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Airline mergers fill the air
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June 7, 2000: 11:52 a.m. ET
American, Delta said to hold talks while BA & KLM confirm discussions
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NEW YORK (CNNfn) - A new round of airline merger discussions was in the air Wednesday as the second- and third-largest carriers in the United States reportedly held preliminary talks on a combination while two major European airlines confirmed talks that could form that continent's largest carrier.
Officials of American Airlines and Delta Air Lines refused to comment Wednesday on a report in the Wall Street Journal that executives of the two had held talks Monday, including very preliminary discussions of a possible combination. Meanwhile, British Airways confirmed it had held talks with KLM Royal Dutch Airlines about a possible combination.
U.S. investors seemed to discount the report of a tie between American Airlines' parent AMR Corp. (AMR: Research, Estimates) and number three carrier Delta (DAL: Research, Estimates). Shares of both firms had only narrow changes, and analysts described a possible deal as a non-starter. That contrasts to a large rise in the shares of Northwest Airlines stock last Friday following reports of talks between the nation's number four carrier and number two American.
 "I think they're just looking at every option available out there," said Ray Neidl, analyst with ING Barings. "But if we're running a real gauntlet talking about any airline merger in this atmosphere, that one (between American and Delta) runs a bigger gauntlet."
The two carriers together would dwarf any other carrier in the world, with nearly 40 percent of the U.S. market. Their combined 1999 revenue of $32.4 billion would be about 80 percent greater than current leader United Airlines' total for the period.
"I think it'd be a nonstarter," said Susan Donofrio, analyst with Deutsche Banc Alex. Brown, about a possible American-Delta combination. "The size of those two airlines, as well as overlap, makes it prohibitive to (Department of) Justice. And you wouldn't have a clear leader in terms of the merger. Other deals being discussed, you know who's the buyer. With American and Delta, there would be more fighting."
United sparked the round of merger discussions when its parent UAL Corp. (UAL: Research, Estimates) announced late last month that it has agreed to buy US Airways Group Inc. (U: Research, Estimates), the nation's sixth- largest carrier. Neidl said that if another deal is announced within the 60 days after that May 24 announcement, U.S. regulators are likely to consider it at the same time they look at the UAL-US Airways deal, which would be preferred.
 "I think that's what they'd want to do, and that's why they're all rushing," said Neidl.
Officials of the Justice Department's antitrust division did not have immediate comment about the review of multiple airline deals.
The Journal's report said the New York meeting between American and Delta included executives one notch below the chief executive level, plus investment bankers and lawyers.
Neither airline wants to spend a lot of cash to buy the other, the report said, noting a stock-swap would be one way to structure the deal. American's stock has been more depressed than Delta's, despite being the larger carrier. Its market capitalization is $4.2 billion, while Delta's is $6.4 billion.
British Airways-KLM deal seen as more likely
There was more support by analysts Wednesday for a possible British Airways-KLM combination, although that likely would draw antitrust scrutiny on both sides of the Atlantic. It would be the first major cross-border airline deal considered by European regulators.
"They'd be breaking new ground," Neidl said.
Shares of KLM rose sharply in trading Wednesday, following gains Tuesday after earlier reports of a possible combination. It closed up 8.5 percent at 30.50 euros.
Shares of British Airways lost 5.25 pence to 397.75 pence in London trading.
In U.S. morning trading, shares of AMR slipped 1/16 to 28-1/4 while Delta shares gained 1-1/16, or 2 percent, to 51-15/16. Most other U.S. airline stocks also traded with narrow losses or gains. 
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