Delta reported in talks with Northwest, United

Delta, nation's No. 3 airline, reportedly in discussions with rivals on possible combination as it tries to fend off hostile bid from US Airways.

NEW YORK ( -- Delta Air Lines, struggling to hold off a hostile bid from US Airways Group, has held talks with Northwest Airlines and United Airlines about a possible combination with either of those carriers, according to a published report.

The Wall Street Journal reported Wednesday afternoon that discussions at various levels of management of Delta (Charts) and Northwest (Charts) have been occurring regularly for weeks, including some in recent days. Both airlines filed for bankruptcy the same day in September 2005 and are trying to win court approval of plans to emerge from bankruptcy.

The Journal also reported that conversations between UAL Corp. (Charts) unit United and Delta haven't been as frequent or recent as the ongoing Northwest-Delta contacts.

US Air (Charts) raised its offer for Delta to $10.2 billion Wednesday from its original offer of $8 billion as it tries to convince Delta creditors to push airline management to accept the offer. The paper reports that negotiations with the other airlines have helped Delta's creditors come to see a combination with Northwest as a realistic alternative to US Air's hostile takeover bid.

Delta is the nation's No. 3 airline in terms of miles flown by paying passengers, behind AMR Corp.'s (Charts) American Airlines and No. 2 United. US Air is the No. 7 carrier by that measure.

Spokespeople for Delta, Northwest, United and U.S. Air all declined to comment on the Journal report Wednesday.

Delta's board had rejected US Air's initial offer last month, saying the carrier would be worth more if it emerged from bankruptcy as an independent carrier and that US Air's proposed purchase would face regulatory problems because it would cause fares to rise in too many markets.

US Air management has insisted a merger would not lead to higher fares and would produce a stronger combined carrier.

Airline consultant Michael Boyd, a critic of US Air's efforts to buy Delta, said that any discussions between Delta and Northwest might be about expanding the alliance between the two carriers rather than a complete merger. He said the Delta management properly recognized many operational problems posed by a US Air-Delta combination.

"If this is really a merger discussion, it might be an effort to keep the US Air wolf from the door," said Boyd. "Operationally it's not too much better, but it's the lesser of two evils."

Delta management issued a statement earlier Wednesday saying it would consider the improved offer from US Air, but the statement suggested that management still looked on the idea of a combination as a bad one.

"The revised proposal does not address significant concerns that have been raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1 billion," said the statement.

The US Air offer for Delta has sparked speculation that the U.S. airline industry is about to go through a round of merger and consolidation. United management is on record favoring mergers in the industry.

If Northwest were to be involved in a combination with Delta or any other airline, it could open the way for a combination of one of the other major carriers and Continental Airlines (Charts). Northwest holds the right to block a merger involving Continental and another airline, but it loses that right if it is in a deal itself. There had been reports in December that United and Continental had held preliminary talks on a possible merger.

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