US Air Goes After Delta

Updated from 2:10 p.m. EST

US Airways (LCC Quote) has proposed an unsolicited $8 billion merger with bankrupt Delta Air Lines (DALRQ Quote), a deal that, if completed, would likely create the world's largest carrier.

The Tempe, Ariz.-based airline, formed in a smaller transaction just 14 months ago, said Wednesday that a merger would generate $1.65 billion in annual savings and benefits. More than half of the savings would be lost if Delta leaves bankruptcy as a standalone carrier, because it would forego the right to reject leases under bankruptcy law, US Airways said.

In total, US Airways offered $4 billion in cash and $4 billion in US Airways stock to Delta's unsecured creditors.

"There are not many industries more fragmented then the one we participate in," US Airways CEO Doug Parker said on a conference call. "In an industry this fragmented, we think there are opportunities for mergers."

Parker said the 2005 merger of the former US Airways with America West Airlines produced the industry's best performing airline, largely because the old US Airways had the opportunity to reduce capacity by ridding itself of aircraft leases in bankruptcy.

"Our timing is driven by fact that Delta is in bankruptcy, [which presents] a unique opportunity to realize values," he said. The Delta name would be retained, he noted.

Delta CEO Gerald Grinstein reiterated prior comments that Delta has no interest in a merger, issuing a statement saying the US Airways proposal will be reviewed but that his company's goal "has always been to emerge from bankruptcy in the first half of 2007 as a strong, standalone carrier."