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New Orleans -- Here we thought the biggest news we'd be talking about this week was the Michigan - Ohio State National Championship two-months-early game this weekend.

Or whether the Sun's Steve Nash's hair cut has sapped his strength. (Or is it that new cheap-looking ball he and everyone else hates?)

But no. US Airways CEO Doug Parker made us get up on our toes and pay attention this week.

Wednesday, the landscape shifted for the things with wings as US Airways formally made a direct merger proposal to the creditors of Delta Air Lines -- after their earlier attempts to sit down and talk with management were apparently rebuffed.

Concerned that if they did not make a play for the airline before it exited bankruptcy protection, most of the benefits inherent in such an acquisition would be negated, USAirways pulled the cord and jumped.

The question this week is this. Is Doug Parker a masochist or is he merely able to see the big picture better than anyone else and also happens to have the financial support and manpower to back up what he wants to do?

Well, probably both.

First, let's face it. Both Delta and Northwest are sitting ducks.

In this financial environment, and with the money guys swarming around drooling over the possibility of making big bucks on an airline deal -- any airline deal -- I don't think there is any way that either airline is going to come out of bankruptcy not attached to some other airline.

Speaking of, why didn't Parker and the gang go after Northwest?

I think it's because they don't see as much underutilized asset value at Northwest. They see what they could do with Delta, and they also see that management there is not doing all that it could be doing while in bankruptcy protection. There's still way too much deadwood and underbrush over there.

Much more than is the case at Northwest.

So the answer is pretty simple. While Delta represents this huge rather ungainly monster -- it's a monster that also offers the biggest potential reward/risk. No question.

And don't think Northwest is idly sitting up there twiddling its thumbs.

We even got a direct indication that the Texas Pacific Group is apparently working on some deal with Northwest. Or did you miss the fact that Richard Schifter,
TPG partner, resigned from the US Airways board of directors, effective Tuesday -- before the airline's offer for Delta was officially announced?

In the release about his departure. Schifter was quoted as saying that he supported the move by US Airways.

I believe him. You'll not find a bigger Doug Parker supporter than Rich.

So this leaves only one possibility. Other than the "ever-increasing demands on his time," as the release put it. That would be "conflict of interest."

I vote for the latter.

So now I think it is safe to assume that TPG is working on something with Northwest. The question is -- who's the other potential partner? Continental would certainly be an easy guess considering all the many strings and attachments between these three.

Then again, TPG is an equal-opportunity provider of money. They'll do a deal if it's cheap enough and is going to net them a big enough return. Period.

But I mention Rich's departure because a few folks had written to me asking me if his leaving the board was perhaps an indication that he was against the deal. Or that there had been some "falling out" with Parker.

No, I don't think that at all.

Far from it.

It merely reflects the fact he can't stay on the board because TPG is up to something else with a competitor.

As for the timing of the deal, we've heard a couple of comments from subscribers who tend to feel that US Airways felt it had to move now -- before anyone else did. Over the last two weeks there has been a lot of speculation that United Airlines was looking at the possibility of doing a huge private buyout deal.

As I've said before with United -- it's all about unlocking the cash.

So while the probabilty of going private is not seen as a viable alternative by many -- there could be a realistic method to the apparent madness.

That method could be this scenario. The airline goes private. If the airline were to do this, current stock options would no doubt be paid out as part of the deal.

Bingo. Money in the bank for United management.

But wait, there's more.

If United were to do this, and then go after another airline, or do it in conjunction with a play for another airline, then what? Then it could work on the combo for a year or so and then -- tada! It would be time for the grand IPO.

And there you have it. Yet another big payout for those involved in the deal.

What does any of this have to do with running an airline? Nothing.

But back to the timing thing. First, I think US Airways wanted to get its position out there so Wall Street knew what they were up to. Secondly, I also think that US Airways wants to make sure they have a chance to get into the situation at Delta before Delta walks out the door of bankruptcy court. Why? Because I think US Airways is probably convinced there is more work to be done, and more assets to modify before the airline loses the right to do so.

Problems on the horizon?

Please.

Reminds me of the Reuters headline Thursday that read, "US Air- Delta Merger Would Mean Tough Labor Talks."

No joke.

A nit before I go on. Why does Reuters continue to refer to US Airways as US Air? They're not the only ones. Then there was the Atlanta Journal-Constitution article by Dave Hirschman that had a quote about Doug Parker from former COO Jeff McClelland. And it was in the present tense, pulled from an old article in USA Today. Obviously, Dave is not aware that Jeff is no longer with us.

But I digress.

Other than the hyperactive screaming against the deal uttered by the never-at-a-loss-for-a-soundbyte consultant Michael Boyd this week, I found the general consensus within the airline analyst community and among those who invest in it to be one of, "Okay, it's a monster, but someone had to do it."

And that's the key.

Someone did have to do it.

And I'd rather put my money on the management team at US Airways than most any other one out there. (Although there are a few others on the "A"team.)

No, it's not going to be pretty, fun to do, or easy. None of the above.

