US Airways Group Inc said it dropped out of merger talks with United Airlines parent UAL Corp, clearing the way for a potential UAL and Continental Airlines Inc merger into what would be the world’s largest airline.
UAL and Continental are in talks for a possible stock merger with no premium, a person familiar with the matter said late on Thursday.
Experts believe such a combination would stabilize an embattled airline industry. Indeed, many believe UAL entered talks with US Airways so it could draw Continental, arguably a better match, into separate discussions.
US Airways’ decision to pull out could reduce UAL’s negotiating leverage, however.
“It does create more of a sense of inevitability about United and Continental,” said Joe Schwieterman, transportation expert at DePaul University in Chicago. “United can no longer pit one airline against the other and take the best deal.”
The spokeswomen for UAL and Continental declined to comment.
A merger of UAL and Continental would form the world’s largest airline, ahead of Delta Air Lines Inc.
Some experts say integrating the two carriers would be easier than merging UAL and US Airways because they have more compatible route structures and labor forces.
US Airways’ announcement was the company’s first acknowledgment that it had been in merger talks with UAL, their second in two years.
“After an extensive review and careful consideration, our board of directors has decided to discontinue those discussions,” US Airways said. “It remains our belief that consolidation makes sense in an industry as fragmented as ours.”
Continental CEO Jeff Smisek declined to discuss the developments in a conference call on the quarterly results.
If the carrier merged with UAL, Smisek would become the combined company’s CEO, while UAL CEO Glenn Tilton would become chairman, the person familiar with the matter said.
Tilton and US Airways CEO Doug Parker are vocal proponents of consolidation for the industry, which they say suffers from overcapacity.
UAL on Thursday maintained that consolidation would help.
“We thoughtfully consider opportunities, based on what’s in the best interest of our company, our employees, our customers, our shareholders and the communities we serve,” UAL said.
UAL also held talks with Continental in 2008. Continental walked away from those discussions and the two airlines later entered into a strategic partnership.
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