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(AP) United Airlines and Delta Air Lines have been
discussing a combination between the nation's second- and
third-largest carriers that would keep the United name and the
corporate headquarters in Chicago, according to an official with
knowledge of the talks.
    

  The reported talks come as all airline executives are wrestling
with the implication of oil prices hovering close to $100 a barrel.
That has sharply boosted jet fuel expenses - and accelerated a
search for ways to cut costs, which typically are the result of
airline takoevers.

      Earlier Wednesday, Delta said its board established a special
committee to work with management to review and analyze strategic
options for the airline. Top executives have said recently they are
trying to determine whether consolidation makes sense for Delta.

      Delta issued a statement denying "published reports that it had
engaged in merger talk with United." CEO Richard Anderson was
quoted as saying, "There have been no talks with United regarding
any type of consolidation transaction and there are no such ongoing
discussions."

      United called the report of recent talks "wholly inaccurate."

      The Wall Street Journal's online edition, citing unidentified
people, reported Wednesday that Anderson has informally talked
about consolidation possibilities with counterparts at other
airlines, including senior executives at United and Northwest
Airlines.

      Then-Delta CEO Gerald Grinstein said during a stop in New York
on Oct. 12, 2006, that he had previously received "feelers" from
United about a possible merger.

      There is a sense of urgency in the most recent talks, which have
been going on for some time and continued as recently as a week or
so ago, the official with knowledge of the talks said Wednesday.
The official spoke on condition of anonymity because the person was
not authorized to speak publicly. The official stood by the
assertions about the talks after learning of the statements by
Delta Air Lines Inc. and United, a unit of UAL Corp.

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

      Financial details were not clear. But the talks involve United
being the name of the combined airlines, the headquarters staying
in Chicago and Delta's Atlanta hub being an operational center for
the two carriers, the official said. One possible scenario involves
Delta's Anderson being the chief of the combined airline, the
official said.

      Delta also has had talks with other airlines, the official said,
without specifying which airline or the status of any such talks.

      Shares of Delta rose 77 cents, or 4.1 percent, to $19.52 in
trading Wednesday while UAL shares gained 67 cents, or 1.5 percent,
to $44.17.

      When Anderson was named in August as Delta CEO to replace
Grinstein, there was immediate speculation in the investment
community that Delta and Northwest might eventually merge. Anderson
is a former CEO of Northwest Airlines Corp.

      Anderson immediately tried to dispel such speculation, telling
Delta employees he wasn't coming to Delta to facilitate a deal with
Eagan, Minn.-based Northwest.

      Delta's initial statement Wednesday about the establishment of a
board committee followed the release of a letter by a hedge fund
that owns 7 million Delta shares that called on the airline to
consider combining with UAL.

      Pardus Capital Management LP said in the letter to Delta's top
management that it is "imperative" that the company undertake a
merger transaction with another airline in view of soaring fuel
prices and what it described as the increased risks of going it
alone.

      "Consolidation is needed to de-risk the industry and time is of
the essence as now is the right regulatory environment," said
Karim Samii, president of Pardus, and Shane Larson, a principal.

      The hedge fund executives said they had determined since making
a similar recommendation in a Sept. 7 letter that "the most
attractive and practical combination would be a Delta and United
Airlines combination."

      It cited figures from a consulting firm estimating that the
benefits of such a pairing would be about $585 million and said a
combined Delta-United would boast a broader network than any other
combination.

      Pardus also owned 5.6 million shares of Chicago-based UAL as of
Sept. 30.

      Pardus executives said a Delta combination with Northwest would
produce even bigger benefits of about $1.5 billion, primarily from
combining the smallest hubs - Detroit/Cincinnati and
Memphis/Atlanta.

      "However, Northwest may not enable Delta to complete the
breadth of network that business travelers require, resulting in
the need for a potential follow-on transaction at a later date in
order to achieve the same breadth of network that UAL would provide
out of the box."

      Pardus, citing information provided by the air transport
consultancy Simat, Helliesen & Eichner Inc., said a third potential
combination, with Continental Airlines Inc., would produce no
synergies and would raise other challenges.

      Robert Mann, an airline consultant in Port Washington, N.Y.,
said United's broad Pacific network and Delta's huge Atlantic
presence would complement each other. However, he said, combining
fleet information systems and labor could pose challenges. The
biggest problem would be that neither carrier has any recent track
record of integration, he said.


      "I would see this as a very risky move from the standpoint of
the actual implementation," Mann said.

Gallery

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Business and Economic News

The Wall Street Journal's online edition, citing unidentified
people, said Andersen has informally talked about consolidation
possibilities with counterparts at other airlines, including senior
executives at United and Northwest Airlines.

Official says United, Delta have discussed combining; airlines deny it

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