Delta Air Lines Inc. filed a reorganization plan Tuesday that calls for it to emerge from bankruptcy next spring as a standalone company worth as much as $12 billion, which would be more than the market value of the nation's two biggest carriers combined.
The Atlanta-based company also said that its board has formally rejected US Airways' $8.3 billion hostile takeover bid, and its executives joined rank-and-file employees on a full-scale public relations assault against the proposal.
"US Airways is the worst of all potential merger partners," Delta Chief Executive Gerald Grinstein said during a conference call with analysts.
Delta outlined a five-year business plan, and said that its advisers have determined that a reorganized Delta will have a consolidated equity value of roughly $9.4 billion to $12 billion. It said the plan would result in a recovery by Delta's unsecured creditors of roughly 63 percent to 80 percent of their allowed claims.
The high end of the equity value Delta is projecting would be more than the $11.6 billion in combined market value of AMR Corp.'s American Airlines and UAL Corp.'s United Airlines.
Delta's existing stock would be wiped out under the plan and creditors generally would receive distributions of new Delta common stock to settle their claims. Delta so far has not decided whether to give creditors any cash.
US Airways' offer included $4 billion in cash and 78.5 million shares of US Airways stock.
Tempe, Ariz.-based US Airways Group Inc. issued a statement saying it remains committed to its merger proposal, and it added it believes its proposal, including $1.65 billion in cost savings it anticipates, provides more value than Delta's plan.
"We remain a disciplined and determined bidder for Delta," US Airways Chief Executive Doug Parker said.
Creditors must now vote on whether to approve Delta's reorganization plan or any competing plan that may be filed with the court. The plan also must be approved by the court.
Typically, in each class of creditors Delta's plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors, said New York bankruptcy lawyer William Rochelle. If a class is not impaired - that is, if they are guaranteed of getting all of their money back no matter what - they generally don't get to vote, Rochelle said.
If one or more classes of creditors do not approve the plan, Delta could still confirm the plan through a cramdown, a maneuver in which it must show the court that the dissenting class will receive more under the plan than it would under a Chapter 7 liquidation, Rochelle said. The company also would have to show that any subordinate class, such as shareholders, would get nothing in the way of recovery under the reorganization plan, Rochelle said.
Delta already has met that second test because its plan calls for current shares of the company to be wiped out.
If a competing plan were filed, creditors would vote on each individually. There have been bankruptcy cases where two competing reorganization plans were approved by creditors; in such a case, a judge decides which plan is confirmed after holding a hearing to determine which plan is in the "better interest" of the creditors.
"Bankruptcy is like anything else," Rochelle said. "Money talks at the end of the day."
Ultimately, the unsecured creditors committee in the bankruptcy case will play a key role in determining Delta's fate. The committee has not said whether it will support Delta's plan, US Airways' plan or any other offer to buy Delta that may come in. A lawyer for the committee, Daniel Golden, did not immediately return a call Tuesday seeking comment. Rochelle said Delta would likely wait to hear from the creditors committee about its views before soliciting votes on its plan.
Delta also said Tuesday that its board has unanimously rejected US Airways' unsolicited offer, disclosed Nov. 15. Delta employees held rallies at airports serving several cities, including Cincinnati, Boston and Columbia, S.C., protesting US Airways' bid; Delta executives attended a similar rally in Atlanta. Executives also issued strong statements against the merger proposal and held several conference calls with analysts to back up their belief that the US Airways offer won't work.
An official with knowledge of US Airways' plans who spoke on condition of anonymity because of the sensitivity of the talks said Monday that US Airways was willing to increase its offer if Delta could justify it is worth more.
But Delta said Tuesday it believes flying solo is the best proposal for everyone involved.
"Their proposal is a bad deal for Delta and its creditors," Grinstein said of US Airways.
US Airways shares fell 59 cents, or 1.1 percent, to $55.21 in early afternoon trading Tuesday on the New York Stock Exchange, putting the value of its bid for Delta at $8.3 billion.
Delta said it believes the US Airways deal is not likely to gain regulatory approval. It also cited as obstacles: overwhelming labor issues and "flawed economic assumptions."
Delta's chief financial officer, Ed Bastian, said in a conference call with reporters Tuesday that Delta so far has not received buyout bids from any airline other than US Airways. He also said Delta has "not been approached about any other merger proposals."
Bastian said Delta showed its reorganization plan to its creditors committee last week. He would not say how creditors specifically reacted, but he said he believes the committee will ultimately support Delta's plan.
Delta said US Airways continues to experience significant integration problems with its prior, smaller deal with America West. It believes US Airways is not equipped to simultaneously integrate a substantially larger company like Delta.
Bastian also said that the government's pension insurer is expected to give the final go-ahead Wednesday to Delta terminating its pilots' pension plan. The termination would be effective Sept. 2 and would mean the Pension Benefit Guaranty Corp. would take over the pilot pension plan and pay retired pilots a benefit up to a certain limit.
On other issues, Bastian said Delta is evaluating key assets to see how to use them best to drive shareholder value. He did not elaborate. Delta also is continuing to cut domestic capacity and increase international capacity, Bastian said.
Delta said its business plan projects, among other things, a 50 percent reduction in net long-term debt and a return to profitability in 2007 and an increase in net income, after profit-sharing, from roughly $500 million next year to roughly $1.2 billion in 2010.
Delta filed for Chapter 11 in New York in September 2005.
Delta said its reorganization plan calls for rolling its bankruptcy financing of $2.1 billion into a new package that would go into effect when it emerges from Chapter 11, and it said it has received several proposals with competitive terms to help it do that.
Bastian said Tuesday that Delta was not disclosing the exact distribution method of resolving claims in the bankruptcy case. For now, he said Delta was proposing a stock distribution in the new company, but has not determined yet how much if any cash to distribute to creditors.
There has been no decision about who will lead Delta once it emerges from bankruptcy, Bastian said. Delta's current chief, Grinstein, has said he plans to leave Delta around the time it exits bankruptcy. Bastian said the decision about Grinstein's replacement would be made later.
On the net:
Delta Air Lines: http://www.delta.com
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