United, US Airways in Merger Talks

CHICAGO — Moving quickly after being left at the altar by Continental Airlines, United Airlines stepped up talks with US Airways and was moving toward an agreement yesterday on joining forces to create what could be the world's largest carrier.

UAL Corp.-owned United and US Airways Group Inc. were in advanced talks and expected to be able to announce a deal within weeks, two people familiar with the negotiations told the Associated Press.

Representatives of both airlines declined to comment on what they called rumors about a deal, which drove up US Airway's stock more than 20% and sent UAL's down slightly.

US Airways shares jumped $1.46 to $8.62 in yesterday trading, while United shares shed 40 cents, or 2.6%, to $14.81.

A combined United-US Airways would jockey with the newly proposed Delta-Northwest for bragging rights as no. 1, dropping AMR Corp.'s American Airlines from first to third if both deals are approved.

Based on 2007 passenger traffic, United-US Airways would have a slight edge with 201.6 billion revenue passenger miles to 200.4 billion for Delta-Northwest. But the competition is too close to call in light of recent capacity cuts.

While a deal is not assured, the pairing became likelier after Continental stunned United on Sunday by ruling out any combination as an option following in-depth talks that had been expected to result in one by week's end.

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 or simply walk away, as Continental did.

The chief executive of United, Glenn Tilton, long an outspoken advocate of the need to consolidate, said in a recording for employees that "the dynamics in the U.S. airline industry continue to change" with Continental's announcement. "We continue to evaluate our options and will do what is right for United," he said, not mentioning US Airways.

Chicago-based United and Tempe, Ariz.-based US Airways Group Inc. have been in preliminary talks for weeks. As the second- and seventh-largest American airlines by traffic, both are under more competitive pressure to consolidate in the wake of the April 14 announcement of a proposed mega-carrier teaming Delta Air Lines Inc. with Northwest Airlines Corp.

Combined, the two have about 91,000 employees, 800-plus airplanes, 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 enlarged carrier would be. As a significantly larger airline, United typically would prevail in those decisions.

The airlines first agreed to team up eight years ago, but United called off the planned $4.3 billion acquisition 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.