The day after a hedge fund tried to jump-start airline industry consolidation by publicly disclosing that it has urged Delta Air Lines to merge with United Airlines, Delta CEO Richard Anderson issued a blanket denial.
"I have not talked to (United's Chairman and Chief Executive) Glenn Tilton or any other executive at United Airlines since the last time I was in the industry four years ago," Anderson said, adding that no discussions are ongoing or planned. Anderson, a former Northwest CEO, was named to the top job at Delta in August.
Also, three Delta directors reached by the AP John Brinzo, Paula Rosput Reynolds and Walter Massey declined to comment on the possibility of a Delta-United combination. Asked if his position on commenting could change later, Brinzo responded, "Who knows what facts and circumstances will present themselves in the future? But it's inappropriate for me to comment."
Still, the airline says it has retained financial and legal advisers to work with management and its board to review and analyze "strategic options," including mergers.
And an official with knowledge of the situation told The Associated Press on Wednesday that United and Delta have been discussing a combination that would keep the United name and the corporate headquarters in Chicago, with Anderson possibly being the surviving CEO.
The official, who spoke on condition of anonymity, stood by the assertions despite denials by both airlines.
Wall Street continues to put stock in Delta and United combining or merging with other carriers, even as the nation's No. 2 and No. 3 airlines deny they have talked about a deal.
"Delta's refutation of current merger talks with any other airline, including United, only
means no formal meetings have taken place thus far," Bear Stearns airline analyst Frank Boroch said in a research note. "It doesn't change Delta's recognition of consolidation's benefits nor Delta's board decision to set up a strategic committee and hire advisers in new CEO Richard Anderson's first 10 weeks on the job."
Goldman Sachs analyst Robert Barry wrote Thursday that his firm believes the demands from investors for consolidation will intensify as rising fuel costs and other pressures continue to threaten airline profitability.
Barry said he believes "all airline management teams and boards have been discussing consolidation, ad nauseam, for months if not longer."
William Greene, an analyst at Morgan Stanley, said an issue the airlines have to consider is that the regulatory window may be closing and that they need to act fast if there are going to be any mergers in the industry.
"We think pressure to 'do a deal' sooner rather than later is growing," Greene said in a research note Thursday.
During their bankruptcies, Northwest and Delta held preliminary merger discussions, but Northwest executives subsequently have not commented on specific merger scenarios involving Northwest.
There are plenty of cost savings to be reaped from a merger of two major airlines, from reducing the number of available seats to downsizing or eliminating overlapping hubs and routes. Delta has a hub in Salt Lake City and United has a hub a few hundred miles away in Denver. Some observers have speculated one of the hubs could be at risk if United and Delta combined.
Delta also has a hub in Cincinnati, while United's main hub is 250 miles away in Chicago.
Hedge fund Pardus Capital Management, a Delta shareholder, is leaning on Delta to proceed with a deal. The disclosure of Pardus' letter on Wednesday calling for a deal with United is indicative of the heat that major shareholders have placed on airline executives as stock values fell in the face of rising oil prices.
Pardus said it also examined whether Delta should combine with Northwest but concluded that United offered more benefits because of its larger fleet and route structure.
If United and Delta, the No. 2 and 3 U.S. carriers, merged, industry observers believe Northwest soon would try to do a deal of its own.
A combined Delta and United would have about 1 1/2 times the annual revenue of American, currently the world's largest airline. If federal regulators allowed a merger on that scale, presumably an American-Northwest combination could also win approval from the government.
But it's certain that some government officials would object to any proposals for large mergers.
"Once these mergers begin, there will be an orgy of mergers," said U.S. Sen. Byron Dorgan, D-N.D. on Wednesday. "Others will say, 'We have to do that for defensive purposes.' It is better that it doesn't start."
Dorgan, who sits on the Senate Commerce Committee, has indicated he doesn't think mergers would be looked upon favorably by Congress and certainly not by himself.
Dorgan said hedge funds are looking for short-term profits, but Congress would examine the longer-term effect of consolidation on passengers.
Besides winning regulatory approval, the greatest obstacles to a Delta-United combination would be dissent from unions, whose members' job assignments typically are based on seniority.