Delta has options: Lands exit financing

US Airways CEO Douglas Parker said that his company will drop its bid for Delta Air Lines on Thursday if bankruptcy creditors did not support the $10 billion offer.

An apparent frustrated Parker said, "If this (creditors) committee is not willing to do what it should do for investors, we're not willing to pursue this transaction anymore. We've got a company to run. We're not going to keep chasing this thing, even though we've got a bunch of people telling us we should."

Parker further commented that merging Delta and US Airways advantageously would be more complex once Delta is out of bankruptcy. Bankruptcy law lets companies reject contracts and leases they would otherwise be held to outside of Chapter 11.

Chapter 11 of the United States Bankruptcy Code governs the process of reorganization under the bankruptcy laws of the United States. A troubled business, which is unable to service its debt or pay its creditors can file with a federal bankruptcy court for bankruptcy protection under Chapter 11.

A Chapter 11 filing is an attempt to stay in business while a bankruptcy court supervises the "reorganization" of the company's contractual and debt obligations.

Delta had borrowed $2.1 billion from American Express and GE Capital when it filed for Chapter 11. Delta hopes to exit bankruptcy in the spring for which it has landed $2.5 billion bankruptcy exit financing deal from JPMorgan, Goldman Sachs, Merrill Lynch, Lehman Bros., UBS and Barclays Capital.

The offer made by US Airways was rejected by Delta's management. In fact Delta has lobbied its creditors to accept Delta's own plan to emerge as a stand-alone carrier. To be approved, Delta's stand-alone plan must win support from creditors representing two-thirds of total claims.

According to sources, US Air has been asked by some pro-merger Delta creditors (which group of hedge funds) to raise its $9.87 billion bid by another $2 billion. Will these additional couple of billion dollars make the difference between a stand-alone airline and a willing merger partner is what everybody is waiting for.