A recent spate of capital raisings by US airlines has removed a key obstacle in the industry's pursuit of sweeping consolidation, according to the chief executive of United Airlines.
Glenn Tilton told the Financial Times that consolidation should still play a role in shaping the US aviation industry's future, adding that balance sheets had "probably" improved enough to help finance prospective merger plans. "There is still too much capacity in the US market," he said.
Surging fuel costs and dwindling cash reserves ended merger talks between United and Continental Airlines in April 2008, preventing the carriers from following the tie-up between rivals Delta Air Lines and Northwest Airlines.
A reversal in commodity prices later that year, while positive for the industry, nevertheless forced airlines to tie up more cash in fuel-hedging programmes.
In the past year, airlines of all sizes have faced a historic downturn in air-travel demand just as the financial crisis all but froze out the industry from new capital. But in recent months, debt and equity markets have reopened to carriers such as United, Continental and American Airlines.
The industry may now have the means to pay for the 12-18 months of integration airlines typically endure before the benefits of a merger kick in, Mr Tilton said. "To build a bridge to the synergies, you've got to have a chequebook," he said.
Mr Tilton, among the first major industry executives to endorse sweeping consolidation, declined to say whether he and his colleagues had revived talks with Continental, which this week formally joined United's Star Alliance. People familiar with the airlines' plans say the discussions remain dormant.
Industry executives maintain that the ties United and Continental will forge on international routes as Star allies and venture partners will continue to draw the airlines together.
Other merger combinations remain possibilities. Continental also held talks with AA last year, while United had discussed a deal with US Airways. But even if the US industry's strengthening balance sheets do not bring about at least one major deal, Mr Tilton is confident rising commodity prices will not be the culprit. A former vice-chairman at ChevronTexaco, Mr Tilton said recent comments by Opec suggest producers are mindful that a spike in fuel prices could slow the global economy's recovery.
While oil could still climb as hedge funds and other speculators bank on an improving economy, Wall Street may seek to limit its bets on concern that another run-up without a meaningful increase in demand could prompt Washington to tighten commodity trading rules.
Continental move, Page 19 Video: www.ft.com/usview
