Delta Files Plan of Reorganization and Rejects US Airways Hostile Bid

By Mary Schlangenstein - Bloomberg
Dec. 19 (Bloomberg) -- Delta Air Lines Inc. rejected a hostile $8.38 billion merger proposal from US Airways Group Inc. and said it planned to exit bankruptcy as an independent company with a value of as much as $12 billion. Delta's board said creditors would be better off without a merger. The US Airways offer is unlikely to receive antitrust approval, is based on flawed economic assumptions and would give Delta the largest debt load in the industry, Atlanta-based Delta, the No. 3 U.S. carrier, said in a statement.

Delta filed its five-year business strategy with the U.S. Bankruptcy Court in New York today, 15 months after the airline sought Chapter 11 protection. The carrier said it will leave Chapter 11 in the first half of next year and forecast net income of about $500 million in 2007 and $1.2 billion in 2010. ``We will emerge as a thoroughly new Delta that will be a strong global carrier with a solid foundation for profitable growth in a highly competitive environment,'' Chief Executive Officer Jerry Grinstein said in the statement. Delta's board unanimously rejected the US Airways offer. The airline said its plan would let unsecured creditors recover 63 percent to 80 percent of their claims, and that Blackstone Group, a financial adviser, estimates the airline will be valued at $9.4 billion to $12 billion. Support from creditors, who are represented by a nine- member committee, is vital because they will help set the terms of any plan for Delta to exit bankruptcy.

Creditors' Support
``We've got a very constructive relationship with our committee,'' Delta Chief Financial Officer Ed Bastian said on a call with reporters. ``They understand the great progress Delta is making. '' Delta's shares fell 37 cents to $1.10 at 8:13 a.m. New York time in early over-the-counter trading. U.S. Airways shares fell 70 cents to $55.80 yesterday and haven't traded today.
Delta used its time under court protection to cut labor costs, ground planes and expand more-profitable international routes. The airline said today that it achieved 85 percent of the $3 billion annual cost savings goal it laid out when it filed for bankruptcy. Delta said it hasn't had any merger talks with other airlines since US Airways' offer was made public Nov. 15 following Delta's rejection of earlier, private overtures. Delta was forced to say it would consider the offer after US Airways began courting the support of Delta's creditors.
An e-mail to US Airways wasn't immediately returned today. The Tempe, Arizona-based airline offered $4 billion cash and 78.5 million shares for Delta. Creditors would own 45 percent of the combined airline.

Debt Load

Delta said today that US Airways' plan would result in a ``precariously high'' $23 billion in debt for the combined carrier, compared with $10 billion for Delta independently.
Delta was saddled with more than $28 billion in debt when it sought bankruptcy protection. It blamed growing low-cost competition, increased fuel costs and a drop in travel following the Sept. 11 terrorist attacks. Northwest Airlines Corp. filed on the same day, in the same court, citing the same problems. US Airways came out of bankruptcy last year for a second time when it merged with America West Holdings Corp. US Airways is now the seventh-largest U.S. airline.
``US Airways was literally on the brink of liquidation'' when it agreed to merge with America West, said Jim Whitehurst, Delta's chief operating officer. ``Our cash position is strong, our financial position is strong. This situation is very different than when America West acquired US Airways.'' The case is In re Delta Air Lines Inc., 05-17923, U.S. Bankruptcy Court, Southern District of New York (Manhattan).