United in Advanced Negotiations with Continental for Merger

CHICAGO - United Airlines is in advanced negotiations with Continental Airlines and is poised to quickly seal the deal if Delta and Northwest Airlines merge, says a person close to the airlines.

However, Chicago-based United hasn't ruled out pursuing Delta if the Atlanta-based carrier is unable to overcome labor differences with Northwest, sources say.

Doing so would give United greater leverage in its negotiations with both airlines, as well as a fall-back in case talks with Continental hit an unforeseen snag, say people familiar with the situation.

Delta and United discussed a potential tie-up last month, sources say. But Delta CEO Richard Anderson made it clear he preferred Northwest, his former employer and a close partner in the global SkyTeam alliance.

United has pursued mergers with both airlines in recent years, envisioning a creating a global goliath.

Both Continental and Delta have large bases in New York, where United is weak, and strong networks to Europe and Latin American that would fit well with United's robust trans-Pacific routes.

A decade ago, the nation's second-largest carrier came within hours of announcing a deal with Delta, the No. 3 carrier, but backed away over a late labor issue, sources say.

And United and Houston-based Continental seriously considered a tie-up last year, as US Airways made a hostile bid for Delta. But those talks foundered when the carriers were unable to agree on which management team would lead the combined carrier.

That's no longer an issue, say people familiar with the talks. Continental CEO Larry Kellner would likely lead the merged airline, while United CEO Glenn Tilton would likely be chairman of the combined company. The management team and board of directors would be drawn from both carriers, sources say.

Another "social" issue - the city where the headquarters will be based - isn't seen as a potential deal-killer and would likely be resolved later, says a person close to the airlines.

The nation's fourth-largest carrier, Continental would prefer to remain independent but determined it wouldn't remain on the sidelines if larger players merged. "If we see something, we won't hesitate to act aggressively," Kellner told analysts last month.