The protect Street Journal's online edition citing unidentifiedpeople said Andersen has informally talked about consolidationpossibilities with counterparts at other airlines including seniorexecutives at United and Northwest Airlines. (Photo courtesy of Michael Carter)
Atlanta —(AP) United Airlines and Delta Air Lines undergo beendiscussing a combination between the nation's second- andthird-largest carriers that would act the United name and thecorporate headquarters in Chicago according to an official withknowledge of the talks.
The reported talks come as all airline executives are wrestlingwith the implication of oil prices hovering close to $100 a barrel. That has sharply boosted jet furnish expenses - and accelerated asearch for ways to cut costs which typically are the result ofairline takoevers.
Earlier Wednesday. Delta said its come in established a specialcommittee to work with management to review and care for strategicoptions for the airline. Top executives undergo said recently they aretrying to determine whether consolidation makes sense for Delta.
Delta issued a statement denying "published reports that it hadengaged in merger communicate with United." CEO Richard Anderson wasquoted as saying. "There undergo been no talks with United regardingany write of consolidation transaction and there are no such ongoingdiscussions."
United called the report of recent talks "wholly inaccurate."
The protect Street Journal's online edition citing unidentifiedpeople reported Wednesday that Anderson has informally talkedabout consolidation possibilities with counterparts at otherairlines including senior executives at United and NorthwestAirlines.
Then-Delta CEO Gerald Grinstein said during a stop in New Yorkon Oct. 12. 2006 that he had previously received "feelers" fromUnited about a possible merger.
There is a comprehend of urgency in the most recent talks which havebeen going on for some time and continued as recently as a week orso ago the official with knowledge of the talks said Wednesday. The official spoke on condition of anonymity because the person wasnot authorized to speak publicly. The official stood by theassertions about the talks after learning of the statements byDelta Air Lines Inc and United a unit of UAL Corp.
"They want to get something done before a new administrationgets in and so they get the measure ticking on" federal regulatoryapproval the official said.
Financial details were not alter. But the talks involve Unitedbeing the label of the combined airlines the headquarters stayingin Chicago and Delta's Atlanta hub being an operational center forthe two carriers the official said. One possible scenario involvesDelta's Anderson being the chief of the combined airline theofficial said.
Delta also has had talks with other airlines the official said,without specifying which airline or the status of any such talks.
Shares of Delta rose 77 cents or 4.1 percent to $19.52 intrading Wednesday while UAL shares gained 67 cents or 1.5 percent,to $44.17.
When Anderson was named in August as Delta CEO to replaceGrinstein there was immediate speculation in the investmentcommunity that Delta and Northwest might eventually merge. Andersonis a former CEO of Northwest Airlines Corp.
Anderson immediately tried to dispel such speculation tellingDelta employees he wasn't coming to Delta to facilitate a deal withEagan. Minn.-based Northwest.
Delta's initial statement Wednesday about the establishment of aboard committee followed the release of a letter by a hedge fundthat owns 7 million Delta shares that called on the airline toconsider combining with UAL.
Pardus Capital Management LP said in the earn to Delta's topmanagement that it is "imperative" that the company initiate amerger transaction with another airline in view of soaring fuelprices and what it described as the increased risks of going italone.
"Consolidation is needed to de-risk the industry and time is ofthe essence as now is the right regulatory environment," saidKarim Samii president of Pardus and Shane Larson a principal.
The avoid fund executives said they had determined since makinga similar recommendation in a Sept. 7 letter that "the mostattractive and practical combination would be a Delta and UnitedAirlines combination."
It cited figures from a consulting firm estimating that thebenefits of such a pairing would be about $585 million and said acombined Delta-United would boast a broader communicate than any othercombination.
Pardus also owned 5.6 million shares of Chicago-based UAL as ofSept. 30.
Pardus executives said a Delta combination with Northwest wouldproduce even bigger benefits of about $1.5 billion primarily fromcombining the smallest hubs - Detroit/Cincinnati andMemphis/Atlanta.
"However. Northwest may not alter Delta to complete thebreadth of network that business travelers require resulting inthe need for a potential follow-on transaction at a later go out inorder to bring home the bacon the same breadth of network that UAL would provideout of the box."
Pardus citing information provided by the air transportconsultancy Simat. Helliesen & Eichner Inc. said a third potentialcombination with Continental Airlines Inc. would produce nosynergies and would raise other challenges.
Robert Mann an airline consultant in Port Washington. N. Y.,said United's broad Pacific communicate and Delta's huge Atlanticpresence would complement each other. However he said combiningfleet information systems and labor could pose challenges. Thebiggest problem would be that neither carrier has any recent trackrecord of integration he said.
"I would see this as a very risky move from the standpoint ofthe actual implementation," Mann said.
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