Continental not merging with UAL

By Jui Chakravorty Das

NEW YORK (Reuters) - Continental Airlines Inc (CAL.N) has called off talks with United Airlines (UAUA.O) because of United's weak financial condition and a feeling that a merger would risk its own financial health, a source briefed on the matter said on Sunday.

The source also said Continental is in "advanced talks" with British Airways PLC (BAY.L) and American Airlines (AMR.N) about a potential alliance, with plans to seek antitrust immunity.

American did not immediately return a call seeking comment and Continental was not reachable for comment. United Airlines Chief Executive Glenn Tilton, who has been a proponent of consolidation, said the company's strategy is consistent.

"Consolidation is underway - ensuring you have the right partner is everything," he said in a statement. "We will pursue all options to ensure a strong, sustainable future for our airline."

Sources had told Reuters earlier this month that United was also in serious merger talks with US Airways (LCC.N).

Continental's decision comes after Delta Air Lines (DAL.N) and Northwest Airlines NWA.N said nearly two weeks ago they planned to merge and become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and growing competition from European carriers as trade barriers fall on trans-Atlantic travel.

Continental said on Sunday in a letter to its employees it has chosen not to merge with any other airline at this time but will continue to consider an alliance with other carriers.

"We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths -- which we believe would be placed at risk in a merger with another carrier in today's environment," Chief Executive Larry Kellner and Vice President Jeff Smisek said in the letter.