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United, Continental said to resume merger talks

Continental renewed discussions after learning United was also interested in US Airways. A United-Continental combination would be the world's biggest airline.

April 16, 2010|By Julie Johnsson

United Airlines has resumed merger discussions with Continental Airlines that were suspended two years ago after Continental's board opted to remain independent, said people with direct knowledge of the talks.

Houston-based Continental was drawn back to the merger table after learning last week that Chicago's United also was courting Phoenix-based US Airways, said a person who spoke on condition of anonymity because of the sensitive nature of the talks.

Analysts consider Continental a better fit for United, because their combination would form the world's largest airline and there is relatively little overlap in their networks to draw scrutiny from antitrust regulators.

But US Airways and United could make a compelling case to create the world's second-largest carrier, with a big domestic network that would feed passengers to Lufthansa and other European partners.

Continental can't risk being left on the sidelines while its Star Alliance partners merge, leaving it a distant fourth in the U.S. market with few growth options, analyst Hunter Keay of investment bank Stifel Nicolaus said in a research report.

United and Continental forged a close partnership after their 2008 merger talks failed, sharing a host of operations, including information systems and airport gates. Analysts described it as a "virtual merger."

Continental also shifted its global marketing alliance to Star, which was co-founded by United, forming vast joint ventures with its new partners to coordinate flying across the Atlantic and Pacific oceans.

But United and Continental may feel an urgency to complete a deal while market valuations for airlines are rising, and before Delta Air Lines Inc. starts to reap the full benefits of the global network it formed by merging with Northwest Airlines in 2008, said airline analyst Vaughn Cordle, a retired United pilot.

Those pressures also increase the odds that Continental's new chief executive, Jeff Smisek, and United CEO Glenn Tilton will be able to resolve the "social" issues that helped unravel their previous attempt: disagreements over the brand, the location of headquarters and the makeup of the management team, say people close to the carriers.

The New York Times first reported the new talks.

jjohnsson@tribune.com

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