A flurry of confirmed and reported talks among airlines may signal merger mania within the struggling industry, though analysts question whether consolidation is a sure - or even a good - thing.
Shares of airline stocks surged Wednesday on reports that UAL Corp.'s United Airlines and Continental Airlines Inc. are exploring a possible combination and that AirTran Holdings Inc. said it has made a $290 million stock and cash bid for Midwest Air Group Inc.. AirTran's bid values the smaller airline at $11.25 per share, a 24 percent premium to its closing stock price Tuesday on the American Stock Exchange.
The AirTran offer was made on Oct. 20. Oak Creek, Wis.-based Midwest turned down the offer on Dec. 6. AirTran Chairman and Chief Executive Joe Leonard sent another letter on Wednesday stating that AirTran would continue to pursue the transaction.
And Qantas Airways, Australia's flagship carrier, fended off a takeover bid led by an investment bank and two private-equity firms.
All this activity comes on the heels of the recent hostile $8.67 billion takeover bid that US Airways Group Inc. made for Delta Air Lines Inc., whose top executive has rebuffed the offer.
The preliminary talks between United and Continental were reported late Tuesday by The Wall Street Journal and The New York Times, though no specifics were given and both papers cautioned that a deal was far from certain.
A United-Continental pairing could face significant obstacles, since Northwest Airlines Corp. may be able to stop it under a 2000 agreement with Continental.
In that pact between airlines allied in a code-share agreement, Northwest received a "golden share" of Continental - giving it the power to halt any potential acquisition of the Houston-based airline - in exchange for letting Continental buy back some of its stock that Northwest held.
But with U.S. airlines strongly interested in consolidation, it's possible that differences could be resolved in separate deals.
Airline consultant Michael Boyd said a United-Continental combination, or any other combination for that matter, would not be good for consumers, as it would reduce competition. He described any offer by United as an effort to make "fast money."
"Glenn Tilton has called everyone looking for a date," Boyd said, referring to United's chief executive. "He doesn't want to run an airline, he wants to merge it."
Indeed, Tilton on Tuesday spoke up again as a strong advocate of U.S. airline mergers, telling analysts in Chicago that consolidation is "good and overdue for the industry."
"We are not waiting for opportunities to come to us simply because we haven't identified to you which one works best," Tilton said at the conclusion of a 3 1/2-hour management presentation to more than 75 analysts.
However, he declined to tip his hand about strategy or discuss any merger efforts under way involving his carrier. United declined to comment on the reports Tuesday night; a Continental spokesman did not immediately return a phone call seeking comment.
Tilton, among other industry officials, believe mergers would boost airlines through cost-cutting and increased revenues.
But Kevin Mitchell, the chairman of the Business Travel Coalition, said if such a "tsunami" of airline consolidation were to occur, the repercussions for fliers would be disastrous, in that fares would surely rise as competition waned.
"Other merger proposals would follow as sure as the sun rises in the east," he said. "What's more, these poential transactions represent a near-term fix to the industry's difficulties and do not address systemic profitability problems and root causes."
On Wednesday in Australia, Qantas Airways rejected a $8.6 billion takeover bid led by the country's largest investment bank and two North American private-equity firms.
The nonbinding proposal led by Australia's Macquarie Bank Ltd., U.S. private equity firm Texas Pacific Group and Canadian buy-out group Onex Corp. amounted to 5.50 Australian dollars ($4.33) per share, or 5 percent above Tuesday's closing price.
Follows failed effort to acquire Midwest
CHICAGO_The head of United Airlines parent UAL Corp. said Tuesday that consolidation in the industry is overdue but remained silent on whether his company is pursuing a merger with another U.S...
Leonard told investors that 50 seaters were increasingly unprofitable with mainline route structures and would definitely not work with a low-cost operator.