Hey Lee, how’re the wife and kids?

Today, I received an email from my old buddy Lee Macenczak. Well, actually, I don’t know Mr. Macenczak personally; we’ve never met. But I did receive a curious email from him in his official capacity as Executive Vice President of Sales and Customer Service of Delta Air Lines. The email was a not-so-veiled attempt to create a negative impression of US Airways Group Inc.’s recent, hostile $8 billion bid for Delta. And I quote,

In addition to our enhanced customer service and offerings, we are pleased to report that we are on track to complete our restructuring and exit Chapter 11 in the first half of 2007, as planned. Of course, our customers aren’t the only ones taking notice of the new, ever-improving Delta. As you may have seen in the news, US Airways recently made an unsolicited merger proposal.

Please be assured that your travel plans, your SkyMiles, and the many benefits you enjoy from the SkyMiles program and our global alliances are secure and are in no way affected. It is business as usual at Delta Air Lines. Today, as always, you can rely on the excellent service Delta's proud team of dedicated professionals provides.

Going forward, Delta will evaluate US Airways’ proposal carefully, as we are obligated to do. But you should know we are concerned that this particular transaction would not be in the best interest of our many stakeholders including our customers, employees, travel partners, and the communities we serve. We are moving full steam ahead with our own plan to emerge from Chapter 11 as a strong, independent, stand-alone airline dedicated to providing you with world-class service and superior performance.

Having your EVP of Sales and Customer Service send an email to your customers seems, well, an odd front to open in the battle for corporate control. Perhaps Delta was worried that all the fuss over mergers and acquisitions would scare off potential business during the very important holiday season that is now upon us. In that case—if I am at all representative—it’s a little late to allay the fears of travelers. I have already booked my ticket this season with Amtrak and will suffer the 13½-hour train ride. You see, two years ago, I spent Christmas Eve and early Christmas morning stuck in Dulles International Airport and have no desire to spend another Christmas in northern Virginia. Out of fairness, I should say that it was not Delta that stranded me in 2004; it was the now-defunct Independence Air, which is itself such a tale of corporate failure to warrant a posting in its own right, but I’ll save that one for another day.

Even that notably painful experience is not the chief reason I’m foregoing air travel this December. Simply put, I’d rather not tolerate the asinine security procedures at the airport, particularly since I will be taking home a lot of stuff—after all, it’s Christmas. I just don’t feel like doing the Security Jig this year; I’d really rather just take my seat, take out my laptop, watch a few movies, drink the beverage I brought on board, take a nap, and wake up in a different place…the place I intended to be, that is. And how nice it will be to have the toiletries I brought with me instead of feeding them to the rubbish bin at the airport.

But in reality, I can’t imagine that the smart folks at Delta haven’t already thought about all of this; I can’t imagine that the email was sent because some executive opined during a meeting, “You know, that damn hostile bid is going to scare off customers!” But the email does give you a hint as to how important this holiday season is for Delta Air Lines. It may well be their last one.

I actually do have great sympathy for the folks at Delta Air Lines. I grew up in a small Southern city, and Delta has been the only major carrier to service my hometown continuously over the past 30 or so years. Also, I realize how frustrating it must be to put so much effort into a restructuring plan only to have a competitor come along and frack up the works by trying to cut a deal with your creditors. To add insult to injury, US Airways is not in much better shape strategically than Delta. It operates many of the same routes (according to The New York Times, “About 50 percent of the routes served by Delta and US Airways overlap”) and has less market share than Delta.

Obviously, different stakeholders will have different opinions of the proposed deal based on their interests in the matter. If you’re a bondholder, you’re probably ecstatic that US Airways made the offer, and sure enough, shortly after the announcement, the value of Delta’s debt shot up, or as the NYT’s Andrew Ross Sorkin reported on Thursday,

Delta’s unsecured debt has recently traded at 40 cents on the dollar, US Airways noted. In a sign that creditors welcomed the offer from US Airways, Delta’s bonds surged yesterday. The price of its 2009 note rose 21.25 cents, to 61.75 cents on the dollar. Airline stocks, including shares of US Airways, also rose sharply.

However, if you’re a consumer with no stake otherwise in the matter, you’re likely to have some doubts. Much of the savings that US Airways’ management purports to achieve as a result of the merger would likely push ticket prices higher over time, or so say many consumer-advocacy groups, but then again, these are the same groups that poo-poo all M&A transactions almost reflexively. It would be very difficult to project how this merger would actually impact ticket prices. Ticket prices are determined by many factors; for every expert witness of one opinion, I’m sure it would be easy to find an economist who sees things differently.

To date, the biggest challenge that I can see to US Airways’ strategy is how risky it is. The viability of the entire deal seems to rest on a rather precise timing of events, events that are really hard to predict. That is to say, not only must the deal get regulatory approval, it must do so during a period of great political change. The deal—should it go forward—would be one of the first corporate transactions reviewed by the new Congress, which in case you haven’t heard, is now controlled by the Democrats. Ultimately, I don’t feel that the change in party control will greatly impact the results of the congressional decision-making process, or that of the Department of Justice, but it could drastically impact the timing of the approval (if it is approved). This is very important, because, again, as the NYT reported, much of the purported cost-savings due to the merger can only be realized while Delta is under the protection of the bankruptcy court, which is due to end by the summertime. In other words, if US Airways screws up the timing of this deal—either on the front end trying to close it, or on the back end trying to get regulatory clearance—they will miss the window, so to speak. And then, of course, all of this aside, what you could wind up with is one large, poorly performing airline instead two smaller poorly performing airlines, for the overall strategic landscape of large US carriers has not changed and will not likely do so in the immediate future.

I tend to think, on first impression, that US Airways is biting off a bit much. It is still trying to resolve certain challenges arising out of its previous merger with America West. On top of that, it is no doubt studying very intently—as all carriers are—the business model of so-called discount carriers like JetBlue in an effort to steal workable bits of strategy from them. Two mergers in two years whilst revising one’s underlying business model is not a recipe for success.