Transaction Valued at Approximately $8.0 Billion in Cash and Stock
Provides 25 Percent Premium to Current Trading Price of Delta's Prepetition
Merger Expected to Generate $1.65 Billion in Annual Synergies
Consumers Will Have the Advantages of a Larger, Full-Service Provider With the
Cost Structure of a Low-Fare Carrier
TEMPE, Ariz., Nov. 15 /PRNewswire-FirstCall/ -- US Airways Group, Inc.
(NYSE: LCC) announced today that it has made a merger proposal to Delta Air
Lines, Inc. (OTC: DALRQ) under which both companies would combine upon Delta's
emergence from bankruptcy. The proposal would provide approximately
$8.0 billion of value in cash and stock to Delta's unsecured creditors. Delta
creditors would receive $4.0 billion in cash and 78.5 million shares of US
Airways stock with an aggregate value of approximately $4.0 billion based on
the closing price of US Airways' stock as of Nov. 14, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050223/LAW097LOGO )
The combination of US Airways and Delta would create one of the world's
largest airlines and would operate under the Delta name. Customers would
benefit from expanded choice as well as the reach and services of a
large-scale provider within the cost structure of a low-fare carrier. As a
combined company, the "New" Delta would be the number one airline across the
Atlantic and the second largest airline to the Caribbean. The New Delta would
reach more than 350 destinations across five continents, including North and
South America, Europe, Asia and Africa. In the U.S., the combination would
create a leading competitor in the Eastern U.S. and an enhanced position in
the Western U.S. The combined company would be the number one airline at
155 airports. The New Delta would also be uniquely positioned to compete with
low cost and legacy carriers.
US Airways' proposal represents a 25 percent premium over the current
trading price of Delta's prepetition unsecured claims as of Nov. 14, 2006
(40 cents/dollar), assuming that there will ultimately be $16.0 billion of
unsecured claims. The proposal also represents a 40 percent premium over the
average trading price for Delta unsecured claims over the last thirty days.
US Airways believes that the combination will generate at least
$1.65 billion in annual synergies, including $935 million in network
synergies, predominantly from optimization of the airlines' complementary
networks, including rationalization of network overlap, which will result in a
10 percent reduction of the combined airlines' capacity, reducing unprofitable
flying and improving the mix of traffic. In addition, $710 million in net
cost synergies will be achieved by combining facilities in overlap airports
and eliminating redundant systems and overhead. Significantly, the
opportunity to generate more than half of these synergies could be lost if a
merger is delayed until after Delta emerges from bankruptcy. The merger is
expected to be accretive to US Airways' earnings in the first full year after
completion of the merger.
US Airways Chairman and Chief Executive Officer Doug Parker stated, "We
believe that the combination of US Airways and Delta, like the US Airways /
America West merger we completed in September 2005, is extremely compelling
and will create significant value for each of our stakeholders. The combined
company will be a more effective and profitable competitor in the current
fragmented marketplace, with the ability to better meet the continuing
evolution of the airline industry. We will be flying under the Delta brand
name, which is recognized around the world.
"Delta creditors will receive significantly greater value under this
proposal than they would under any standalone plan for Delta. US Airways
shareholders and Delta creditors will benefit from the significant upside
potential of the combined company through their respective ownership stakes.
"Even with a 10 percent reduction in capacity, all existing U.S.
destinations served today by US Airways and Delta will remain part of the new,
improved network. Consumers will have the advantages of a larger,
full-service airline with the cost structure of a low-fare carrier, and the
communities we serve, as well as those Delta serves, will have access to a
wider range of network options. More than ever, the New Delta will be able to
connect our customers to the people and places they want to visit.
"All of the employees of the New Delta will benefit from working for a
larger and more competitive airline. As we demonstrated during our
US Airways / America West merger, long-term job security for employees in our
industry results from sound economics and a healthy business able to compete
in our changing marketplace," Parker concluded.
