United in Merger Talks with US Airways

cliff1066, flickr

UAL Corporation's United Airlines is in merger talks with US Airways, in a potential deal that could create the second-largest carrier in the United States, according to a report late Wednesday by the New York Times.

According to the Times, "people briefed on the matter" have noted the discussions are being largely aimed at cutting costs, and working out a management structure that would allow both companies to thrive in a struggling industry dominated by the combined Delta-Northwest.

"We think a deal would help what we see as US Airways' main problem, a lack of international breadth and scale, while United would gain control over a low cost airline with strong domestic route map," Jim Corridore, equity analyst at Standard & Poors', told Reuters.

This isn't the first time the companies have come to the table to negotiate. In 2000, the airlines announced a multi-billion dollar deal, only to back down due to strong opposition from the Justice Department and unions. Eight years later, United and US Airways tried again, but again came away empty handed after months of negotiations.

Both airlines have previously been in talks with other carriers. In 2006 US Airways pursued Delta, with no outcome. United had also met with Continental Airlines in 2008 for merger talks, with no final agreement.

"If you take a look at those two carriers, there's a tremendous amount of overlap," Michael Boyd, an airline industry consultant, told Reuters, referring to United and US Airways. "This is likely to get Continental, which would be a better fit, out of the barn to start talking."

While United and US Airways are deep in their talks, a transaction is not expected to be announced for at least several weeks, and sources caution that the deal could still fizzle.

"Airline mergers are complex and unions, antitrust regulators or other circumstances could derail a deal," said Corridore.
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