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.

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

St Paul, Minn-based KSTP-TV, citing "well-placed sources," 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 American’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.

"We do not comment on any rumours nor confirm or deny them,"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 Union’s board of directors Thursday.

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

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

"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," 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 "a high probability that they’re in talks,"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 PaineWebber’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 & 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 Northwest’s peakearnings, it could be worth somewhere in the low $50-share range, he said.