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Mon, May 05, 2008

US Airways/United Merger Announcement May Come Within Days

Report Says Carriers Identified Over $1.5 Billion In Savings

United Airlines parent company UAL Corp. could be days away from announcing a merger with US Airways, according to the ever-popular unnamed sources.

The Wall Street Journal reports talks continue between the two airlines, people close to the matter say, even as the number two airline attempts to lure Continental Airlines away from its plan to remain independent, and join with United instead.

As ANN reported, Continental spurned United's advances April 27, opting to chart its own course instead of taking on the challenge of dealing with United's woes, including a staggering $537 million loss in the first quarter of 2008.

Sources say low-level talks between those two airlines are still underway... but many believe Continental will instead opt to form alliances with American Airlines and British Airways -- a partnership carrying many of the benefits of a full-on merger, but with none of the inevitable hassles.

As for a merger between United and US Airways, the question comes down to the benefits of saving money, versus potential regulatory hassles and all-but-guaranteed labor strife. The two sides reportedly identified over $1.5 billion in potential cost savings should the airlines join forces, according to the WSJ.

That number could be large enough to overshadow concerns about merging the two airlines' volatile labor forces, and ungainly route networks... particularly as both United CEO Glenn Tilton and US Airways chief Doug Parker are fierce proponents of industry consolidation, spurred on by the proposed combination of Delta Air Lines and Northwest Airlines to form what would be the world's largest airline.

The thinking is that larger carriers will be better able to survive an increasingly-competitive global market, record high oil prices, and a slumping US economy. But that plan is a tough sell for many, including pilots at United... who last week warned management against taking on the "toxic stew" of US Airways' pilot integration issues, stemming from that airline's 2005 merger with America West.

There's also the question of whether federal regulators would approve a United/US Airways merger. UAL tried once before to buy US Airways, in 2000; that effort was soundly rejected by the Department of Justice over anti-trust concerns, even after both sides set up a series of Rube Goldbergian assets selloffs to appease them. United's pilots and mechanics vehemently opposed that joining, as well... leading to crippling labor actions and operational snafus.

A United/US Airways merger could be announced within 10 days, according to sources. Brace yourselves... it could get bumpy.

FMI: www.united.com, www.usairways.com

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