Delta, United in merger talks

Implications: Delta and United have held informal merger talks in recent months and discussions are understood to be at an advanced level. With both airlines keen to progress further before the new administration takes office in two months, a merger such as this would be the decisive catalyst needed to launch the long-awaited U.S. Majors' re-equipment cycle.

Analysis:

The rationale between a merger of two airliners whose combined fleets of around 1,000 airplanes with another 100 or so on order would dwarf the remaining domestic competition (starting with American, Southwest and Northwest) is purely economies of scale to offset rising oil prices. More throw-weight with the OEMs, particularly Boeing (United’s main active fleet is about 2:1 Boeing:Airbus, Delta’s is all-Boeing), largely complementary route structures with separate bases (Chicago, Atlanta), stronger international market presence to help counter European-originating Open Skies’ initiatives from April 2008 and above all, increased profit-making leverage with the supply chain worldwide are all plus factors too.

A Delta-United merger would structurally change the domestic U.S. airline industry and almost certainly lead to further deals – there are three or four very strong candidates out there.