Delta, United Airlines Merger Could be Wishful Thinking, Sources Say

Although many in the airline trade believe the stars have aligned for mainline consolidation to occur, industry sources hint that a tie-up of Delta Air Lines and United Airlines may not be realized despite discussions between the carriers.

Delta and United have been in the forefront of consolidation talks since 14 November when Pardus Capital Management –a top hedge fund shareholder of both carriers- pressed Delta to explore a merger with United. Both carriers publicly refuted the idea of any serious talks between them, but market chatter pegged on consolidation pervaded.

A source familiar with the potential consolidation wave did not rule out the possibility of a tie-up between Delta and another carrier, or United and another carrier. “Who’s to say it’s Delta and United?” he said.

Moreover, an industry banker cautioned that this might not be the best strategic combination, and among the most difficult to realize because Delta and United are, respectively, the second and third largest carriers in the US.

According to the source familiar, it is believed that Northwest is working with Morgan Stanley, United with Goldman Sachs, Delta with Merrill Lynch and Greenhill, and American Airlines with Rothschild.

The major carriers are linked with bankers to react to any consolidation, said the source familiar and an industry source. “They’re trying to figure out the different scenarios about who they prefer and who others prefer,” the industry source said, adding that this has happened before in the airline world. “I don’t see anything this time around that’s different from last time around,” he said.

As to whether one airline merger would cause a domino effect for American Airlines, the source said he did not believe American would be willing to surrender control of its company to any acquirer.

However, the source said he believed Northwest would be willing to sell and relinquish control, but only at a high enough price. Continental, despite being 20 percent controlled by Northwest, could likely be open to a transaction, the source said.