St. Paul, Minnesota, June 2 (Bloomberg) -- Northwest Airlines Corp. shares rose 22 percent after a Minnesota television station reported that the carrier is in talks to be bought by AMR Corp., parent of American Airlines.
Northwest climbed 6 3/8 to 35 7/16, its biggest one-day gain since at least 1980. KSTP TV in St. Paul, citing unnamed sources, said AMR Chairman Don Carty and Northwest Chief Executive John Dasburg discussed a transaction. The airlines declined to comment on the report, which said talks are in ``early stages.''
UAL Corp. last week unveiled a plan to buy US Airways Group Inc. for $11.6 billion, creating an airline with almost 7,000 daily flights spanning the U.S. and with a broader reach in Europe. American Airlines, the second-largest carrier after UAL's United, is seeking more routes and passengers to compete with its proposed new rival, analysts said.
``It's a defensive move in case United and US Airways get regulatory approval,'' said Doug McVitie, managing director of Arran Aerospace, a consulting company in Scotland.
The UAL and US Airways transaction may receive added U.S. Justice Department scrutiny because of a potential acquisition involving rival American Airlines, analysts said.
A purchase of Northwest, the fourth-largest U.S. airline, would ``lead to a more concentrated industry nationally -- something the antitrust division will be very concerned about,'' said Washington antitrust lawyer Robert Burka, who formerly worked for the Federal Trade Commission.
Northwest stock, which has gained 3 percent in the last 12 months, touched 36 3/8 earlier in the day. AMR shares, which fell 1 1/8 to 28 5/16, have declined 4.4 percent in the last 12 months. UAL climbed 15/16 to 54 1/16, and its stock has slipped 18 percent in the past year.
The benefits of acquisitions could decline if more carriers merge, said Standard & Poor's analyst Philip Baggaley. ``If the six largest (U.S.) airlines were to combine into three they would end up with basically the same revenue, but higher labor expenses and much more debt,'' he said.
Talk of Northwest's possible purchase by American comes as Northwest is hung up in regulatory proceedings on its attempt to buy control of Continental Airlines.
Northwest in January 1998 announced plans to buy 14 percent of Continental and form an alliance thwarting an acquisition bid by Delta Air lines Inc. for Continental. The shares would carry super-voting rights equal to a 51 percent controlling stake in Continental.
The U.S. government sued Northwest in October 1998 to undo its purchase of the voting stake in Continental. As part of that transaction, the pair agreed to link their flights, frequent-flier programs and other operations. The lawsuit, which calls for Northwest to divest from Continental, is pending.
Continental, based in Houston, said this year that it has held preliminary discussions with Northwest aimed at buying back the shares currently held by Northwest.
United also has extensive routes into Europe, including London's Heathrow airport, and into Asia. The proposed acquisition is likely to face regulatory hurdles in the U.S. and in Europe.
American and Northwest
An American-Northwest combination would be ``ideal'' for American, particularly because of Northwest's Pacific routes, said Jim Eckes, managing director of Indoswiss Aviation Ltd., an airline consultancy in Hong Kong.
``American is panting at the gate to get into Asia, and this would give them an awesome presence because Northwest is so strong there,'' he said.
American Airlines' parent had a market value of $4.41 billion as of yesterday's market close, while Northwest's was $2.46 billion, giving them a combined value of $6.9 billion.
Northwest spokesman Jon Austin said the airline had no comment. He said he had seen the KSTP TV report.
Following the move by United and US Airways, Northwest's pilots ``assume that meetings and discussions may occur among the remaining airlines, in every possible combination,'' said Mark McClain, chairman of the pilots union.
At American, calls were put through to a recording by Chris Chiames, an American spokesman. For reporters calling about ``rumors of business transactions,'' he said, ``we do not comment on any rumors, nor confirm or deny them.''
It's not the first time the two airlines have talked. Northwest in February began linking some fights in California with AMR's American Eagle commuter carrier to make up for lost service in the state.
In 1991, Alfred Checchi, Northwest's chairman at the time, broached the idea with American of merging, or of selling the carrier's lucrative Pacific routes. That was at a time when Northwest suffered financial losses because of debt payments from a $3.65 billion buy-out that Checchi led in August 1989.
While AMR needs to respond to UAL's planned purchase, an acquisition of Northwest won't provide an advantage over the larger, combined rival, Donaldson, Lufkin & Jenrette analyst James Higgins said.
``I think it makes American permanently No. 2, assuming it happens,'' he said. ``They're never going to be as strong. That's the pivotal issue if United and US Airways goes through.''
Jun/02/2000 16:53 ET