The majors are talking M&A again because they have to. US Air's offer to Delta ($4B cash, ~$4B equity) is advantageous to both companies' creditors and shareholders (although not as much as it could be, more on that below) not so much as arbitrage but as a cushion to keep the industry's bankruptcy disease at bay longer. Labor stands to lose most at Delta but that was going to happen anyway. US Air has a financing commitment from Citigroup for $7.2B to back the deal, aimed at refinancing Delta's DIP credit facility, US Airway's existing senior secured facility with GE Capital, and to provide the $4B in cash.
Straight off, I think this is a great idea for both companies. Delta is one of the last of the old hub and spoke US majors to enter bankruptcy having fortunately or unfortunately secured major financing on September 10, 2001. Over the past 5 years, despite a rebound in air travel demand, Delta has burned down that cash as its has faced stiff competition from point to point low cost carriers and post-bankruptcy majors with renegotiated cost positions (US Air alone has hit the skids twice leap frogging peer majors in its CASM 'Cost per Available Seat Mile' each time). At the end of its capital, with an aging fleet more poorly exposed to increased fuel costs and a union not willing to make the necessary concessions, this deal ain't exactly bad for the airline of the South.
Where are the benefits and who gets them? The main beneficiaries are Delta's credit and equity holders. At present, shareholders stand to get completely wiped out in Chapter 11 and unsecured creditors will be left fighting it out for scraps exacerbated by the DIP facility. Management may want to keep the airline independent for a variety of reasons, loyalty to labor and saving their own necks chief among them, but in bankruptcy the creditors get the final word and I imagine they will expect management to give US Air's offer a fair ear (and that it will take a heck of a sales effort by management to keep the company independent).
