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 stock.

Shares of US Airways were up 13.7 percent at Tuesday's close since it made the initial offer. Shares of US Air gained another 3 percent in early trading Wednesday on news of its new offer.

But US Air, the nation's No. 7 airline, set a deadline of Feb. 1 for its new offer to be endorsed by Delta's creditor's committee, which could end up calling the shots on whether the deal is accepted.

"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 issued a statement saying its board would fulfill its duty to consider the new offer, but the statement suggested it was still opposed to the hostile bid.

"Delta noted that, on its face, the revised proposal does not address significant concerns that have been raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1 billion," said the statement.

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 prevents US Air from making the proposed capacity trims and savings it needs to make the deal.

Parker said during a call with analysts and investors that US Air is confident it will be able to be able to win the approval of Justice Department antitrust regulators, as well as some critics of the deal in Congress. The Senate Commerce Committee has called a hearing on airline consolidation for later this month. And he said he believes he will be able to convince Delta pilots and other employees that the deal is in their long-term interest as well.

Parker also told analysts he had a very productive meetings with Gordon Bethune, the former CEO of Continental Airlines (Charts), who has been hired by the Delta creditors committee to advise it on the US Air offer.

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.

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.

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.

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, is just now emerging from five years of record losses. Its management reportedly held talks with Continental Airlines 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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