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Potential US Airways-United Airlines merger packs power

A merger between United Airlines and US Airways would reshape the U.S. industry and cut seating capacity as an improving economy rekindles travel demand.

Talks began in mid February, said a person familiar with the matter who asked not to be identified because the negotiations are private. A second person confirmed Wednesday that discussions were under way. Spokesmen for the companies declined to comment.

A United-US Airways combination would create the second-largest U.S. carrier, putting pressure on American Airlines, now No. 2, and Continental Airlines, which ended merger talks with United in 2008. Such an airline also could funnel more domestic passengers onto overseas flights.

"What US Airways doesn't have is a strong international network, which is where the money is," said Jim Corridore, a Standard & Poor's equity analyst in New York. "United has a high-cost problem, and US Airways has shown they figured out how to turn a high-cost airline into a low-cost airline."

A business-travel revival after the recession and greater access to capital increase the likelihood of consolidation now. British Airways, Europe's No. 3 carrier, and Spain's Iberia Lineas Aereas de Espana said Thursday they signed a definitive agreement on a $7.5 billion merger.

Terms of a proposed United-US Airways merger haven't been presented to the airlines' unions, and the companies' boards have not been asked to vote on a deal, one of the people said.

The recession-driven slump in travel dragged both carriers to losses in 2008 and 2009. Now, traffic is picking up again, with a 2.2 percent gain in March among the six largest U.S. carriers marking the largest increase since at least May 2008. Shrinking seating capacity helps airlines raise fares.

The new United-US Airways talks revive an effort that collapsed in 2008, less than two months after Delta Air Lines agreed to acquire Northwest Airlines, a deal that formed the world's largest carrier and spurred merger discussions across the industry. A previous bid by United to buy US Airways was scuttled in 2001 when U.S. regulators objected.

"We don't comment on rumors or speculation," said Jean Medina, a spokeswoman for United. "We've been consistent on our position on consolidation generally for several years, and that position is well known."

James Olson, a US Airways spokesman, also declined to comment.

United chief executive Glenn Tilton has championed mergers since before the carrier left more than three years in bankruptcy protection in February 2006. In 2005, US Airways CEO Doug Parker led a merger with America West Holdings Corp. after a bankruptcy and made a hostile bid for Delta in 2006.

United operates U.S. hubs in Chicago, Denver and San Francisco in addition to Washington Dulles, and has routes to Europe and Asia, including London's Heathrow and Tokyo's Narita airports. US Airways' hubs are in Phoenix, Philadelphia and Charlotte, N.C.

United has 360 planes in its main fleet, according to a regulatory filing. It flies a mix of jets from Airbus SAS and Boeing. US Airways has 347 aircraft in its main fleet, according to the carrier's Web site.

Potential US Airways-United Airlines merger packs power 04/08/10 [Last modified: Thursday, April 8, 2010 9:37pm]
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