Sources: United, Continental in advanced talks

/ Source: The Associated Press

United Airlines and Continental are in advanced negotiations and could complete a combination quickly if Delta and Northwest strike a deal, according to a person familiar with the negotiations.

However, there are still significant issues yet to resolve, according to the person, who was not authorized by the companies to talk about the deal.

United spokeswoman Jean Medina and Continental Airlines Inc. spokesman Dave Messing declined to comment.

Delta Air Lines Inc. and Northwest Airlines Corp. have been intently discussing a deal for several weeks, according to people familiar with the situation. But issues such as combining work forces remain obstacles.

The prospects for a deal seemed to improve Thursday, when Air France-KLM, the world's largest airline by revenue, said it was considering investing in a Delta-Northwest combination.

Such a deal is expected to trigger more consolidation in the highly competitive airline industry, as rivals try to match or eclipse Delta-Northwest, which would become the world's largest airline.

United, owned by UAL Corp., and Continental must wait for the Delta-Northwest talks to run their course because Northwest can block any deal involving Continental. That veto power is the vestige of Northwest's one-time stake in Continental.

The Chicago Tribune reported that United hasn't ruled out bidding for Delta if Delta can't close the deal with Northwest. That would give Chicago-based United the ability to play Northwest and Houston-based Continental off each other in a search for the best possible deal.

The Tribune reported that Continental Chief Executive Lawrence Kellner would run the combined company and that its headquarters location would be settled later.

Analysts say United's strength across the Pacific would complement Northwest's routes to Europe and Latin American and its hub in the New York area, where United is weak.

United, the second-largest U.S. airline behind American, and No. 4 Continental have previously talked about combining but failed to strike an agreement.

Airlines want to offer large global route networks to attractive lucrative corporate travel business. Kellner said last month that Continental was comfortable staying independent but wouldn't hesitate to act if others bulked up through combinations.

Many analysts see consolidation as inevitable, as U.S. carriers struggle with high fuel costs and too little ability to raise fares. But airline combinations are often messy affairs plagued by bad labor relations.

Mike Boyd, a consultant who has advised carriers and airline labor unions, said United was more interested in being part of a bigger company rather than running its own airline. He said there was no imperative for others to match a Delta-Northwest deal.

"This is the airline industry, not the junior prom," he said. "Everybody doesn't need a date."