UPDATE 5-Delta rejects US Air bid, files own $12 bln plan

(Adds comments from CEO, background, updates share price)

By Paritosh Bansal and Kyle Peterson

NEW YORK Dec 19 (Reuters) - Delta Air Lines Inc. formally rejected a bid by smaller rival US Airways Group Inc. (LCC.N) on Tuesday and filed its own long-awaited plan to emerge from bankruptcy that would value the carrier at up to $12 billion.

Delta DALRQ.PK has said repeatedly it intends to exit bankruptcy as an independent carrier, but this is the first time the Atlanta-based airline rejected the $8.6 billion US Airways bid outright and publicly presented its alternative.

"US Airways would be a poor strategic fit for Delta," Delta Chief Executive Gerald Grinstein told analysts on a conference call. "It brings with it significant risks."

But later, in response to a question, he said Delta was keeping a close eye on the possibility of mergers in the sector.

"Every carrier is studying every other carrier all the time, and if the process of consolidation starts, you would not want to be left out," Grinstein said. "If the process happens, I would hope that we would be an acquirer rather than an acquiree."

Delta's filing is only the latest twist in a month-long takeover saga, and it is now up to creditors to decide who to support. US Airways could raise the terms of its Nov. 15 offer, while rivals such as UAL Corp.'s UAUA.O United Airlines could jump in with their own bids. Any merger would have to overcome serious antitrust concerns.

"It's like a beauty pageant at this point," said Joseph Capobianco, an expert at law firm Reisman, Peirez & Reisman.

US Airways declined to say whether the No. 7 U.S. airline would raise its bid for Delta, the No. 3 U.S. carrier, but added that it "remained a determined, disciplined bidder."

Delta said its five-year business plan filed with a U.S. bankruptcy court values the company at about $9.4 billion to $12 billion -- well above US Airways' offer -- and would result in a recovery for Delta's unsecured creditors of about 63 percent to 80 percent of their allowed claims. It assumes a total claim pool of about $15 billion.

The company, which has been operating under bankruptcy protection since September 2005, said it intends to exit Chapter 11 in the spring of 2007, hoping to get creditors to vote on the plan around February or March.

CREDITORS KEY

Creditors holding at least two-thirds of the value of total impaired claims -- debt that will not be repaid in full -- must vote in the plan's favor for it to succeed. The bankruptcy court also needs to approve the plan.

The airline's unsecured creditors generally will receive new shares for their claims. Current holders of Delta common stock will receive nothing, and those shares will be canceled.

US Airways is offering to pay creditors $4 billion in cash and 78.5 million shares of US Airways stock, and analysts have said that some creditors could find the cash tempting.

Delta said it has not yet decided whether its plan would offer any cash.

The carrier presented its plan last week to its nine-member official creditor committee, which includes Boeing Co. (BA.N), Coca-Cola Co. (KO.N), the Air Line Pilots Association and the Pension Benefit Guaranty Corp., Bastian said.

Representatives from the official creditor committee did not return calls for comment. An unofficial group of creditors said it did not have an immediate comment.

Delta's 8.3 percent bond due in 2029 was up almost 1.5 cents on the dollar to 67.5 cents, according to MarketAxess.

US AIRWAYS SPURNED

Delta said US Airways' takeover plan would fail on antitrust and labor issues, would be bad for customers, hurt the Delta brand and burden the combined company with too much debt. It said US Airways' target of at least $1.65 billion in annual savings from a merger was based on flawed assumptions.

It pointed out that US Airways had not yet completed last year's much smaller merger with America West.

"We believe (Delta's) plan ... is superior to the US Airways proposal or anything US Airways could propose with respect to Delta," Delta Chief Financial Officer Edward Bastian told reporters.

Bastian added that Delta had not received any other bids or been approached by any other company about a merger.

US Airways shares were up $1.92, or 3.4 percent, at $57.72 in late trading on the New York Stock Exchange, after dipping more than 3 percent earlier in the day. (Additional reporting by Bill Rigby, Neil Shah and Anthony Kurian)