"Delta chief firm against merger with US Airways"

Wednesday, December 6, 2006

Delta chief firm against merger with US Airways
By Del Quentin Wilber
The Washington (DC) Post


WASHINGTON -- The top executive at Delta Air Lines said he would vigorously
defend his company against an unsolicited takeover bid, insisting that the
Atlanta-based carrier would be a stronger company and better for consumers
as an independent carrier.

In his first interview since US Airways announced its merger proposal last
month, Delta chief executive Gerald Grinstein said he was confident that
creditors would accept his reorganization plan. He also said it would be
difficult for a combined company to overcome internal and regulatory
hurdles.

"Whenever you go from having two carriers to one, or three carriers to two,
that is going to have a consumer impact," he said. "There will be a loss of
service in some smaller communities. There will be an increase in fares. ...
There is no question that there are antitrust issues that won't be quickly
or easily resolved."

"I think the track record of good mergers is hard to find" in the airline
industry, he said.

Delta and US Airways are battling to convince creditors, regulators and
legislators of the virtues of their competing plans. US Airways has
dominated the early rounds. Its stock price soared the day the merger
proposal was announced but has since retreated slightly.

Many outside analysts and airline executives think the industry needs to
consolidate to improve its financial outlook.

Mr. Grinstein, 74, has been working to get Delta, the nation's third-largest
carrier, out of Chapter 11 bankruptcy protection for the past year. He is
expected in the coming weeks to present creditors and the court with a
reorganization plan that he says would be better for creditors than US
Airways' $8.5 billion offer.

Several analysts and executives at other airlines said US Airways appears to
have lost momentum as investors and creditors look more carefully at the
merger proposal. 

Among their concerns are the reaction of regulators, the new
Democratic-controlled Congress and the short time available for US Airways
to complete a deal. 

US Airways hopes to complete the deal before Delta leaves bankruptcy court
protection, which is expected next year. Otherwise, US Airways would lose
some cost-cutting advantages it could gain in the bankruptcy process.

"There are more chances of this deal being killed because of market forces
and the Justice Department," said Michael Miller, an analyst with the
Velocity Group. But, he added, the offer does have "the power of dollars
behind it."

Ray Neidl, another analyst, said the merger proposal has a 30 to 40 percent
chance of overcoming internal and regulatory hurdles in such a short time.

US Airways chief executive W. Douglas Parker said he was confident that the
merger will be completed. Creditors seem receptive to the offer, he said in
an interview. "It was well-received, and the process continues. The process
is gaining steam."

Mr. Parker expressed confidence that the companies could address antitrust
issues. A combined airline would probably have to sell some airport gates
and one of the lucrative shuttle routes between Washington, New York and
Boston, US Airways executives acknowledge.

Mr. Parker is interested in Delta because the two airlines compete on many
of the same routes. A merger would allow him to reduce the number of flights
and aircraft serving those cities. He thinks such a business plan would save
$1.6 billion a year by combining functions and cutting flights.

Mr. Parker said such a strategy would benefit consumers by offering them a
healthier airline that serves more destinations. He said the new airline
would not raise fares.

"Consumers will be better off," he said.

Mr. Grinstein disputed that claim and said his airline would serve customers
better without a merger because it has already streamlined operations and
achieved more than $2 billion in annual savings.

Although it is still has problems with mishandled baggage and major delays
at some airports, Mr. Grinstein said US Airways is using planes more
efficiently and plans to expand its lucrative international routes.

Mr. Grinstein would not discuss the specifics of his restructuring plan and
said he did not know what creditors thought of the US Airways' offer. "They
have their cards to play and they are going to play them," he said.

He warned that a litany of obstacles would make a merger difficult, such as
the airlines' different fleets, employment structures and cultures.

US Airways also has not yet fully digested its last merger with America
West, raising questions about whether it could handle a hostile takeover at
the same time, Mr. Grinstein said.

"They haven't concluded last night's dinner before planning tonight's," he
said. "This was totally unexpected, unsolicited, unencouraged and
unhoped-for. ... We are so dissimilar. We have different equipment. We have
different service philosophies."

If the merger sets off a spree of consolidation among the other major
carriers -- such as American, Continental, United and Northwest airlines --
the outlook would not be good for a combined Delta and US Airways, which
would be smaller than other partnerships, Mr. Grinstein said.

"If this devolves into three systems, which is the weakest of the three
systems?" he said. "The answer is pretty clear."

Mr. Grinstein declined several attempts by Mr. Parker to discuss merger
possibilities before US Airways made its offer public last month. The Delta
executive said he was surprised to learn of the offer while listening to the
radio at home before going to work. "I would have handled it differently,"
Mr. Grinstein said.

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