Is United, US Airways Deal Grounded?

A week after rumors first surfaced that UAL and US Airways might merge, the latest rumors suggest that Continental Airlines might find the M&A skies friendlier.
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(UAL, US Airways story updated for reports of UAL/Continental talks)

NEW YORK (

TheStreet

) -- Is the third time to be the merger charm for

UAL

(UAUA)

and

US Airways

(LCC)

?

It seemed that way last week, when the

The New York Times

reported that UAL and US Airways were in merger talks. Still, the

Times

can't seem to make up its mind which airline M&A ticket to buy.

The "all the news that's fit to print" paper was fit to print a new series of airline merger rumors on Thursday morning, a week after it first reported on the UAL/US Airways talks.

The volcanic cloud in Iceland may have left air traffic over Europe at a virtual halt on Thursday, but that hasn't slowed down the action in U.S. air stocks.

The

Times

is now saying that

Continental Airlines

(CAL) - Get Report

is in direct talks with UAL about a deal. The latest article cited anonymous sources, but sources with "direct knowledge" of the discussions between Continental and UAL.

A deal between UAL and Continental would create the world's largest air carrier.

The UAL/US Airways deal, on the other hand, would merely create the second-largest airline in the U.S.

Will Continental change UAL's flight path, which just last week seemed headed for a US Airways hub?

Recent legal actions taken by US Airways' pilots suggest that they believe a deal between UAL and their airline is moving ahead.

If nothing else, the

Times

is doing a good job of driving up United and Continental's share price.

UAL shares hit a 52-week high on Wednesday, and then again on Thursday after the latest rumors related to a Continental deal surfaced. Continental shares were also trading at a 52-week high on Thursday.

US Airways' shares were up 10.7% last Thursday, and trading volume was huge at the height of the UAL rumors, with more than 52 million shares traded, versus an average daily volume below 8 million shares for US Airways.

US Airways, now seemingly to be stranded by UAL at the M&A gate like a Thanksgiving passenger with connections at O'Hare, has finished down in the past two days of trading, and was down again on Thursday.

There's a lot of history here involving all these airlines and failed connections in the past, too. It could take an act of God the likes of which grounds commercial air traffic to get an airline deal off the tarmac and into flight.

CEOs of both UAL and US Airways have been among the biggest proponents of consolidation in the airline sector. The rationale for a deal between these two airlines, in particular, has been around since the 1990s -- a marriage of UAL's international presence with US Airways U.S. regional hubs.

US Airways previously attempted a hostile takeover of

Delta Air Lines

(DAL) - Get Report

.

UAL was in merger talks with Continental in 2008, in addition to its decade-old courtship of US Airways.

In 2000, United and US Airways announced a $4.3 billion deal, though the deal never made it off the runway due to union opposition and Justice Department anti-trust concerns. A 2008 merger effort was also grounded after months of negotiations, due to resistance from the United board and pilot representatives, the

Times

noted in its article about the renewed talks.

It's not just labor issues that could make another major airline deal tough to pull off -- though airline analysts say the success of the Delta-Northwest deal has created a wave of optimism about getting deals done. The number of domestic hubs operated by both United and US Airways could prove to be additional reasons for yet another delay in the long-discussed merger.

The last big airline connection was between Delta and

Northwest Airlines

, a deal that took two years to complete. There were

indications that the complex nature of labor agreements in the airline industry could prove a stumbling block to a deal between United and US Airways.

The airlines are under pressure to return to profitability by all means possible. The major U.S. carriers lost $60 billion over the last decade, and last year, only

Southwest Airlines

(LUV) - Get Report

managed a profit, even without charging baggage fees.

Given all this, we ask you: Do you think the third attempt at a connection will be the charm for UAL and US Airways, or will the two airlines continue to be members of the frequently failed merger-talks club, and another airline, like Continental, find the M&A skies to be friendlier?

Take our poll below to learn the consensus of

TheStreet

-- and feel free to leave a comment.

-- Reported by Eric Rosenbaum in New York.

RELATED STORIES:

>>United, US Airways Deal Gathers Steam

>>Pilot Issues Could Prove Key in UAL/US Airway Deal

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