DALLAS (AP) - United Airlines and Continental Airlines are in
the early stages of exchanging financial information that could
lead to a deal to combine and create the world's biggest airline,
people briefed on the talks said Tuesday.
United had been talking with US Airways about a combination, but
speculation has increased that United is more interested in the
The exchange of information between United and Continental was
confirmed Tuesday by two people who were briefed on the talks. They
spoke on condition of anonymity because they were not authorized to
publicly discuss the negotiations.
One person said bankers for United and Continental are
discussing how to value the companies in a stock-for-stock swap.
That person said talks between United and US Airways have
stopped for now with no firm date for starting again. However, the
person stressed that United hasn't ruled out a combination with US
UAL Corp.'s United, Continental Airlines Inc. and US Airways
declined to comment.
Another person briefed on the United-Continental talks said the
two began exchanging information over the weekend. That job might
be easier because the airlines considered combining in 2008, until
Continental broke off talks.
A merger then was seen as risky because of soaring prices for
jet fuel and weak balance sheets in the airline industry. Oil
prices are lower today, U.S. airlines have built up cash reserves,
and airlines have cut capacity, which should give them more power
to raise fares this summer.
Former Continental CEO Gordon Bethune said if United and
Continental are talking, each would want to understand the other's
assets, liabilities, leases, union contracts and other details.
Due diligence, as the process of assessing a potential partner
is called, is done to value a company that executives already
believe is a good strategic fit, he said.
Bethune, who said he doesn't know whether his former company is
holding merger talks, said Continental is attracted by United's
strength in the Pacific, on the West Coast and its hub in Chicago,
while United values Continental's network in Latin America and its
hub in the New York area.
One holdup to a United-Continental deal could be a provision in
the Continental pilots' union contract that bars their company from
sharing revenue in a joint venture with another U.S. carrier.
Amy Flanagan, a spokeswoman for the Continental pilots, said the
clause is the subject of current negotiations on a new contract.
She said her union had not taken a position on a combination with
United. The leader of the pilots' union at United has signaled more
support for a tie-up with Continental than with US Airways.
Among U.S. carriers ranked by passenger traffic, United is
third, Continental fourth and US Airways sixth, just behind
Continental, which is based in Houston, rejected a combination
with Chicago-based United in 2008 and instead joined United's Star
Alliance in which they sell seats on each other's flights and will
work closely together on international service.
But if Continental stands by now while United and US Airways
combine, it would leave Continental by far the smallest of the
so-called legacy carriers, also trailing AMR Corp.'s American
If they combine, United and Continental would vault over Delta
Air Lines Inc. to become the world's largest airline by traffic. A
combined United and US Airways, which is based in Tempe, Ariz.,
would be smaller than Delta, which gained the No. 1 spot by buying
Northwest in 2008.
In Tuesday trading, shares of UAL rose 12 cents to $21.78;
Continental shares fell 4 cents to $21.94, and US Airways Group
Inc. gained 25 cents, or 3.6 percent, to $7.14.