We awoke this morning to the news that US Airways had proposed to buy Delta out of bankruptcy by paying Delta’s creditors $4 billion in cash and 78.5 million shares of stock, worth approximately another $4 billion. Delta has not accepted the proposal, commenting that it would review it but plans to emerge from bankruptcy as an independent company.
The combination of the two companies would create the largest US carrier, however divestitures might be necessary to win antitrust approval. In particular, Delta and US Airways both operate lucrative New York-Washington and New York-Boston shuttles, one of which would likely have to be sold off. US Airways CEO Doug Parker has said that the Delta name would be retained, much as he retained the US Airways name when he purchased it as America West’s CEO.
Parker also said that both airlines hubs would remain in place, but we would expect a gradual shift towards fewer hubs, particularly in regions where there is close proximity between Delta and US Air locations.
It is widely believed that other airlines have also expressed interest in purchasing Delta, so other bidders may well emerge. Until February 15, Delta has the exclusive right to present a reorganization plan to the Bankruptcy Court. After that date, US Airways or some other group may present plans negotiated directly with creditors.
US Airways’s proposal may or may not come to pass, but with airlines looking for consolidation partners, eventually they may succeed. Mergers produce some negative effects, including reduced capacity from the consolidated system, higher prices due to reduced competition, and eroding service to smaller cities.