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— Deals —
 The bankruptcies continue. Consolidation looms and alliances continue. Here's the latest. June 15: Consolidation looms as Paris Air Show opens: The Paris Air Show got going June 15 with the usual fanfare, but the
outlook for the aerospace industry isn't bright, as The Deal Pipeline
readers are aware. - Kenneth Klee June 11: US Airways CEO still interested in airline deals: US Airways Group Inc. CEO Doug Parker on June 10 renewed his call for further consolidation of the airline industry, saying domestic carriers need to contract if the business is to stay viable and make money in downturns. - Lou Whiteman June 4: United offers hope with plane order talk: Word that UAL Corp.'s United Airlines Inc. is shopping for up to 150 new aircraft is good news for both plane manufacturers and for fans of a once-proud airline that has taken it on the chin in recent years. - Lou Whiteman
IBERIA-BA
Iberia restless as British Airways talks drag on: The U.K. airline risks losing its Spanish peer to Lufthansa or Air France-KLM. This, after March 11: BA, Iberia near agreement: The British airline would take a slim controlling stake in the Spanish carrier. - Paul Whitfield (See more below.) SOUTHWEST, MIDWEST June 3: Union unrest at a maturing Southwest Airlines: Southwest Airlines Co. got a taste of what it is like to be an airline on June 3, as its pilots voted down a collective bargaining agreement that would have provided them a raise in the middle of a severe slump in the industry. - Lou Whiteman Earlier, May 21: Midwest Air strikes back in battle of Milwaukee: A day after Southwest Airlines Co. announced plans to initiate service in Milwaukee, Midwest Airlines Inc. fired back with an announcement that will bring bigger planes with better range into the fleet of the city's hometown carrier.- Lou Whiteman May 22: BMI investor sues Lufthansa: Michael Bishop hopes to force the German airline to honor a put option to buy him out. - Jonathan Braude This after, May 20: Lufthansa may walk away from BMI: The German airline wants British Midland's majority owner to pump in more capital. - Andrew Bulkeley JVS AND ALLIANCESMay 21: Delta and Air France-KLM in trans-Atlantic JV: As joint ventures go, it's a whopper. And as developments in the global airline industry go, it's pretty consequential too. Air France-KLM and Delta Air Lines Inc. said they had completed their long-anticipated deal to combine operations over the North Atlantic. - Kenneth Klee
May 19: Pilots to lawmakers: Delay United/Continental alliance; May 15: US Airways: Pilot harmony still a distant destination. March 17: German carriers consider alliance: Air Berlin and TUIfly may take 20% cross-shareholdings. - Andrew Bulkeley (See more on alliances below.) THINGS LOOKING GOOD FOR VIRGIN AMERICA? May 13: Virgin America buffeted by rivals, economic slump: The startup is struggling to turn a profit during an industrywide downturn. - Lou Whiteman This, after: March 11: Does Virgin America have turbulent times ahead? In mid-April: Ceske Aerolinie has two suitors; Japan Airlines seeks government funding; and Southwest posts loss, citing economic slump. March 30: Air Berlin finalizes
TUI deal: Germany's second-largest carrier gains two new shareholders
and the scheduled carrier business of TUIfly. - Paul Whitfield March 24: Red ink dots European, Asian skies: Airline industry losses of $4.7 billion in 2009 may speed up dealmaking. - Lou Whiteman DELTA-NORTHWESTDelta-Northwest closed in 2008. The latest: March 10: Delta plans job, flight cuts as streamlining effort continues: Delta Air told employees it intends to cut more jobs and reduce 10% of its international capacity as the world's largest airline attempts to navigate a global slowdown while continuing integration work on last year's $2.6 billion purchase of Northwest Airlines Corp. - Lou Whiteman This, after Jan. 26: Delta agreement saves 10,000 jobs: The Minnesota's Metropolitan Airports Commission resolves a lingering issue from the airline's acquisition of Northwest. Meanwhile, EC to probe airline deal: The commission is worried the Deutsche Lufthansa takeover of Brussels Airlines could hamper competition. Oct. 29: The Department of Justice gave antitrust clearance to Delta's $3.1 billion merger with Northwest Airlines Corp. after a six-month review of competitive concerns, a relatively fast pace for such a complex transaction. The airlines later announced that they had closed the transaction. - Cecile Kohrs Lindell Shareholders approved the deal Sept. 25. Integration, then, got underway, including downsizing and possible changes to its post-merger order book. LUFTHANSA, AUSTRIAN AIRLINES Feb. 11: EC investigates Lufthansa deal: The Commission is questioning terms of Austrian Airlines' privatization. - Andrew Bulkeley In November, Germany's Lufthansa was the sole remaining bidder
