United in merger spotlight with US Air, Continental

By John Crawley and Kyle Peterson

WASHINGTON/CHICAGO (Reuters) - United Airlines seems to be the prime mover in the next industry merger, and a decision could come soon as carriers are forced to consolidate for survival.

Now that a proposal for Delta Air Lines (DAL.N) to swallow Northwest Airlines NWA.N is under U.S. antitrust review with good prospects for approval, according to several experts, attention has shifted to United and its talks with US Airways Group Inc (LCC.N) and Continental Airlines Inc (CAL.N).

"Something's going to happen. You're looking at a carrier that's sinking fast," said consultant Michael Boyd, a critic of United management. "I've become convinced that United probably has to merge."

For the first time, all the major carriers, according to industry sources, are in play for possible mergers or stronger marketing alliances.

Delta and Northwest announced their deal on April 14. Sources briefed on the situation have said American Airlines (AMR.N) has had early stage discussions with US Airways and is in advanced talks for an alliance with Continental.

Sources have also said Continental is in talks with United on a merger and would choose either a deal with United or an alliance with American, but not both.

Industry sources with knowledge of the matter said last week that merger discussions between United and US Airways were heating up and that United soon would make a decision.

Talk of consolidation has become increasingly prominent in recent months as skyrocketing fuel prices and a weak U.S. economy threaten to throw airlines into a deeper tailspin. Industry leaders believe mergers can save costs by reducing capacity and generating more revenue.