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Delta Air Lines CEO says merger may be in company's best interest

ATLANTA — The chief executive of Delta Air Lines Inc. said Tuesday that the carrier wants to be the "undisputed leader" in the industry and that a deal with another airline may be in its best interest.

The comments came as the nation's third-largest carrier reported a higher third-quarter profit and prepared to announce a revenue-sharing agreement with Air France-KLM.

"We are evaluating the best path forward for Delta," CEO Richard Anderson said during comments about industry consolidation in a conference call with analysts after the airline released its results.

Anderson noted the consolidation of the airline industry and said he expects that trend to continue. He said he believes Delta's financial improvements could make it a player.

"Ultimately, it's our goal to be the undisputed leader in the airline industry," Anderson said.

Delta executives addressed analysts during a teleconference from Paris, where the Atlanta-based airline is expected to announce Wednesday that it has signed a joint venture agreement with Air France-KLM to share revenues and costs on their trans-Atlantic routes.

The deal was expected to eventually encompass billions in annual revenues. The first phase of the pact begins in April 2008 and will include all nonstop flights operated by Air France-KLM and Delta between several European and U.S. hubs of the two carriers.

Delta fought during bankruptcy to fend off a hostile takeover bid by Tempe, Ariz.-based US Airways Group Inc. But since exiting Chapter 11 protection on April 30, the airline's executives have seemed open to the idea of consolidation with an airline in the future.

Delta has indicated before that if it was involved in consolidation, it would want to be the acquirer. Anderson hinted at that again Tuesday when he said that consolidation would make sense to Delta if it was done from a position of strength and in the long-term best interest of shareholders.

Airline executives declined Tuesday to provide any further details on the future of subsidiary Comair Inc. Delta has said previously that it would consider selling the Erlanger, Ky.-based feeder carrier.

Delta President Ed Bastian told reporters the company continues to evaluate its options on Comair.

Delta on Tuesday reported a higher profit in the third quarter on increased sales and fuel hedging.

The company said it earned $220 million, or 56 cents a share. That compares with a profit of $52 million, or 22 cents a share, in the same period a year earlier.

Analysts surveyed by Thomson Financial were expecting earnings of 42 cents a share in the most recent quarter.

Revenue in the third quarter rose 10 percent to $5.23 billion, compared with $4.75 billion in the same period a year earlier.

Shares rose 8 cents to $20.08 in afternoon trading Tuesday.

Delta said that for the third quarter, its operating expenses increased 4 percent compared with a year earlier. It said the increase was primarily due to profit-sharing expense, higher costs related to an increase in capacity and non-cash expenses from fresh start accounting and stock-based compensation.

In the quarter, Delta hedged 32 percent of its fuel consumption. Delta realized roughly $46 million in cash gains on fuel hedge contracts settled during the quarter. It said its total fuel expense and related taxes in the quarter was $1.27 billion, essentially flat from a year ago.

For the first nine months of the year, Delta reported a profit attributable to common shareholders of $1.68 billion, compared with a loss of $4.22 billion a year earlier. Per-share figures were not provided in Delta's balance sheet Tuesday. Nine-month revenue rose to $14.47 billion, compared with $13.29 billion a year earlier.

Anderson said in a statement that he was pleased by the results.

"Delta has emerged as a leader in the airline industry and we intend to maintain that position," Anderson said.

He added that Delta sees "significant opportunities in front of us as our financial improvements, combined with the power of our people, route network and balance sheet, give us tremendous flexibility and strength as the industry continues to evolve."

As of Sept. 30, Delta said it had $3 billion in cash, cash equivalents and short-term investments, of which $2.4 billion was unrestricted.

Delta said it expects operating margins of 3 percent to 5 percent in the fourth quarter and 6 percent to 7 percent for the full year. It also said it expects mainline unit costs excluding fuel and profit sharing to decline 5 percent to 7 percent in the fourth quarter and to decline 4 percent to 5 percent for the year, compared with a year earlier.

Delta exited bankruptcy a leaner airline. It filed for Chapter 11 bankruptcy protection in September 2005.

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