- The Washington Times - Monday, April 28, 2008

CHICAGO (AP) — United Airlines and US Airways are in very advanced talks and expect to announce within weeks that they are combining, two people familiar with the negotiations told the Associated Press today.

Putting the two carriers together would create an airline that would jockey with a combined Delta-Northwest for the title of world’s largest airline.

United and US Airways stepped up their talks after Continental Airlines Inc. caught United off guard by deciding not to pursue a deal with the UAL Corp.-owned carrier.

The two people familiar with the talks asked not to be named because of the sensitive nature of the discussions. The timing of any agreement remains hard to predict, and either side also could pursue an alliance instead or simply walk away from a deal, as Continental did.

Representatives of both airlines said they do not comment on rumors or speculation about consolidation.

Chicago-based United and Tempe, Ariz.-based US Airways Group Inc. have been in preliminary talks for weeks about possibly teaming up, although United had focused more recently on joining with Continental. As the second- and seventh-largest U.S. airlines by traffic, both are under more competitive pressure to consolidate in the wake of the proposed creation of the Delta-Northwest mega-carrier.

Combined, the two have about 91,000 employees and annual revenues of $31.8 billion.

Other details of their talks were not immediately known, including what the name or headquarters location of the combined carrier would be. As a significantly larger airline, however, United typically would prevail in those decisions.

The airlines agreed to team up eight years ago, but United called off the planned $4.3 billion acquisition 14 months later in July 2001 after the Justice Department said it would sue to block it.

In contrast to a tie-up with Continental, whose route system was seen as highly complementary to United’s, US Airways offers some significant challenges as a partner and does not have the Atlantic routes United would like.

Since US Airways dropped its hostile bid for Delta Air Lines Inc. last year, the carrier has been mostly left out of merger speculation. Some industry observers have considered it a poor match for any other airline because of its weak international flight network.

US Airways’ reputation as a possible partner also was damaged because of its trouble with fully integrating operations almost three years after it combined with America West Airlines.

Frustrations among pilots over a joint contract have spilled over in recent months. Pilots have been fighting over who would get more seniority, and earlier this month a faction of East Coast pilots successfully ousted their union of 59 years and replaced it with another group.

Many of United’s approximately 7,000 pilots are known to be resistant to any deal with US Airways because of the labor issues. The union did not immediately respond to a request for comment today.

Airline industry consultant Robert Mann said he doesn’t see a lot of positives in a United-US Airways combination.

“The place where the network is really missing is on the Atlantic,” he said. “US Airways doesn’t really have a very robust network on the Atlantic. Nor does United.”

United shares fell 93 cents, or 6.1 percent, to $14.28 in afternoon trading. US Airways shares jumped 74 cents, or 10.3 percent, to $7.90.

AP Business Writer Chris Kahn in Phoenix contributed to this report.

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