But as Doug said in June at the Merrill Lynch Conference in New York, and we talked about here in PBB at the time, "This situation [with two majors in bankruptcy] is a once in a lifetime opportunity." He then went on to say why it was that he thought the only mergers that made sense were those with bankrupt carriers -- because of the opportunity to use the bankruptcy to clean up and bring added value to the airline involved.

I agreed.

I also talked then about the possibility of a Delta Air Lines/US Airways match-up, as I wrote, "Frankly, I like the thought of a Delta/US Airways combination. I think it could work. But it would only work if Delta was completely and totally reconstructed.

Money? US Airways could get it."

So here we are.

Other idle comments on the proposed deal. As you are aware, Delta CEO Gerry Grinstein has apparently refused to sit down and discuss a deal with Doug Parker. For those of you with inquiring minds, you can now read copies of letters that were sent back and forth between the two camps for the last few months. They are included with the US Airways SEC filling on the proposed deal.

It's pretty clear then, that US Airways chose this way to go after Delta because it felt it was the only way it could get into the mix before the airline exited bankruptcy.

Is it a risky play? Yes, for two reasons.

One, Delta has been adamantly opposed to joining forces with anyone else. I've never really been sure why, but that's the way it is and it's also pretty clear that Grinstein has already set up his successor team with current CFO Edward Bastian at the top of the list.

This means that you have a management team that is going to fight against this deal. Unless Doug Parker can guarantee them a plum position in the new combined entity.

Two, this puts the deal in the hands of the creditors. On the one hand that's good -- but it also means others could step up and increase the offer. United, for instance.

In the meantime Delta itself still has exclusive rights to the restructuring of the airline. That won't end until February.

So even before we get to an actual merger, there's gonna be a whole wad of legal bills between now and then.

Another idle observation on the plan to name the new entity "Delta."

My preference would be to name the new entity "Beta." Or "Alpha." Maybe "Gamma?"

But seriously -- if this were to happen, I think it would solve what has become a major problem with the "new" US Airways. That problem is, of course, that too many people, including many of the airline's employees, still think that US Airways was the acquirer, and not the acquiree. This is a problem on a number of fronts.

It has, for instance, had the effect of marginalizing America West employees who find themselves looked upon as interlopers by former (old) US Airways employees.

On the other side, "old" US Airways employees keep talking about how things were at the airline in the past. How they were trampled on, mistreated. As though any semblance of upper management or culture from that "old" US Airways is in any way related to Parker and his management culture.

It's a mess. If nothing else, I think a move to "Delta" would change this dynamic.

As for the problem of merging Delta employees, US Airways employees, and America West employees -- here's my take. Merging these three disparate groups would actually be easier to accomplish than what Parker has on his plate now.

Why? Because the majority of employees at Delta are not unionized, which means they can be relatively easily assimilated. The pilots, who are unionized, are represented by ALPA, which, while not a hugely unifying factor, at least means that all three pilot groups are in the same big unhappy family.

So actually from a merger of people perspective, I think this could prove to be a plus, not a minus.

On the business side, the deal makes sense in a lot of ways. One, it will bring needed rationalization to the industry. Two, it will force some routes and business to other carriers if it is to get DOJ approval. That can't be all bad. Three, it will finally give Delta some decent management. And that is definitely not a bad thing.

The biggest negatives I see to the proposal? The fight to get from here to there in the first place and then the hellacious mess the combined entity would face in terms of distribution and reservations systems integrations.

The combination of the America West and US Airways reservations systems is already running behind schedule. Add the Delta part to the mix, and yes, we have one huge undertaking.

Forget the unions. Forget the fleet issues. This would, in my opinion, be the biggest challenge for the new airline.

Okay, time to move on.

Before the news hit Wednesday about the deal for Delta, Delta and its regional affiliates were already all over the news as a result of the latest DOT results that we discussed here last week. The coverage was anything but positive. Even Keith Olberman on "Countdown" on MSNBC got into the act, bestowing a "Worst Person in the World" designation on Comair, although he referred to it as "Delta Connection" for having had the one flight last month that was late 100% of the time. The night that he bestowed the honor? The flight had been cancelled.

But you all saw similar coverage, the most extensive of which was in the Washington Post. Delta, Atlantic Coast and Comair all took the brunt of it.

But one part of the puzzle that did not get as much coverage was the continued build-up by Delta at JFK. You may recall that last spring we said here that there were folks at JetBlue who were convinced the only reason Delta was ramping up its presence at JFK to such an extent was to make their lives miserable.

It has made their life miserable.

But it's made Delta's life even more miserable.

And the airline's on-time stats out of JFK? They are truly miserable.

I had to laugh Thursday at the Delta release concerning new service between JFK and Phoenix/Scottsdale/Tempe. One, what great timing! Is this to accomodate those at their new headquarters location? Two, since when do we start calling service to Phoenix service to Phoenix, Scottsdale and Tempe? That would be like announcing new service to Dallas/Ft. Worth, Euless, and Grapevine.

