Hopes were raised for consolidation in the perennially unprofitable US airline industry yesterday after US Airways made an $8bn (£4.2bn) takeover bid for the bankrupt transatlantic carrier Delta.
US Airways, the country's seventh largest airline, made its audacious hostile approach, proposing a deal that would create the biggest American carrier.
Airline shares leapt on Wall Street,anticipatingthe industry may finally start to tackle the over-capacity that has depressed ticket prices and forced airlines into out-of-bankruptcy protection.
Delta's 74-year-old chief executive, Gerald Grinstein, was cool on the plan, and revealed he had rebuffed US Airways' friendly approach last month. But US Airways chief executive, Doug Parker, appealing directly to Delta's creditors, predicted $1.65bn in cost-savings from a merger.
"This is not value that either of our companies can create independently," Mr Parker said. "If we wait for Delta to emerge from bankruptcy, it will be too late to maximise all the synergies. What we believe will happen is that creditors see the value of this proposal."
He said the combined group, which would use the Delta name, would need 10 per cent fewer aircraft to serve the same number of routes. To satisfy regulators, it would dispose of one of the two North-eastern shuttle businesses linking New York, Washington and Boston.
Analysts said a new giant airline with a significant cost advantage could force rivals to consolidate. US Airways' approach might also smoke out other bidders for Delta. US Airways said its bid - half in cash, half in shares - would give Delta's creditors the equivalent of 40 cents in the dollar and the potential to benefit from the cost-savings from a merger.
Mr Grinstein said: "Delta's plan has always been to emerge from bankruptcy in the first half of 2007 as a strong, stand-alone carrier", but that it would consider US Airways' proposal.Reuse content