Delta, TPG Consider Bidding for AMR

Takeover talk comes on the same day AMR and union leaders met with federal mediators

The Wall Street Journal said Delta Air Lines Inc., US Airways Group Inc. and buyout firm TPG Capital were separately looking at Fort Worth-based AMR, which is in the early stages of reorganizing through the bankruptcy process.

Delta, TPG, US Airways and AMR declined to comment.

North Texas airline analyst Denny Kelley says he doesn’t believe a Delta takeover is too likely, and that the talk may be a ploy to give American Airlines an advantage in negotiations with its unions. AMR and its three major unions met with federal mediators Thursday.

Three big mergers since 2008 have helped the airline industry by reducing competition and making it easier to raise prices. In one of those deals, Delta bought Northwest.

American missed out on the merger mania and fell from first to third among the world's biggest airlines by passenger traffic. US Airways, which tried to buy Delta out of bankruptcy in 2006, has been widely viewed as a possible bidder for AMR.

Standard & Poor's airline analyst Jim Corridore doubts that regulators would let Delta buy American. He said the combined airline would be too big even if it sold some assets. Delta was briefly the world's biggest airline before United combined with Continental in 2010.

Corridore added that absorbing AMR "would be a big management distraction" for Delta. Hunter Keay, an analyst for Wolfe Trahan & Co., said regulators might accept a Delta-American deal if Delta agreed to keep American's pension plans.

The director of the Pension Benefit Guaranty Corporation, which insures the pensions of one in seven people in the U.S., urged American on Thursday to keep its retirement plans and not drop them on the government agency. The PBGC is running a record $26 billion deficit after more companies dumped their pensions during recession, and the agency could seek a taxpayer bailout.

Taking on American's pension obligations would be a huge burden, but Delta might find it worthwhile to block an American-US Airways merger that would reduce Delta to third among U.S. airlines, Keay said.

American is saddled with large debts and troubled labor relations. Still, it would be appealing to other airlines because of its size, customer base, and strength in major U.S. and foreign markets, including Latin America.

TPG Capital has invested in several airlines over the years, going back to Continental Airlines in the 1990s. In 2009, TPG teamed with AMR to invest in Japan Airlines, a key ally of American, although no investment was made.

AMR's new CEO Thomas Horton, who was chief financial officer at the time, had glowing words for TPG back then.

"TPG is a well-respected investor in the airline space ... they would be a natural partner for American," Horton told reporters in Tokyo.

In an ironic twist, American was working with TPG in 2009 to prevent Delta from replacing American as a Japan Airlines partner on trans-Pacific flying.

US Airways, the product of a 2005 merger with America West, is much smaller than United, Delta and American and would gain from American's larger global network and hubs at bigger U.S. airports.

Shares of Delta Air Lines Inc., the world's second-biggest airline, rose Thursday after a report that it may try to buy American Airlines parent AMR Corp.

Delta shares rose 26 cents, or 3 percent, to close at $8.87 after hitting $8.98 earlier in the day. The stock has traded between $6.41 and $12.81 in the past 52 weeks. US Airways shares gained 14 cents, or 2.4 percent, to $6.05.

It could be months before American's fate is clear. AMR management has the first chance to present a reorganization plan to creditors, after which rivals could present proposals to creditors and the bankruptcy judge in New York.

Horton, who became AMR's CEO the day before it filed for bankruptcy, has indicated he wants American to emerge from the process as an independent airline with lower costs.

AMR and several subsidiaries filed for bankruptcy protection Nov. 29 after posting $11 billion in losses since 2001. AMR was the only major U.S. airline to lose money in 2010 and is expected to report a loss for 2011. It has been hurt by heavy debt, high labor and pension costs, and an aging fleet of gas-guzzling planes.

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