Delta Air Line’s self-valuation is “way out of whack,” its chief executive “made misleading and incorrect statements,” and its creditors ultimately will force management to consider a merger, US Airways CEO Doug Parker said Thursday.
Using any accounting method, a proposed merger with US Airways creates more value for creditors than Delta could generate on its own, Parker said in a conference call with Wall Street analysts.
US Airways offered $8.5 billion in cash and stock for the bankrupt Atlanta-based carrier Nov. 15, a bid that has been to $6.9 billion for Delta’s goit-alone stance, “sounds a lot more reasonable to us,” Parker said, comparing that with the Atlanta-based carrier’s contention that it’s worth $9.4 billion to $12 billion. That figure, Parker said, “doesn’t pass the smell test.”
Using accepted investment banker methodology, US Airways proposal is worth $10.1 billion to $11.5 billion, he said.
Parker launched a fullforce counterattack to the insults that Delta CEO Gerald Grinstein hurled at its suitor Tuesday during a similar conference call with analysts after Delta filed its own plan to emerge from bankruptcy as a stand-alone.
Grinstein dismissed US Airways proposal as, “a bad deal” and “based on faulty assumptions.”
Parker attempted to debunk a few of Delta’s assumptions Thursday.
Besides the valuation, which Parker said includes future value and can’t be compared to the actual $8.5 billion offer, he dismissed by Delta management, but not so by its creditors, most of whom are staying mum about their options.
A value of $5.5 billion said Delta is making incorrect statements about the current merger of America West and US Airways. Grinstein said US Airways couldn’t get that merger completed, proof that it can’t handle another one, but Parker said the integration is ahead of schedule and would be complete or nearly so before it took on Delta.
Still not finished is integration of the labor force, although just Wednesday, US Airways forged single contract terms with a second group — the dispatchers, he said.
The Atlanta airline, however, is scaring workers into believing they would lose jobs and seniority if the carriers merged, Parker said.
The company does not plan to lay off any line workers and did not dump any during the America West-US Airways merger, Parker said.
If he could talk with Delta employees he believes he could convince them they will be better off with a merger.
“We don’t have the luxury of that access today,” he said. “But our plan would raise all employees to the highest denominator. Each employee would be at least as well off as they are today, and many will be better off.”
Rich Rule of Fried Frank, a legal expert in anti-trust issues, has been working with US Airways on antitrust concerns in the proposed merger.
He told analysts that Delta’s claim that the merger would raise major antitrust alarms were, “superficial,” “severely flawed,” and “don’t reflect the Dept. of Justice’s current approach” to competition concerns.
The Department of Justice looks at a market rather than just an airport, Rule said, so in destinations like Washington, D.C., or New York City that are served by multiple airports, the government isn’t worried if only a few airlines fly into a single airport, as long as others fly into airports within the same market.
“We’re confident, but we are ready to respond to anything DOJ raises, and we’ll do anything we need to do. Antitrust will not be an obstacle to this transaction,” Rule said. “We’re confident, but ultimately we need to get to DOJ. To do that we need both parties to file a plan so DOJ can begin the review process.”
Parker said his frustration is just that. The government can’t step in and look at any concerns unless Delta board files a plan that will trigger the review.
Parker said he is working with Delta’s creditors and believes they will force management to file such a plan eventually.
“Management doesn’t own the company, the creditors do,” he said. “I’d like Delta’s management to come to grips with this, but, absent that, the creditors will. Our case is so compelling we believe that’s how it will end up.”