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Thu, Dec 14, 2006 - Page 10 News List

United, Continental in merger talks

NY TIMES NEWS SERVICE , NEW YORK

United Airlines and Continental Airlines have been holding talks on a potential merger, a combination that would create the biggest domestic airline in the US, with a combined value of US$9 billion, people involved in the negotiations said on Tuesday night.

The discussions, though far from complete, could spur a wholesale realignment of the troubled airline industry.

The talks, apparently initiated by United, recently picked up pace after US Airways' bid last month to buy Delta Air Lines for about US$8 billion, these people said.

US Airways' proposal, promising US$1.65 billion a year in savings by combining with Delta, has helped add urgency to carriers' interests in merging.

Large airlines like United, the second biggest domestic carrier, and Continental, the fifth, have spent recent years lowering their costs to become more competitive with low-cost carriers and with each other. None of them wants to be at a significant cost disadvantage to competitors.

A United spokeswoman, Jean Medina, and a Continental spokesman, David Messing, each declined to comment.

Meanwhile, AirTran Holdings, a low-cost carrier that competes against Delta, was expected yesterday to make an offer for Midwest Air, a smaller airline in Milwaukee, for about US$200 million, or US$11.25 a share, in cash and AirTran stock, a person close to the deal said on Tuesday night.

AirTran's chief executive, Joseph Leonard, could not be reached.

United's chief executive, Glenn Tilton, and Continental's chief executive, Larry Kellner, have met in person to discuss a combination, a person with knowledge of the talks said.

But two executives with know-ledge of United's efforts expressed skepticism over the likelihood of a United-Continental deal. The executives, who requested anonymity because of their role, said Tilton had initially approached Delta, which said it was not interested, before contacting Continental.

Tilton told a group of analysts this week, in a presentation available on the Internet, that, "We are not waiting for opportunities to come to us simply because we haven't identified to you which one works best."

On Tuesday, however, Kellner was in Tel Aviv on business.

Any deal between the two airlines is far from imminent. A person with knowledge of the talks between United and Continental said the carriers want to see how antitrust regulators react to a possible US Airways offer to take over Delta.

Delta's management opposes the proposal and intends to file its plan to exit bankruptcy next week.

A flurry of meetings later this week among Delta creditors and others on the US Airways proposal could help decide whether Delta management will be forced to consider the US Airways offer.

Many investors and analysts have long maintained there are too many airlines operating in the US, and that consolidation would help improve their thin profit margins or reduce their losses.

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