US Airways Meger Hopes Fade

January 31st

Source: Airwise
The prospect of imminent airline industry consolidation faded on Tuesday as US Airways reported no headway in its bid to take over bankrupt rival Delta Air Lines.
US Airways Chief Executive Doug Parker said his airline's nearly USD$10 billion bid for Delta is firm and that he has no intention of extending the February 1 deadline for Delta's official committee of creditors to respond. "We have given a deadline of February first (to) the official committee," Parker said. "They know exactly what they have to do, and they know if they don't do it, our proposal is gone."

Investors had hoped a US Airways-Delta deal would lead to more takeovers in the sector, which would cut competition and give surviving carriers an opportunity to raise fares.
Airline shares dropped across the board, even after US Airways and discount rival JetBlue Airways reported quarterly profits, as oil prices jumped, heralding higher costs.
Parker dismissed as "speculation" reports that the airline would increase its USD$9.7 billion bid for Delta. He said recent talk that US Airways has increased its offer by USD$1 billion is inaccurate and that he has not asked US Airways' board to increase the bid. Delta's management has resisted US Airways, saying that Delta is worth more as a stand-alone company and that a merger presents serious antitrust violations. Delta said on Tuesday it had lined up six major Wall Street banks for USD$2.5 billion in financing when it exits bankruptcy.

Delta claimed that support by the banks indicated Wall Street approval of its plan to exit bankruptcy as a stand-alone carrier. Parker made his comments after US Airways reported a quarterly profit, reversing a year-ago loss. US Airways also reported a profitable 2006, its first full year since the 2005 merger of US Airways and America West. JetBlue also reported a fourth-quarter profit, as both airlines benefited from strong travel demand and higher ticket prices. "All the work they've done in turning those airlines around is starting to pay dividends," said Calyon Securities analyst Ray Neidl. US Airways reported fourth-quarter net income of USD$12 million, compared with a year-earlier loss of USD$261 million.

The year-ago loss was made worse by a large fuel-hedge loss and some merger costs. JetBlue also posted a quarterly profit, but forecast a loss in the first quarter on rising costs. The seven-year-old airline has reined in growth by delaying deliveries of some aircraft and selling others. It has also raised fares at the expense of filling seats as it seeks to improve earnings.

These efforts helped JetBlue return to profit in the fourth quarter, reporting net earnings of USD$17 million, compared with a loss of USD$42 million a year ago.Despite the improvement, JetBlue forecast a loss in the first quarter, expecting a pretax margin of negative 4 percent to negative 2 percent. It said unit costs were expected to rise 6 percent to 8 percent. Analysts had expected a profit of 9 cents per share.