Delta Air Lines' creditors have spoiled US Airways' ambitious plan to be the world's largest air carrier, rejecting a $9.9 billion offer for reasons that industry experts say went beyond the money involved.
Delta's committee of unsecured creditors, a key group that will influence how the airline reorganizes in bankruptcy, told US Airways early yesterday that it supported Delta management's plan to keep the airline independent and would not give US Airways a special peek into its books.
US Airways had asked the creditors' panel and Delta management to decide by today to let it inspect the books and postpone a Bankruptcy Court hearing next week on the management plan.
US Airways quickly announced that it was abandoning the takeover plan, but it repeated its assertion that Delta's bondholders and other investors would have been better off financially had they accepted its offer.
US Airways chairman and chief executive officer Doug Parker said in a statement that the unsolicited offer would have provided the creditors "substantially more value" than Delta management's plan. US Airways first unveiled the offer Nov. 15 and added $1 billion to it in early January.
Atlanta-based Delta Air Lines Inc. contended that its plan to keep the airline independent would eventually provide investors a better return than US Airways' offer of $5 billion in cash and 89.5 million shares of its stock.
The proposal by US Airways Group Inc. was considered a good deal by some Wall Street analysts, who calculated that Delta bondholders and other creditors could recover more from the offer than they would from the management plan. Analysts also liked US Airways' promise to reduce flying on overlapping routes, which would reduce competition and potentially raise fares.
Under federal bankruptcy law, judges are required to give consideration to what creditors want.
But the Delta creditors' committee was made up not only of bondholders and other lenders but also representatives of employee unions, aircraft-makers, and the federal Pension Benefit Guaranty Corp. The pension agency has responsibility for defined-benefit pension plans that Delta has been allowed by the Bankruptcy Court to abandon while in Chapter 11 protection.
"The interests of these . . . parties varied, making it more difficult for US Airways to line up a majority than would be the case for a typical non-bankrupt company," Philip Baggaley, Standard & Poor's airline analyst, said in a note to investors.
Delta chief executive Gerald Grinstein, in a statement, gave credit for killing US Airways' plan to the "thousands of Delta people, customers, communities, civic leaders and others who stood up for our stand-alone plan."
Some airline experts were concerned, too, that regulatory issues over US Airways' proposal might be a bigger issue than the money at stake. Delta had said the US Airways proposal would cause a significant delay in Delta's emergence from Chapter 11 because of how the U.S. Justice Deparment might view overlapping routes of the two carriers. US Airways had argued that regulatory issues would not cause a delay.
Delta has said it projects it will be worth $9.4 billion to $12 billion when it emerges from bankruptcy, sometime this year.
Parker indicated yesterday, as the airline was reporting a profitable 2006, that US Airways had no intention of raising its offer if it was rebuffed by the official committee of unsecured creditors.
Parker said he was confident that US Airways, Philadelphia International Airport's dominant airline, would thrive on its own, making more money in 2007 than the $303 million in profit it had last year.
Dropping the effort to acquire Delta will have no immediate effect on its or US Airways' Philadelphia operations.
Delta plans to move its operations from Terminal E to Terminal A-East this year, giving up departure gates in E that will be leased to Southwest Airlines. Were Delta and US Airways to have merged, Delta's move to A-East could have helped give US Airways additional gates so that it could add more flights to Europe.
But US Airways has said it has enough international gates to add flights to three new European cities this year, and is still working on finding more gates in 2008.
US Airways shares closed at $55.98, up $2.88, on the New York Stock Exchange.