Delta Files Reorganization Plan

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.

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."

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