Airline Strategy Awards Honor Delta CEO for Successful Merger

Jul 19, 2010

LONDON, July 19 /PRNewswire-FirstCall/ -- Delta Air Lines' (NYSE: DAL) Chief Executive Officer Richard Anderson has been recognized by industry trade magazine "Airline Business" and global executive search firm Spencer Stuart with the 2010 Airline Strategy Award for Executive Leadership for his efforts to successfully merge Delta and Northwest Airlines.  

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"The scale of the merger and skill required for this merger has been incomparable," said Mark Pilling, editor of Airline Business. "Delta has so far executed a near-textbook merger that included getting labor buy-in from the start – that was a massively significant step."

"Delta's swift and smooth merger integration took a great deal of hard work, planning and focus," said Anderson in a recorded acceptance played last night at a gala dinner in London.  "We couldn't have succeeded if not for Delta people. I'm honored tonight to accept the Executive Leadership Award on behalf of the more than 70,000 Delta people around the globe who made our merger a success."

Four Delta employees, along with Perry Cantarutti, Delta's senior vice president of Europe, Middle East and Africa, were at the event to accept the award. Representing Delta employees worldwide were Jill Gosling, an Airport Customer Service agent, Flight Attendant Julie Alexander-Nixon, Flight Attendant Lisa Cohen and First Officer Jerrad Boren. With the company's financial results announcement scheduled in Atlanta today, Anderson was unable to accept the award in person.  

Airline Strategy Award winners are chosen by an independent panel of industry experts chaired by the Airline Business Editor and facilitated by Spencer Stuart. Judges include Sir Rod Eddington, non-executive chairman for Australia and New Zealand at JP Morgan and former CEO of British Airways; Jeffrey Katz, former president and chief executive of Swissair and founding chairman and chief executive of Orbitz; Professor Rigas Doganis, author of several books on air transport; Peter Harbison, managing director of the Centre for Asia Pacific Aviation; Joe Leonard, former chairman and chief executive officer of AirTran airways; and Chris Tarry, one of the most highly rated aviation analysts in the London market.

Delta closed its merger with Northwest Airlines in October 2008. Within 18 months the airline introduced a combined frequent flyer program, created consistent branding at airports worldwide, issued Delta uniforms to all customer-facing employees and integrated reservations systems, making every flight a Delta flight and every customer a Delta customer.  The airline achieved its single operating certificate in December 2009.

Delta Air Lines serves more than 160 million customers each year. With its unsurpassed global network, Delta and the Delta Connection carriers offer service to 369 destinations in 67 countries on six continents. Headquartered in Atlanta, Delta employs more than 70,000 employees worldwide and operates a mainline fleet of more than 700 aircraft. A founding member of the SkyTeam global alliance, Delta participates in the industry's leading trans-Atlantic joint venture with Air France KLM and Alitalia. Including its worldwide alliance partners, Delta offers customers more than 13,000 daily flights, with hubs in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Paris-Charles de Gaulle, Salt Lake City and Tokyo-Narita. The airline's service includes the SkyMiles frequent flier program, the world's largest airline loyalty program; the award-winning BusinessElite service; and more than 45 Delta Sky Clubs in airports worldwide. Customers can check in for flights, print boarding passes, check bags and review flight status at delta.com.

SOURCE Delta Air Lines

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JPMorgan Downgrades AMR Corp as Odds of Merger Settlement Grow

Shares of AMR. Corp. (AAMRQ) have surged as the chances that its merger with US Airways (LCC) increase. But is all the good news priced into the stock?

Associated Press

It just might be, says JPMorgan’s Jamie Baker and Mark Streeter, who downgraded shares of AMR Corp. to Neutral from Overweight. They write:

[The] current value of AAMRQ implies a ~66% probability of a merger…Given recent settlement momentum, we are comfortable nudging our earlier 60% probability to the 70-75% range.

While our AAMRQ upside analysis is comparatively straightforward, the downside analysis is more difficult to assess. Even slight tweaks to multiples, the claims pool, intercompany issues and EBITDAR can produce significant swings in estimated standalone Q values (gyrating between $1.00 to as much as $6.00). In light of the 97% surge in the past month (vs. S&P 500 +4%) and the lack of clarity on downside, we feel that upside potential for AAMRQ needs to handily exceed the customary 25-30% that we look for in Overweight-rated airline names, even if we remain bullish in general.

