Merger talks between Continental and United

Mergers talks between all the American airlines are picking up pace. The latest in the series are the talks held between United Airlines and Continental Airlines Inc to discuss the basic details of the merger.

According to various sources, Continental Airlines is holding talks with UAL Corp.'s United Airlines and with AMR Corp.'s American Airlines for a possible merger. Although the talks are still in the first stage, the meetings are thought to be a crucial step forward by the company.

This news has intensified the competition in the airlines industry as Delta Air Lines Inc. and Northwest Airlines Corp. have also been holding talks about a merger.

The decision of merger of Continental with the either of the two companies will depend on the outcome of the deal between Delta and Northwest because Northwest can block any deal involving Continental as they had one-time stake- "golden share" in Continental and can veto any deal. Continental can redeem the share for $100 once Northwest signs its own merger accord.

If this deal is successful then Delta-Northwest will be largest passenger airline in the world and thus other large airlines will also have to think of possibilities of merger in order to compete with merged carriers as well as with low-cost airlines.

Many airline experts, including leaders of top U.S. carriers, say mergers are needed to help stabilize the volatile industry, which has finally been able to emerge from a five-year slump in 2006 after recovering $35 billion of losses.

``We do think consolidation has the potential to create efficiencies and expand product offerings and benefit the industry and consumers,'' said American Chief Financial Officer Tom Horton.

The reason of huge loss of revenue is the rising fuel prices and too little ability to raise fares. United Airlines had recently announced that it would be charging $25 for the second bag checked in by any passenger in order to generate revenues without increasing the ticket prices.

The main hindrance in such deals is the distribution of work force. Pilots at both airlines are reviewing a proposal of what the merged company would look like. But the sources feel that if the Pilot Association takes too much time to decide its strategy, then the deal can also be finalized without consulting them.

The Justice Department has the authority to block mergers that could harm competition. Industry experts feel that the airlines will rush to get deals done soon as the Republican administration is considered to be easier on mergers and thus can get the regulatory permissions easily.

Continental shares rose 99 cents, or 3.5 percent, to $29.69 in New York Stock Exchange composite trading, while AMR increased 44 cents, or 3 percent, to $15.25. UAL gained 32 cents to $37.35 on the Nasdaq Stock Market.