Continental and United ready if others merge: sources

By Jui Chakravorty Das

NEW YORK (Reuters) - Continental Airlines (CAL.N: Quote, Profile, Research, Stock Buzz) and United Airlines (UAUA.O: Quote, Profile, Research, Stock Buzz) 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 be independent unless the competitive landscape changes, plans to get back to the negotiating table with United if a merger between Delta (DAL.N: Quote, Profile, Research, Stock Buzz) and Northwest (NWA.N: Quote, Profile, Research, Stock Buzz) 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 special stock that gives it effective veto power over a Continental transaction, otherwise called a "golden share."

Both people said Continental would redeem its share and resume the talks with United, which 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.

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 people said.

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.