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Northwest May Be Best for Delta

CHARLOTTE, N.C. -- If Delta (DAL) wants to merge with someone, Northwest (NWA) may be the most viable candidate.

On Wednesday, a hedge fund called for a merger between Delta and UAL's (UAUA) United Airlines, and the Associated Press reported that the two carriers have discussed a deal that would put the combined company's headquarters in Chicago. Delta denied holding any talks.

In any case, "Northwest makes more sense," analyst Michael Derchin of FTN Midwest Securities said Thursday in a report. Additionally, a source said, past internal Delta studies have concluded that Continental (CAL) and Northwest are good merger candidates, while United is not.

Those studies indicated that a pact between United and Delta, the nation's second- and third-largest airlines, would be unlikely to gain approval from antitrust regulators. Meanwhile, Northwest has the ability to limit Continental's maneuverability because it owns a stake in its fellow carrier and could block an acquisition.

Derchin wrote in his report that Northwest's Pacific routes are the primary lure. "It will take Delta 15 years to build an Asia/Pacific operation that is comparable to their current Atlantic and Latin American operations," he said. "A merger would get them there in one year."

While United also has a strong Pacific operation, Derchin listed several reasons why Northwest is the preferred partner. A key is that integration of the carriers' international alliances would be smoother, namely one with Air France KLM (AKH). That company has formed a joint venture with Delta, and the KLM division has a business venture with Northwest.

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