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US Air launches hostile takeover

Amy Scott Nov 15, 2006

KAI RYSSDAL: I suppose one could make the case here that you’re never going to succeed in business if you take no for an answer. And certainly US Airways CEO Doug Parker’s done alright for himself. He’s brought the carrier out of its own bankruptcy proceedings. And today he made a play for another one that’s in Chapter 11. We should be clear here that the US Airways bid for Delta is a hostile offer. Delta’s management has said more than once it’s not for sale. But Parker’s going right over their heads. The offer’s been made to the people left holding the bag when Delta filed for bankruptcy. Marketplace’s Amy Scott has the story from New York.

ANT SCOTT: US Airways is offering Delta’s creditors $8 billion in cash and stock. And bankruptcy is part of the attraction. With the court’s protection, it’s much easier to do things like cut capacity and scrap labor contracts. US Airways CEO Doug Parker told analysts today the merger would save the airlines twice as much money if it happens while Delta is in Chapter 11.

DOUG PARKER: If we wait for Delta to emerge from bankruptcy, it’ll be too late to maximize the tremendous synergies available. And we’ll all regret not having acted sooner.

Some analysts question those synergies. Richard Aboulafia with the Teal Group says these are companies with very different cultures, even different airplanes. Delta flies mostly Boeing. US Airways prefers Airbus.

RICHARD ABOULAFIA: One of the great attractions of a merger is getting as much commonality as possible. When you have a very heterogeneous fleet like the one that would emerge as a result of this merger, it would be very difficult to obtain those cost savings.

Not to mention that Delta may not want to be bought. Just last month its board rejected the idea of a merger. Delta’s creditors, though, may have a hard time passing up the cash.

RICHARD GRITTA: Their attention has been gotten. Let’s put it that way.

Richard Gritta teaches airline finance at the University of Portland. He says in a typical bankruptcy case, creditors are lucky to get back 10 cents on the dollar.

GRITTA: So why not go for it? If you’re desperate, you’re gonna do whatever you can to get something back on your money.

If the companies do combine, then new Delta would be the country’s largest airline with expanded international routes. For passengers, the conventional wisdom is that less choice usually means higher prices.

In New York, I’m Amy Scott for Marketplace.

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