for a 41.6% stake in Austrian Airlines AG after the Austrian
privatization agency said the only rival offer didn't live up to the
auction's regulations. - Andrew Bulkeley Feb. 10: AirTran increases pressure on one-time target Midwest Air; Feb. 9: Delta trims domestic airport rent post-merger; and Jan. 30: Continental sets date to switch airline alliances AIR FRANCE-KLM-ALITALIA AER LINGUS-RYANAIR In December, in a maneuver to exploit the potential of an airline industry downturn, Ireland's Ryanair Holdings plc renewed its quest
for ailing domestic rival Aer Lingus Group plc, which the target firmly
rejected. The all-cash offer of €1.40 per share for the 70.12% stake
that Ryanair does not yet own comes a year and a half after European
Commission competition regulators rejected Ryanair's €1.48 billion
($1.87 billion) hostile bid for Aer Lingus. It also comes two years
after shareholders shunned that same offer. - Renee Cordes Aer Lingus didn't immediately responding to the €200 million ($254 million) sweetener Ryanair added to its €748 million bid for the company Dec. 5. Instead, it announced the outcome of a ballot of its own, unionized, workers, which came out in favor of efficiencies and reformed working practices. The former state airline believes the costs cuts will save €25 million a year. - Jonathan Braude Later, Jan. 28: Ryanair officials give up: The Irish government's refuses to sell its 25% stake. Days after, Jan. 23: Ryanair retreats from Aer Lingus: The carrier ended its $970 million pursuit after the Irish government ruled against the merger. - Barbara Rudolph Earlier, Jan. 21: Ryanair may retreat; and Jan. 16: Ryanair weighs higher bid. SOLO FLIGHTS, STALLED TALKS AND SPECULATION Elsewhere, will BA fly solo?: If the markets don't want to play along, British Airways plc captain Willie Walsh would just rather take his airline and go home. - Andrew Bulkeley Meanwhile, could Southwest Airlines Co. be targeting Atlanta or AirTran Holdings Inc.? The Deal's Lou Whiteman raised the question Dec. 18. Meanwhile, British Airways and Qantas Airways Ltd. have called off merger talks. Earlier in December, BA said it was weighing a deal with Qantas "via a dual-listed company structure." UAL Corp. and US Airways Group Inc. have secured fresh financing to boost liquidity and Southwest Airlines reported
its first quarterly loss in 17 years. But could things start to look up
for the airlines? Maybe so. OVER THERE In late August, German carriers TUI Travel plc was in talks with Deutsche Lufthansa AG and Thomas Cook Group plc were weighing a deal to take on startup upstart Air Berlin plc & Co. Luftverkehrs KG with a rival discount carrier, Bulkeley wrote. Earlier in the month, the latest airline M&A talk again surrounded British Airways plc and Spain's Iberia Lineas Aereas de Espana SA.Talk of other prospective tie-ups followed. (Meanwhile, the two had cooked up joint venture plans with American Airlines Inc.) In late November, a TPG Capital-led consortium withdrew its bid for Spain's largest carrier after bid partner British Airways said it wouldn't increase its stake in the airline. Meanwhile, buzz about M&A among U.S. carriers cooled, as carriers kept taking themselves out of the running, while the industry braced for new cuts and more alliances. UAL, the parent of United Airlines Inc. walked away from talks with US Airways May 29, saying instead it might prefer an alliance with Continental Airlines Inc. The two struck a deal June 19. The news came a month after Continental pulled itself out of the consolidation game, saying in a statement
April 27 its board supported management's recommendation that "in the
current industry environment" it was not the right time to merge with
