Continental, United Discussing Merger

By Del Quentin Wilber
Washington Post Staff Writer
Wednesday, December 13, 2006

Continental and United airlines have been discussing a potential merger -- the latest in a series of signs that major carriers are seeking to reshape the recovering industry.

The talks have involved top executives of each company and have touched on the potential structure and shape of a combined carrier, industry sources familiar with the discussions said yesterday.

Those sources, who spoke on condition of anonymity because they were not authorized to discuss the potential deal, said the discussions intensified last month after US Airways Group announced an unsolicited $8.7 billion bid to merge with Delta Air Lines, which is in bankruptcy protection.

Chicago-based United is the nation's fourth-largest carrier in terms of passenger traffic and is strong in the Midwest and Asia. It has major hubs in Denver, Chicago and at Washington's Dulles International Airport. Its parent company, UAL, has a market capitalization of about $4.8 billion.

Houston-based Continental is the nation's sixth-largest carrier and has major hubs in Houston, Cleveland and Newark. It has strong links to Europe, the Caribbean and Latin America. It has a market capitalization of about $3.9 billion.

Representatives of each airline declined to comment. A merger could face a number of obstacles, including a review by federal regulators. Also, Northwest Airlines has an agreement with Continental that in many cases would give Northwest the power to block a merger.

United's chief executive, Glenn F. Tilton, said in an interview last week that he would consider a serious merger possibility but declined to discuss any potential deals, including one with Continental.

Continental chief executive Larry Kellner has said he wants the airline to remain an independent carrier but would not be against a merger if the rest of the industry landscape changed substantially.

Airline executives have been speculating in recent months about the possibility of combining operations of the nation's six traditional carriers -- American, Continental, United and US Airways, as well as Delta and Northwest, both in bankruptcy protection.

Just last week, Northwest asked a bankruptcy judge for permission to hire financial advisers to help it plan for the possibility of a merger or acquisition.

Analysts and executives believe that mergers in the airline industry could benefit carriers by allowing them to cut overhead costs while expanding more lucrative routes. US Airways chief executive Douglas Parker has said his proposed deal with Delta would allow him to cut flights and overhead, saving up to $1.6 billion a year.

More partnerships might also be on the horizon, even among low-cost carriers. The Wall Street Journal reported on its Web site last night that AirTran Holdings was considering an offer for Midwest Air Group.

© 2006 The Washington Post Company