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By Jui Chakravorty Das
NEW YORK, April 14 Continental Airlines (CAL.N)
and United Airlines UAUA.O have laid most of the groundwork
for a merger, two people briefed on the matter said, and could
have a deal ready "pretty quickly" if Delta Air Lines and
Northwest Airlines announce a tie-up, one of them said.
Continental, which has said it would prefer to remain
independent unless the competitive landscape changes, plans to
get back to the negotiating table with United if a merger
between between Delta (DAL.N) and Northwest NWA.N is
announced, both sources said.
Both the people requested not to be identified because of
the confidential nature of the talks.
A Delta-Northwest merger, expected to be announced late
Monday or Tuesday, would free Continental to pursue a merger
with United because Northwest would forfeit a special "golden
share" that gives it effective veto power over a Continental
Executives have said that if Northwest agrees to a deal,
Continental can buy back that blocking share for $100.
Pilots unions at United and Continental have also held
merger-related discussions, and merging those two work forces
is not likely to be as major a hurdle as it has been with Delta
and Northwest, the two sources said.
Continental's merger talks with United had stalled when the
Delta-Northwest talks sputtered because the carriers' pilots
unions at those two airlines could not agree on how to
integrate seniority in a combined work force.
Continental Chief Executive Larry Kellner said on a
conference call in January: "We like our position as the
industry stands today but I suspect if you look forward, things
"If we see something or hear something, we won't hesitate
to act aggressively," he added.
UAL Chief Executive Glenn Tilton has been a proponent of
airline consolidation for the past three years, saying the U.S.
industry is too fragmented to compete effectively on a global
Continental was not immediately reachable for comment while
United declined to comment.
A merger between United and Continental, the second and
fourth-largest U.S. airlines respectively, would surpass a
Delta-Northwest combination as the world's largest carrier.
After racking up $35 billion in losses and finally emerging
from a five-year slump in 2006, U.S. airlines are hoping that
mergers could lead to higher fares as combined carriers reduce
flights and use their increased market power to raise prices.
The airlines also face a renewed sense of urgency to
consolidate and cut costs amid skyrocketing fuel prices, a weak
economy and a growing competitive threat from European carriers
as trade barriers fall on trans-Atlantic travel.
Continental, whose shares closed at $21.89 on the New York
Stock Exchange, has a market cap of $2.13 billion.
United Airlines, which closed at $23.61 on Nasdaq, has a
market cap $2.72 billion.
Each of the airline stocks rose about 2 percent in
UBS analyst Kevin Crissey said in a report earlier this
month: "We believe if Delta and Northwest get together, United
and Continental will follow shortly thereafter."
"Additionally, we expect that Continental would receive a
premium in such a deal."
(Reporting by Jui Chakravorty; Editing by Tim Dobbyn,