another airline. Continental at the time pointed to alternatives
related to alliances. The same day, UAL issued a two-sentence statement
from its chairman, president and CEO Glenn Tilton regarding
consolidation, saying it would "pursue all options to ensure a strong,
sustainable future." UAL and Continental had reportedly been in formal
merger talks and though Continental had taken itself out of the
running, UAL was still in talks with US Airways on a potential merger,
the Wall Street Journal reported April 28. Meanwhile, Delta on April 14 agreed to acquire Northwest for more than $3 billion, at long last. (The next day, UAL issued a statement from Tilton saying: "We will participate in consolidation when and if it is the right choice.") Delta and Northwest had been circling each for months and trying to win labor approval for a deal. Reports indicated April 11 that pilots had reached a tentative deal that would allow for a merger, after months of impasse. The pair resumed talks April 7, weeks after pilots rejected arbitration March 19, stuck at an impasse. A Delta-Northwest deal looked close or a reality Feb. 19, when pilots jumped on board for a tie-up ahead of a scheduled meeting Feb. 20, but the picture was cloudier just a week later. Regardless, the year got off to a busy start for airline merger buzz. A rundown:
(AMR cut another deal April 16, agreeing to sell its money management arm, American Beacon Advisors Inc., to Pharos Capital Group LLC and TPG Capital for $480 million.)A deal with Northwest could be further complicated by a hostile counteroffer, with Continental Airlines Inc. and AMR Corp.'s American Airlines Inc. both viewed as potentially interested in acquiring Northwest. In the worst case scenario, Delta could be left at the altar without a partner should Northwest agree to a counteroffer and United, after initially being spurned by Delta, struck its own deal with another airline. A hostile counteroffer for United is considered less likely given that airline's larger size and complexity.
EVERYBODY ELSE Another notable element of a Northwest merger is the freeing up of
the "golden share" agreement it has with Continental that affords it
the right to block any potential deal Continental may go after. Having
announced plans to deal with Delta, Northwest forfeits the golden
share. And according to a Reuters report April 14, Continental and
United were ready if others announced deals. Whiteman noted months earlier:
From an alliance prospective, Northwest is already a SkyTeam alliance partner, while United is a member of the rival Star Alliance. Should Continental decide against a deal with UAL, it was thought the carrier could consider a SkyTeam agreement, something it acknowledged in its April 28 statement. "An alliance shift, coupled with a strong codeshare agreement to coordinate schedules with UAL and sell tickets on each other's planes, would give Continental many of the benefits of the merger without exposing it to the risks of a deal," Whiteman noted. Among other carriers, UAL's shaky labor situation could make it a less-desirable merger partner, while American Airlines could go hostile to break up a Delta-Northwest deal, but it could also seek out opportunities related to such a deal, he suggested, like "an antitrust challenge where American demands additional access to coveted Pacific Rim destinations including China to be more likely." On the regulatory front, it looked at the end of January like a deal between Delta and either United or Northwest would likely get the OK from antitrust authorities. Meanwhile, consolidation chatter filled the air. And on Jan. 23, Southwest Airlines Co. signaled it could jump on the dealmaking bandwagon, given the right opportunity. Rather than a deal for a competitor like AirTran Airways Inc. "Southwest is more likely to seek out gates and other assets divested as part of consolidation elsewhere in the industry," Whiteman noted.
In a year-end piece on the current shape of the airline industry from a U.S. perspective, Whiteman predicted that airline merger advocates could soon have it their way. "Sustainable profitability remains an elusive goal for the airline industry, leaving management teams finally ready to consider all options." He pointed to several factors:
Delta, he argued, seemed likely to get things started.
