US Airways Group has made a merger proposal to Delta Air Lines under which both companies would combine upon Delta’s emergence from bankruptcy. The proposal would provide approximately $8.0 billion of value in cash and stock to Delta’s unsecured creditors. Delta creditors would receive $4.0 billion in cash and 78.5 million shares of US Airways stock with an aggregate value of approximately $4.0 billion based on the closing price of US Airways’ stock as of Nov. 14, 2006.
The combination of US Airways and Delta would create one of the world’s largest airlines and would operate under the Delta name. Customers would benefit from expanded choice as well as the reach and services of a large-scale provider within the cost structure of a low-fare carrier. As a combined company, the “New” Delta would be the number one airline across the Atlantic and the second largest airline to the Caribbean. The New Delta would reach more than 350 destinations across five continents, including North and South America, Europe, Asia and Africa. In the U.S., the combination would create a leading competitor in the Eastern U.S. and an enhanced position in the Western U.S. The combined company would be the number one airline at 155 airports. The New Delta would also be uniquely positioned to compete with low cost and legacy carriers.

US Airways’ proposal represents a 25 percent premium over the current trading price of Delta’s prepetition unsecured claims as of Nov. 14, 2006 (40 cents/dollar), assuming that there will ultimately be $16.0 billion of unsecured claims. The proposal also represents a 40 percent premium over the average trading price for Delta unsecured claims over the last thirty days.

US Airways believes that the combination will generate at least $1.65 billion in annual synergies, including $935 million in network synergies, predominantly from optimization of the airlines’ complementary networks, including rationalization of network overlap, which will result in a 10 percent reduction of the combined airlines’ capacity, reducing unprofitable flying and improving the mix of traffic. In addition, $710 million in net cost synergies will be achieved by combining facilities in overlap airports and eliminating redundant systems and overhead. Significantly, the opportunity to generate more than half of these synergies could be lost if a merger is delayed until after Delta emerges from bankruptcy. The merger is expected to be accretive to US Airways’ earnings in the first full year after completion of the merger.

US Airways Chairman and Chief Executive Officer Doug Parker stated, “We believe that the combination of US Airways and Delta, like the US Airways / America West merger we completed in September 2005, is extremely compelling and will create significant value for each of our stakeholders. The combined company will be a more effective and profitable competitor in the current fragmented marketplace, with the ability to better meet the continuing evolution of the airline industry. We will be flying under the Delta brand name, which is recognized around the world.

“Delta creditors will receive significantly greater value under this proposal than they would under any standalone plan for Delta. US Airways shareholders and Delta creditors will benefit from the significant upside potential of the combined company through their respective ownership stakes.

“Even with a 10 percent reduction in capacity, all existing U.S. destinations served today by US Airways and Delta will remain part of the new, improved network. Consumers will have the advantages of a larger, full-service airline with the cost structure of a low-fare carrier, and the communities we serve, as well as those Delta serves, will have access to a wider range of network options. More than ever, the New Delta will be able to connect our customers to the people and places they want to visit.

“All of the employees of the New Delta will benefit from working for a larger and more competitive airline. As we demonstrated during our US Airways / America West merger, long-term job security for employees in our industry results from sound economics and a healthy business able to compete in our changing marketplace,” Parker concluded.

The New Delta will create a more comprehensive global route network that will provide more choice for travelers and attract new customers to key markets. In addition, many travelers have already benefited from the US Airways / America West merger. Since the merger, US Airways has lowered leisure fares in nearly 350 markets with discounts ranging from 10 percent to 75 percent (an average reduction of 24 percent within those markets). US Airways has also lowered business fares in nearly 400 markets during the same period with reductions ranging from 10 percent to 83 percent (an average reduction of 37 percent within those markets).

Paul Reeder, President of PAR Capital Management, US Airways’ largest shareholder, said, “We enthusiastically support this transaction, which we believe offers the opportunity to build upon US Airways’ current competitive position. We have confidence in the US Airways management team, the $1.65 billion in identified synergies, and the potential upside for US Airways shareholders.”
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