UPDATE 3-UAL, Continental in merger talks-source

* UAL, Continental in merger talks- source

* Talks in early stages-source

* UAL shares up over 3 pct

(Adds UAL pilot union comment)

By Jui Chakravorty

NEW YORK, April 15 (BestGrowthStock) – Continental Airlines Inc
(CAL.N: ) has restarted merger talks with UAL Corp’s (UAUA.O: )
United Airlines, two years after walking away from almost
sealing a deal, a source briefed on the matter said on
Thursday.

The talks are in very early stages, though much of the
groundwork was laid in 2008, the source said. United and
Continental came very close to merging at the time, but the
talks fell apart as Continental chose to pursue an alliance
instead.

The talks come as United is in similar discussions with US
Airways Group Inc (LCC.N: ), but those talks are much farther
along, the source said. US Air and United are in talks that
could create the second-largest U.S. carrier. Those
discussions, aimed at cutting costs and competing with the now
combined Delta Air Lines Inc (DAL.N: ) and Northwest Airlines,
have been going on for months, the sources said.

UAL, Continental and US Airways declined comment.

Shares of UAL closed up 5.3 percent while Continental closed
up 2.2 percent following the news, which was first reported by the
New York Times. US Airways closed down 0.1 percent.

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Reuters Insider http://link.reuters.com/kaq47j

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Since the news of the United-US Airways talks broke last
week, shares of UAL have surged more than 22 percent, despite
reports that it would be the acquirer in a deal with US
Airways.

US Airways shares have risen 9 percent since then, and
Continental has climbed 15 percent, reflecting investor
expectations of a resumption in United-Continental talks.

“I think it’s the path of least resistance from a labor
perspective, from a regulatory review perspective and from a
political perspective,” Stifel Nicolaus analyst Hunter Keay
said.

CONSOLIDATION NEEDED

Many airline executives have called for consolidation,
saying it is a necessity to allow the industry to return to
profitability.

Airlines, struggling with high fuel prices and a pullback
in consumer spending amid a weak economy, have lost $50 billion
in the past 10 years, according to the International Air
Transport Association.

The industry lost $11 billion in 2009 alone.

Still, Continental has long said it would prefer to remain
independent. But at a conference in March, Chief Executive Jeff
Smisek said the company would “bulk up defensively” if it would
be in its best interest.

A Continental-United merger might be easier to get through
the labor unions, which can be a major force in getting a deal
approved.

United’s pilot union said on Thursday it would support a
United-Continental merger. “For United’s pilots, Continental,
rather than US Airways, represents a more logical merger
partner for United Airlines,” the union said in a statement.

UAL’s pilots union last week said the pilots would not
benefit from a merger with US Airways, adding it would
“vehemently oppose” a merger that would not lead to a strong
and viable carrier.

A spokeswoman for Continental’s pilots union said the group
had “no reaction” after news broke Thursday.

Even after United and Continental halted merger talks in 2008,
their pilot groups have continued to talk up to two to three times
a week and discuss the possibility of a merger, Capt. Jay Pierce,
head of Continental’s pilot union, told Reuters in an interview
last week.

They have discussed a collective bargaining agreement and
talked about a process to merge seniority lists, Pierce said.

Stock Trading

(Reporting by Jui Chakravorty; Additional reporting by Deepa
Seetharaman, Kyle Peterson and Karen Jacobs; Editing by Leslie
Gevirtz, Gerald E. McCormick, Phil Berlowitz)

UPDATE 3-UAL, Continental in merger talks-source