Wednesday, November 14, 2007

Speaking of United Airlines

Delta And United Merging?

That's the talk on the street today.

Early on-

Delta Air surges as much as 10% on merger speculation
Marketwatch - November 14, 2007 2:40 PM ET

Related Quotes

Real time quote.
SAN FRANCISCO (MarketWatch) -- Delta Air Lines, Inc. shares surged Wednesday afternoon on speculation that the Atlanta carrier could be headed toward a merger with another large airline. Earlier, the company said it was evaluating strategic options, including mergers, and said it had received a letter from hedge fund and shareholder Pardus Capital Management urging it to take a lead in industry consolidation. The Wall Street Journal previously reported Pardus was pushing Delta to link up with United Airlines, the flagship carrier of UAL Corp. . Shares in Delta were recently up 9% to $20.54. UAL shares also rallied, up 9% to $47.45.

More news:

SAN FRANCISCO (MarketWatch) -- UAL Corp.'s United Airlines and Delta Air Lines Inc. are in talks to discuss a possible merger, The Associated Press reported Wednesday, citing an anonymous source close to the talks. The wire service said a possible scenario is the combined airline keeping the United name with headquarters staying in Chicago and keeping Delta's Atlanta hub as an operational center. Shares of UAL jumped 13% to $49.12 and Delta shares rose 7% to $20.07 in afternoon trading.

This quite possibly could be the biggest news since each of these carriers entered and exited bankruptcy. Of the many possible merger scenarios, this one makes since. United has recently swelled it's cash coffers and streamlined it's balance sheets making it a perfect merger partner. Delta brings to the table a very strong southeastern US and Atlantic route system which is very complimentary to United's strength in the Pacific and the western US. Additionally, with both pilot groups belonging to ALPA - Airline Pilots Association, Intl. - and having similar wage structures, this could make for a somewhat seamless labor combination.

United's Chief, Glenn Tilton, has long been an advocate of airline consolidation. Do remember that United offered to merge with Delta in 2005 and that offer was declined. Also, recall the hostile takeover attempt of Delta by US Airways. Delta said no way!

While high oil prices and an increasing competitive marketplace seem to suggest the need for consolidation, airline mergers are challenging undertakings and frequently laden with complications. United seems to be posturing itself for consolidation more so than growth. This is evidenced by it's reluctance to commit to new airplanes. Delta, although making some favorable comments today, often times proves to be an unwilling dance partner. Factor in the perceived need to complete such a combination before an administrative change (Democrats generally look less favorably at big business pairings) and the certain opposition from American, Continental, Northwest, and Southwest Airlines to name a few. And you've got yourself a very difficult prospect at best.

Stay tuned for more....

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