United and USAir in advanced merger talks

United Airlines and US Airways Group are in "very advanced" merger talks, two sources with knowledge of the matter said on Monday.

A deal could be finalised within the next couple of weeks and could include significant cuts in capacity, one of the sources said.

The discussions intensified over the weekend after Continental Airlines Inc, which had been in negotiations with United, pulled out to explore a potential marketing alliance with AMR Corporation's American Airlines and British Airways.

Continental called off talks with United, a unit of UAL Corp, because of United's weak financial condition and a feeling that a merger would risk Continental's own financial health, a source told Reuters on Sunday.

A third source said United was also looking at other options, including expanding its alliance network.

United and US Airways declined comment.

Shares of US Airways were up 7.5 per cent to $7.67 while United shares shed 5.7 per cent to $14.34. Both trade on the New York Stock Exchange.

United and US Airways failed in a merger bid in 2001 over competition concerns. However, several industry insiders said recently that a new merger proposal would be different from the first. Both companies restructured in bankruptcy this decade, and low-cost carriers have substantially increased their domestic market share.

It is also anticipated that a United-US Airways deal would require divestment of some gates or slots in cities where the two overlap in the eastern United States.

Analysts have said a United-US Airways merger would not be very complex as wages at the two carriers are closely aligned and their fleets mesh well.

The two companies are also part of the Star global marketing alliance.

Airlines wishing to merge believe they have only weeks to get a deal in place to ensure antitrust review by the Justice Department under the Bush administration. Many insiders consider the Bush administration business friendly.

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