United and Continental flirt with merger

NEW YORK (CNNMoney.com) -- UAL's United Airlines is in preliminary talks with Continental Airlines about a possible merger, according to media reports.

Any deal between the two carriers would likely be one of the largest in the industry and create one of the world's top 10 airlines.

UAL and Continental are in preliminary merger talks, according to published reports.

A month ago, US Airways (Charts) made an $8.7 billion takeover bid for rival Delta (Charts), raising expectations of consolidation in an industry struggling with high fuel prices and competition from discount carriers.

Talks between Continental and United, which each have market value of about $4 billion, picked up pace after US Airways made the offer last month, The New York Times reported on its Web site on Tuesday, citing unnamed sources.

The two airlines have been in talks for several months, The Wall Street Journal said in a report on its Web site, also citing unnamed sources.

A spokeswoman for United (Charts), the No. 2 U.S. carrier, said the airline does not comment on rumor or speculation. Fourth-ranked Continental (Charts) could not be immediately reached for comment.

United also recently contacted Delta and its creditor committee about a possible merger, the Journal said.

A Delta spokeswoman said she had no comment on the report.

The chief executive of United Airlines parent UAL Corp. on Tuesday reiterated his view that the airline industry needs consolidation, but said he was not ready to disclose United's likely role in any consolidation.

"We think it is good and overdue for the industry despite the fact that it is difficult," Glenn Tilton said on a webcast of a UAL investors meeting earlier on Tuesday.

"We are not in position to comment on anything specifically," Tilton said, adding the airline is attentive to merger opportunities.

Tilton and Continental Chief Executive Larry Kellner have met to discuss the possible merger, the Times said.

Continental has said recently that it too would consider a merger if it is necessary to remain competitive.

But any merger involving Continental has an added complication. Bankrupt Northwest Airlines (Charts) holds a so-called golden share in the airline, giving it the right to block mergers involving Continental.

Last week, Northwest asked a U.S. bankruptcy court for permission to hire financial advisory firm Evercore Group to help it evaluate strategic alternatives, including a merger.

AirTran Holdings (Charts) is also preparing to make an offer for Midwest Air Group (Charts), the Journal reported on its Web site on Tuesday.

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