Hostile Takeover in the Airline Industry?

Charlotte, Jeff, and Josh

http://money.cnn.com/2007/01/30/news/companies/delta_merger/index.htm

http://www.usatoday.com/money/biztravel/2007-01-30-usairways-delta-merger_x.htm

US Airways is beginning to second guess its plans for a hostile takeover bid of Delta Airlines. The creditors' committee of Delta, whose support for consolidation is necessary for the deal to go through, has been vacillating on a decision after US Air increased its bid for the company by 20% three weeks ago. Delta's management has been fighting consolidation in the hope that reorganization and a departure from bankruptcy protection can be quickly accomplished. Delta has secured financing from six large investment banks to emerge from bankruptcy in the spring, and has additionally promised to emerge from protection as a company open to mergers (without a "poison pill" prohibiting takeovers).

Delta has resisted a bid on the grounds that the two airlines have significant overlap in routes and that consolidation would merely lead to competitors doing the same to increase their own market share vis-a-vis the new US Air-Delta company. Delta had previously been rumored to be considering a merger with Northwest - a combination that to them could create a mutually beneficial relationship. US Air's chance at success in their takeover bid has been riddled with skepticism on the part of analysts. They seem to agree that it would be better to let Delta emerge from bankruptcy and see what the industry looks like after the company has a chance to reestablish itself. Talk by US Airways of further sweetening the deal has been met only with more skepticism.

Delta's belief in its ability to reaffirm its place in the airline industry and its distaste for the US Airways deal should be respected for the time being. If it is established that fares remain too low for the most efficient airlines to be profitable, then mergers and takeovers should be reconsidered. However, there seems to be better options for a merger (as with Northwest) in the marketplace, and at least for the consumer and airline quality, more competition and a less concentrated marketplace should at least be tested out. As airlines finally are becoming profitable five and a half years after September 11th, perhaps the market should simmer before being shaken up yet again.