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In an intriguing third option behind submitting to a hostile takeover by US Airways or going it alone, Delta Airlines is in talks with Northwest Airlines to join forces when both carriers emerge from bankruptcy. Northwest is expected to leave Chapter 11 in Q2 and is examining several strategic options, including a merger with Delta. Delta's management, too, has been calculating merger benefits as it struggles to fend off US Airways, which just raised its bid from $8.5 billion to $10.2 billion. Delta has waged a furious grass-roots campaign to scupper the US Airways takeover, including mass emails to frequent fliers. It has also leaned on the support of its pilots and employees -- a tactic that could backfire if the airline is forced to shrink the amount of equity employees will receive in its standalone plan. It has also hired media consultants and taken the battle to Capitol Hill, where it hopes to convince the Senate Committee on Commerce, Science and Transportation that the takeover will be bad for the industry and the consumer. Northwest has not commented on the merger talks.

• Sources: Wall Street Journal, Forbes
• Related commentary: US Airways Ups Ante for Delta to $10.2 Billion, Merger Mania Grips the Airlines, Delta Tries to Trump US Airways Buyout Through Bankruptcy, Airline Consolidation Efforts Heat Up as United, Continental Discuss Merger, Large Shareholder Opposes Northwest Buyout of Mesaba Airlines
• Potentially impacted stocks and ETFs: Northwest Airlines Corporation (NWACQ.PK), Delta Airlines Inc. (DALRQ.PK), US Airways Group Inc. (LCC). Competitors: AMR Corporation (AMR), UAL Corp. (UAUA). ETFs: streetTRACKS DJ Wilshire Small Cp Growth (Pending:DSG)

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Source: Northwest and Delta Flirt with Merger