Shares of AMR Corp. have dropped 3.5% to $9.31 today at 10:50 a.m., while US Airways is off 2% at $22.33. United Continental (UAL) has fallen 1.9% to $34.83 and Delta Airlines (DAL) is off 1% at $27.18.

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U.S. in Talks to Settle Suit Over American-US Airways Merger

Mr. Holder’s comments on the negotiations, which began just three weeks before a trial on the suit was scheduled to start in federal court in the District of Columbia, raised expectations on Wall Street and in the aviation industry that the merger would stay in place with relatively modest concessions.

The department sued in August to block the merger, which would create the nation’s largest airline. Claiming that the combination would harm consumers, Justice Department officials said that they had to take a tough stance because other big airline mergers had increased airfares.

Several legal and airline specialists said that despite that talk, the Justice Department’s case was relatively weak and that it now appeared to be narrowing its main concerns about competition to a few airports.

Robert A. McTamaney, a mergers and acquisitions lawyer at Carter Ledyard & Millburn in New York, said Mr. Holder seemed to be “holding out something of an olive branch.”

Mr. Holder told reporters in Washington that the government would insist, in any settlement, on “divestitures of facilities at key constrained airports throughout the United States.”

For example, Mr. Holder said the department had determined how many slots it would want American and US Airways to sell at Reagan National Airport near Washington, where the two airlines together control about two-thirds of the landing and takeoff slots. He declined to specify the number and did not name any other airports.

But while department officials initially talked in August about 1,000 pairs of cities where the combination of American and US Airways would dominate a route and could increase fares, Mr. McTamaney said a settlement might require them to sell slots to competitors at only a few airports.

One problem for the Justice Department, he said, is that many smaller airports do not produce enough traffic to sustain competition among airlines for a more than a few months.

“Historically, in a lot of these markets, two airlines cannot make money,” Mr. McTamaney said. “It doesn’t matter whose name is on the side of the plane.”

Mr. Holder said the department hoped for a settlement, but remained “fully prepared to take this case to trial.” He added, “We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint.”

The Justice Department has approved several mergers in recent years, including the combination of Delta Air Lines and Northwest, United and Continental, and Southwest and AirTran. Government lawyers have said that given the growing concentration in the industry — the proposed merger would result in four airlines carrying more than 80 percent of the nation’s commercial air travel — an additional merger would hurt passengers.

But some airline analysts had expected the sides to settle before the case reached court. That view gained traction last week when the Justice Department, American Airlines and US Airways picked a mediator, as requested by the court.

“Justice will be unable to convince a judge the merger is anticompetitive, especially given that AMR and US Airways offer far less competitive overlap versus all three previous mergers approved by Justice,” according to a report last week by Vicki Bryan, an analyst at GimmeCredit.

Negotiations are a far cry from the Justice Department’s initial statements, after filing its challenge, when its lawyers vowed to take the case to court.

The government’s case against the merger has also suffered several small setbacks in recent months, which threaten to weaken its position before the Nov. 25 trial.

Last month, the attorney general of Texas, who had joined the federal challenge with five other states and the District of Columbia, withdrew his support after negotiating a separate arrangement with American Airlines. Under that deal, the airline promised to keep its headquarters in the Dallas-Fort Worth area, which it had promised repeatedly in the past, and agreed to maintain daily service to more than 20 airports in Texas.

Another defection might be looming. Pam Bondi, the attorney general of Florida, another state that had joined the challenge, said she had met with Thomas W. Horton, the chairman and chief executive of American Airlines, and indicated they were working on a “timely resolution.”

The Justice Department is facing a tight schedule to prepare for the trial and present evidence. It had initially sought a court date in March 2014, but was rebuffed by Judge Colleen Kollar-Kotelly, of the United States District Court for the District of Columbia, who set an earlier date.

The airlines argue that their merger would benefit passengers by providing more flights to more airports, in the United States and abroad, and offer a stronger counterweight to Delta and United.

