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Delta & Continental Talking Again, Merger Mainia

Tue Jun 20, 2000 9:36 am

Continental Airlines Inc. is discussing U.S. aviation consolidation with rival Delta Air Lines Inc. but sees AMR Corp.'s American Airlines making the next step, Continental said on Monday.

Delta and Continental had not "appreciably" had merger negotiations, Continental Chief Executive Gordon Bethune told reporters in London.

But they had talked about the general consolidation that might stem from the proposed takeover of US Airways Group Inc. by UAL Corp.'s United Airlines.

"I think we (Delta and Continental) are just chit-chatting about who is going to do what to whom," said Bethune, who is also chairman of Continental.

The next step in industry consolidation would come from American, the global No. 2, which would be greatly overshadowed if industry leader United took over US Airways.

"The biggest potential loser is American, if they do nothing," Bethune said.

"It is kind of up to them what the next move is," he said, adding that he believed American would indeed respond to United's bid for US Airways, announced last month, and that Continental would be drawn into the consolidation process.

"I think ultimately we get there, because we have so much value," he said.

At 1530 GMT Continental shares were trading at 46, up 4.3 percent in a generally flat New York market.


Analysts and industry observers have suggested that logical U.S. competitive reponses to United's agreement to buy US Airways could include American agreeing to buy Northwest Airlines Corp. and Delta agreeing to buy Continental.

That would turn the "Big Six" U.S. airlines into three, if approved by regulators, although analysts put the chances of regulatory approval for such an industry-wide restructuring at less than 50 percent.

"I think Delta and Continental are made for each other, frankly," said Salomon Smith Barney airlines analyst Brian Harris. "Those two are among the most logical combinations, should the industry consolidate."

But he doubted that Delta was waiting around for American to make a move. "I imagine that Delta is actively looking at its alternatives as well," he said.

Bethune forecast that the United States would not continue to have all six of those plus four other majors, as it now had.

"Ten is too many, one is too few and it is going to be somewhere in between that," he said.

But one combination that could be ruled out was American and Continental, which are both based in Texas.

"Two Texas behemoths getting together is not going to happen," Bethune said.


Northwest has a 13 percent stake in Continental that carries 51 percent voting power. The stake is held in a trust and Northwest does not exercise day-to-day control over Continental's operations.

However, the stake also acts as a deterrent to an acquisition of Continental, unless Northwest were to agree to dispose of the stake, such as in the context of an acquisition of Northwest.

Bethune downplayed the effect of the Northwest stake.

"They could block a hostile acquisition of us, but that is about all they can do," he said.

Bethune also called for less restrictive rules on foreign ownership of airlines. Foreigners are limited to 25 percent of U.S. carriers' equity.

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