Tags: US | Airlines | Talks

US Airways Ends Merger Talks With United Airlines

Thursday, 22 Apr 2010 11:13 AM

US Airways Group Inc. said Thursday it has ended talks with United Airlines about a combination, preferring to remain a standalone carrier for now and wait to see if United and Continental Airlines reach a deal of their own.

United did not directly address US Airways' comments in a statement e-mailed to The Associated Press, saying only that it continues to believe the industry would benefit from consolidation.

US Airways' announcement came after word that United and Continental had exchanged financial information as a prelude to a possible combination between those two carriers.

Industry experts have suggested that a United-Continental combination makes more sense in part because of the two carriers already cooperate with each other.

If United and Continental were to complete a deal, it would create the world's largest carrier, leapfrogging over Delta Air Lines.

People briefed on those talks have said bankers for United and Continental are discussing how to value the companies in a stock-for-stock swap. That job might be easier because the airlines considered combining in 2008, until Continental broke off talks.

But the industry landscape has changed dramatically since then.

Fuel prices are on the rise again, and while demand for air travel has improved from the recession lows, major carriers are still struggling to turn profits. Several major carriers, including Continental, reported first-quarter losses this week.

Continental CEO Jeff Smisek declined to comment on the US Airways decision and gave only the barest description of his company's actions on consolidation.

"As you would expect of a responsible management team, we are examining Continental's options and will take whatever action we believe to be in the best interests of our co-workers, stockholders, customers and the communities we serve," he said.

In a memo to employees issued at the same time as Thursday's announcement, US Airways CEO Doug Parker said that the carrier continues to believe in the merits of consolidation, but for the foreseeable future it intends to remain a standalone carrier.

"As I have said many times, it is not necessary for us to be direct participants in a merger because the entire industry benefits when consolidation occurs," Parker said.

US Airways told United of its decision to end talks late Wednesday night, said a person who was briefed on the discussions. The person was not authorized to speak publicly, and spoke on condition of anonymity.

"US Airways was ready to sign a deal with United when they found out United was more interested in signing a deal with Continental," the person said.

US Airways is no stranger to the merger game. It previously combined with America West and, while Delta was restructuring in bankruptcy, it made a hostile bid to acquire Delta. That bid ultimately failed, and Delta later acquired Northwest Airlines.

One holdup to a United-Continental deal could be a provision in the Continental pilots' union contract that bars their company from sharing revenue in a joint venture with another U.S. carrier.

The clause is the subject of current negotiations on a new contract. The leader of the pilots' union at United, meanwhile, has signaled more support for a tie-up with Continental than with US Airways.

Among U.S. carriers ranked by passenger traffic, United is third, Continental fourth and US Airways sixth, just behind Southwest Airlines.

Continental, which is based in Houston, rejected a combination with Chicago-based United in 2008 and instead joined United's Star Alliance in which they sell seats on each other's flights and will work closely together on international service.

If they combine, United and Continental would vault over Delta, based in Atlanta, to become the world's largest airline by traffic. A combined United and US Airways, which is based in Tempe, Ariz., would have been smaller than Delta, which gained the No. 1 spot by buying Northwest in 2008.

US Airways shares fell 31 cents, or 4.6 percent, to $6.45 in midday trading. Shares of UAL, United's parent, lost 22 cents at $21.21.

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