Delta Files Stand-Alone Chapter 11 Plan

The Associated Press
Tuesday, December 19, 2006; 11:11 PM

ATLANTA -- Delta Air Lines filed a reorganization plan Tuesday that calls for it to emerge from bankruptcy next spring as a stand-alone company worth as much as $12 billion, or slightly more than the combined market value of the nation's two biggest carriers.

The Atlanta-based company also said that its board has formally rejected US Airways' $8.5 billion hostile takeover bid, and its executives joined rank-and-file employees on a full-scale public relations assault against the proposal.

"US Airways is the worst of all potential merger partners," Delta Chief Executive Gerald Grinstein said during a conference call with analysts.

US Airways responded several hours later, saying it will continue to fight for its proposal.

"We will not be distracted by emotional or irrational arguments; there is simply too much at stake to lose sight of what is really important," US Airways Chief Executive Doug Parker said in a memo to his employees.

Grinstein didn't completely dismiss the idea of a merger with a company other than US Airways, saying Delta would review any other bids. But he said Delta would not put out a "for sale" sign.

Delta's chief financial officer, Ed Bastian, said the company so far has not received any other offers.

Delta outlined a five-year business plan. Its advisers estimated that a reorganized Delta will have a consolidated equity value of $9.4 billion to $12 billion and that Delta's unsecured creditors would recover roughly 63 percent to 80 percent of their allowed claims.

The high end of the equity value Delta is projecting would be more than the $11.9 billion in combined market value of AMR Corp.'s American Airlines and UAL Corp.'s United Airlines.

Delta's existing stock would be wiped out under the plan and creditors generally would receive distributions of new Delta common stock to settle their claims. Delta so far has not decided whether to give creditors any cash.

US Airways' offer included $4 billion in cash and 78.5 million shares of US Airways stock.

Tempe, Ariz.-based US Airways Group Inc. issued a statement saying it believes its proposal, including $1.65 billion in anticipated cost savings, provides more value than Delta's plan.

"We remain a disciplined and determined bidder for Delta," Parker said.

An official with knowledge of US Airways' plans who spoke on condition of anonymity because of the sensitivity of the talks said Monday that US Airways was willing to increase its offer if Delta could justify it is worth more.

Creditors must now vote on whether to approve Delta's reorganization plan or any competing plan that may be filed with the court. The plan also must be approved by the court.

Typically, in each class of creditors, Delta's plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors, said New York bankruptcy lawyer William Rochelle. If a class is not impaired _ that is, if they are guaranteed of getting all of their money back no matter what _ they generally don't get to vote, Rochelle said.

If one or more classes of creditors do not approve the plan, Delta could still confirm the plan through a so-called cramdown, a maneuver in which it must show the court that the dissenting class will receive more under the plan than it would under a Chapter 7 liquidation, Rochelle said. The company also would have to show that any subordinate class, such as shareholders, would get nothing in the way of recovery under the reorganization plan, Rochelle said.

Delta already has met that second test because its plan calls for current shares of the company to be wiped out.

If a competing plan were filed, creditors would vote on each individually. There have been bankruptcy cases where two competing reorganization plans were approved by creditors; in such a case, a judge decides which plan is confirmed after holding a hearing to determine which plan is in the "better interest" of the creditors.

Ultimately, the unsecured creditors committee in the bankruptcy case will play a key role in determining Delta's fate. The committee has not said whether it will support Delta's plan, US Airways' plan or any other offer to buy Delta that may come in. A lawyer for the committee, Daniel Golden, did not immediately return a call Tuesday seeking comment. Rochelle said Delta would likely wait to hear from the creditors committee about its views before soliciting votes on its plan.

Delta employees held rallies Tuesday at airports serving several cities, including Cincinnati, Boston and Columbia, S.C., protesting US Airways' bid, which was first disclosed Nov. 15; Delta executives attended a similar rally in Atlanta.

US Airways shares rose $1.70, or 3.1 percent, to close at $57.50 Tuesday on the New York Stock Exchange, putting the value of its bid for Delta at $8.5 billion.

Delta said it believes the US Airways deal is not likely to gain regulatory approval. It also cited as obstacles: overwhelming labor issues and "flawed economic assumptions."

Bastian said Delta showed its reorganization plan to its creditors committee last week. He would not say how creditors specifically reacted, but he said he believes the committee will ultimately support Delta's plan.

Delta said US Airways continues to experience significant integration problems with its prior, smaller deal with America West. It believes US Airways is not equipped to simultaneously integrate a substantially larger company like Delta.

Bastian also said that the government's pension insurer is expected to give the final go-ahead Wednesday to Delta terminating its pilots' pension plan. The termination would be effective Sept. 2 and would mean the Pension Benefit Guaranty Corp. would take over the pilot pension plan and pay retired pilots a benefit up to a certain limit.

Delta said its business plan projects, among other things, a 50 percent reduction in net long-term debt and a return to profitability in 2007 and an increase in net income, after profit-sharing, from roughly $500 million next year to roughly $1.2 billion in 2010.

Delta filed for Chapter 11 in New York in September 2005.

Delta said its reorganization plan calls for rolling its bankruptcy financing of $2.1 billion into a new package that would go into effect when it emerges from Chapter 11, and it said it has received several proposals with competitive terms to help it do that.

There has been no decision about who will lead Delta once it emerges from bankruptcy, Bastian said. Delta's current chief, Grinstein, has said he plans to leave Delta around the time it exits bankruptcy.


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