US Airways boosts its offer for Delta

NEW YORK (CNNMoney.com) -- US Airways Group, Inc. said Wednesday it has increased its offer to merge with larger rival Delta Air Lines, Inc. to $10.2 billion.

Under the new offer, Delta's unsecured creditors would receive $5 billion in cash and 89.5 million shares of US Airways (Charts) stock. That is $1 billion more in cash than the original offer made Nov. 15, and 11 million extra shares of its stock.

Shares of US Airways were also up 13.7 percent in value at Tuesday's close since the day before the original offer two months ago. Shares of US Air gained another 3.6 percent in pre-market trading Wednesday on news of its new offer.

The new offer is set to expire Feb. 1 pending creditor support, the No. 7 U.S. carrier said.

"We continue to believe that this is the right time to create a better airline that provides more choice to consumers, increased job security for both airlines' employees and generates more value for all of our stakeholders," US Airways Chairman and CEO Doug Parker said in a statement.

"This is a transaction that makes sense for US Airways stockholders, Delta creditors, the employees and customers of both companies, and the communities that we serve," Parker said.

US Air management has no meetings planned with Delta's management, Parker told Reuters in a phone interview.

"Given Delta management's reaction so far, where the negotiations really turned is to the creditors," he said. "We would welcome the opportunity to discuss it with Delta management, but right now we are dealing directly with the creditors."

Delta, the nation's No. 3 airline in terms of miles flown by passengers behind AMR Corp. (Charts) unit American Airlines and United Airlines, a unit of UAL Corp., (Charts) has been operating under Chapter 11 protection since September 2005. The Atlanta-based airline rejected the previous bid from US Air, saying it estimated its value as an independent carrier emerging from bankruptcy at $9.4 billion to $12 billion.

US Airways said the new proposal represents a significant premium over the valuation that Delta placed on its standalone plan.

Delta management also argued at that time that regulators would not approve a purchase of Delta by US Air because it would do much to restrict competition and raise air fares in the eastern United States, where both airlines have their greatest strength. It also said that Delta's contract with its pilots union would prevent US Air from making the trims in capacity it is proposing to create the savings it needs to make the deal.

US Airways in its current form was created when the former America West purchased the former US Airways out of bankruptcy court in September 2005. US Air's current leadership has insisted that fares did not rise after that purchase, arguing that cost savings from the combined operations allowed it to keep fares low.

But filings by US Airways Group as well as the two predecessor carriers suggest that the combined carrier has seen a rise in the revenue per passenger mile, a closely watched measure known as yield that approximates average fares.

US Airways Group's yield in the third quarter is up 10.4 percent compared to the average of the two predecessor carriers a year earlier. Over the first three quarters of 2006, the average yield is up 14 percent. Both are higher than the average gain in industry wide yields reported by the Air Transport Association, the industry trade group.

Delta has repeatedly said it intends to emerge from bankruptcy as an independent carrier and hopes to get creditors to vote on its plan by February or March so it can exit bankruptcy by spring. The creditors committee said Dec. 20 that it supported the carrier's decision to file a reorganization plan, but it would continue to consider potential alternatives.

US Air's offer for Delta sparked speculation that it would lead to a round of airline mergers. United Airlines management, who have been open saying they believe consolidation would benefit the industry which is just now emerging from five years of record losses. Its management reportedly held talks with Continental Airlines (Charts) about a possible combination late last year.

AirTran (Charts), one of the smaller low-fare carriers, made a hostile bid to buy rival Midwest Express (Charts). Midwest Express Wednesday made a filing which outlined its strategy to maximize shareholder value as a stand-alone company.

-- from staff and wire reports

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