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Sloan Sessions: US Air’s play for Delta

Scott Jagow Nov 20, 2006

Sloan Sessions: US Air’s play for Delta

Scott Jagow Nov 20, 2006


SCOTT JAGOW: Delta Air Lines is telling its creditors, don’t believe the hype from US Airways.Delta says its post-bankruptcy plan is “far superior” to US Airways $8.7 billion offer to buy the company. Newsweek’s Allan Sloan calls the bid an old football play: the end-run.

ALLAN SLOAN: That’s because the guys at US Air who clearly want to buy Delta have decided that they can’t make a deal with Delta’s management or Delta’s board of directors, so because Delta’s in bankruptcy US Air has gone to the creditors who really own the company saying, let’s make a deal. So they’ve end run the management board of directors of Delta. It may not work but it sure is fun to watch.

JAGOW: Well it certainly shows that US Airways is very keen on this deal, but the question is why?

SLOAN: Because they think they can make money from it. And these two airlines compete in a lot of routes and if there’s less competition in theory you can raise fares. There are supposedly cost efficiencies. You wipe out most of one headquarters so the two live for the price of one. Why not do it? And they’re not actually buying an airline. OK if this works, they’re buying the assets of an airline and the liabilities of Delta, or at least most of them, get left behind in bankruptcy court.

JAGOW: Well so far Delta has been pretty resistant to this. Why isn’t Delta interested?

SLOAN: Well I can’t read their minds but I think that they’re answer would be, it’s not as if US Airways is some paragon of efficiency or brilliance and second, I’m guessing, the guys who run the place think they can run it better and would like to keep their jobs rather than having US Airways get it.

JAGOW: Well airline mergers have traditionally not done so well. Is there anything different here that might buck that trend?

SLOAN: You know, you’ve got an industry that’s troubled, you’ve got an industry that’s consolidating. If you can get through the paperwork and the legal mumbo-jumbo, it’s probably safer to buy something out of bankruptcy than to buy it as what they call a going concern, because you don’t get stuck with liabilities that you didn’t know about, which can happen if you buy a company that’s a going concern.

JAGOW: So as passengers, what should we think about this if it goes through?

SLOAN: I think we should hope it doesn’t go through, just on general principles, because bigger airlines trying to combine separate parts is not really good for service and having fewer competitors is very good if you’re charging the fares but it’s not so good if you’re paying them.

JAGOW: Alright Allan, thanks a lot.

SLOAN: Any time. Happy flying, Scott.

JAGOW: Allan Sloan is the Wall Street editor for Newsweek Magazine. In Los Angeles, I’m Scott Jagow. Thanks for tuning in and enjoy your Monday.

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