USAirways Seem to Force the Issue

Implications: •  The management of Delta is holding on, but the Delta creditors need to get paid, regardless of who the management is.

•  Consulting with Gordon Bethune (former Continental CEO) probably led to a move of putting in the highest offer by USAirways, and concluding that this has been taking too much time already.  Doug Parker has an airline to run.

•  Spending up for Delta, USAirways will have higher debt service, and needs to achieve its efficiencies.

Analysis: No one would ever like to risk losing their job to another management team.  So, here we have a group fighting to find a way to both save their jobs and save their company at Delta.  Now Doug Parker enters with a bid that overshadows what the current team has been struggling with for years.  Among other things, that must be disheartening.

The board at Delta needs to maximize value for the creditors.  So the board is going to be hard pressed to turn down something that does less than that, unless there is a fundamental flaw in it. 

Offering up the best and highest amount, fixing a deadline, and getting it over with is a good approach to force the issue.  This bid has been dragging on, with speculation about next moves, counter moves and third parties.  It is time to execute the transaction, or to cut and run.  If the Delta board fails to approve a bid that would have been more economically favorable, then the lawyers have to figure out if there was a foul.

Assuming USAirways wins the bid, they will have a higher debt burden, which they hope to offset with better scale and scope.  In the near run it will be a strain, as it takes time to integrate.  They will be integrating USAirways, America West, and Delta within a very short time.