The New Delta will create a more comprehensive global route network that
will provide more choice for travelers and attract new customers to key
markets. In addition, many travelers have already benefited from the US
Airways / America West merger. Since the merger, US Airways has lowered
leisure fares in nearly 350 markets with discounts ranging from 10 percent to
75 percent (an average reduction of 24 percent within those markets). US
Airways has also lowered business fares in nearly 400 markets during the same
period with reductions ranging from 10 percent to 83 percent (an average
reduction of 37 percent within those markets).
Paul Reeder, President of PAR Capital Management, US Airways' largest
shareholder, said, "We enthusiastically support this transaction, which we
believe offers the opportunity to build upon US Airways' current competitive
position. We have confidence in the US Airways management team, the
$1.65 billion in identified synergies, and the potential upside for US Airways
Below is the text of the letter that US Airways sent to Gerald Grinstein,
Delta's Chief Executive Officer.
November 15, 2006
Mr. Gerald Grinstein
Chief Executive Officer
Delta Air Lines, Inc.
Atlanta, GA 30320-6001
Last Spring we had a conversation about a potential merger of US
Airways and Delta. As you know, following that conversation, I sent you
a letter on September 29, 2006, outlining our thoughts about a
transaction, describing the significant benefits that could be achieved
for both of our respective stakeholder groups from this type of
transaction, and proposing to meet with you and your team to work together
to further consider and develop our proposal. I was disappointed that you
declined to meet or even enter into discussions in your letter of
October 17, 2006. Because the benefits of a merger of US Airways and
Delta are so compelling to both of our companies' stakeholders, we believe
it is important to inform them about our proposal. Therefore, we are
simultaneously releasing this letter to the public.
The Board of Directors and management team of US Airways believe that
a combination of Delta and US Airways presents a significantly greater
value for Delta's creditors, customers, employees and partners than a plan
to emerge from bankruptcy on a standalone basis. We also believe that,
unless we act quickly to pursue a combination through the actions that can
be taken during Delta's bankruptcy process, our respective stakeholders
will not be able to realize what we believe are substantial economic
benefits from such a combination.
Merger Proposal. We propose a merger of Delta and US Airways in a
transaction in which Delta prepetition unsecured creditors would receive
$4.0 billion in cash plus 78.5 million shares of US Airways' common stock.
Based upon the closing price of US Airways' common stock of $50.93 on
November 14, 2006, the equity component represents a value of
approximately $4.0 billion. As a result of this transaction, immediately
following the merger, Delta unsecured creditors would own approximately
45 percent of the combined company.
This proposal represents an aggregate of approximately $8.0 billion in
value to Delta's prepetition unsecured creditors, before taking into
account realization of any of the significant additional value from the
synergies we believe are achievable. Even prior to the realization of any
synergy value, this proposal represents a 25 percent premium over the
current trading price of Delta's prepetition unsecured claims as of
November 14, 2006 (40 cents/dollar), assuming that there will ultimately
be $16.0 billion of unsecured claims. The proposal also represents a
40 percent premium over the average trading price for Delta unsecured
claims over the last thirty days. We believe that this proposal, which is
based on publicly available information, fully values Delta.
Synergy Value. What makes this proposal most compelling for both
Delta creditors and US Airways shareholders are the significant synergies
that we believe can be readily achieved in this proposed transaction. We
have preliminarily identified annual network and cost synergies in excess
of $1.65 billion, which at a median industry EBITDAR multiple of
5.0x translates into approximately $8.3 billion of additional value
creation. This is value that neither of our teams, no matter how well
managed, could create independently. Under the combination, these
synergies would be shared by Delta creditors and US Airways shareholders
in proportion to their initial ownership in the combined company.
The synergies would be generated only through an appropriately timed
transaction, and under our current analysis we believe would be as
* Approximately $710 million would be realized through expense
reductions. The largest savings would be in consolidation of
information systems, reduction of overhead and consolidation of
facilities. Additional savings are expected through lower distribution
costs and renegotiation of our collective contracts with vendors.
Based upon our experience and synergies achieved with the merger of
US Airways and America West, we believe this estimate is conservative.
