American talking with two airlines
American Airlines Inc. has had early-stage merger talks with US Airways Group Inc. and is in advanced talks for an alliance with Continental Airlines Inc., sources briefed on the situation said Friday.
American’s talks with Continental are focused on forming a partnership that could share passengers, much like the SkyTeam partnership that includes Delta Air Lines Inc., Northwest Airlines Corp., Air France-KLM, Alitalia and Czech Airlines, the people said.
But Continental also is in advanced talks with United Airlines parent UAL Corp. for a full merger, the sources said. Continental would not pursue both options but instead would choose either the merger or the alliance, sources said.
Meanwhile, United also is in serious merger talks with US Airways and will choose to merge with either Continental or US Airways soon, the people said.
All of the airlines declined to comment.
The airlines would like to have any mergers approved under the Bush administration, which is considered more merger-friendly.
All talks have been proceeding since January this year, after airline executives heard that talks between Delta and Northwest had became serious, the people said.
Delta and Northwest announced a merger this month in an all-stock deal valued at about $3 billion.
After racking up $35 billion in losses and finally emerging from a five-year slump in 2006, U.S. airlines are hoping that mergers could give them greater market power to reduce flights and raise fares.
The airlines also face a renewed sense of urgency to consolidate and cut costs amid skyrocketing fuel prices, a weak economy and a growing competitive threat from foreign carriers as trade barriers fall. Jet fuel prices have more than doubled since the start of last year.
Continental, which has said it would prefer to remain independent unless the competitive landscape were to change, had laid most of the groundwork for a merger with United even before Delta and Northwest publicly announced their deal, according to the sources.
Under the terms being negotiated, Continental Chief Executive Lawrence Kellner would be the CEO of the combined airline and UAL CEO Glenn Tilton could become the chairman, the people said. Other details are still being negotiated in what would be another all-stock deal.
Combining United with Continental would create a company with a combined $35 billion in revenue and nearly 100,000 employees, surpassing the Delta-Northwest combination as the world’s largest airline.
But that merger may not happen. United, whose shares plunged 40% when it reported a quarterly loss earlier this week, also is talking to US Airways.
Analysts have said a merger between those two carriers would be less complex than one between United and Continental.
JP Morgan analyst Jamie Baker said this week that a United-US Airways deal could be easier when it came to aligning the wages of pilots, combining fleets and reducing flights and seats.
Baker also said the merger would be easier because United and US Airways already had code-share agreements and were part of the Star Alliance.
