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11/22/2006
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US Airways, Delta Merger Could Cost IBM Millions In Lost Outsourcing Revenue

The proposed merger between US Airways and Delta Air Lines could result in the termination of a major IT outsourcing deal that Delta recently signed with IBM.

Should US Airways' hostile takeover bid for Delta Air Lines succeed, it could result in the end of a major IT outsourcing deal Delta signed recently with IBM, according to a document obtained by InformationWeek.

Too many IT and other deals sap merger value, US Airways chief Parker told his Delta counterpart

Too many IT and other deals sap merger value, US Airways chief Parker told his Delta counterpart
In a letter to Delta CEO Gerald Grinstein dated Sept. 29, US Airways CEO Douglas Parker said that if Delta proceeds with IT outsourcing deals and other contracts, a merger with US Airways could be significantly devalued. "If we defer a joint investigation of a potential merger, only to find many of the synergies are no longer achievable because of actions taken in support of a standalone plan, your stakeholders could lose significant potential value," Parker wrote.

In August, IBM said it had secured a seven-year IT infrastructure outsourcing deal from Delta. The value of that deal wasn't disclosed, but it's likely to be worth at least tens of millions of dollars.

A US Airways spokesman says Delta's IT outsourcing deals will be "on a short list" of discussion subjects when US Airways officials next meet with Delta's creditors to push for the merger.

US Airways is attempting an $8 billion takeover of Delta, which is trying to emerge from bankruptcy. US Airways says a merger would yield annual savings of $1.65 billion, $710 million from expense cuts achieved in part through system consolidation.

IBM has seen significant outsourcing deals scotched by mergers. Former Bank One CIO Austin Adams terminated a $5 billion outsourcing deal J.P. Morgan Chase had signed after Bank One and Chase merged in 2004 and Adams became CIO. Since its merger with Nextel last year, Sprint has sought to undo much of a five-year, $400 million software development and IT management outsourcing deal it signed in 2003 with IBM.

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