Delta Air Lines' unsecured bonds dropped eight-and-a-half points to 60 after the company rejected US Airways Group's takeover bid. The bonds of Northwest Airlines also seen as a takeover target dropped six points to 82. A dealer said that despite Delta's rejection, the market is speculating the offer will trigger mergers between other airlines.
Delta is seeking to emerge from bankruptcy as a standalone entity rather than merge with US Airways, according to reports. In a release, Delta's CEO Gerald Grinstein said the airline's plan has always been to emerge from bankruptcy in the first half of 2007 as a strong, standalone carrier. A spokeswoman did not return calls seeking comment. US Airways offered to pay Delta's unsecured creditors approximately $8 billion in cash and stock. The proposal represented a 25% premium over the price Delta's pre-petition claims were trading at before the proposal, which was 40 cents on the dollar. Some of Delta's bondholders have started organizing a group to support US Airways' takeover offer, according to The Wall Street Journal. A US Airways spokesperson did not return a call.
An airline trader speculated the mostly likely future merger will be between United Airlines and Continental Airlines. Continental's new 8 3/4% '11 bonds have traded up to 101 from 100 since US Airways approached Delta with a formal bid. A United spokesperson could not be reached. A Continental spokeswoman referred questions regarding a possible future merger to its CEO's weekly update to employees. In a transcript of the update, CEO Jerry Kellner said "If the landscape of the U.S. airline industry does indeed change, we'll do what we need to do to act in the best interests of you, our customers, our shareholders and the communities we serve."