U.S. Air, United "deep" in merger talks
On Wednesday April 7, 2010, 7:01 pm
By Jui Chakravorty and Deepa Seetharaman

NEW YORK (Reuters) - U.S. Airways Group Inc (NYSE:LCC - News) and UAL Corp's (NasdaqGS:UAUA - News) United Airlines are in merger talks, a source familiar with the situation said on Wednesday.

The discussions, which have been going on for about two weeks, are not the first between the two airlines, the source said.

The shares of both airlines shot up after market close. The New York Times first reported the news, citing people familiar with the situation.

Talk of continued U.S. industry consolidation had picked up since Delta Air Lines Inc (NYSE:DAL - News) acquired Northwest in 2008, becoming the world's biggest airline.

At the Reuters Travel and Leisure Summit in February, the chief financial officers of US Airways and United said their companies were open to a merger.

"UAL has been supportive of consolidation for a long time," UAL Chief Financial Officer Kathryn Mikells said at the Reuters summit. US Airways Chief Financial Officer Derek Kerr said in a separate interview that his airline was open to merging with another U.S. carrier.

"Consolidation is one of the major ways this industry can become profitable," Kerr said.

Tempe, Arizona-based US Airways could not immediately reached for comment after Wednesday's report.

"As we've consistently said, we don't comment on rumors or speculation. We've been consistent on our position on consolidation generally for several years, and that position is well known," said Jean Medina, spokeswoman for Chicago-based UAL.

ONE OF THE WORLD'S LARGEST CARRIERS

Such a deal would create one of the world's largest airlines. The Times reported on Wednesday the deal is not expected to be announced for at least several weeks and talks could still fall apart.

US Airways shares were up about 26 percent at $8.61 after the closing bell. United's stock was up 8.2 percent at $20.51. Shares of other airlines also rose.

The two carriers had come close to merging with each other in 2008, sources said at the time. United and Contential Airlines Inc (NYSE:CAL - News) also contemplated a deal before Continental walked away from the talks.

Analysts in the past raised possible antitrust hurdles with a US Airways/United pairing due to the strength of their East Coast routes, especially in Washington where US Airways is moving to bolster its operations.

(Reporting by Jui Chakravorty and Deepa Seetharaman; additional reporting by Kyle Peterson; editing by Andre Grenon)