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DEALTALK-U.S. Airline Merger Talks Could Resume In ‘09

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As several European airlines talk about merging to create big global networks even as fuel prices ebb, the question on a lot of minds is: will merger talks in the U.S. airline industry take off again?

The answer is likely to be “yes” in an industry that clearly has excess capacity, is adding surcharges despite a retreat in gas prices, and is facing international competitors likely to consolidate significantly in the coming year.

“As we are in a recession that is becoming worse, there is going to be an impact on air travel,” said Bruce Zirinsky, a bankruptcy attorney at Cadwalader Wickersham & Taft. “There is already shrinking demand and if that continues, it is fair to say we will see more consolidation.”

For some of the world’s biggest airlines, it is a question of clout. The carrier with the strongest international route system often wins the biggest chunk of the lucrative corporate travel market.

International business travelers — those that pay top dollar for flights — are an increasingly valuable market for airlines.

“Some, like (American Airlines parent) AMR Corp (AMR.N: Quote, Profile, Research, Stock Buzz), face the prospect of going from the No. 1 to the No. 3 network in the U.S., with the loss of interest by high-paying corporate accounts that goes with that,” said airline consultant Robert Mann.

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