Airlines Vueling, Clickair in merger talks-paper

MADRID, Jan 29 (Reuters) - Spanish low-cost airlines Vueling (VULG.MC) and Clickair are in preliminary merger talks to create Spain's third-biggest carrier, newspaper Expansion reported on Tuesday, quoting sources close to negotiations.

The paper said the airlines' main shareholders were negotiating on price and the possible deal had not been put to either company's board.

"At company level, Vueling has had no talks or conversations with Clickair regarding a merger," a Vueling spokesman said. A spokesman for Clickair declined to comment on the report.

Vueling's shares were suspended from trade on Tuesday morning, pending a statement.

A merger would create a 47-plane carrier, flying 10.7 million passengers a year, the newspaper said.

It would also be better placed to take on Ryanair (RYA.I) and easyJet (EZJ.L), which have made major inroads in both the European market to and from Spain and on domestic routes over the past two years.

Expansion said both airlines had selected banks to advise them on a possible merger and coordinate talks, which were still in a preliminary phase.

Vueling's share price dived 73 percent as it issued two profit warnings last summer followed by a clear out of its management team, as it struggled against high oil prices and an intense price war in the domestic Spanish market.

Clickair is owned by a consortium of five shareholders including Iberia (IBLA.MC) and construction firm ACS (ACS.MC), each holding 20 percent. (Reporting by Ben Harding; editing by Sue Thomas)