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Delta CEO Would Consider Merger

Richard Anderson says the carrier is open to consolidation, but that his company would do the acquiring.

Updated from 9:22 a.m. EDT

Delta Air Lines

(DAL) - Get Report

CEO Richard Anderson says the carrier is open to consolidation and to spinning off Comair, but not so warm to the idea of placing a big new aircraft order.

Anderson, who took over the third-biggest airline Sept. 1, spoke on a conference call with analysts and reporters after Delta posted strong quarterly earnings that beat estimates as a result of continuing international expansion.

"There are obvious benefits that could accrue from consolidation for our stockholders and our employees," Anderson said. "We are evaluating the best path forward for Delta."

He assured those on the call that Delta would be an acquirer, not an acquiree. Anderson said he does not differ from predecessor Jerry Grinstein, who was "opposed to consolidation that doesn't make sense for employees."

With spinoff chatter permeating the airline industry, Anderson said Delta would not shed its frequent-flier program before consolidation occurs because "you need to have a lot of scale to make those transactions work,

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and you want to have all options on the table." But Delta will decide in the next few months whether to continue to carry Comair on its balance sheet, he said.

Other Delta businesses, primarily maintenance and a ground services unit, could produce pretax earnings as high as $100 million annually if retained and operated separately from the airline, he said. "We're going to start breaking them out and really running them as stand-alone businesses."

Anderson also backed away from June reports that Delta could order more than 100 Boeing 787s. He said Delta would create better value through being more flexible with its current fleet, buying a handful of 777s and paying down debt.

For the third quarter, Delta reported net income of $220 million, or 56 cents a share. Analysts had expected 42 cents. Revenue rose 10% to $5.2 billion and was about $100 million better than Wall Street predicted.

The carrier had 35% of its capacity in international markets, up from 24% two years ago. Passenger revenue per available seat mile rose 6%, led by a 12.6% increase in Latin America and an 8.6% gain across the Atlantic. Pacific passenger RASM declined 3.2%. President Ed Bastian said Delta is benefiting from reduced domestic capacity, and will cut back more if rising fuel prices squeeze profits.

On the expense side, mainline costs per available seat mile, excluding profit sharing and fuel, was 6.50 cents, a decline of nearly 3%.

Looking ahead, the carrier projected a fourth-quarter operating margin of 3% to 5% and a full-year margin of 6% to 7%. Overall domestic capacity will be flat for the quarter and down 2% to 4% for the year, while international capacity will increase 12% to 14% for the quarter and 15% to 17% for the year.

Bastian said that bookings through November are ahead of last year's pace and that Delta expects "significant earnings" in 2008, although fuel prices and the economy will determine the specifics.