Carriers Dispel Reports Fueled By Unnamed Source, Hedge Fund

ANN REALTIME UPDATE 11.14.07 1950 EST: Don't believe everything an unnamed source tells you. That's the message officials at Delta Air Lines and United Airlines had late Wednesday, regarding a report by The Associated Press the two airlines were in talks to join forces.

"There have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions," Delta CEO Richard Anderson told The Los Angeles Times, echoing similar statements from United.

The AP based its story on statements made by an unnamed executive, which described a combined United-Delta airline carrying forth under the United name, with headquarters in Chicago and an operations center in Atlanta. The source said both sides expressed a "sense of urgency" to the talks.

"We do not respond to wholly inaccurate statements made by people who claim to have knowledge when they clearly do not," United spokeswoman Jean Medina pointedly told The Times.

Those statements would seem to contradict, at least partly, a statement made by Delta earlier this afternoon... in which the airline said it formed a special committee to "review and analyze strategic options."

That declaration was in response to a letter sent by investment hedge fund Pardus Capital Management, which owns shares in both Delta and United, urging the two sides to join forces.

So... were we duped? Is this all a news story planted by a scheming team of shareholders?

Or are the reports true...?

Original Report

Just in time for the holidays, comes the latest round of "merger mania" among two of the nation's largest airlines. UAL Corp.'s United Airlines is in serious discussions with Delta Air Lines to merge operations, according to The Associated Press.

If those talks bear fruit -- and that's still a big "if" -- the single carrier would keep the United name, and be headquartered in Chicago, according to the AP report.

An unnamed official with knowledge of the proceedings says talks between the two airlines -- the second- and - third-largest carriers in the US -- have been underway for awhile, and continued as recently as last week.

Both sides also feel they're under the gun, as it were, according to the source.

"They want to get something done before a new administration gets in and so they get the clock ticking on" regulatory approval, the official told AP.

Exact details about the rumored move are unclear, though the official said the single-airline's operational center would be located at Delta's current Atlanta, GA hub, and current Delta CEO Richard Anderson would be CEO of the combined airline.

Current United CEO Glenn Tilton has made no secret of his intent to merge United with another carrier. Talks of a possible United/Delta merger, however, come as a surprise to many... who thought Delta stood a better chance of merging with Northwest Airlines. Anderson is a former NWA chief executive.

At least one shareholder in both Delta and UAL believes a merger would be a good deal for the carrier, as it would help ease the threat of record fuel prices.

"We believe it is imperative that you seek to enter into a merger transaction with another carrier given the rapid rise in fuel prices and the increased risk to the business as a stand- alone entity," wrote Karim Samii and Shane Larson -- the president and a principal investor, respectively, in Delta shareholder Pardus Capital Management LP -- in a letter to Delta's management.

Bloomberg reports Pardus owns seven million shares in Delta, and 5.6 million shares in United. The proposal is intended to urge the carriers to either combine forces, or dump assets, in the face of record oil prices. The cost of Jet A has surged 51 percent in 2007, according to the report.

An evaluation of merger options was conducted for Pardus by former Continental Airlines CEO Gordon Bethune and other industry analysts, who determined a Delta/United combination presented a more favorable alternative and route structure than a Delta/NWA or Delta/Continental merger.

For the moment, no one at Delta or United is commenting on the reports.

While such a combination may make sense on paper, it's unclear what impact on morale such a merger would have among employees at Delta -- who banded together to successfully repel a hostile takeover by US Airways just last year.

Stay tuned. This may get interesting.

FMI: www.delta.com, www.united.com