Northwest, US merger talks

The deal, if finalised, would face the same tough regulatory hurdles clouding completion of the UAL-US Airways deal, and could even cause regulators to veto both deals.

quot;Each deal that is announced8230; reduces the probability of any deals happening,quot; Samuel Buttrick, airline industry analyst at PaineWebber said in a research note, in which he lowered his rating on Northwest to quot;attractivequot; from quot;buy.quot;

St Paul, Minn-based KSTP-TV, citing quot;well-placed sources,quot; reported Thursday that AMR Chief executive Don Carty and Northwest president and Chief Executive John Dasburg have spoken about a possible merger.

Shares of St. Paul-based Northwest were up 5-12/16 at34-13/16 Friday afternoon, after trading as high as 36-3/8 earlier in the day, their highest level in almost two years. AMR shares were down 1-8/16 at 27-15/16, above the 52-week low of 26-10/16 and well below the 52-week high of 73.

A Northwest-American combination would help American keepup with United in size and would shore up American8217;s weak Asia presence while boosting Northwest in Latin America.

But analysts cautioned that even if the two sides were toreach an agreement, the chances of a deal receiving the necessary regulatory approvals could be only about 50 percent.

AMR declined comment on the talks report.

quot;We do not comment on any rumours nor confirm or deny them,quot;spokesman Chris Chiames said. Northwest spokesman Jon Austin also declined comment on the report.

The pilots Union at American said company officials did notmention a possible bid for Northwest or any other possible deals during a meeting with the Union8217;s board of directors Thursday.

quot;Other than a simple acknowledgment that if the United-USAirways deal is actually consummated, it would have a major impact on American8217;s network, there was no other mention of the issue,quot; Greg Overman, a spokesman for the Allied Pilots Association, said.

The Air Line Pilots Association, which representsNorthwest8217;s pilots, declined to comment specifically on the American report.

quot;As media coverage of the proposed United Airlines/USAirways merger continues, we assume that meetings and discussions may occur among the remaining airlines, in every possible combination,quot; Mark McClain, chairman of the Northwest pilots master executive council, said in a statement.

Airline industry analysts and employees had expected AMR toexplore a possible bid with Northwest after UAL announced its plan to buy US Airways. They also expected No. 3 U.S. Carrier Delta Air Lines Inc. to consider an acquisition.

There is quot;a high probability that they8217;re in talks,quot;Raymond Neidl, airline analyst at ING Barings, said of Northwest and AMR.

But Neidl said the deal would only have about a 50 percentchance of happening and PaineWebber8217;s Buttrick put the chances of such a bid being successfully completed at 40-50 percent.

The deal would require approval by the U.S. Department ofJustice, which would take a close look at the effect of the consolidation on the U.S Airline market. A Northwest deal could be more difficult than the UAL merger because it owns a majority stake in Houston-based Continental Airlines Inc..

Opposition from powerful airline unions could also make adeal more difficult to complete.

James Higgins, an airline industry analyst at Donaldson,Lufkin amp; Jenrette, said he thought it was likely a deal to combine American nd Northwest would be announced, but he was not sure such a deal would be completed.

He said it was difficult to put a value on Northwest. IfNorthwest was valued at a multiple of earnings before interest, taxes, depreciation and amortization, Northwest could actually be worth less than what it is now trading at.

But if a deal was based on a multiple of Northwest8217;s peakearnings, it could be worth somewhere in the low 50-share range, he said.