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The Daily Wildcat

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The Daily Wildcat

The Daily Wildcat


    “United, US Airways in ‘advanced’ talks to merge”

    United Airlines is pondering a merger with US Airways, the third time the companies have attempted a tie-up over the past decade.

    Negotiations between the two carriers are advanced, said a person with direct knowledge of the discussions. The merger talks were first reported by the New York Times.

    But analysts and airline industry observers believe that United’s intent may be to draw Continental Airlines, close joint venture partner, to the bargaining table. The two carriers would form the world’s largest carrier and a potent competitor to Delta Air Lines, with a global network reaching from South America to Asia and Europe.

    “”This looks like an attempt to get something going,”” said former Continental CEOGordon Bethune, who said he had no direct knowledge of United’s plans. Representatives of United and US Airways declined comment. A Continental spokeswoman could not be reached.

    A Continental and United merger would create about $5.8 billion in market value, including cost-savings and new revenues of about $2 billion, saidVaughn Cordle, a retired United pilot who is managing director of market research firm AirlineForecasts LLC.

    However, combining United and far-smaller US Airways would generate about 65 percent of that increased market value: about $2.5 billion to $3 billion, AirlineForecasts estimated.

    “”If Continental doesn’t want to do a full merger with United, US Airways makes for the next-best alternative,”” Cordle said via e-mail. “”A 65 percent return is better than no incremental increase in value.””

    United CEOGlenn Tiltonhas been an outspoken advocate of industry consolidation, but has had difficulty consummating a deal of his own.Jeff Smisek, his counterpart at Continental, has been vary of merging unless it appeared that recently merged Delta was pulling ahead of the rest of the industry.

    Tilton came closest in 2008, when United held talks with Delta, which eventually opted to combine with Northwest Airlines. United then came close to completing a deal with Continental, but talks ultimately broke down over social issues like the composition of the management team and Continental’s board concluded that it would fare better on its own.

    United finally negotiated with US Airways, but decided it would rather not risk inflaming ongoing labor tensions at both carriers. Instead, Tilton formed a virtual merger with Continental, which joined the Star Alliance.

    The two carriers have been the topic of constant merger speculation over the past 18 months as they combined information platforms, shared airport operations, marketed seats on each other’s flights and formed ambitious partnerships to coordinate flying across the Atlantic and Pacific oceans.

    But Tilton and other airline CEOs may feel increasing pressure to deal, saidRoger King, aviation analyst with CreditSights LLC. After two years of heavy cost-cutting, they have little left to trim — aside from overlapping operations with a merger partner.

    By contrast, Delta has low costs and stands to reap far more from the anticipated airline industry rebound. “”Delta has shown you that those kinds of mergers can work,”” King said.

    But Delta was also able to smoothly absorb Northwest because it first worked an unusual deal with its pilots union. That will be tougher for others to emulate, especially United and US Airways, saidBill Swelbar, an MIT airline researcher.

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