US Airways' New bid Hasn't Excited Delta Creditors

US Airways' top executive is sounding a little less confident about his company's takeover bid for Delta Air Lines.

In an interview Tuesday, CEO Doug Parker said that the recently sweetened bid for Delta by US Airways has generated little response from the Atlanta carrier's bankruptcy creditors and that time is running out on the offer.

"We have not had any give-and-take negotiations [with the creditors], which you might expect," said Parker, who on Jan. 10 raised the bid nearly 20 percent to about $10.3 billion.

Parker said he hopes the deal will get done, joining the two carriers under the Delta banner.

But, "if the creditors don't want to do it, that's their prerogative," Parker said by telephone from Washington.

Parker's comments came on the eve of a U.S. Senate committee hearing today on the potential effects of airline consolidation. Talk of multiple deals has swirled since US Airways launched the Delta takeover bid in November.

Among the witnesses are Parker and Delta CEO Gerald Grinstein, who wants to lead Delta out of Chapter 11 on its own but does not rule out mergers down the road.

US Airways, based in Tempe, Ariz., has set a Feb. 1 deadline for Delta's official creditors committee to tell management to take initial steps toward a deal.

Its offer is "absolutely, positively retracted" if the creditors don't do so, Parker said. "If they choose to do that, they should know that we're not coming back."

Committee weighs offer

Parker was reacting partly to a report in The Wall Street Journal, citing unnamed sources, that the deal appears to be losing ground with Delta's court-appointed creditors committee. The committee represents suppliers, banks and other groups owed money by Delta and must approve any plan to exit Chapter 11.

However, Delta's creditors continue to study the competing plans and have given themselves until Jan. 31 to decide whether to agree to US Airways' conditions, a person familiar with Delta's bankruptcy reorganization told The Atlanta Journal-Constitution.

That person said creditors are considering various aspects of Delta's standalone reorganization plan, such as compensation for Delta's management. They're also weighing the risks of a delay in Delta's Chapter 11 exit that might result while federal regulators consider the deal, and the risk that regulators might not approve it at all.

Delta spokeswoman Gina Laughlin declined to comment on creditors' deliberations.

Meanwhile Grinstein, in a recent question-and-answer session with a Delta employee group, said the carrier has sought financial information from Northwest Airlines at the request of the creditors. But he added the move was "a far cry from negotiating a merger with them."

Reports earlier this month suggested Delta and Minnesota-based Northwest, which is also in Chapter 11, were feeling each other out about a merger after both leave court.

Grinstein characterized the Northwest overture as intelligence-gathering to update "potential responses to our industry's changing marketplace." He said he felt it was important to "debunk the Northwest rumor."

Grinstein said he is "not anti-merger" --- noting that Delta itself has had four --- but considers the US Airways proposal "the worst kind of deal" because it joins carriers with largely overlapping routes.

In addition to Grinstein and Parker, today's Senate hearing will also include officials from the Department of Transportation, Machinists union and Consumer Federation of America.

On Tuesday, a Delta employee group that organized a campaign called "Keep Delta My Delta" rallied on Capitol Hill to showcase a petition it says has been signed by more than 100,000 people opposed to the deal.

Long road to approval

While Delta is likely to get a sympathetic ear in today's hearing, another target of such demonstrations is the U.S. Department of Justice.

One of Delta management's arguments to the creditors is that the risks of rejection by the Justice Department are so high that pursuing a merger would be a waste of time and energy just as the carrier's standalone recovery effort gains steam. Past public comments from agency officials suggest such a large-scale deal would have a tough time getting approved.

But US Airways executives argue that the deal can win department approval because the post-Sept. 11 industry landscape has created a need for consolidation and more stable companies. It also has said it's willing to shed assets to appease anticompetitive concerns.

Jon Ash, a longtime airline industry consultant, said both airlines' arguments have merit, but he still believes a merger would have low odds of Justice Department approval. Ash's firm, InterVistas-GA2, is advising some Wall Street investors who are monitoring the proposed deal but aren't directly involved.

Ash said the department could have even more problems with a US Airways-Delta merger than it did with the United-US Airways proposal of 2000, which it blocked.

"Frankly, there is some pretty heavy concentration of traffic when you put these two together," he said of the US Airways-Delta proposal. The combined carriers would account for 39 percent of revenue and 36 percent of airline seats in the eastern United States, he said.

Justice Department officials have declined to discuss the matter other than to confirm an initial investigation is open.

J. Bruce McDonald, the DOJ official who heads the department that would have to review the merger, said in a 2005 speech that even if one of the carriers in a proposed merger is in bankruptcy, that isn't likely to affect approval unless one is in danger of failing.

That's not the case with Delta, which is "very likely" to emerge from bankruptcy as a strong competitor, said Ash.

The Justice Department review process is legal, not political. But politics could help sway the outcome, said Ash.

"At some point these decisions have to be brought before an assistant attorney general" or some other political appointee, he said. "They're probably going to get some heat from both directions," including investors who back the merger.



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