How Delta Won the Fight Against US Airways

The creditors' decision came after an efficient campaign by Delta to torpedo the offer both publicly and behind the scenes.

Delta Air Lines' two-month effort to present a loud, united front against a hostile takeover bid paid off in victory Wednesday.

US Airways withdrew its $10 billion merger proposal --- a deal that threatened to move Delta's headquarters to Arizona --- after Delta's major bankruptcy creditors refused to get behind the bid.

The creditors' decision came after an efficient campaign by Delta to torpedo the offer both publicly and behind the scenes.

Publicly, employee groups voiced vehement opposition through rallies and "Keep Delta My Delta" buttons. The airline also enlisted political allies who raised questions about whether a merger would survive scrutiny by federal regulators. Both tactics were designed to plant doubts in creditors' minds.

Behind the scenes, the hostile bid lit a fire under Delta's effort to put forth a stand-alone reorganization plan that the creditors would like better than the merger offer. Delta lined up $2.5 billion in exit financing from six big Wall Street firms, announcing the arrangement just 48 hours before the creditors committee had to make a decision.

Airline experts said Delta's 74-year-old chief executive, Gerald Grinstein, should get credit for rallying Delta --- riven by hard times, job cuts and executive pay controversies in recent years --- around the cause of independence.

"He's 74 years old, and maybe he'd rather be on a golf course," said Michael Boyd, president of a Colorado-based aviation consulting firm. "But he said what he meant, he wasn't evasive, and employees appreciate his candor. Despite all they've been through, their morale has seldom been higher."

The withdrawal of Tempe, Ariz.-based US Airways' bid clears Delta management to continue its plan to emerge from bankruptcy this spring as an independent airline. A court hearing on Delta's reorganization plan is set for Feb. 7 and could enable Delta to begin seeking creditors' votes for its plan.

It may not end speculation about possible mergers in Delta's future, however. Grinstein himself has said he is not opposed to all mergers, though he considered the US Airways offer fatally flawed because of the substantial overlap in the two airlines' routes.

For now, Grinstein thanked the creditors committee and trumpeted the news as a victory for workers.

"This is a proud day for the thousands of Delta people, customers, communities, civic leaders and others who stood up for our standalone plan and said, emphatically, 'Keep Delta My Delta.' " Grinstein said in a statement.

Uphill from the start

From the start, US Airways faced an uphill battle because of Delta's hostile reaction to the bid and the daunting labor and regulatory obstacles that have undermined many other proposed airline mergers.

To have a chance at pulling it off, US Airways and its 45-year-old chief executive, Doug Parker, needed to convince Delta's official creditors committee that the creditors would be better off with a merger. The court-appointed committee includes the biggest suppliers, banks and other groups with claims in Delta's Chapter 11 case, and it must approve any plan the airline submits to emerge from bankruptcy.

The committee said in a statement that in rejecting the US Airways offer it "considered a variety of factors" including the deal's value, timing and risk factors, along with the "likelihood of a successful consummation."

The committee said it plans to "work collaboratively with Delta toward confirmation and consummation" of its stand-alone Chapter 11 exit plan. A revised version of that plan will be filed this week, the committee said.

Parker said the creditors committee failed to do its job.

"We are disappointed that the committee, which has been chosen to act on behalf of all Delta creditors, is ignoring its fiduciary obligation to those creditors," he said in a statement Wednesday.

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