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RE: Continental MAY Acquire Delta

Tue Feb 06, 2001 3:35 am

EVA744.... it will be sad to see you go... Sad

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Tue Feb 06, 2001 4:08 am

Someone may have brought it up in the 50 posts preceding mine (I can't read all of them, understandably), but I'm wondering about the prospect of a leveraged buyout in this merger scenario.

CALPilot makes a good point that CO's proposed IPO of COEX could generate some solid cash that would finance a substantial amount of the *potential* merger.

I've read posts that discount CO's buyout of DL's assets because of the size difference, but those posts fail to consider the possibility of a leveraged buyout, in which CO's assets can be leveraged against DL's outstanding shares to finance a deal that would otherwise be impossible.

Correct if I'm wrong, but isn't that the Texas Air tradition from which CO hails?
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Tue Feb 06, 2001 7:57 am

"Service standards for instance have been rising at AA with "more room in coach" and more overhead storage room... For business travelers alone, AA has raised service standards by introducing a first class suite product on its 777's..."

Giving credit where it is due... yes, Granted like you said, UA introduced the contemprorary idea of offering more room in coach, although not throughout it, but also, both UA and CO have had more overhead room for a significant amount of time now, and UA came out with a suite product more than full year before AA.

And although AA is making existing products better (its suite is very lavish and well-designed), it is largely playing a game of catch-up.

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RE: Continental MAY Acquire Delta

Tue Feb 06, 2001 12:07 pm

Flying is already an expensive way to travel. Sure, there are some good deals out there (even direct
from the airlines, via their web sites or through a
sales agent) but the fact that it costs $590-$700
to fly to Atlanta during the week (without a Sat.
stay) for what is really a short-distance flight from
New York is ridiculous and unecessary. The service
standards of the industry as a whole stinks. It is
virtually impossible for a new airline with promise to
survive in this climate (e.g. Legend and the dozens
of others that sprang up since deregulation, only to
be bought out or forced into oblivion). The only
airline to have emerged after deregulation and
become a major (America West) is a crap airline,
with lousy service and a customer service problem
it can't seem to shake.

All these mergers may make economic sense for
the airlines (AA could use a second midwest hub
to relieve the congestion at ORD...TWA's 20K
employees won't get pink slips.....United expand
in the East where it is weak...Delta and CO will
capture 25% of the market and therefore ensure
that DL doesn't get relegated to the "also ran"
status....NW can function doesn't
really overlap with anyone.... and then there is
always Southwest..." But for the consumer, the
mergers are bad news. Service will deteriorate..
it will take 10 years or more for the airlines to
digest each other (look how long it took CO to
become a serious player, a full decade and then
some after those dizzying mergers) and for what,
to merge with an airline with overlapping routes,
a similar mission....I could go on.

I say NO mergers. Sadly though, I think they will
all happen.


RE: Continental MAY Acquire Delta

Tue Feb 06, 2001 12:29 pm


The only slot controlled airports in the US are LGA, ORD, DCA, and JFK in the afternoon. They have just opened up slots at LGA and DCA. Clearly there is room to grow. Once (if ever) they upgrade the ATC system I would anticipate that you will see further growth. That leaves hundreds of other airports out there to get at.

Pricing is deregulated in the US. The key to survival is controlling costs, hence why WN rewards their employees on cost controls and not on revenue growth.

The market is out there for competion. Look at Air Tran
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RE: Continental MAY Acquire Delta

Tue Feb 06, 2001 1:03 pm

LEAVE MY DELTA ALONE!!! Delta & Continental are two world class airlines that should not be combined, they're both in the list of my three #1 carriers. Delta, Continental & JetBlue. I DON'T want to see Delta die, NEVER, ever! So if it happens, there would be a good side to it because Continental would be bigger. But for me, it'd be like someone I knew just died if Delta is gone. I'd have a REAL sad reaction.
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The Word On The Slots Is...

Tue Feb 06, 2001 1:29 pm

DCA will not become uncapped. Too many of my neighbors would become uncorked. LGA and ORD are supposed to get their caps eliminated by 2002, and JFK by 2007 (or is that JFK by 2002 and ORD by 2007?) In any case, we already see at LGA the impact of too many airplanes chasing too little runway capacity...and it's all RJ's!!

I, too, sadly predict all these mergers will come to pass. I know who's president. BTW, his closest buddies are at AMR, not CO. Ain't that right, Robert Baker?

RE: Continental MAY Acquire Delta

Tue Feb 06, 2001 8:20 pm

Whoever brought up the idea of a leveraged buyout needs to look at the numbers....yes it has been done, but by companies in far stronger a financial shape than CAL (and CAL just announced that they need to raise additionals funds for aircraft purchasing, this adds to their current high debt load). The following is quoted from another board:


I agree with the idea that the only viable means of a CAL takeover of DAL would seem to be a stock swap (which means DAL has to agree and I would assume there would be some healthy protections in place).
For CAL to buy DAL, they would have to use their cash and increase their debt to acquire enough funds to buy the outstanding DAL stock (and at a significant premium).

DAL currently has a debt/equity ratio of 1.1 ($6.1 Billion debt, $5.475 Billion stockholders' equity). CAL has a debt/equity ratio of 1.8 ($2.7 Billion debt, $1.5 Billion stockholder's equity).

