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The Deal: The Trouble With Being United

NEW YORK ( The Deal) -- This time was supposed to be different.

Airlines have a long history of dealmaking, and through most of that history things have not gone well. The past is riddled with companies that were unable to hit cruising altitude because of the excess baggage taken on via mergers.

But those rough trips have done little to temper the urge to merge. And despite the past a chorus of survivors promising they have learned from their mistakes has provided investors with enough confidence to whole-heartedly endorse an ongoing round of consolidation.

Alas, the 2010 merger of UAL Corp.'s United Airlines Inc. and Continental Airlines Inc. could call into question how much has really been learned. The deal provided the combined United Continental Holdings Inc. (UAL - Get Report) a substantial portfolio of assets, combining United's strengths across the Atlantic and Pacific oceans and its Midwest and western strongholds with Continental's substantial South American reach and lucrative Newark, N,J., hub.

The resulting company is far from a failure. But United Continental to date has struggled with post-deal turbulence that has resulted in a share price that lags gains made by rivals. Its issues double as a warning for would-be merger partners AMR Corp. (AAMRQ) and US Airways Group Inc. (LCC), who are seeking regulatory clearance to complete a deal that would see them dethrone United Continental as the world's largest carrier.

This has been a boom time for so-called legacy U.S. airlines, sparked by a 10-year period of, first, reorganizations and, more recently, M&A that has improved balance sheets, cut costs and eased competitive pressures. The industry, according to AirlineFinancials.com LLC, generated a cumulative profit of $2.5 billion on sales of $37 billion during the second quarter of 2013, producing a cumulative profit margin of 6.6%.

AirlineFinancials says you have to go back to 2000 to find a higher second-quarter profit margin.

But the news was not universally positive. While Delta Air Lines Inc. (DAL) and US Airways were having record second-quarter profits and others were setting new highs in sales, United's numbers lagged. United reported a 5.2% margin in the quarter compared to margins of 8.7% at Delta and 8.4% from US Airways.

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