UPDATE 5-U.S. Air, United in merger talks – sources

* U.S. Air, United in merger talks – sources

* Talks began a few weeks ago – sources

* Airline shares jump after market close
(Adds second source)

By Jui Chakravorty and Deepa Seetharaman

NEW YORK, April 7 (BestGrowthStock) – UAL Corp’s United Airlines
(UAUA.O: ) is in merger talks with US Airways (LCC.N: ) in a deal
that could create the second-largest carrier in the United
States, two sources familiar with the matter said.

The discussions, aimed at cutting costs and competing with
a combined Delta-Northwest, have been going on for a few weeks,
and could fizzle or lead to talks with other carriers, the
sources said. The talks are not in advanced stages, they said.

This would not be the first time the two airlines have
tried to merge: in 2000, they announced a $4.3 billion deal
that fell apart on opposition from labor unions and the
Department of Justice.

In 2008, sources had told Reuters that US Airways was in
parallel talks with United and Continental Airlines Inc (CAL.N: )
about a possible merger, when Delta Air Lines (DAL.N: ) was
merging with Northwest to create the world’s largest airline.

The talks ended as United chose to pursue an alliance with
Continental instead.

Airline industry consultant Michael Boyd said United’s
talks with US Airways might be intended to signal to
Continental that they are ready to renew merger talks.

“If you take a look at those two carriers, there’s a
tremendous amount of overlap,” Boyd said, referring to United
and Continental. “This is likely to get Continental, which
would be a better fit, out of the barn to start talking.”

US Airways shares surged 26 percent to $8.61 after the
closing bell. United’s stock jumped more than 8 percent to
$20.51. Shares of other airlines also rose.

The New York Times first reported the news late on
Wednesday, citing people familiar with the situation.

ONE OF THE WORLD’S LARGEST CARRIERS

A deal between US Airways and United would create one of
the world’s largest airlines, but analysts are skeptical. The
deal would lack support from the pilots union, a major force
that has derailed mergers in the past.

Speaking at the Reuters Travel and Leisure Summit in
February, Capt. John Prater, president of the Air Line Pilots
Association union, suggested the union would back a merger
between Continental and United, which he indicated made more
sense than one between United and US Airways.

Representatives of the union were not immediately available
for comment.

Antitrust issues will also likely come up again: the two
carriers would end up with a large number of hubs and extensive
operations in the Washington area.

CONSOLIDATION NEEDED

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

The airline industry has lost $50 billion in the past 10
years, including $11 billion in 2009, according to the
International Air Transport Association. The industry has been
struggling with high fuel prices and a pullback in consumer
spending amid a weak economy.

Both UAL and US Airways told Reuters separately in February
they were open to a merger. Speaking at the Reuters Summit, UAL
Chief Financial Officer Kathryn Mikells said: “UAL has been
supportive of consolidation for a long time. It is something we
will continue to look at.”

Speaking at the same summit, US Airways Chief Financial
Officer Derek Kerr said: “Consolidation is one of the major
ways this industry can become profitable.”

When asked why US Airways was not approaching another
carrier, Kerr said at the time: “It’s difficult for the No. 5
player to make a move on No. 1 through 4.”

The four largest U.S. carriers are Delta, American Airlines
(AMR.N: ), United and Continental.

US Airways and Continental declined to comment.

UAL spokeswoman Jean Medina also declined to comment, but
added: “We’ve been consistent on our position on consolidation
generally for several years, and that position is well known.”

United Chief Executive Glenn Tilton and US Air CEO Doug
Parker have both been vocal proponents of consolidation.

Stock Market Advice

(Additional reporting by John Crawley and Kyle Peterson;
Editing by Andre Grenon, Richard Chang, Gary Hill)

UPDATE 5-U.S. Air, United in merger talks – sources