Others May Try to Buy Delta

Delta Air Lines management could agree to open the door to future deals in an effort to win crucial support in its effort to fight off a hostile takeover bid by US Airways Group, according to a published report.

Separately, Delta also announced it has lined up $2.5 billion in financing it will need in order to exit from bankruptcy court protections later this Spring. Six major financial firms, including JP Morgan Chase, Goldman Sachs, Merrill Lynch, Lehman Brothers, UBS and Barclays Capital are providing the necessary financing.

Delta is fighting a hostile bid from US Airways Group as it tries to emerge from bankruptcy as an independent carrier. It will need the support of its creditors committee if its reorganization plan is to be approved.

The Wall Street Journal reported Tuesday that the Delta creditors' committee is demanding that Delta's new corporate charter not have any of the so-called poison pill provisions that would make future deals difficult if not impossible.

The creditors are also demanding a new board for Delta that favors consolidation as a strategic option, according to the report.

If those two demands are met, it could revive talk of consolidation in the industry that has been on the wane in recent weeks on the belief that US Air would fail in its bid for Delta.

Talk of consolidation, which could remove capacity and help to further lift fares in the airline industry, helped to lift airline stocks earlier this year, before a recent retreat.

Delta management has argued that the Justice Department would never approve the $9.9 billion hostile bid by US Air because over the overlap in the two airline's route structures, particularly along the East Coast. But there are other potential combinations which do not have the same amount of route overlap.

US Air has set a Thursday deadline for its offer of 89.5 million shares of stock and $5 billion in cash.

It says the offer will expire unless the creditors' committee backs the offer and demands that Delta management postpone a key Feb. 7 bankruptcy court hearing at which Delta's plans to emerge as an independent carrier will be reviewed by the court.

But the Journal has reported that US Airways has been discussing adding $1 billion in cash to that offer in order to win support from Delta creditors.

US Air executives may discuss the outlook for the bid when they hold a conference call with analysts Tuesday following the release of their earnings report.

If Delta does get involved in merger with another major airline, it is generally believed that other major airlines would respond with deals of their own.

Philip Baggaley, Standard & Poor's senior airlines credit analyst, told CNNMoney.com on Monday that he thinks there is still a chance that Delta could combine with Northwest Airlines, which is also in bankruptcy, even though Delta CEO Gerald Grinstein testified before the Senate Commerce Committee last week that there are no such negotiations now taking place.

"It's an easier sell if you're combining two carriers consensually and two without much overlap, such as Delta and Northwest," he said. "Congress still would have skeptical members, but opposition would not be as strong."

Baggaley said that Northwest's proposal to exit bankruptcy holds out the possibility of a new source of equity for the airline, such as a deal.

If a deal is done before Northwest is out of bankruptcy, the airlines could use the bankruptcy court process to shave costs and exit leases and other contracts, just as US Air is proposing to do in its bid for Delta.

But Baggaley said even if such a deal is not done until after both Delta and Northwest emerged from bankruptcy, there is an urgency to consider deals in the next two years while a Bush administration Justice Department would be the authority reviewing a proposed merger for potential antitrust problems.

If Delta combines with Northwest, it would end a veto that Northwest now holds over another airline combining with Continental Airlines, allowing United Airlines parent UAL Corp. to consider a deal with it. UAL executives are on the record favoring consolidation.

If both those deals get done, it could leave American Airlines parent AMR Corp. and US Air looking for partners as well.

Clock ticking on US Air bid for Delta



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