Delta spurns US Air bid, Plans to Fly Alone

Delta Air Lines Inc. on Tuesday officially rejected an $8bn hostile merger bid by smaller rival US Airways Group Inc. and instead filed a long-awaited reorganization plan with a U.S. bankruptcy court to emerge from bankruptcy as an independent company.

The Atlanta-based company hopes its five-year recovery plan would value the carrier at $12 billion, or slightly more than the combined market value of the nation’s two biggest carriers and also far above US Airways' offer, which includes $4 billion in cash and 78.5 million shares of company stock.

Due to the high fuel prices and tough competition Delta gradually slipped into financial trouble, and eventually in September 2005 it entered bankruptcy protection.

Delta has long been saying that it wants to exit Chapter 11(a chapter of the United States Bankruptcy Code) as a stand alone carrier, but this is the first time the airline openly rejected the US Airways’ bid calling it ‘a poor strategic fit for Delta’, and publicly proposed its alternative.

In a conference call with analysts Delta Chief Executive Gerald Grinstein said, "US Airways is the worst of all potential merger partners."

On contrary, Tempe, Ariz.-based US Airways Group said in a statement that it will continue to fight for its proposal and asserted that its buyout proposal, including $1.65 billion in anticipated cost savings, offers more value than Delta's plan.

In a memo to the employees, US Airways Chief Executive Doug Parker depicted, "We will not be distracted by emotional or irrational arguments. There is simply too much at stake to lose sight of what is really important."

However, Grinstein has not completely denied the possibility of its future merger with a company other than US Airways. Delta said it would not solicit any bids but if it gets any it would definitely review them.

"Every carrier is studying every other carrier all the time, and if the process of consolidation starts, you would not want to be left out," Grinstein said. "If the process happens, I would hope that we would be an acquirer rather than an acquiree."

Analysts speculate that some rival carriers such as UAL Corp.'s United Airlines can make an offer for Delta Air Lines or US Airways may update the terms of its November 15 offer.

Delta hopes that its latest plan, which includes returning to profitability next year, would result in a recovery for Delta's unsecured creditors of about 63% to 80% of their claims. But, it is still undecided whether the plan would offer any cash.

It is now up to creditors to decide whom to support between Delta’s five-year business plan and a month long takeover saga. Creditors are expected to vote on the outlined business plan around February or March.

The U.S. bankruptcy court also has to give its node for the deal to go ahead.