Cal would have to take on something $14 Billion in additional debt to 'buy' Delta ($8 Billion in stock buyout @ 50% premium and $6.1 billion in debt).

That would then give CAL a debt/equity ratio of 11.1 ($16.7 Billion debt, $1.5 Billion stockholder's equity). This is not a plausible scenario.....CAL can't afford to do this and no bank would allow any borrower to go so steeply into debt.

The above is a somewhat simplistic argument and is modified by cash and selling off assets.....but a whole bunch would have to be done even to get to a ratio of 5 and that is normally where companies declare bankruptcy.


I think the above means that for CAL to take over DAL in any kind of deal, DAL would have to willingly finance it and that would imply numerous protections for management, labor and stockholders..

RE: Continental MAY Acquire Delta

Tue Feb 06, 2001 11:24 pm

Since their stocks are so close together, with CAL's being about $4 more, could they just make a one-for -one *stock merger*? Is that possible/plausible?

RE: Continental MAY Acquire Delta

Wed Feb 07, 2001 3:26 am


These two stocks aren't actually very close together.

CAL has 11,231,349 outstanding class A shares and 63,923,431 outstanding class B shares. At a price of 52.46, CAL has a capitalization of $3,942,619,758.8

DAL has 179,763,547 outstanding shares . At a price of 46.91, DAL has a capitalization of $8,432,707,989.77.

If CAL were to do a straight stock swap, then the current DAL stockholders would actually own over 2/3 of the resulting company. Since the stockholders elect the board members, one could safely assume that in the event of a stock swap, the surviving company would have more of a DAL 'feel' than a CAL 'feel'.

DAL is a MUCH larger airline than Continental, a fact that a lot of people seem to forget.

RE: Continental MAY Acquire Delta

Wed Feb 07, 2001 4:08 am

No, no, no and no!
I want to remain a Delta Pilot, I am proud to be one, and I worked damn hard to get here! Hopefully these are power games designed to interfere with UA/US and AA/TWA, and not a real plausible plan. Nothing against my fellow CAL brethren, I respect them immensely, just that the vast majority of the Delta Pilots are proud of our identity and would like to remain as such! The widget has to stay!
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RE: Continental MAY Acquire Delta

Wed Feb 07, 2001 5:56 am

Delta73SPilot: GOOD FOR YOU.... DL is a great airline, even though I like CO a lot too... I would prefer if these mergers didn't go through... all the variety in this business will go down the tubes... Sad

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RE: Continental MAY Acquire Delta

Wed Feb 07, 2001 7:37 am

I agree with Delta73Spilot. I would really REALLLY HATE to see Continental buy a much better airline. I'm not a Delta Pilot, being only 14, but I have said for the past two years that I want to fly for Delta when I grow up. Delta's got a beautiful past, from Huff Dalland (I'm not sure if I spelled that right) Dusters all the way to being the most profitable airline in the world. 95% of my earliest flight memories were on Delta Aircraft, and I refuse to believe that this will happen. I'm hoping this turns out like the KLM-BA Merger, I hope it gets shut down before too long. I read that Delta and Continental will propose at least an alliance if it doesn't go well, hopefully that's how it will turn out. I will always love Delta, especially since I was born in their hometown (Atlanta). I'm just going to have to wait and see.
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RE: Continental MAY Acquire Delta

Wed Feb 07, 2001 7:47 am

All these airline mergers are not only bad for the employees (certain ones), but for the passengers. With less competition, these new mega airlines will have the ability to raise ticket prices. I would prefer if everything went back like normal, UAL didn't acquire USAirways, AA didn't acquire TWA and Delta and Continental wouldn't even have begun merger talks. I want Delta to stay! I don't care much about the other two mergers, but I frankly could care less what Northwest wants (the whole reason Continental is supposedly buying DL is because they want to keep Northwest from stopping the merger, if it was the other way around the merger could be easily stopped). I want Delta to buy out Continental. If the CO-DL deal goes through with CO buying Delta I would hope that Northwest does everything in their power to stop it. Although I strongly believe that the merger won't go through.
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Wed Feb 07, 2001 7:55 am

I agree with you AeroGlobeAir7, I don't want any of the mergers to go through. I am from Houston, therefore I would rather see our hometown airline stay around-especially since it is much better in my opinion than Delta. That is an understatement-I HATE Delta. I use to be a loyal Skymiles member until I had a string of very bad experiences-which drove me away. So hopefully you can keep Delta in Atlanta where they belong.
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RE: AeroBlobeAir7

Wed Feb 07, 2001 12:50 pm

I'm the opposite thinking than AeroBlobAir7. If it's gonna happen, I'd rather see CO acquire DL, and see CO's Corporate management run the company. All you have to do is look at Gordon and Greg's record at CO-they're the best team in the industry right now-why take that out of the mix? I think that if CO did the taking, there's no doubt in my mind Bethune and Brenneman would be put in charge of a larger Continental. The opposite would be true if DL grabbed CO, but I wouldn't be as confident with the DL management running the company. And with all respect, I can't agree that DL is a "better" airline thant CO. CO's numbers and awards the last 3/4 years belie that statement. DL is a much bigger carrier, and that's still the sticking point in CO acquiring DL. It isn't impossible, but it's not problematical.
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RE: Continental MAY Acquire Delta

Wed Feb 07, 2001 4:25 pm

I wonder what the name would be - ContiDental airlines?

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