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.


"Our proposal would have provided substantially more value to Delta's unsecured creditors than the Delta stand-alone plan. We would have created a better and more financially stable airline that offered more choice to consumers and increased job security to its employees. Our merger would have been able to be consummated in a reasonable time-frame and we would have been able to obtain all requisite regulatory approvals."

It's not known how the creditors committee voted, but a court filing Wednesday indicated that MacKay Shields, a bond firm that was one of the original nine members, had left the committee. The firm could not be reached for comment.

A second, unofficial creditor group had pushed for a deal and expressed disappointment with Wednesday's news.

Under Delta's plan, creditors will get newly issued stock when it emerges from court. US Airways' proposal would have paid a combination of upfront cash and stock in the merged carrier. Each side claimed its plan was more valuable.

Luck, timing helped

Walter Curchack, a New York bankruptcy attorney who has worked on airline cases, said Delta benefited from luck and timing as well as shrewd defensive moves. He said official creditors committee members generally have deep relationships with the company and are inclined to stick with management's plan unless things go badly sour.

"Even if the US Airways deal was better all things being equal, everything wasn't equal," said Curchack.

Delta was 15 months into its Chapter 11 bankruptcy case when the US Airways bid arrived, and its recovery plan began gaining traction last year. Delta had already reached debt-payment deals with most of its largest creditors, including several members of the committee.

"I guess you could say Delta played it well, and US Airways didn't play it as well," Curchack said. But the bottom line, he added, is "US Airways came to the party too late."

Hartsfield-Jackson International Airport has a nonvoting seat on the official creditors committee. Its general manager, Ben DeCosta, said Wednesday: "I'm feeling very good about what has occurred so far and I'm very optimistic about the future of this airline. Delta is now on the path to having adequate financing, coupled with a plan that is already working and a strategy that is winning."

Delta's pilots union, the Air Line Pilots Association has a voting seat on the committee. Its leaders have vocally opposed the merger. In a statement, the union "cautiously noted" US Airways' decision.

"The focus of the union will return to successfully exiting bankruptcy and monitoring the company's restructuring plans while also remaining attentive of any future threat," the union said.

Calyon Securities analyst Ray Neidl said Wednesday that creditors had lost confidence in Parker's predictions that he could guide the deal through antitrust review. Delta executives argued that winning such approval from the Justice Department was highly improbable, given the merger's scope and the two carriers' substantial overlap of routes. Without a good chance of approval, they argued, pursuing the US Airways offer was a waste of time and would only delay the case.

But Neidl said Delta had to give up a large degree of control to creditors to stay in the pilot's seat, noting that the airline is expected to have no "poison pill" takeover defenses when after it leaves from Chapter 11. Grinstein --- who is expected to pass the controls to a yet-unnamed successor at that point --- has denied reports that Delta has talked to Northwest Airlines about a post-bankruptcy merger.

US Airways wanted to merge the two carriers under the Delta name, creating the world's largest airline. A headquarters locale was never disclosed, but it was widely expected it would be in Arizona. That was the home of America West Airlines, which under Parker bought US Airways in 2005 and adopted the larger carrier's name.

That prospect generated many political allies for Delta.

One of the staunchest was U.S. Sen. Johnny Isakson (R-Ga.), who last year helped Delta get legislation passed that enabled it to preserve its main pension plan.

"There was no question this was a united front and our message was heard loud and clear," Isakson said in a joint statement Wednesday with fellow Sen. Saxby Chambliss (R-Ga.).

Staff writer Dave Hirschman contributed to this article.

1. Quickly finished a plan to emerge from Chapter 11 on its own, giving creditors a real alternative to the US Airways offer.

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