US Air CEO won't rule out higher Delta bid

NEW YORK (CNNMoney.com) -- US Air CEO Doug Parker Tuesday wouldn't rule out another increase in his bid for Delta Air Lines but insisted that Thursday is the deadline for his company's hostile bid for the nation's No. 3 airline.

And Parker - the man whose hostile bid for Delta sparked talk of a new round of industry mergers - predicted that if there isn't a deal, it could close the door on consolidation in the airline industry until the next downturn.

Parker made the comments on a conference call with analysts and reporters after the company reported better-than-expected earnings for the fourth quarter. But US Air (Charts) shares sank despite the strong earnings as Parker's comments suggested time might be running out on the bid he launched Nov. 15 for Delta (Charts).

Parker acknowledged there have been talks with various creditor groups ahead of Thursday's deadline, but said so far the company hasn't raised its bid for Delta for a second time. It's currently offering about $9.7 billion in cash and stock for the Atlanta-based carrier, up from its original bid of $8 billion.

"We're in regular contact with the (creditors) committee. We expect that will continue, maybe even accelerate, in the coming days," said Parker. "We're not going to comment on specifics of any discussion."

US Air is essentially negotiating its hostile bid for Delta with creditors at the airline, which has been in bankruptcy since September 2005. Delta management needs the support of two-thirds of its creditors, based on the value of their claims, to emerge from Chapter 11 as an independent carrier. In Chapter 11 a company is protected from creditors while it tries to work out a plan to pay its debts.

Parker said US Air management has not yet asked its own board to approve a new offer, and said any new offer would require a filing with the Securities and Exchange Commission.

"Once we have a different offer, we'd do so as quickly as we can," he said in the comment that came closest to signaling a higher bid may be in the offing. "We haven't done that yet."

The Wall Street Journal reported Monday that US Air was willing to raise its bid by $1 billion in cash, as well as offering a termination fee if the merger is blocked by regulators.

One group of large Delta creditors that has been supportive of a buyout deal put out a statement late Monday voicing support for what it termed a "meaningfully improved proposal by US Airways Group."

Even if US Air offer doesn't win over a majority of the creditors, the offer could have enough support to block Delta's plan to remain independent.

But Parker said Tuesday he wouldn't keep his offer on the table simply to block Delta from emerging from bankruptcy. And if he doesn't get enough support from creditors by Thursday he'll pull the bid. "I believe we could form a blocking position," he said. "We've told them (creditors) we have no interest in that."

He said that he's still confident the committee will eventually vote in favor of the US Air offer, saying, "I can't imagine they don't make the right decision, but they still haven't made it."

Parker said he's not expecting Delta management to accept US Air's offer by the Thursday deadline. But he hopes, and expects, that the creditors will vote in favor of the deal and take some steps in support of it. He said the creditors committee is meeting Wednesday and he's hoping to get a decision in favor of his proposal soon.

"If they (the creditors) do that, I think the process will move very quickly," said Parker. "Management can continue to fight. But they'd be fighting against their creditors' committee."

Delta management, which has rejected both US Air's bids, has said repeatedly that the airline is worth more as an independent carrier and that regulators would never allow the two largest East Coast airlines to combine.

In response to a question, Parker said that even though he expects an independent Delta would have a market value far less than the $9.7 billion US Air is offering, he's not interested in making another bid for the company once it emerges from bankruptcy.

He said he needs the powers of the bankruptcy process to shed various contracts and reduce capacity at Delta to create the savings needed to make the deal work.

"We're highly concerned that once they emerge, the value of the synergies are so much lower....it's probably not something we're interested in," he said.

Many supporters and critics of US Air's bid for Delta agree that if those carriers merge, that could spark a round of consolidation among carriers including AMR Corp. (Charts) unit American Airlines, UAL Corp. (Charts) unit United Airlines, Continental Airlines (Charts) and Northwest Airlines (Charts), which like Delta is operating in bankruptcy.

Such mergers could leave three airlines carrying about 80 percent of the nation's air traffic - and lead to higher fares as carriers pare routes and further cut capacity.

But Parker also concluded his comments by saying he doesn't think there will be any consolidation in the industry soon if a deal isn't made for Delta or Northwest Airlines while they are still in bankruptcy.

"It's my own view that if both Delta and Northwest emerge as stand alone, I don't think you'll see consolidation in this airline industry - not until next down cycle," he said.

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