Report: Continental, Delta Discussing Merger

A T L A N T A, Feb. 5 -- Delta Air Lines, the nation's third-largest carrier, and Continental Airlines reportedly have begun talks about a merger in which Continental would acquire the much larger Delta.

The discussions are "very informal" and "in the very early stage," an industry source told The Washington Post on condition of anonymity.

Neither Atlanta-based Delta nor Houston-based Continental, the fifth-largest carrier, would comment Sunday.

"Delta has a longstanding policy of not commenting on rumors regarding mergers or consolidation," spokesman Reid Davis said. A Continental spokeswoman referred questions to a statement it gave the Post, whose report came out on Saturday.

"Continental has had and anticipates it will continue to have discussions with third parties regarding strategic alternatives," spokesman Dave Messing said.

The talks are a response to airline industry consolidation.

On the Tails of United/US Air and American/TWA

United Airlines, the country's largest airline, proposed an $11.6 billion merger last year in which it would buy Virginia-based USAirways. Last month, American Airlines agreed to acquire financially ailing Trans World Airlines.

Both Delta and Continental have said they prefer to stay independent but would consider a merger or some other alliance if competitors' mergers are approved.

On Jan. 26, Delta Chairman Leo F. Mullin met with Northwest Chairman Gary L. Wilson to explore Wilson's reaction to a Delta-Continental merger and whether Northwest would try to veto a Delta bid for Continental, sources told the Post.

Under a marketing agreement with Continental, Northwest retains veto power over any deal to acquire Continental. Wilson told Mullin that Northwest wouldn't waive its veto power under any circumstances, the Post reported.

Northwest officials are confident they can block a merger even if Continental initiates it. If a deal with Continental fails, the Post reported, Delta would seek some form of alliance or merger with Northwest, a less preferable option because Northwest's fleet of aircraft is aging and the company has had union troubles.

A Northwest spokesman said the airline would not comment on the reports.

A Continental-Delta merger would give the combined airline 26.7 percent of the airline passenger market. A merger of Delta and Northwest would capture 29.3 percent of the market.