Comparing the merger proposals of airlines

0 Comments | Deseret News (Salt Lake City), Jan 25, 2007 | by Dawn Gilbertson The Arizona Republic

Marriage is on the minds of the airline industry, with a number of potential pairings tossed around since US Airways made its bid for Delta Air Lines last fall.

All would be marriages of convenience, with airlines looking to get bigger and more stable, or to defend their turf against competitors.

Some analysts believe merger mania will fade if US Airways fails to buy a resistant Delta, a thought seconded by US Airways CEO Doug Parker.

Here are some possible pairings:

US Airways and Delta

The attraction: US Airways, itself formed by the 2005 merger of America West and bankrupt US Airways, wants to beef up its route network, especially in Europe and other foreign markets, and bolster its strength in key business markets to better compete against bigger rivals. It sees $1.6 billion in cost savings and extra revenue from the deal.

The distraction: Delta, which has painstakingly reinvented itself in bankruptcy, wants no part of the merger and has vigorously attacked the offer and solicited support in every corner, from employees to politicians. Delta and others worry there is too much route overlap, especially on the East Coast, for the deal to clear antitrust scrutiny or make the best strategic fit. Also cited: different plane types and labor strife.

Northwest and Delta

The attraction: Delta officials may have reached out to their bankrupt brethren to fend off the US Airways bid, with talks reportedly held between the two airlines. Delta denies it. Northwest has not been adamant like Delta about emerging from Chapter 11 on its own and in December hired a financial adviser in part to explore possible mergers and acquisitions. Northwest's best feature: its trans-Pacific routes.

The distraction: The airlines would reportedly merge after they emerge from Chapter 11, which would negate some of the built-in benefits of mergers done in bankruptcy court. Conversely, a deal done by two airlines in bankruptcy court brings its own complications. Different aircraft types could also be a problem.

United and Delta

The attraction: United, an eager buyer in any industry consolidation with an investment banker already on board, reportedly has talked to Delta about hooking up. The two airlines have something the other wants: Delta, strength on the East Coast and in Europe and Latin America; United, strength in the Pacific, the Midwest and the western United States.

The distraction: One worry is that combining the No. 2 and 3 airlines may draw intense antitrust scrutiny.

United and Continental

The attraction: United is the suitor here, with Continental a reluctant partner if it sees itself as odd man out because of other mergers. The two reportedly have held preliminary talks. As with United/Delta, the airlines would fill holes in each other's systems: United bringing Asia to the table, Continental, Latin America.

The distraction: Northwest is the wild card here because it has a special class of Continental preferred stock that gives it the right to block certain deals involving Continental.

American and Northwest

The attraction: A lot of analysts rate this combination among the best in the business because it would give No. 1 American a much- needed stronghold in Asia and more heft in the Midwest, rounding out its route map. Northwest's bankruptcy status also makes it attractive because the combined airline can shed planes and amend contracts, both cost-saving moves.

The distraction: American's sheer size may invite regulatory scrutiny, and Northwest's Minneapolis or Detroit hub may have to go. Analysts say the deal would face fewer hurdles, though, than a deal pairing American with United or Continental.