US Airways’ $8 billion bid to acquire Delta Air Lines could force United Airlines to seek a merger partner of its own, industry observers say.
For more than 18 months, United chief executive Glenn Tilton has spoken about the need for consolidation in the airline industry and his desire to see Chicago-based United take part. He reportedly has hired an investment bank to explore strategic options.
United, with its strong Denver presence, has a number of potential options to counter the US Airways bid. Those, analysts say, include:
Merging with Houston- based Continental Airlines or another airline.
Making a competing bid for Atlanta-based Delta.
Taking itself private to raise capital for an acquisition.
Or doing nothing.
On Wednesday, United chief financial officer Jake Brace reiterated Tilton’s call for consolidation.
“We believe that mergers in the airline industry have significant synergies,” he said, in response to the US Airways bid for Delta that was announced Wednesday.
“We’re obviously going to do what we think makes sense for our company, and we’ll be interested to see what happens with US Air and Delta,” Brace said during a presentation at the Citigroup Global Transportation Conference in New York.
“We believe in a level playing field for all, and that the market should decide,” United spokeswoman Jean Medina said in a written comment.
Before becoming United’s CEO in 2002, Tilton was Texaco’s CEO That company later merged with Chevron.
United in 2001 failed in an attempt to acquire US Airways, which is based in Phoenix. Last year, US Airways struck a deal to merge with America West.
“We would not be surprised if other offers emerge for Delta,” beginning a flurry of industry mergers and acquisitions, Cal yon Securities analyst Ray Neidl wrote in a report Wednesday.
In the past, “when one was acquired, others were acquired,” said Helane Becker, an analyst at the Benchmark Co. “There are many people who feel that the industry needs to be consolidated.”
No airline holds more than 15 to 16 percent of industry capacity, she said.
Becker thinks US Airways is in the best position for a bid on Delta because of overlap on their East Coast routes. United and Continental also make a good fit, Becker said, “but we’re not necessarily seeing that that would occur.”
The offer to buy Delta once the Atlanta-based airline emerges from bankruptcy protection by the middle of 2007 would give Delta’s unsecured creditors $4 billion in cash and 78.5 million shares of US Airways stock. The combined airline would operate under the Delta name and serve more than 350 destinations across five continents.
Evergreen-based aviation consultant Mike Boyd said United “has a bright future” as a stand-alone airline. He also said he doesn’t believe other airlines will need to consolidate in response to a US Airways-Delta acquisition.
“This deal takes two competitors, puts them in the mud for two years. Meanwhile, American, United, Frontier can capitalize on it,” Boyd said. “Mergers do nothing but mess things up, particularly for consumers and employees.”
He said a US Airways-Delta merger is bad news for consumers because the airlines want to carry fewer passengers and charge more for seats.
Delta and US Airways do not have a large presence at DIA, where the largest carriers are United and Frontier. Delta has 17 daily departures and 85 employees in Denver, while US Airways has 13 daily departures and 160 employees in Denver.
Boyd said Denver could lose flights to a hub like Charlotte, N.C., if US Airways acquires Delta.
Frontier Airlines spokesman Joe Hodas said all airlines could be helped by a reduction in airplane seats. Frontier is based in Denver.
But if anyone takes over Delta Air Lines, Credit Sights analyst Roger King is betting on United.
That airline “is the perfect merger companion on paper, maximizing network synergies to create potentially the best airline in the world,” King wrote in a report issued Wednesday. “CEO Tilton has been on the merger warpath for a while, and Goldman Sachs is in place to help.”
Airline shares shot up on news, with the Amex Airline Index up 5.2 percent. United shares closed at $39.99, up nearly 9 percent.
Staff writer Kelly Yamanouchi can be reached at 303-954-1488 or kyamanouchi@denverpost.com.