Meanwhile, back overseas, Lufthansa said Dec. 13 it would pay $305 million for a 19% stake in U.S. discount carrier Jet Blue Inc. The news came a week after the German company retreated from bidding for Italian carrier Alitalia. A possible bid contest for the Italian carrier kicked off December airline M&A buzz in Europe. Ahead of Lufthansa's retreat, Air France-KLM unveiled plans Dec. 6 to go head to head for the company with Italian discount carrier Air One and other Italian investors. The board met to agree on a bidder Dec. 12, but then extended the bidding until Dec. 18, citing a new offer. The company said the next day that SA Holdings Ltd., Evergreen LLC and THL Transportation were interested. Rival bidders revealed their turnaround plans for the carrier Dec. 17. (Meanwhile, The Deal's Jonathan Braude examined Jan. 11 whether Air France-KLM's plans for Alitalia looked likely to pan out noting cutting Milan out of the equation could be costly.) Air France-KLM walked away from its €139 million ($217 million) bid for Alitalia following the collapse of negotiations with unions on disagreements over how much restructuring work the carrier needed. The Italian government then unveiled plans April 3, to try to revive talks between the would-be buyer and unions representing Alitalia's workers in a move to stave off a bankruptcy filing for the carrier. Elsewhere, in early January, Singapore Airlines Ltd.'s hopes of expanding into China were dashed after "shareholders in China Eastern Airlines Corp. rejected its agreed bid for a 24% stake. Their decision clears the way for Air China's parent, China National Aviation Holding Co., to make a higher offer, though the rival suitor has yet to win over its target." Paul Whitfield wrote. The Alitalia auction, was the latest attempt by the Italian government to sell off its 49.9% stake in the money-losing carrier. The government called off the auction July 18 after the last bidders standing at the time pulled out due to onerous restrictions. The government then said July 26 it would ease conditions to revive interest. U.S. private equity firm TPG, which has been trying to buy an overseas-based carrier for some time, was also in the running earlier in the year. Elsewhere in Europe, a TPG-led consortium in late November withdrew its bid for Spain's largest carrier, Iberia, after bid partner British Airways said it wouldn't increase its stake in the airline, clearing the way for Spanish bank Caja Madrid to buy up shares held by two other Spanish lenders. TPG then said Nov. 28 it would be open to bidding for Iberia again. BA has since been in talks with Caja Madrid over the airlinels future and in March raised its Iberia stake to 13.15% from 10.1%, the Journal said July 29. HOLDING PATTERN Stateside, airline M&A buzz abounded in November. AMR made headlines Nov. 27 when it said it would shed its regional carrier American Eagle to boost cash and trim costs. A day later, Whiteman summed up analysts' reaction. The news came two months after the company drew shareholder fire from FL Group hf, which made public Sept. 27 a letter urging the company to boost its stock price through the spinoff of American's frequent-flyer rewards program, AAdvantage. AMR's stock fell from more than $40 per share in January to below $25 per share, where it hovered in November -- a precipitous drop that has cost investors $5 billion, Reykjavik-based FL Group said at the time. Further, the 9.1% AMR shareholder said, a spinoff could boost shareholder value by more than $4 billion. Unsatisfied, FL Group on Nov. 20 cut its stake in the airline's parent to 1.1%, saying the American Eagle move was a step in the right direction, but lacked clarity with respect to timing and valuation. Meanwhile reports of talks between Delta and UAL created a flurry Nov. 14. The news came three months after Delta installed former Northwest CEO Richard Anderson as chief executive and nearly seven months after the Atlanta-based carrier, having successfully staved off hostile bidder US Airways Group Inc., emerged from bankruptcy as a standalone company. Delta's pilots came out a week later saying they have no interest in
seeing a Delta-UAL tie-up, while those familiar with Delta's thinking, Whiteman said,
would prefer a deal with Northwest, likely posing less union opposition
and regulatory hurdles. The company unveiled plans Aug. 21 to install
Anderson as its chief executive, which again stirred up merger rumors
that circled the carriers
after filing for bankruptcy protection more than two years ago, and
again, earlier this year when Delta was the target of a hostile bid
from US Airways. Anderson denied negotiations with United in a statement Nov. 14 but had in October spoken openly about the possibility of dealmaking if the circumstances were right. But as Whiteman pointed out, it looked like the run up to long-awaited consolidation:
