US Airways sweetens its bid for Delta

Delta Air Lines Inc. may have said "no" already to the hostile bid, but US Airways Group Inc. came calling again on the bankrupt carrier yesterday with a higher $10.3 billion offer.

Analysts said the new bid - 20 percent more than the initial offer made Nov. 15 - increased pressure on Delta to improve its own plan to stay independent.

US Airways' takeover attempt has prompted other major airlines to consider mergers of their own, a possibility that has increased passengers' worries about reduced competition leading to higher fares.

Soon after US Airways made its bid for Delta, Continental Airlines Inc. and United Airlines parent UAL Corp. are reported to have discussed a merger. Analysts said they would not be surprised if Northwest Airlines Corp. also jumped into the game, as a partner for Delta or Continental.

The Senate Commerce Committee has scheduled a hearing for Jan. 24 on airline consolidation, and US Airways chief executive officer Doug Parker told analysts yesterday that he expected the airline to be asked to testify.

US Airways, Philadelphia International Airport's dominant airline, with almost two-thirds of the business, said that under its revised proposal, Delta's unsecured creditors would receive $5 billion in cash and 89.5 million shares of US Airways' common stock.

Delta, which is operating under Chapter 11 bankruptcy protection, said it would evaluate the new offer, but it noted that the higher price would add $1 billion in debt to the combined entities.

Delta management filed a bankruptcy reorganization plan last month that estimated the airline would have a market value of $9.4 billion to $12 billion as a stand-alone company.

Using the same assumptions Delta did in proposing its plan, US Airways said its investment adviser, Citigroup Inc., estimated that its offer would provide $12.7 billion to $15.4 billion in value to the unsecured creditors.

US Airways said the increased offer would expire Feb. 1 unless Delta's creditors supported the start of a process in which the would-be acquirer were allowed a closer look at Delta's books. The creditors also would need to support postponement of a Bankruptcy Court hearing on Delta's reorganization plan, scheduled for Feb. 7, Delta said.

US Airways, which is based in Tempe, Ariz., said when it made its initial offer that it would adopt the Delta name for the new entity because it is better-known around the world.

US Airways executives gave no specific reason for raising the offer.

"We wanted to remove any doubt that this offer was the more valuable to Delta's shareholders," US Airways president Scott Kirby said in an interview.

But Wall Street analysts pointed out that the revised bid came a day after US Airways officials met with Gordon Bethune, the retired chairman of Continental Airlines and an adviser to Delta's creditors' committee.

The analysts, many of whom recommend US Airways stock to clients, were pleased with the higher offer for the Atlanta-based Delta.

"While it is likely that a US Airways-Delta merger could take longer to close than Delta emerging from bankruptcy, one cannot ignore the magnitude of the cash component of the US Airways offer," said Merrill Lynch & Co. Inc. analyst Michael Linenberg.

At the same time, Philip Baggaley, Standard & Poor's airline analyst, pointed out that labor groups at both airlines oppose the merger and that the proposed combination would face heavy scrutiny from U.S. Justice Department antitrust regulators.

Wall Street generally approves of the way Parker and his team have run US Airways since it merged 18 months ago with America West Airlines. Helped by lower fuel costs and a dozen industry fare increases last year, US Airways is expected to report net income for 2006, the company's first annual profit since 1999.

Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition, had a different view from those on Wall Street. The estimated value of US Airways' proposal for Delta is based on the combined carriers' making deep cuts in capacity, or the number of airplane seats in the air each day. Mitchell said that with fewer seats for sale, business travelers especially could pay higher fares on many routes.

The airline's willingness to raise its offer "must mean you will be able to extract premium pricing from business travelers so you can finance that extra 20 percent quite handily," he said.

Parker said both airlines' employees, including the 5,700 US Airways has based at its Philadelphia hub, would benefit from working for a larger and more competitive airline. US Airways promised that all domestic destinations where it and Delta now fly would continue to have service.

US Airways' stock closed on the New York Stock Exchange yesterday at $58.93, up $1.03. Shares of Delta also rose, 10 cents, to close at $1.40.