the beneficiary of one of the largest, most convenient airline networks in the United States, designed to make travel as efficient, economical, reliable and comfortable as possible.

    This process will undoubtedly take some time to reach its conclusion, but please be assured that in the meantime our current integration processes are moving full speed ahead, including moving to one reservations system scheduled for early second quarter 2007. In addition, should this transaction fail to materialize, please be assured that the new US Airways is in a very good position, competitively and financially, to continue to build the best full-service, low-fare airline in the world.

    Thank you again for your support of US Airways. We look forward to the opportunity to serve you again soon.

    Sincerely,
    Scott Kirby
    President