* Another $935 million would be realized through network rationalization
synergies. Network rationalization savings would be generated by
managing the combined networks to ensure that the combined fleet size
is better matched to passenger demand. Network synergies would also
arise from better serving our current customers, and by increasing our
competitive presence, attracting new customers and corporate accounts
in markets where neither carrier today is a significant competitor.
In our US Airways/America West merger, we preliminarily identified
approximately $250 million in potential annual cost synergies that we
believed could be realized in that transaction. After having successfully
completed that transaction over a year ago, we have now identified over
$300 million in cost synergies, outperforming our expectations.
Year-to-date, US Airways' RASM is up 17.1 percent versus the industry
being up 9.1 percent, which translates into $425 million in network
synergies already this year. Accordingly, we have a high level of
confidence that we can achieve at a minimum the synergies that we have
identified in a potential Delta / US Airways merger.
Our analysis presumes that a merger would proceed in the same fashion
as the US Airways / America West transaction, with the closing in
conjunction with Delta's emergence from bankruptcy. As I have previously
indicated to you, if we model a merger of our companies after Delta
emerges from bankruptcy standalone, our synergy estimates are cut in half.
We do not believe that simply allowing that potential value to evaporate
is in the best interests of any constituency.
Financing and Structure. We have obtained a financing commitment from
Citigroup to provide $7.2 billion in new financing for this transaction.
This funding would be utilized to refinance Delta's debtor-in-possession
credit facility, refinance US Airways' existing senior secured facility
with GE Capital, and provide the funding for the $4.0 billion cash portion
of our offer. All other allowed secured debt and administrative claims
would be assumed or paid in full.
Preliminarily, we would intend to follow the model used successfully
in the US Airways/America West merger for this transaction. We would, of
course, seek to structure the transaction in a tax efficient manner for
our respective stakeholders, maximizing Delta's net operating loss
Integration. Our proposal contemplates the creation of the leading
global airline operating under the "Delta" name and brand. To streamline
our operations and capitalize on potential synergies, we would expect to
develop together an integration plan, and identify areas in which
efficiencies can be maximized, including appropriate rationalization of
Regulatory Matters. We have worked with antitrust counsel to analyze
this transaction and believe that any antitrust issues can be resolved.
Labor Matters. We believe that this transaction is in the best
interests of the employees of US Airways and Delta because of the strength
and stability of the company that the transaction will produce. Also, we
expect that we would move to the highest of the existing labor costs in
every group. Because the wage rates for Delta and US Airways employees
are not markedly different, we do not anticipate that this action will
have a material negative impact, and that fact has been included in our
analysis. Similar to the US Airways / America West merger in which there
were no furloughs of mainline operating group employees, our current model
does not assume furloughs of employees in the mainline operating groups.
Conditions. Our proposal is conditioned on satisfactory completion of
a due diligence investigation, which we believe can be completed
expeditiously. In addition, the proposed transaction would be conditioned
on the bankruptcy court's approval of a mutually agreeable plan of
reorganization that would be predicated upon the merger, regulatory
approvals and approval of the shareholders of US Airways. Given our
analysis to date, we are confident that our joint efforts would result in
satisfaction of these conditions and a successful combination of our
companies in a timely manner.
This proposal presents an opportunity for Delta creditors to receive
significantly higher recoveries than they can receive under any standalone
plan for Delta. It is also an opportunity for US Airways shareholders to
benefit from the significant upside potential of the combination.
Consumers will benefit from expanded choice as well as the reach and
services of a large-scale provider within the cost structure of a low-fare
carrier. Our employees will benefit from a more competitive employer and
our willingness to adopt highest common denominator employee costs.
As I expressed to you previously, I understand that you and your team
have worked extremely hard on your own restructuring, and greatly respect
all that you have accomplished to make Delta a healthy, viable airline.
We simply believe that a combination with US Airways will produce even
more value for your creditors and our shareholders, and that this is a
unique opportunity to create an airline that is even better positioned to
thrive long into the future, whatever that future might bring to the
industry, greatly benefiting our employees and customers.
