Sources: UAL shifts merger focus to Continental from US Airways
UAL Corp.'s United Airlines has put merger talks with US Airways Group Inc. on hold as it focuses on a tie-up with Continental Airlines Inc., people familiar with the matter said.
United and Continental plan to begin sharing financial information this week, and may reach a decision on whether to merge by the following week, said two of the people, who asked not to be identified because details are private.
Conversations between United and Continental, the third- and fourth-biggest U.S. airlines, began shortly after the April 7 disclosure of the United-US Airways discussions, two people said. Chicago-based United and US Airways started talks in February, a person familiar with the matter has said.
"Given the right terms, United would probably prefer to partner with Continental," said Matthew Jacob, a New York-based analyst at Majestic Research LLC who doesn't rate either airline. "Having it be made public that US Airways and United were in talks probably spurred Continental into action."
A combination of United and Houston-based Continental would surpass Delta Air Lines Inc. as the world's largest carrier and would have the biggest share of passenger traffic on routes across the Atlantic and Pacific. US Airways is No. 6 among U.S. airlines by traffic.
Spokesmen for United and Continental declined to comment yesterday on any negotiations involving the airlines.
Latest TalksUAL slid 71 cents, or 3 percent, to $22.83 in Nasdaq Stock Market composite trading on April 16, ending six daily gains, as U.S. stocks fell. Continental dropped 79 cents, or 3.3 percent, to $22.98 on the New York Stock Exchange, and Tempe, Arizona- based US Airways declined 26 cents, or 3.5 percent.UAL has climbed 77 percent in 2010, while Continental is up 28 percent. UAL and Continental had the third- and fourth- highest market values as of April 16, with UAL at $3.82 billion and Continental at $3.2 billion, based on data compiled by Bloomberg. US Airways was No. 8 at $1.15 billion.Continental walked away from merger talks with United in April 2008 after directors concluded the risks "outweigh the potential rewards," the carrier said then. A month later, United's merger conversations with US Airways fell through. Continental later joined United's Star Alliance group of airlines, whose members sell seats on each other's jets.Travel ReboundSince then, the U.S. industry has begun to emerge from the travel slump caused by the recession and access to credit has improved. Passenger traffic for the six biggest carriers rose in March for the largest monthly increase since May 2008.Continental CEO Jeff Smisek, 55, said in March he was open to a tie-up if the carrier needs to "bulk up defensively," without specifying a potential partner. United CEO Glenn Tilton, 62, has championed mergers since before the airline left bankruptcy protection in February 2006.A Continental-United tie-up would be a "transformative combination," Jeff Straebler, fixed-income strategist at RBS Securities Inc. in Stamford, Connecticut, said in an interview last week.Together they would control 40 percent of Atlantic passenger traffic and 53 percent across the Pacific, where United already leads, based on data compiled by Bloomberg. Passengers on those routes pay some of the industry's highest fares, because U.S. airlines don't face discount competitors.