Plans to merge UAL Corp.'s United Airlines and US Airways Group Inc. will not happen at this time, UAL's CEO told employees on Friday.
United and US Airways had been in merger-exploration talks for more than two months. UAL Chief Executive Glenn Tilton met his counterpart, Doug Parker, for lunch on Thursday where Tilton said he still supports mergers but the airline decided a merger with US Airways was not the right move for them now because of issues that could significantly dilute the benefits.
Both CEO's have expressed concerns on how to combine their labor and raise capital to fund the integration of the two carriers. Attempts to merge were also dampened by the grim financial outlook for all airlines, which have been less profitable and less attractive for the banks that would have to provide capital.
After a considered review by our board of directors, United has determined that it will not be pursuing a merger at this time due to issues that could significantly dilute benefits from a transaction, Tilton said. We are evaluating other options, and will do what is right for United.
Tilton said United Airlines management will take the additional steps to size the business appropriately, leverage our capacity discipline to pass on commodity costs to customers and accelerate development of new revenue sources.
After building up a total of $35 billion in losses and finally emerging from a 5-year slump in 2006, U.S. airlines have been in talks to merge or form alliances with other airlines as a way to grant them greater market power to lower flight costs and raise fares.
Tilton also said that United, the No. 2 U.S. airline, is very near an alliance agreement with Continental Airlines Inc., the Wall Street Journal said, citing sources familiar with the matter.
Meanwhile, Continental, which called off merger talks with United in late April, is also in advanced alliance talks with American Airlines AMR Corp and British Airways Plc.
Merger talks in the airline industry were heightened after Delta Air Lines Inc and Northwest Airlines Corp said in April they planned to merge and become the world's largest airline.
The airlines sought to counter skyrocketing fuel prices, a weak economy and growing competition from European carriers as trade barriers fall on trans-Atlantic travel.
UAL shares fell 27 cents, or 3.2 percent, to $8.12 in morning trading, while US Airways shares shed 27 cents, or 6.3 percent, at $4.05.