The federal challenge to the merger followed a tumultuous period of restructuring for American Airlines, which filed for bankruptcy in 2011. The reorganization was approved by a federal judge in September, subject to Justice Department approval of the merger. As part of the plan, American agreed to merge with US Airways, a move that received the backing of creditors and its three main labor groups.

Shares of American’s parent, the AMR Corporation, jumped nearly 25 percent Monday on the news about the settlement talks.

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US air merger prospects brighten

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Airlines Merger Needs Divestitures to Settle U.S. Suit

American Airlines and US Airways Group Inc. (LCC) will have to divest assets at key airports across the country if they want to settle the U.S. lawsuit seeking to block their proposed merger, Attorney General Eric Holder said.

Shares of American parent AMR Corp. (AAMRQ) surged after Holder said today he hopes to resolve the case before trial through talks now taking place between Justice Department and the airlines. Should the negotiations fail, the government is prepared to go to trial to block a merger that would create the world’s largest airline, he said.

“What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States,” Holder said at a news conference in Washington.

He declined to disclose the number of slots for takeoff and landing rights that the government wants the airlines to sell before it will approve the tie-up.

“We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint and do not substantially bring relief to consumers,” Holder said.

AMR rose 25 percent to $9.84 in over-the-counter trading in New York. That was the biggest jump since Feb. 14, the day the deal was announced. US Airways rose 1.2 percent to $22.71.

AMR’s $460 million of 6.25 percent convertible notes due in October 2014 rose 9 cents to 132.5 cents on the dollar in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.

The rally built on momentum generated last week when AMR Chief Executive Officer Tom Horton met with Florida Attorney General Pam Bondi to discuss ending that state’s role in the U.S. lawsuit.

Bondi said in a statement that both sides were “hopeful that we will reach a timely resolution,” and Horton echoed that with a statement saying he was “hopeful that a resolution can be reached in the near future.”

Florida is among six states plus the District of Columbia that have joined the Justice Department’s lawsuit. The U.S. and the plaintiff states argue the combination would reduce competition and raise fares. Texas dropped out of the suit last month.

Assistant U.S. Attorney General Bill Baer, head of the Justice Department’s antitrust division, said when the lawsuit was filed that “We’re in court today because we think a full-stop injunction is the right outcome for consumers.”

Bloomberg News reported the settlement talks between the airlines and the Justice Department Oct. 30.

“There has to be something where everybody can declare it a win-win and it makes sense for the airlines and it makes sense from the government’s standpoint to resolve the competitive concerns they have,” said Jonathan Lewis, an antitrust attorney at BakerHostetler in Washington, who isn’t involved in the case.

American, which has been in bankruptcy since November 2011, was set to exit court protection by merging with Tempe, Arizona-based US Airways when the Justice Department and a group of states sued to block the deal Aug. 13.

The lawsuit, unexpected by analysts and industry executives, marked a sharp break with the Justice Department’s past policy, which allowed six unprofitable airlines to merge over the past five years in an effort to cut costs and end losses.

The Justice Department claimed the planned merger would leave US Airways no incentive to offer discounted “Advantage Fares” and could cause the industry’s legacy carriers, such as United Continental Holdings Inc., Delta Air Lines Inc. and American to charge more for tickets and ancillary services.

The U.S. said in its complaint that the merged airline would control 69 percent of slots at Washington’s Reagan National Airport, almost six times more than its closest competitor, effectively blocking other airlines from entering or expanding there to increase competition. A carrier that wants to begin or expand service at Reagan must buy or lease slots from another airline.

The case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington).

To contact the reporters on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net; Laurie Asseo in Washington at lasseo1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net; Steven Komarow at skomarow1@bloomberg.net

Enlarge image Six states plus the District of Columbia have joined the U.S. Justice Department's lawsuit seeking to stop the proposed merger of AMR Corp.'s American Airlines with US Airways Group Inc.

Six states plus the District of Columbia have joined the U.S. Justice Department's lawsuit seeking to stop the proposed merger of AMR Corp.'s American Airlines with US Airways Group Inc. Photographer: Sam Hodgson/Bloomberg

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