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Delta in merger talks with United, Northwest

Delta Air Lines Inc. has started merger talks with Northwest Airlines Corp. and United Airlines parent UAL Corp., and hopes to reach an agreement with one of them over the next two weeks, The Wall Street Journal reported on Tuesday.
/ Source: Reuters

Delta Air Lines Inc. has started merger talks with Northwest Airlines Corp. and United Airlines parent UAL Corp., and hopes to reach an agreement with one of them over the next two weeks, The Wall Street Journal reported on Tuesday.

The report, citing unnamed people familiar with the situation, said Delta's board gave Chief Executive Richard Anderson permission last Friday to hold talks with both carriers simultaneously.

Delta aims to present a preferred partner when Delta's board next meet in early February, with a deal announcement coming as early as mid-February, the paper reported.

Delta spokeswoman Betsy Talton, reiterating previous statements, said: "A special committee of the board is working with management to explore strategic options, including potential consolidation transactions. However we are not providing updates, while this process is ongoing."

UAL declined to comment. Northwest was not immediately available for comment.

The pending talks were originally reported by the Wall Street Journal last week. The companies have not commented.

The U.S. airline industry is battling to sustain its fledgling recovery, which is threatened by soaring fuel prices and a softening U.S. economy. Most major U.S. airlines are expected to post losses for the fourth quarter of 2007 after profits earlier in the year.

Mergers are seen as a way to stabilize the volatile and fragmented industry by allowing carriers to cut costs, reduce capacity and raise fares.

A Delta deal with either UAL or Northwest would likely be an all-stock transaction because of the need for the airlines to conserve cash in the face of market uncertainty.

Either deal would make Delta, which has said it wants to be a buyer if the industry consolidates, the largest airline in the world, overtaking AMR Corp.'s American Airlines.

Delta, the No. 3 U.S. carrier, has a market value of more than $4.1 billion, higher than UAL's $3.8 billion and Northwest's $3.7 billion. United is the second-largest U.S. carrier, while Northwest is No. 5.

Delta, which emerged from bankruptcy last spring after fending of a hostile bid from US Airways Group Inc., has been at the forefront of airline merger talks for months.

In November, it said it had set up a special board committee and hired financial and legal advisers to help it review its strategic options, including mergers.

Industry lawyers and consultants say Delta will likely come under an unprecedented antitrust review if it decides to propose a merger with either airline.

For a deal to succeed, the carriers would also have to win over the industry's powerful unions, which are seeking to claw back some of the concessions made during the industry's five-year slump, which ended in 2006.