Delta Air Lines could be weighing its second mega-merger in the past four years --- this time via a takeover bid for American Airlines.
The Wall Street Journal reported Thursday that Atlanta-based Delta is considering whether to bid for American in the bankruptcy case of its parent, AMR Corp.
The idea of a potential merger between Delta, the nation's second-largest carrier, and American, the third-largest, led to speculation about a new No. 1 mega-carrier with an impressive collection of hubs across the country, a massive international route network and an industry dominated by just a few major airlines.
The companies didn't comment and analysts had mixed views about the likelihood of a Delta bid or its chances of success. But they said if Delta pursued a deal with AMR and its creditors, the motive could be to take out a major competitor and gain strength in the northeast, Europe and Latin America.
AMR filed for Chapter 11 bankruptcy protection in November. At the time its new chief executive said he expected the carrier to reorganize and emerge as an independent carrier with lower costs and reduced debt.
However, bankruptcy cases often spawn buyout speculation, and in some cases bids.
The Wall Street Journal, which based its report on unnamed people familiar with the matter, noted that it's "not certain that a deal will materialize." The report also said US Airways and TPG Capital, a private equity firm, are considering bidding.
TPG "prefers to work with a strategic partner for a possible American Airlines investment," according to the report.
Delta, US Airways and American all declined comment Thursday, saying they do not comment on rumors and speculation.
US Airways, based in Phoenix, launched an unsuccessful bid for Delta during Delta's bankruptcy case several years ago.
Darryl Jenkins, chairman of the American Aviation Institute and a consultant who has worked with many airlines, said Thursday, "I'm pretty sure that everybody is going through some sort of a strategic analysis on how they're going to handle American when American comes out of bankruptcy," potentially as a stronger competitor.
The industry has condensed in recent years through a string of large mergers, led by Atlanta-based Delta's 2008 acquisition of Northwest Airlines after both completed Chapter 11 cases. Delta is still completing the final steps of integrating employee groups. United and Continental also have merged, surpassing Delta in size.
AirTran Airways, which has its main hub in Atlanta, was acquired by Dallas-based Southwest Airlines last year, and Southwest plans to enter the Atlanta market next month.
It's difficult to determine what a Delta-American deal would mean for travelers, employees, competitors and the massive Delta corporate headquarters near Hartsfield-Jackson International Airport.
Generally, airline industry experts say further consolidation could lead to higher prices for travelers. But a bigger Delta could also open up a broader route network for travelers from Atlanta --- such as more flights to Latin America, where American has a strong presence.
Delta has its largest hubs in Atlanta, New York, Detroit, Minneapolis and Salt Lake City, while American is big in New York, Los Angeles, Dallas/Fort Worth, Chicago O'Hare, and Miami. With American, Delta could significantly grow its presence in New York, gain more transcontinental routes and a stronger presence on the West Coast, as well as gain hubs in the key markets of Miami, Dallas and Chicago.
But any specific outcomes would depend on how the deal was done and whether Delta would acquire its competitor as a whole or just certain assets.
The report Thursday also raised the question of whether such a deal would get antitrust clearance from the U.S. Department of Justice.
"We are skeptical on both the merits of any potential acquisition by Delta, which we do not think needs to get larger, or by the ability of such a deal to pass regulatory scrutiny," wrote Standard & Poor's equity analyst Jim Corridore in a note to investors. "We think the combined entity would be too big, even with divestitures made, to be approved. We also think taking on AMR would be a big management distraction."
Delta has been working to reduce its debt levels and American could be worth billions. But Jenkins said, "I'm sure an airline like Delta would have no problem getting this much money."
Copyright 2012 The Atlanta Journal-Constitution
