Bloomberg News

US Airways Cites Lessons of Bid for Delta as AMR Offer Weighed

March 13, 2012

US Airways Group Inc. (LCC), now weighing a possible offer for American Airlines, learned from its failed 2006 bid for Delta Air Lines Inc. (DAL) that such attempts need to be friendly and have labor support, President Scott Kirby said.

Kirby discussed the lessons from the hostile approach to Delta, which was in bankruptcy at the time, at a New York transportation conference today while declining to comment on AMR Corp. (AMR)’s American or its Chapter 11 case.

“We can’t do it alone,” Kirby said. “It’s important, in an ideal world, to have the constituents of the bankruptcy, principally labor, on your side. An outright hostile transaction won’t work.”

Kirby’s recap of the Delta episode came in response to a question from an audience of analysts. Tempe, Arizona-based US Airways said in January it was evaluating whether to make a bid for American, which has targeted a Chapter 11 exit this year as an independent carrier.

Employees at Delta, including the company’s pilots union, opposed US Airways after the smaller carrier’s November 2006 bid. The offer was withdrawn in January 2007 after being rejected by Delta’s creditors committee, which opted to support the Atlanta-based carrier’s stand-alone plan.

“It would have been important to have allies in that case, and we didn’t,” Kirby said at the JPMorgan Chase & Co. Aviation, Transportation and Defense Conference. “Just having the most value creation isn’t enough.”

Industry Rankings

US Airways is the fifth-largest U.S. carrier, and the combination with Delta, then No. 3 by traffic, would have created the world’s largest airline. Delta grabbed the top spot in the global rankings after buying Northwest Airlines Corp. in 2008, then was eclipsed by the 2010 merger between former United Airlines parent UAL Corp. (UALAQ) and Continental Airlines Inc.

Kirby reiterated Chief Executive Officer Doug Parker’s view that there is one major consolidation left to occur in the U.S. airline industry and that US Airways will be involved. Parker didn’t give a timetable for a decision when he confirmed Jan. 25 that US Airways had hired advisers to study a deal for American, the third-largest U.S. carrier.

The current US Airways resulted from a 2005 merger with America West Holdings Corp. orchestrated by Parker. The airline fell further behind the fourth-place carrier, Southwest Airlines Co. (LUV), when that company acquired low-fare competitor AirTran Holdings Inc. (AAI) last year.

“Ultimately the most rational industry is three large network carriers and three large global alliances, and then a host of low-cost carriers like Southwest and JetBlue,” Kirby said. “That doesn’t have to happen. It’s potentially an opportunity to make things better.”

Delta and private-equity firm TPG Capital are evaluating possible bids for Fort Worth, Texas-based American, and Delta also is studying US Airways, people familiar with those matters have said.

US Airways has no interest in leaving the Star Alliance of global carriers, although it could do so as part of consolidation, Kirby said.

To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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