updated 11/16/2006 12:06:21 PM ET 2006-11-16T17:06:21

United Airlines parent UAL Corp. may not have made the first move in the long-anticipated consolidation in the U.S. airline industry, but it is likely to be a major player in the process.

“The industrial logic of mergers in the airline industry is so compelling,” Jake Brace, UAL’s chief financial officer, said at a Citigroup investor conference Wednesday.

“We believe mergers in the airline industry have significant synergies, and we believe the industry needs to consolidate,” Brace said.

The comments came after US Airways Group Inc. made an $8 billion offer for larger, bankrupt rival Delta Air Lines Inc.. The offer is expected to spur counter offers or new combinations, kicking off a consolidation race.

Analysts see United Airlines as the better partner and likeliest counter bidder for Delta, but the airline was coy about its plans.

“We’re going to do what makes sense for our company, and we’ll be interested to see what happens with US Air and Delta,” UAL CFO Brace said.

United, which analysts say has routes that better complement Delta’s than US Airways’, is expected to act shortly.

“United is going to have to play its hand pretty quick,” said Joe Schwieterman, a transportation expert at DePaul University. “We could even see a bidding war for Delta in the next few weeks.”

The US Airways offer prompted a rally in airline stocks, with the Dow Jones U.S. airlines index rising to its highest level in three years, as investors expected US Airways’ offer to spark more merger activity in the sector.

“We would not be surprised if other offers emerge for Delta and that an industry trend in M&A starts,” said Ray Neidl, an analyst with Calyon Securities.

Shares in Northwest Airlines Corp., which like Delta is bankrupt, nearly doubled to $1.74. Continental Airlines Inc. and American Airlines parent AMR Corp. hit five-year highs on expectations that they may also participate in the potential merger frenzy.

Copyright 2012 Thomson Reuters. Click for restrictions.


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