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Delta Price May Be Burden for US Airways

The Associated Press
Thursday, January 11, 2007; 1:56 AM

PHOENIX -- Delta Air Lines certainly would be a huge prize for US Airways, but its proposed $10.3 billion price tag could become a heavy burden on the company's finances.

US Airways Group Inc., which was forged from the struggling America West Airlines and the bankrupt former US Airways, said Wednesday it will increase its offer for Delta by almost 20 percent and will borrow $5 billion to do it.

Delta, which also is in bankruptcy, would be the biggest purchase ever for the Tempe, Ariz.-based carrier. But it would sink the company's finances, at least at first.

US Airways officials estimate the combined debt of a merged carrier would be about $24 billion, including long-term leases for its aircraft. However, the company expects a merged carrier would save $1.65 billion per year by trimming its fleet of aircraft, cutting redundant routes and other synergies.

"It concerns me," Ray Neidl, an airline analyst with Calyon Securities in New York, said of the debt.

"I'd like to see that paid down as quickly as possible. But if the market thinks the deal is good enough and the financiers think it's good enough, they'll give them the chance to do it."

In a conference call with industry analysts, Chief Executive Doug Parker brushed aside concerns of his company taking on more debt.

Parker noted that companies like General Electric Co. operate successfully despite owning hundreds of billions of dollars because they also enjoy enormous earnings.

"The absolute level of debt doesn't mean anything," Parker said. "What matters is the ability to service the debt."

US Airways last year offered $8.6 billion in cash and stock for Delta. Parker added another $1.7 billion Wednesday. He said the offer would expire Feb. 1 if certain conditions are not met.

The increased bid includes 89.5 million shares of US Airways stock and $5 billion in cash. The original offer included 78.5 million shares of US Airways stock and $4 billion in cash.

US Airways shares rose $1.03, or 1.8 percent, to close at $58.93 in trading Wednesday on the New York Stock Exchange, boosting the value of the revised offer.

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