Continental and Delta in merger talks

Speculation about a fresh wave of consolidation in the American airline industry was reignited yesterday on reports that Delta Air Lines and Continental Airlines were in talks about a possible merger.

The two carriers were said to be continuing tentative merger talks that were instigated by Continental last summer. It was widely believed, however, that the contacts were still in the exploratory phase and that no final agreement on a full-out merger was imminent.

An eventual marriage of the companies would transform the aviation landscape in the US and send ripples through the industry worldwide. If combined, Delta, the third-largest US carrier, and Continental, number five, would emerge as the largest airline in the world.

There was no comment on the speculation from either carrier yesterday. However, Carla Villalon, spokeswoman for Continental, gave credence to the belief that exploratory talks were taking place by saying the company would have no announcement concerning a possible merger with Delta until at least the "distant future".

There was a similar flurry of activity in the industry a year ago when it was revealed that USAir had effectively put itself up for sale and entered talks with United Airlines and American Airlines. Both sets of talks quickly fizzled, however, and USAir is still flying alone.

The prospect of a large merger finally happening continues to mesmerise the industry. Any such transaction would torpedo the status quo and prompt every other large carrier to find partners to take down the marriage aisle. In that instance, USAir, in which British Airways has a 25 per cent stake, would be quickly snapped up.

Though not overwhelming, there is some logic to a Delta-Continental tie- up. They have complimentary hub networks in the US and Continental would give Delta strength in the South, notably in Texas, and in New York. Continental would also bolster Delta's presence in South America.

After several miserable years that included two journeys into bankruptcy, Continental has engineered a widely-admired turnaround back into profit under the leadership of its chief executive, Gordon Bethune. Delta has also bounced back into profit. The two carriers have fleets that would be ill-matched, however, and analysts warn complications would arise from combining their workforces.