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US Airways makes an $8 billion hostile bid for Delta

US Airways Group Inc.'s unveiled an $8 billion hostile bid for bankrupt Delta Air Lines Inc. this morning, a deal that would trigger major changes in air travel in the northeastern US if it overcomes Delta executives' resistance and major antitrust issues, analysts said.

Delta chief executive Gerald Grinstein reiterated today that Delta intends to emerge from Chapter 11 bankruptcy reorganization next year as a stand-alone carrier. US Airways is offering $4 billion in cash and 78.5 million shares of stock to Delta's unsecured creditors to take over the airline. The combined carrier would operate under the Delta name, US Airways said.

Both Delta and US Airways operate hourly Boston-New York shuttles, and almost certainly one would have to be sold to another airline as a condition of government approval for the deal, aviation consultant Dan Kasper, managing director of LECG LLC in Cambridge, said. "There are going to be some threshold antitrust issues that are going to be problematic,'' Kasper said.

If the deal ever happens, Kasper said, the combined airline would likely have to give up gates at LaGuardia Airport in New York and Reagan National in Washington, D.C., and divest routes between current Delta and US Airways hubs where the two carriers today are the only airlines offering direct service.

Delta's key hubs are Atlanta, Salt Lake City, and Cincinnati for domestic service and John F. Kennedy International in New York for trans-Atlantic service. Main hubs for US Airways, which merged with discount carrier America West last fall, are Philadelphia, Charlotte, and Phoenix.

Airline stock analyst Ray Neidl of Calyon Securities said the combined airline would have to reevaluate having two southeastern hubs so close to each other -- Atlanta and Charlotte -- and would also have to consider whether to consolidate international operations in New York or Philadelphia. Neidl said US Airways is counting on cutting overall capacity by about 10 percent to save $1.65 billion in savings and efficiencies.

At Logan International Airport, officials expect US Airways would move over from Terminal B to the half-empty $500 million Terminal A that Delta opened in March 2005, Logan spokesman Phil Orlandella said. That could open up gates in the current US Airways space in B for fast-growing AirTran Airways, which has four non-contiguous gates in Terminal C and has been looking for space to grow service.

A combined Delta-US Airways would instantly become by far the biggest carrier at Logan, measured by passenger volume. Based on 20005 passenger counts, Delta-US, including the shuttles and commuter airline affiliates, would have 33.4 percent of the Logan market, compared to 20.0 percent for American and American Eagle, according to data from the Massachusetts Port Authority, which runs Logan.

Shares of US Airways rose $2.90, or almost 6 percent, to $53.83 in morning trading on the New York Stock Exchange.

As it stands now, Delta's common shares are likely to end up worthless when it exits bankruptcy. In most bankruptcy cases, the debtholders usually end up with new shares of the company.

If the deal is completed, the airline would operate under the Delta name and serve more than 350 destinations across five continents. US Airways has not decided where the merged company would be based. The merged company would divest certain assets, including a shuttle that operates in the Northeast. It also said it would optimize flights at its hubs, but did not say what further impacts the hubs could face.

Doug Parker, chief executive of Tempe, Ariz.-based US Airways, said in a telephone interview that he is aware of the comments made by Delta's management in recent months, but he believes this is a fair offer and that ultimately Delta's creditors will see that.

"Delta is in bankruptcy and bankruptcy is a very open process," Parker said. "The process is designed so that the creditors get the highest possible value for their clients. Given that process, what we have done is gone public with an alternative to a standalone plan."

Peter J. Howe can be reached at Material from the Associated Press was used in this report.

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