US Airways bids $8b for ailing Delta

US Airways Group Inc. launched an $8 billion hostile bid for bankrupt Delta Air Lines Inc. yesterday, a move that could shake up the Boston-New York shuttle market and make the newly combined airline the dominant carrier at Logan International Airport by far.

Each company operates a lucrative hourly service between Boston and New York, but antitrust concerns would force the new airline to give up one of the routes, opening the door for a new entrant into the shuttle market.

Still, a combined airline, which would adopt the Delta name, would easily be Logan's biggest, ranking potentially 50 percent larger, by passenger volume, than today's top carrier at Logan, American Airlines, and serving close to one of every three departing passengers.

Having one fewer big competitor at Logan could lead to higher fares on some routes, although the market would remain one of the country's most competitive.

US Airways' plan includes cutting the combined airlines' capacity by 10 percent, which would put upward pressure on prices nationally.

The deal faces major hurdles, though, including outright opposition from Delta, whose chief executive, Gerald Grinstein , yesterday reiterated that Delta wants to emerge from Chapter 11 bankruptcy protection in the middle of next year as a stand-alone carrier.

Ray Neidl, an airline stock analyst with Calyon Securities Inc., said he gives US Airways a 35 to 40 percent chance of succeeding.

Delta's creditors, a bankruptcy judge, US Airways shareholders, and the US Justice Department's antitrust division would need to approve the deal.

"The biggest potential obstacle," Neidl said, "is the politicians and regulators. If it is approved by Washington, though, it will most likely set off an industry consolidation trend."

With the US aviation industry finally battling back to financial health, after bankruptcies and the p ast year's spike in fuel costs, investors are pushing airlines to consider mergers that would strengthen their profitability. Speculation has been rampant about United Airlines, which is the second-biggest US airline, after American. It emerged from a three-year bankruptcy reorganization in February, absorbing a smaller carrier.

AirTran Airways this week made a frequent-flyer-mile alliance with Frontier Airlines , the first alliance of two low-fare carriers and a possible step toward a merger.

The timing of US Airways' bid is particularly driven by Delta's still being in bankruptcy reorganization, which allows the airline to more easily break contracts for airplanes and airport gates in order to slash costs.

US Airways' chief executive, Doug Parker, said no other combination of two US airlines could exceed the $1.65 billion in annual cost savings he projects from combining US Airways, the country's fifth-biggest carrier, and Delta, the third-largest.

The savings would come from grounding and selling planes, closing surplus maintenance facilities, consolidating reservations and other computer systems, and making other overhead cuts. Parker said no airline employees would be laid off.

The New York financial services giant Citigroup is committing $7.2 billion to fund the plan, which would give Delta's unsecured creditors $4 billion in cash and $4 billion in US Airways stock.

Aviation consultant Dan Kasper, managing director of LECG LLC in Cambridge, said that because the existing shuttles from Logan to LaGuardia Airport in New York are operated by both Delta and US Airways, "clearly a shuttle would have to go" to prevent the new company from monopolizing the lucrative route.

US Airways president Scott Kirby , in an interview with the Globe, said, "We would likely sell the Delta shuttle" and keep the US Airways shuttle operation, because it offers hourly service from Logan to Washington, D.C., as well as to New York.

Who would buy the Delta shuttle is unknown. It's one of the most profitable air routes in the country, because it serves many last-minute business travelers, who typically pay up to $300 for the 40-minute ride.

The route is certain to draw eager buyers, potentially big-name carriers like American or United as well as nonaviation investors like Donald J. Trump, who owned a 1989-92 shuttle service.

For years, Delta and US Airways have matched each other's prices, and it's doubtful a new rival would significantly cut fares.

Logan spokesman Phil Orlandella said airport officials think that if the deal is completed, it would make sense for current US Airways operations to move over to the half-empty $500 million Terminal A, which Delta opened in March 2005. (Delta designed the terminal before the Sept. 11, 2001, terrorist attacks sharply depressed business travel.) But US Airways' Kirby said: "I don't know the specific facility answers yet. That's a level of detail we haven't gotten to."

"I wouldn't anticipate major changes in Boston," Kirby added. "It's an important focus city for each of us."

Besides the shuttles and roughly a dozen flights daily to the Delta hub in Atlanta and the US Airways hub in Philadelphia, key routes for the two airlines include Florida nonstops for Delta, Phoenix and Las Vegas flights for US Airways, and a growing number of nonstops to Eastern cities for both.

Some business travelers expressed guarded optimism about the merger plan, especially if it can improve what some called poor US Airways service.

"As a frequent Logan traveler, I am thrilled," said a Brighton pharmaceutical industry consultant, Neil Bergquist. "Delta has a beautiful new facility in Terminal A that is not being used to its full capacity, so consolidating operations of the two and freeing up space in cramped Terminal B would be excellent."

Marlin W. Collingwood, managing director of Bell Pottinger USA, a Boston public relations consulting firm, has been flying on US Airways since the 1970s, when it was Allegheny Airlines. "I'd be in favor of anything that would improve US Airways service and reliability," he said.

But Michael A. Sandman, a consultant at the Cambridge business research firm Fuld & Co. who is also a critic of US Airways' on-time performance and service, said he wonders whether "US Air will drag Delta down -- or Delta will be able to pull US Air up."

Peter J. Howe can be reached at howe@globe.com.