A Deal Would Vault The Combined Airline To #2

Merger talks between US Airways and United Airlines appear to be serious, according to one source close to the negotiations, but details of any possible agreement are being closely held.

The same source said that the deal is just as likely to fall through as it is to move forward.

If it does go ahead, United would acquire US Airways in an all-stock transaction, and the it would also be the entity to survive. The two airlines have been in negotiations off and on since 2008, according to a report in The Wall Street Journal. Both airlines have cut routes and regained some of their liquidity since the talks broke down about two years ago. Analysts expect both airlines to return to profitability later this year.

A deal, if any, would likely be announced in two to three weeks. However, labor issues and the fact that both airlines have a strong presence in the Washington, DC market could be potential sticking points. US Airways pilots, for example, have a clause in their contract that calls for their wages to return to pre-bankruptcy (read, 'higher') levels should there be a merger that results in a change in leadership at the airline. Neither flight attendants nor pilots have had a successful contract negotiation since the current makeup of US Airways was born from a merger with America West in 2005.

United Airlines' Pilots Union chief Capt. Wendy Morse said in a statement that "United pilots certainly wouldn't benefit from being drawn into that situation." Ms. Morse, who also serves on UAL's board of directors, went on to say a merger with US Airways is "unlikely to achieve significant synergies."

Some analysts say that the merger talks are something of a stalking horse designed to re-open negotiations between United and Continental Airlines, which broke down in 2008. Continental would become the #4 airline, should the merger deal between United and US Airways be finalized. Officials from all three airlines were unavailable for comment.

FMI: www.united.com, www.usairways.com, www.continental.com