CNBC's LeBeau: In Order To Compete--Airlines Must Merge - Power Lunch

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Dec.13

1:00 PM ET

Wednesday, 13 Dec 2006

CNBC's LeBeau: In Order To Compete--Airlines Must Merge

Posted By:Tom Brennan

Topics:Mergers & Acquisitions | Airlines

AP
Continental Airlines
The airline industry has seen a wave of potential M&A activity of late. Reports say UAL [UAUA Loading... () ], the parent of United Airlines, and Continental Airlines [CAL Loading... () ] are talking merger – though analysts speculate a deal is still far off. Also, AirTran Holdings [AAI Loading... () ] has made a hostile bid for Midwest Air Group [MEH Loading... () ] worth $290 million, or $11.25 a share. All this comes just a month after US Airways Group [LCC Loading... () ] made a hostile bid of its own for Delta Air Lines [DALRQ Loading... () ].

A merger between UAL and Continental would form the largest carrier in the U.S., says CNBC's Phil LeBeau. He spoke with Sue Herera on "Power Lunch" today. But Northwest Airlines [NWACQ Loading... () ] owns what’s called a “golden share” of Continental. That would allow the bankrupt airline to block any deal between UAL and Continental if it were brought to a shareholder vote. With all these mergers on the table, LeBeau says, Northwest will be playing things cautious. As one of the few airlines without a merger in the works, it could get left out in the cold.

Many airlines are feeling the pressure to compete with discount carriers. LeBeau said AirTran is feeling that pressure right now – hence, the bid for Midwest. AirTran, based in Milwaukee, needs to grow if it’s going to keep pace with other airlines.

But the final word could come from the Department of Transportation, LeBeau says. The DOT might not be all that excited about these newly formed mega-airlines if they stifle competition – which means higher ticket prices for fliers.

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