United Mulls Its Own Merger Options

CHICAGO – United Airlines is pondering its strategic options as stalled talks between Delta Air Lines Inc. and Northwest Airlines threaten other linkups, including a potential tie-up between the Chicago-based carrier and Continental Airlines, sources said.

Talks between United and Continental have halted while the airlines wait to see whether pilots at Delta and its favored partner, Northwest, can resolve a deep split over seniority, sources said.

“At the end of the day, the decision at the Delta-Northwest merger is going to determine whether there are other mergers in the industry or not,” said Julius Maldutis, president of Aviation Dynamics Inc., a New York-based consulting firm.

The complication for United is that it can’t secure a Continental deal until after Delta and Northwest tie up, because Northwest holds a “golden share” in Continental that gives it the power to nix any merger between Continental and another carrier. Northwest forfeits that right if it achieves a merger of its own.

While United waits, it is looking more intently at Delta, whose holdings would also fit well with United’s Midwest and West Coast strongholds and its Pacific Rim network, sources say. Like Houston- based Continental, Delta has a strong network across the Southeastern U.S., a major hub in New York and a wide array of flights across the Atlantic.

But every feasible option is being scrutinized by airline executives as they mull consolidation that is unprecedented both for its scope and the scrutiny of the process.

Continental also held exploratory talks with American Airlines, a source said. In January, Delta’s board considered proposals from both United and Northwest before settling on Northwest, the former employer of Delta’s chief executive, Richard Anderson.

Driving the urge to merge is the precipitous plunge in airline stocks over the past year, record-high oil prices and fear that the industry may be headed for another downturn. Executives also want to wrap up deals by spring so they’ll be reviewed by the Bush administration.

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