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Delta Adds Continental to Merger Options

Updated from 6:07 p.m. EST

As it pursues its consolidation strategy, Delta (DAL - Get Report) is talking with a variety of carriers including Continental (CAL).

Those talks so far have been preliminary, and have not advanced as far as merger discussions with Northwest (NWA), according to a person familiar with the situation. However, discussions with Northwest appear to have hit snags, including issues involving the leadership of the combined company.

Delta has also had conversations recently with UAL (UAUA), the owner of United Airlines, according to published reports.

In the past, internal Delta consolidation studies have concluded that a merger with Continental would make the most sense, while a deal with Northwest could also have value because it would provide access to the Pacific, according to sources who are familiar with the situation.

Delta bid unsuccessfully for Continental in 1998, then acknowledged it was again studying a merger effort in 2000.

The internal studies also determined that authorities wouldn't permit a merger with United because the combined airline would be too big. However, it is uncertain whether regulators would have the same view today given the rapid expansion of low-fare carriers who might also provide competitive alternatives in the event of legacy carrier mergers.

Additionally, since the internal studies were done, Delta and Continental have both dramatically built their hubs at New York's Kennedy Airport and Newark Liberty International Airport, as well as their trans-Atlantic service from the two hubs.

Publicly, Delta has said it is "analyzing strategic options, including potential consolidation transactions." Delta and Continental declined to speak for this story.

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