(Weeks earlier, Delta unveiled a joint venture with Air France-KLM, solidifying its ties to SkyTeam, which looked like it could make a deal with UAL, a Star Alliance member along with Deutsche Lufthansa AG, less likely, Whiteman wrote.) In many cases, shareholder pressure has abounded. Kicking off the Delta-UAL buzz, Pardus Capital Management LP, a shareholder in both Delta and UAL, urged Delta in a letter to consider M&A and pointed to UAL. Delta said it was reviewing strategic options. The hedge fund planned Nov. 16 to take its argument to other investors. Meanwhile, Midwest Air Group Inc. accepted a $450 million offer, or $17 per share, from Texas private equity firm TPG on Aug. 17, rejecting long-time hostile bidder AirTran, once again. Midwest spent months keeping AirTran at bay. The carrier finally put itself up for sale July 31, with its board forming a committee to explore strategic alternatives, likely hoping a white knight would swoop in to the rescue. Investors waited Aug. 10 as AirTran's tender offer deadline was set to expire. AirTran's, $389 million, or $15.75 per share offer, lost out to TPG's $16 per share bid on Aug. 13, a deal Midwest's largest shareholder, Pequot Capital Management Inc., expressed concern over. The next day, AirTran sweetened its offer to $16.25 per share, and TPG replied Aug. 17 with a winning $17 per share proposal. The showdown happened quickly compared with AirTran's long pursuit of its rival. FACING OFF
BID AND BID AGAIN But it's hasn't been all smooth sailing, particularly for TPG, which hit a few rough patches abroad. Macquarie Bank Ltd. and TPG's $9.2 billion buyout of Qantas -- which would have been the largest buyout ever in Australia and the world's biggest aviation transaction -- hit turbulence earlier this year, raising the possibility it could be grounded. Shareholder opposition, sparked by improving market conditions, pressured Macquarie and TPG to rethink their takeover. The pair reworked their bank financing and lowered the approval threshold to 70% from 90%. It was to no avail. After failing to gain sufficient shareholder approval and after days of confusion, the consortium, Airline Partners Australia, finally conceded May 8 that its bid had failed. TPG was also in the running for Italy's Alitalia earlier in the year, but it retreated. TPG said Oct. 4 it wouldn't likely bid. Meanwhile, the TPG-led consortium that had been vying for Iberia, which includes British Airways plc and Spain's Vista Capital SA, Inversiones Ibersuizas SA and Quercus Equity, made an indicative $4.6 billion proposal, but then threatened to yank it if the airline did not respond by the end of July. A report then indicated Aug. 26 the TPG group could cut an offer price. Air France-KLM, Europe's No. 1 airline, and Apax Partners Worldwide LLP have also considered an offer for Iberia. The carrier said Nov. 15 it was fielding an offer worth $5.5 billion from a consortium led by Spanish private equity group Gala Capital Partners Equity SCR SA, bettering a $5 billion bid from U.S. private equity firm TPG and British Airways plc. TPG said in response it planned to proceed with its offer, and then withdrew it Nov. 26. The carrier's future remains unclear as consolidation, kicked off by Air France SA's 2003 deal for KLM Royal Dutch Airlines NV and Lufthansa's 2005 deal for Swiss International Air Lines AG, will likely continue, the Financial Times noted. The Fort Worth-based firm is set on a plan. As The Deal's Paul Whitfield has pointed out, TPG has scoured the globe for carriers under the assumption that increased global competition will drive consolidation, as the industry in Europe is on the verge of deregulation, and plans to use Iberia as a core from which to build. In March, European Union transportation ministers unanimously backed an "open skies" pact that will bring more competition to trans-Atlantic air traffic and could spur airline consolidation. Though the pact wouldn't be implemented until the end of March 2008, a consolidation wave could soon kick off. On March 27, German carrier Air Berlin plc & Co. Luftverkehrs KG said it would pay $186.2 million in cash and absorb up to €200 million ($267.2 million) in debt to buy former SwissAir unit Lufttransport-Unternehmen GmbH, known as LTU, a deal that makes it Europe's No. 4 airline. WHAT'S NEXT? Delta soared out of bankruptcy April 30, 2007, ahead of schedule, and Northwest headed for the exit May 31. Delta flew solo after months of standing firm against a would-be acquirer in US Airways Group Inc.
CO-PILOTING AMR was in February 2007 reported to be a target,
which may have to beat back British Airways plc and Goldman, Sachs
& Co. if it wants to keep flying solo. Citing sources familiar with
the matter, BusinessWeek reported
in February that the duo was among a group vying for control of the
U.S.'s top airline and that the proposed bid was between $46 and $52 a
share, or $9.8 billion to $11.1 billion. But any proposal could run
into antitrust issues. Visit the complete Dealwatch ArchiveComments |
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