United-US Airways could make a Big Four

CHICAGO - Moving quickly after being left at the altar by Continental Airlines, United Airlines stepped up talks with US Airways and was moving toward an agreement Monday on joining forces to create what could be the world's largest carrier.

UAL Corp.-owned United and US Airways Group Inc. were in advanced talks and expected to be able to announce a deal within weeks, two people familiar with the negotiations told the Associated Press.

Representatives of both airlines declined to comment on what they called rumors about a deal, which drove up US Airway's stock more than 20 percent. US Airways shares jumped $1.46 to $8.62 in Monday trading, while United shares lost 40 cents, or 2.6 percent, to $14.81.

A combined United-US Airways would vie with the proposed Delta-Northwest for bragging rights as No. 1, dropping AMR Corporation's American Airlines from first to third if both deals are approved.

Based on 2007 passenger traffic, United-US Airways would have a slight edge with 201.6 billion revenue passenger miles to 200.4 billion for Delta-Northwest. But the competition is too close to call in light of recent capacity cuts.

While a deal is not assured, the pairing became likelier after Continental stunned United on Sunday by ruling out any combination as an option following in-depth talks that had been expected to result in a deal by week's end.

The two people familiar with the talks asked not to be named because of the sensitive nature of the discussions. The timing of any agreement remains hard to predict, and either side could pursue an alliance or walk away, as did Continental.

Chicago-based United and Tempe, Ariz.-based US Airways have been in preliminary talks for weeks. As the second- and seventh-largest U.S. airlines by traffic, both are under more competitive pressure to consolidate in the wake of the April 14 announcement of a proposed mega-carrier teaming Delta Air Lines Inc. with Northwest Airlines Corp.

Combined, the two have about 91,000 employees, 800-plus airplanes and annual revenue of $31.8 billion. Details of their talks were not immediately known, including what the name or headquarters of the enlarged carrier would be.

The airlines first agreed to team up eight years ago, but United called off the planned $4.3 billion acquisition in July 2001 after the Justice Department said it would sue to block it.

Significant challenges

In contrast to a tie-up with Continental, which has a route system viewed as highly complementary to United's, US Airways offers some significant challenges as a partner and does not have the Atlantic routes United would like.

United's hopes of pairing with Continental may have been dashed by the $537 million first-quarter loss it reported last Tuesday, which raised questions about its financial health. The concerns touched off a 35 percent drop in its stock, which left Continental with a bigger market capitalization than United and changed the dynamics of a deal, according to insiders.

Since US Airways dropped its hostile bid for Delta last year, that carrier has been mostly left out of merger speculation. Some industry observers have considered it a poor match for any other airline because of its weak international flight network.

US Airways' reputation as a possible partner also was damaged because of its trouble with fully integrating operations almost three years after it combined with America West Airlines.