We and our advisors, Citigroup Corporate and Investment Banking and
Skadden, Arps, Slate, Meagher & Flom LLP, are ready to commence due
diligence and to negotiate definitive documentation immediately, and
request that you agree to work with us so that this alternative to your
standalone plan can be quickly and fully developed. We are prepared to
meet with you, Delta's Board, Delta's Official Committee of Unsecured
Creditors, and any major Delta creditor or other stakeholder, to achieve
this outcome. I believe we owe it to our respective stakeholders to
pursue this opportunity vigorously.
I look forward to hearing from you soon.
/s/ Doug Parker
US Airways has committed financing from Citigroup for the proposed
transaction for $7.2 billion, representing $4.0 billion to fund the cash
portion of the offer and $3.2 billion in refinancing at both companies.
The US Airways proposal is conditioned on satisfactory completion of a due
diligence investigation, which the Company believes can be completed
expeditiously, approval by Delta's Bankruptcy Court of a mutually agreeable
plan of reorganization that would be predicated upon the merger, regulatory
approvals, and the approval of the shareholders of US Airways. US Airways
believes that this process could be completed in the first half of 2007.
Citigroup Corporate and Investment Banking is acting as financial advisor
to US Airways, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as
primary legal counsel, with Fried, Frank, Harris, Shriver & Jacobson LLP as
lead antitrust counsel to US Airways.
US Airways executives will be discussing the proposal with analysts and
investors on a conference call at 8:15 a.m. ET / 6:15 a.m. MT today, Nov. 15,
2006. To access the conference call, please dial 866-290-0880 (U.S. dial-in)
or 913-312-1228 (international dial-in) beginning at 8 a.m. ET / 6 a.m. MT and
ask to be connected to the US Airways conference call (conference
ID# 4396188). A replay of the call will be available until Nov. 17, 2006 by
dialing 888-203-1112 (U.S. dial-in) or 719-457-0820 (international dial-in)
(conference ID# 4396188). Accompanying slides will be available on
US Airways' website, www.usairways.com. The Company will also webcast the
call to all interested parties through its website at www.usairways.com.
Click "About US >> Investor Relations >> Webcasts/Presentations/Updates."
US Airways executives will also be presenting at the Citigroup
Transportation Conference today at 9:35 a.m. ET / 7:35 a.m. MT, and the
webcast will be available at www.usairways.com. To access the presentation,
click About US >> Investor Relations >> Webcasts/Presentations/Updates.
B-roll footage of US Airways can be accessed from 06:00 a.m. to
09:00 a.m. ET at :
Band: C Analog
Downlink Frequency 3880 Horizontal
Orbital Slot: 103 Degrees West
US Airways is the fifth largest domestic airline employing nearly
35,000 aviation professionals worldwide. US Airways, US Airways Shuttle and
US Airways Express operate approximately 3,800 flights per day and serve more
than 230 communities in the U.S., Canada, Europe, the Caribbean and Latin
America. The new US Airways -- the product of a merger between America West
and US Airways in September 2005 -- is a member of Star Alliance, which
provides connections for our customers to 841 destinations in 157 countries
worldwide. This press release and additional information on US Airways can be
found at www.usairways.com. (LCCG)
Certain of the statements contained herein should be considered
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements may be
identified by words such as "may," "will," "expect," "intend," "indicate,"
"anticipate," "believe," "forecast," "estimate," "plan," "guidance,"
"outlook," "could," "should," "continue" and similar terms used in connection
with statements regarding the outlook of US Airways Group, Inc. (the
"Company"). Such statements include, but are not limited to, statements about
expected fuel costs, the revenue and pricing environment, the Company's
expected financial performance and operations, future financing plans and
needs, overall economic conditions and the benefits of the business
combination transaction involving West and the Company or potential business
combination transaction involving Delta Air Lines, Inc. ("Delta") and the
Company, including future financial and operating results and the combined
companies' plans, objectives, expectations and intentions. Other
forward-looking statements that do not relate solely to historical facts
include, without limitation, statements that discuss the possible future
effects of current known trends or uncertainties or which indicate that the
future effects of known trends or uncertainties cannot be predicted,
guaranteed or assured. Such statements are based upon the current beliefs and
expectations of the Company's management and are subject to significant risks
and uncertainties that could cause the Company's actual results and financial
