United Airlines Seeking Merger - Business Week

Includes: DAL, NWA, UAUA
by: Judith Levy

UAL Corp., the parent of number-two U.S. carrier United Airlines, is actively seeking a merger for the airline, according to a new report by Business Week. The hedge fund Pardus Capital Management, which holds stakes in both UAL and Delta, is urging the two to pursue a linkup (full story). The other leading contender is believed to be Northwest Airlines. UAL's CEO Glenn Tilton has "been perfuming United for sale" ever since it came out of bankruptcy in 2006, industry consultant Michael Boyd said. United is contending with relatively high debt, and its 2% profit margin over the last 12 months is "one of the thinnest in the industry," the article said. "They didn't push as hard in bankruptcy to transform the business model, and they've been playing catch-up ever since," said industry consultant Stuart A. Klaskin. "It's clear that Tilton now believes a merger is the road home." He and others cite as evidence of Tilton's intentions the airline's "pause" in fleet purchases and its exploration of asset sales to lower its debt. United is considering spinning off its Mileage Plus frequent-flier program, which is valued at $7.5 billion, as well as selling its maintenance operations and cargo unit to private equity as a means of raising billions in cash and stripping down to "core assets -— planes and routes." "I think Tilton is determined to make sure United isn't left standing on the street corner," said airline consultant Robert W. Mann. "If he can't sell off the airline whole, he can do it in pieces."

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