But it gets better.

"As part of Delta’s continued expansion at our New York hub, we’re offering customers the convenience of nonstop service to more of their favorite business and leisure destinations, including Phoenix/Scottsdale/Tempe,” said Bob Cortelyou, vice president – Network Planning at Delta. “Additionally, our Arizona customers will be able to take advantage of our strong international connections to destinations in five continents from our hub at New York’s JFK airport."

Now, I have a question for Bob. (I don't want to pick on Bob, but I must.) If this flight is scheduled to arrive at JFK at 6:45 PM, can you please explain how passengers on this flight are going to be able to connect with most of your international connections? The flight gets in too late.

Same on the other side. The flight leaves at 8:45 in the morning. Ah, unless I'm missing something that's too early for most of the international connecting flights coming in from Europe.

But Delta really gets the bonehead award of the week for their Habitat for Humanity livery blunder.

According to IAGblog:

"Delta's people (read managers) have just incorrectly painted this 767-300ER. (Eight aircraft are being converted from domestic to international.) The plane was painted in a special Habitat for Humanity livery for the inaugural flight to Jo'burg. This is because a large Habitat group is apparently on the flight.

Why is the paint job incorrect? Because you need satellite communications equipment for African ops and this plane does not have the satellite communications equipment installed. So, Delta has to frantically paint another aircraft with satellite communications equipment in time for the flight early next month.

As far as we are aware, neither America West nor US Airways has ever mis-painted a plane. Makes you wonder."

In other non-Atlanta/Phoenix centric news this week, American Airlines had a bit of a problem last weekend with its Maddog fleet.

After reports of problems with several MD-80s were reported, the airline grounded a large portion of its Maddog fleet to inspect the aircraft's fuel tank covers and fuel filters. The airline began to pull aircraft out of service last Friday resulting in a huge number of flight cancellations that continued over the weekend and into this week.

From what we understand, American Airlines maintenance crews apparently improperly prepped fuel tank access doors of the affected aircraft before painting them.

The mistake then apparently caused the paint to contaminate the fuel filters of the aircraft.

American was forced to ground 54 of its approximately 300 MD-80s on Friday. As of Thursday of this week, we understand that all aircraft were back up and flying.

In other American news, the company and the pilots are now trying to work out the details that would allow the airline to fly direct from DFW to Beijing. Yes, the airline has already bid for the service as we all know. But before they can fly it, they have to have approval from the APA because of the length of the flight.

Captain Fury has not let this situation go unnoticed. His set of cartoons on this particular issue can be found here.

Finally, we talked last week about how the new political landscape could affect pending legislation or coming legislation concerning the airline industry.

As of this week, we have two areas where it now appears we could see some changes.

One is the battle for a new "Open Skies" agreement. Given what we have heard over the last week, it sounds like the new Democratic leadership is not in as much of a hurry to approve the changes in foreign ownership laws as the previous Republican leadership had been. Looks like it is going to be a longer and more protracted fight. That's fine with me -- if as a result, there are changes made to the original DOT proposed rule change concerning foreign ownership.

I still say there is too much ambiguity there.

Then there is the effort to change the "Age 60" rule. I think supporters of this change are going to find themselves with more support in the new Congress. We'll see -- but I think the chances for a change are about as good as I've ever seen them. It doesn't hurt that starting next week, on Thanksgiving Day, commercial airline pilots in all but four countries will be allowed to continue flying until age 65. In most nations, pilots now must retire at age 60, as is the case here. As of next week, not so.

The International Civil Aviation Organization (ICAO), which sets world aviation standards, issued the policy change two months ago. In its decision, it cited the lack of medical evidence suggesting a reason why the change should not be made.

On this side of the pond, a report on the issue is due later this month from a panel formed by FAA Administrator Marion Blakey in September after the ICAO adopted its new standard.

We all know how this works. She could never make a recommendation without the cover of a "panel of experts." Yes, well, whatever this panel says, I think Congress might just be of a mind to override her -- if she continues to take the approach that such a change is not "safe."

We all know the real story here. ALPA and other pilot groups have continued to fight this change not because of legitimate "safety" reasons, but because of union political ones. The younger guys want all the old guys to retire as soon as possible. It's that simple. But now, with the changes occuring in the industry, those old guys want to work as long as possible.

SWAPA, the Southwest Airlines pilot union, is still the only pilot union that has come out in favor of the change.

On that note, I'm in favor of some change of scenery. It's time to swing up to Wall Street, which was one busy place this week. Heck, if we stayed through next week, we'd get to go see the Rockettes in front of Macy's. Oh boy!

Let's go.

PlaneBusiness Banter Disclosure Notes: Holly Hegeman currently holds no positions in any stocks discussed in today's issue. PlaneBusiness.com is not currently engaged in a consulting capacity with any airline discussed in today's issue. However, we do routinely provide research and/or consulting services for airlines and/or financial firms related to the industry. Comments made in regard to individual stocks in this publication are not to be interpreted as stock recommendations.

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