Delta, United in merger talks?

A report by the Associated Press insists that Delta and United are discussing a merger, even after the two airlines denied it. After an initial AP story on the discussions, Delta issued a statement saying “there have been no talks with United regarding any type of consolidation transaction,” and United called the AP report “inaccurate.” But in a follow-up story, AP quoted an unnamed “official with knowledge of the talks,” who claimed that merger discussions “have been going on for some time and continued as recently as a week or so ago.” The official said the two airlines want to get a deal in motion before a change of administrations in Washington, since a merger would require regulatory approval. According to AP, the discussions “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.”

In recent months, top executives at both Delta and United have openly discussed the need for consolidation in the industry, and word got out on Wednesday (November 14) that a large Delta shareholder – New York-based hedge fund Pardus Capital Management – had sent a letter to Delta urging it to negotiate a merger with United parent UAL Corp. According to the New York Times, Pardus retained former Continental CEO Gordon Bethune to examine merger possibilities for Delta, and United came out as the best option.

Pardus reportedly told Delta its analysis showed a Delta-United combination could produce annual cost savings of $585 million. In a public statement from Delta CEO Richard Anderson after that story ran, Delta said it “believes that the right consolidation transaction could generate significant value for our shareholders and employees,” and that Delta’s board had already set up a special committee to evaluate strategic options even before it got the letter from Pardus.