Updated from 12:02 p.m. ESTUS Airways ( LCC) ended its hostile bid to take over Delta Air Lines ( DALRQ) after the Atlanta-based carrier's creditors said they wouldn't support the proposal. The takeover effort, announced Nov. 15, had triggered a round of consolidation speculation in the airline industry. Much of it involved the fates of the two bankrupt carriers, Delta and Northwest ( NWACQ). But Northwest said Tuesday that it would emerge from bankruptcy as a standalone carrier, and now Delta appears poised to do the same. Delta's creditors said Wednesday that they will support Delta's independent reorganization plan, which is expected to be filed with the bankruptcy court later this week. In a prepared statement, the committee said it held extensive discussions with representatives of both carriers and with various advisers. It considered factors including "valuation, timing and the risks
Parker said Delta's publicly traded bonds "have fallen precipitously since rumors of this committee decision were leaked last week, reducing the implied market valuation of what Delta's unsecured creditors can expect to recover in these cases by over $1.5 billion." "We empathize with the investors who purchased Delta bonds at increasingly higher prices since our offer was announced last November and thank them for their support," he said. The US Airways bid won the support of Wall Street, but it never played well with Delta employees or Congress. Delta pilots were forceful merger opponents, and the airline's employees -- backed by management -- staged 16 rallies opposing the US Airways effort in big and small cities around the country. A Jan. 24 Senate Commerce Committee hearing on airline consolidation and the potential Delta and US Airways merger represented the culmination of opposition efforts, as senators and attendees appeared to overwhelmingly oppose the deal. Though the creditors weren't specific about the factors that went in to their decision, it seems likely that the possibility of moving an unpopular deal -- supported primarily by hedge funds and investment bankers -- through Justice Department regulators wasn't viewed as a compelling opportunity. The proposal raised significant antitrust concerns since US Airways sought to take over its largest competitor. While US Airways' capacity to successfully complete its bid and merge two airlines into one was uncertain, Delta's management had already demonstrated success in fixing the airline.
Since Delta sought bankruptcy protection in September 2005, it has been transformed from a large regional airline into an international one, finally able to capitalize on its position as the biggest carrier at the world's biggest airport in Atlanta. During that time, Delta's international revenue grew from 20% to 35% of its total. Additionally, Delta became far more competitive with its peers, as its revenue per available seat mile rose from 86% of the industry average to 93% of industry average. "Using the bankruptcy process the right way, Delta people have transformed their company's business model," CEO Gerald Grinstein said in a prepared statement. "Our focus now is on the work still before us to emerge from Chapter 11 this spring as a strong, healthy, and vibrant global competitor." "This is a proud day for the thousands of Delta people, customers, communities, civic leaders and others who stood up for our standalone plan," Grinstein added. Parker, meanwhile, reiterated what he had said during an analysts' conference on Tuesday -- that he would happily focus on running US Airways, which has become the most profitable of the six legacy carriers since a 2005 merger with America West Airlines. "As a standalone carrier, we have a tremendous future ahead of us," Parker said in a message to employees after the Delta creditors' committee had made its decision.
The collapse of the US Airways bid means that both it and Delta will now be in a position to benefit from a promising airline industry environment that include low fuel prices, minimal capacity growth and high demand for seats. As for the consolidation picture, it may have been best summarized by Grinstein at a meeting with reporters on Oct. 12, about a month before US Airways launched its takeover effort. Although the airline industry was awash in merger talk at the time, primarily because two carriers remained in bankruptcy, Grinstein said then that he didn't foresee any mergers at all, either with or without Delta. "I don't look for
consolidation to take place in the near term," he said. "I don't look for it to take place anytime." In two years, Grinstein suggested then, the major carriers would be aligned, by and large, in the same way they are now.