By Mil Arcega
Washington, DC
17 November 2006
watch US Air Delta Merger
US Airways made a hostile $8 billion cash and stock bid to take over rival Delta Airlines on Wednesday. US Airways, which successfully merged with America West last year, says if shareholders agree to the deal the combined airline would become the nation's largest carrier. Delta, which is going through bankruptcy proceedings says it is not interested.
Arizona-based US Airways first approached Delta last spring, just a few months after the Atlanta-based airline filed for bankruptcy protection.
Bill Gee
US Airways spokesman Bill Gee says a merger would help both airlines and give Delta's creditors a chance to recoup losses. "The offer to Delta is $8 billion. Approximately $4 billion in US Airway stock and the other $4 billion comes from cash investors. So yeah, it's a relatively large deal."
Delta currently owes creditors about $16 billion. If the deal goes through, US Airways says Delta could earn $1.6 billion in profits. It would also mean more destinations for the combined airline, which would require fewer planes.
Julius Maldutis
Aviation Dynamics president Julius Maldutis says it could also mean higher fares. "The domestic capacity of the two companies will be reduced by ten percent. That will have a dramatic increase on airline fares. So the traveler is really going to pay through the nose [a lot], if I can say that."
Ticket prices are already four percent higher than they were this time last year. Some passengers worry fares could go higher.
One man commented, "If there's one large airline, it's a monopoly, you worry about that."
Another passenger offered, "And eventually there's going to be three or four companies that are going to own all the airlines and we won't have a choice."
Despite Delta's insistence that it is not interested in a merger, analysts say the offer could signal the start of more bids from other competitors.
Jim Corridore
Standard and Poor's Airline equity analyst Jim Corridore said, "I think consolidation in the airline industry is something that has been going on for some time -- whether through bankruptcies, through mergers as in the case last year of US Airways and AmericaWest and I think that no one is surprised to see more consolidation in the industry. It is something that is necessary and likely to continue."
If the deal is finalized, the combined airline would operate under the Delta name and serve more than 350 destinations across five continents.
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