In another indication that United Airlines is preparing for a possible merger, the carrier has reportedly hired an investment bank to explore strategic options.
“We would assume that United would want to be the acquiring airline,” said Calyon Securities analyst Ray Neidl in a report Monday. “We also agree that the industry will have to consolidate, but we believe that it may be too early for the process to begin.”
Speculation was stoked Monday by a report from Crain’s Chicago Business that United has hired New York investment bank Goldman Sachs & Co.
UAL’s former lead bankruptcy attorney, James Sprayregen, left law firm Kirkland & Ellis to become a managing director at Goldman Sachs.
Continental Airlines and Delta Air Lines have been rumored as potential merger partners for United.
United chief executive Glenn Tilton has been talking about the need for consolidation in the airline industry and his desire for United to take part for more than a year and a half. Before becoming United’s chief executive in 2002, Tilton was a Texaco executive who became Texaco’s CEO shortly before it merged with Chevron.
Evergreen-based aviation consultant Mike Boyd said he believes there’s no need for United to merge with another airline, particularly one with a different type of fleet and training program.
“The maintenance program would be different, the cockpits are different, and merging employee seniority lists is expensive,” Boyd said. “A merger would be disastrous. The only people who make out are financial institutions and the executives who make the most money.”
Boyd said “mergers always result in less, not more,” which could be bad for Denver.
Other concerns are regulatory approval, according to Neidl.
“Financially, the legacy carriers have much work to do to get their balance sheets back in order and regain financial strength, so we believe that on their own they do not have the capability of engineering industry mergers at this time.
“However, outside investors such as hedge funds could provide financing if they saw strategic value,” Neidl wrote. “We believe any potential airline merger would set off a chain reaction where all the major carriers would want to participate.”
Neidl also said the America West-US Airways merger has proved to be a success so far.
Unions at United have been preparing for the possibility of a merger. The Aircraft Mechanics Fraternal Association, for example, has identified carriers with the potential for merging or acquiring another carrier and told members it has a plan in place to “be responsive to any eventuality.”
Key issues for the union include contract language protection, job security, seniority rights and integration, contract compatibility and union representation ramifications.
UAL shares closed at $28.45 Monday, up 2.26 percent, or 63 cents.
Staff writer Kelly Yamanouchi can be reached at 303-954-1488 or kyamanouchi@denverpost.com.