position to differ materially from the Company's expectations. Such risks and
uncertainties include, but are not limited to, the following: the impact of
high fuel costs; significant disruptions in the supply of aircraft fuel and
further significant increases to fuel prices; the Company's high level of
fixed obligations and its ability to obtain and maintain financing for
operations and other purposes; the Company's ability to achieve the synergies
anticipated as a result of the merger with America West Holdings Corporation
and the potential business combination transaction involving Delta and to
achieve those synergies in a timely manner; the Company's ability to integrate
the management, operations and labor groups of the Company and America West
Holdings Corporation and the Company and Delta; labor costs and relations with
unionized employees generally and the impact and outcome of labor
negotiations; the impact of global instability, including the current
instability in the Middle East, the continuing impact of the military presence
in Iraq and Afghanistan and the terrorist attacks of September 11, 2001 and
the potential impact of future hostilities, terrorist attacks, infectious
disease outbreaks or other global events that affect travel behavior; reliance
on automated systems and the potential impact of any failure or disruption of
these systems; the potential impact of future significant operating losses;
changes in prevailing interest rates; the Company's ability to obtain and
maintain commercially reasonable terms with vendors and service providers and
its reliance on those vendors and service providers; security-related and
insurance costs; changes in government legislation and regulation; the
Company's ability to use pre-merger NOLs and certain other tax attributes;
competitive practices in the industry, including significant fare
restructuring activities, capacity reductions and in court or out of court
restructuring by major airlines; continued existence of prepetition
liabilities; interruptions or disruptions in service at one or more of the
Company's hub airports; weather conditions; the Company's ability to obtain
and maintain any necessary financing for operations and other purposes; the
Company's ability to maintain adequate liquidity; the Company's ability to
maintain contracts that are critical to its operations; the Company's ability
to operate pursuant to the terms of its financing facilities (particularly the
financial covenants); the Company's ability to attract and retain customers;
the cyclical nature of the airline industry; the Company's ability to attract
and retain qualified personnel; economic conditions; and other risks and
uncertainties listed from time to time in the Company's reports to the
Securities and Exchange Commission. There may be other factors not identified
above of which the Company is not currently aware that may affect matters
discussed in the forward-looking statements, and may also cause actual results
to differ materially from those discussed. All forward-looking statements are
based on information currently available to the Company. The Company assumes
no obligation to publicly update or revise any forward-looking statement to
reflect actual results, changes in assumptions or changes in other factors
affecting such estimates. Additional factors that may affect the future
results of the Company are set forth in the section entitled "Risk Factors" in
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2006, which is available at www.usairways.com.
Subject to future developments, US Airways may file with the United States
Securities and Exchange Commission a registration statement to register the
US Airways shares which would be issued in the proposed transaction and/or a
proxy statement with respect to the proposed transaction. Investors and
security holders are urged to read the registration statement and/or proxy
statement (when and if available) and any other relevant documents filed with
the Commission, as well as any amendments or supplements to those documents,
because they will contain important information. Investors and security
holders may obtain a free copy of the registration statement and/or proxy
statement (when and if available) and other relevant documents at the
Commission's Internet web site at www.sec.gov. The registration statement
and/or proxy statement (when and if available) and such other documents may
also be obtained free of charge from US Airways by directing such request to:
US Airways Group, Inc., 111 West Rio Salado Parkway, Tempe, Arizona 85281
Attention: Chief Legal Officer.
SOURCE US Airways Group, Inc.
CONTACT: Media, Elise Eberwein, Andrea Rader, or Phil Gee,
+1-480-693-5729, or Investors, Elise Eberwein, Derek Kerr, or Dan Cravens,
+1-480-693-1227, all of US Airways Group, Inc.; or Joele Frank, or Kelly
Sullivan, both of Joele Frank, Wilkinson Brimmer Katcher,
+1-212-355-4449, for US Airways Group, Inc.
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