US Airways

  • 15 Nov 2006 at 2:03 PM
  • Airlines

Deal of the Day: Uncovering Hidden Delta-US Air Synergies

deltausairmerger.jpgWe’ve been running through our financial models here in DealBreaker HQ. Okay. Not really. We’ve been doodling on cocktail napkins at Harry’s while we enjoy our liquid lunch. But we’ve none the less managed to uncover one potentially valuable and unreported synergy in the Delta-US Airways merger.
The two airlines have three recent bankruptcies between them—and after the merger both will continue to face challenges from fuel costs, employee costs, competition from cut-rate carriers and terrorism risks. So there’s a not to far-fetched chance that the combined company will face bankruptcy again.
And you know what? Bankruptcies are expensive. Everyone—debtors, creditors, purchasers—hires lawyers, and the lawyers get paid out ahead of almost everyone else. So next time around, instead of paying two sets of lawyers for Delta and US Airways, they can pay just one. Synergy, baby, synergy!

  • 15 Nov 2006 at 11:36 AM
  • M&A

Deal of the Day: US Airways Gives Delta The Reach Around

deltausairmerger.jpgIt’s been more than a year since Delta went into bankruptcy just around the time US Airways emerged last September. Even back then we heard that it was the threat of competition from the reorganized US Airways—which merged with America West at the same time it exited bankruptcy—that helped push Delta over the edge. (Others said it was 9/11, higher fuel costs, JetBlue, hurricanes and almost anything else you can imagine.) So it’s especially delicious that Delta might emerge from bankruptcy with a helping hand from US Airways.
The deal involves a pretty significant haircut for unsecured investors—they’re getting about 50 cents on the dollar for around $16 billion of debt. But since the unsecured debt has recently been trading around 40 cents on the dollar, this means that at least some of the vulture investors should be pretty happy with the deal.
Here’s what we’re told is the scoop on the deal—it needs to get done soon, before the bankruptcy process moves along any further. The closer Delta gets to a solo exit—with a court affirming its current leases and various vendor deals in place—the smaller the gains from the combination. Usually “synergy” is corporate-speak for “vague plans to someday save money on a deal.” But here, assuming Delta can get out of a bunch of its current obligations as part of its bankruptcy exit, the synergies could be a reality.
US Airways Proposes $8 Billion Delta Air Takeover [Bloomberg]