US Airways makes move for Delta

NEW YORK - US Airways have today proposed a US$8 billion takeover of bankrupt Delta Air Lines, after an attempt at merger talks failed earlier this fall.

The combined company would have the most flights across the Atlantic Ocean of any US carrier and rank No. 2 in flights to and from the Caribbean, US Airways said. It could also lead to more airline mergers and prompt other offers for Delta.

"This is not value that either of our companies can create independently," US Airways Chief Executive Doug Parker said on a conference call. "If we wait for Delta to emerge from bankruptcy, it will be too late."

Delta, the No. 3 US airline with over 47,000 workers, said on Wednesday it intends to emerge from bankruptcy as a stand-alone carrier.

"We received a letter from US Airways this morning and will of course review it," Delta CEO Gerald Grinstein said in a statement.

US Airways shares rose 16.1 per cent after touching US$59.45, the highest since its September 2005 merger with America West. Delta shares rose 10.2 per cent in afternoon trade. The news also boosted shares of other airlines, with the Amex airline index up 5.5 per cent.

US Airways, the No. 7 US airline with over 35,000 employees, said the combination would generate at least US$1.65 billion in annual savings. It expects a transaction to close by the first half of 2007.

SORT OF HOSTILE

"This appears to be sort of like a hostile takeover," CreditSights analyst Roger King said. "US Airways is appealing directly to the creditors."

Under terms of the offer, Delta creditors would receive US$4 billion in cash and 78.5 million shares in US Airways, with an aggregate value of about US$4 billion based on Tuesday's closing stock price. After a merger, Delta's unsecured creditors would own about 45 per cent of the combined company, US Airways said.

Delta's 8.3 per cent bonds due in 2029 rose 20 cents on the dollar to 60.25 cents, while the yield fell to 15 per cent, according to MarketAxess. Airline bonds, led by Delta, were the most actively traded bonds on Wednesday.

"There is some room to increase the consideration," said Clark Orsky, a bond analyst with KDP Investment Advisors. "At least it's an indication that unsecured noteholders like what they see in this offer."

US Airways has obtained US$7.2 billion in committed financing for the deal from Citigroup