US Airways Beefs Up Delta Bid Team

January 8, 2007

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US Airways on Monday bolstered the financial muscle behind its hostile bid for bankrupt Delta Air Lines, adding Morgan Stanley as a lead financial backer alongside Citigroup.

The move, which comes after Delta rejected US Airways' USD$8.7 billion takeover offer last month, could pave the way for US Airways to raise its bid.

"If US Airways eventually concludes they want to up their bid, Morgan provides a lot more capacity to do that," said airline consultant Robert Mann. "I think it's a hint that they're looking to reinforce if they need to."

A US Airways spokesman declined to comment on the likelihood that the airline would raise its bid.

The addition of Morgan Stanley also comes as Delta's creditors become more active in deciding whether to support US Airways.

Gordon Bethune, the former chief executive of Continental Airlines who was hired last month as an industry analyst by Delta's official creditor committee, met on Monday with US Airways. He is scheduled to meet the committee on Wednesday, according to a person familiar with the situation.

US Airways had a "productive meeting" with Bethune, said Kelly Sullivan, a spokeswoman for US Airways, without providing details.

"We continue to believe that (Delta's) creditors' committee is being well-served by his involvement in the process," she added.

Morgan Stanley joins Citigroup as a joint lead arranger to underwrite US Airways' USD$7.2 billion debt financing for the proposed deal.

US Airways said the financial terms of the proposed financing package had been "significantly improved," following the inclusion of Morgan Stanley.

Pending approval from US Airways' board of directors, the two banks would share funding commitments. The arrangement also allows US Airways to add other financial institutions to the syndicate group.

"These two world-class firms, combined with the possibility for a third firm, reinforce the financial community's confidence in the value creation of our proposed merger with Delta," US Airways Chief Financial Officer Derek Kerr said in a statement.

Joseph Capobianco, a mergers expert, said "This is very, very significant because it shows... (US Airways) is continuing to pursue its bid. Even though the Delta management may be entrenched, it is going to try to take its fight right to the creditors."

US Airways bid for Delta in November.

Delta, which has been operating under bankruptcy protection since September 2005, last month put forward its own plan of reorganization, which would see it emerge as an independent carrier this spring. But to succeed, any plan must get the blessing of Delta's creditors.

Delta says its plan values the company at between USD$9.4 billion and USD$12 billion, topping US Airways' offer. Delta Chief Executive Gerald Grinstein also said antitrust concerns and unionized work forces presented major obstacles to a link-up with US Airways.

US Airways has stood by its bid, which is conditional on it performing due diligence. It needs support from Delta creditors to pressure Delta to open its books.