WASHINGTON — As Boeing filed its bid on Friday for a $35 billion Air Force tanker contract, the company said it was changing the production line of its 767 jets to cut costs and better compete with a rival bid.

Boeing’s bid was submitted a day after the European Aeronautic Defense and Space Company, the parent of Airbus, filed its paperwork for what could be the largest military contract awarded over the next several years.

Both bids come slightly more than a week after a panel of the World Trade Organization ruled that Airbus, which is owned by EADS, had received government subsidies to build its commercial planes. Boeing has complained that European support could help EADS undercut Boeing’s price on the aerial refueling tankers even though Boeing’s plane is smaller and would be expected to cost less.

As a result, Boeing executives said they were reshaping the final assembly line for the 767, the model on which its tanker entry is based, to cut costs and speed production. The EADS tanker is a variant of Airbus’s A330-200 jet. The cost-cutting will help ensure that the Pentagon pays the lowest price for the tankers no matter which company wins the contract.

“We are deeply concerned about the ability of Airbus and EADS to be able to accept the financial risk that a commercial company like Boeing cannot,” Jean Chamberlin, a Boeing vice president who manages its tanker program, said in an interview Friday.

Ms. Chamberlin said Boeing feared that EADS could accept lower returns on the tanker contract and “turn in a proposal that we would have a difficult time matching.”

EADS executives, however, have dismissed such concerns, saying that the subsidies cited by the trade panel — mainly low-interest loans to help Airbus develop planes — were irrelevant to the tanker contest. Pentagon officials have refused to consider the subsidies in evaluating the tanker bids, even though Boeing’s supporters in Congress have been clamoring for them to do so.

Ralph Crosby, the chairman of EADS North America, said on Thursday that even though its plane was larger, his company could compete with Boeing because its jet was more modern and efficient and the commercial version was still being produced in larger numbers than the 767.

Referring to the complaints about subsidies, he said Boeing’s supporters were “wasting a lot of time trying to derail a process because their plane is inferior.”

Boeing plans to replace the 767 in its commercial lineup with the new 787 Dreamliner, and it is making the changes in the 767 assembly line as it clear space in its factory in Everett, Wash., to increase Dreamliner production.

NEW YORK (MarketWatch) — A pilots strike at Spirit Airlines entered its third day Monday, forcing stranded passengers to scramble after seats on other airlines already brimming with summer travelers.

The Miramar, Fla.-based budget carrier, which represents less than 1% of the country’s annual passenger-air traffic, competes directly with American Airlines parent AMR Corp. (AMR 8.48, +0.22, +2.66%) , JetBlue Airways (JBLU 6.90, +0.40, +6.15%) and AirTran Airways (AAI 5.92, +0.10, +1.79%) for East Coast travel to the Caribbean and Florida.

“We are accommodating Spirit passengers as best we can, but we have very high load factors over the next few weeks,” said Christopher White, a spokesperson for AirTran.

The Cruiser Aurora played a pivotal role in the 1917 Russian Revolution. Nowadays, St. Petersburg communists say the threat isn’t military but economic — hard-partying bourgeoisie. WSJ’s Greg White reports.

Air Tran’s load factor, or the percentage of seats filled on an average flight, hit a record 85% last month, White said, and the numbers are looking high throughout the summer.

Indeed, the entire industry has trimmed its domestic seat capacity over the last two years as higher fuel prices and last year’s recession forced them to abandon less profitable routes and departure times. That’s helped to push fares higher and return carriers to profitability, but it leaves little flexibility when customers face disruptions.

Shares for AMR rose nearly 3% to $8.48 and AirTran shares climbed 2.8% to $5.98. JetBlue Airways jumped nearly 7% to $6.95, helped by a rating upgrade at Hudson Securities, a securities trading firm.

Pilots flying for privately-held Spirit walked off the job on Saturday after negotiations over a new labor contract fell apart. The 450 pilots, represented by the Air Line Pilots Association, have been working without a contract for four years.

All Spirit Airlines flights were cancelled through Tuesday and customers will get credit for the full amount of the flight, as well an extra $100 toward a future flight, the company said. Read more about the strike.

The pilots strike it the first for a U.S. carrier since the spring of 2001, when 1,400 pilots at Delta Air Lines’ regional-service provider Comair picketed for about three months.

It wasn’t clear how long the strike at Spirit could last. As of Dec. 31, Sprit had about $143 million in liquidity, providing the airline with some leeway, according to data provided by Hudson Securities, a securities trading firm.

Spirit Airlines has hubs in Ft. Lauderdale, Fla., and Detroit, serving primarily leisure travel destinations in the Caribbean, Central America, South America, and Florida, as well as Atlantic City, N.J., Myrtle Beach, S.C., and Washington, D.C.

AMR will likely be the biggest beneficiary of the strike because of its hub in Miami, according to Hudson Securities analyst Daniel McKenzie. The legacy carrier serves 32 of the 37 destinations served by Spirit.

To a lesser extent, Sprit also competes with Southwest Airlines (LUV 12.25, +0.18, +1.49%) and Delta Air Lines (DAL 13.96, +0.51, +3.79%) , he said.

Earlier McKenzie upgraded JetBlue to neutral from sell.

“The ultimate [earnings] benefit from the Spirit strike is naturally a function of how long the strike lasts,” he said. “For now, we’re using the opportunity to update estimates for lower fuel prices and slightly better revenue trends at both AMR and JetBlue.”

Christopher Hinton is a reporter for MarketWatch based in New York.

LONDON (AP) — British Airways cabin crew walked out for the 14th day Monday in an on-and-off strike over pay, benefits and working conditions, and a union leader said disruptions could continue into the summer.

Striking cabin crew walked off their jobs May 24 for five days and began the new round of strikes Sunday after the latest round of talks collapsed. The cabin crew union has called for another five days of strikes beginning on June 5 if there is no settlement.

The airline says it plans to fly more than 70 percent of its long-haul flights, compared to the 60 percent it had operated during last week’s strike, and 55 percent of short-haul flights, up from 50 percent last week.

A big sticking point in the dispute is British Airways decision to take away travel benefits for cabin crew who joined in strikes.

Tony Woodley, joint general secretary of the Unite union, accused British Airways Chief Executive Willie Walsh of blocking a settlement. And Woodley said the union is preparing for another vote on continuing strikes beyond early June, when the current strike authorization ends.

“Willie, we all know there is a deal to be done at British Airways, one that recognizes the real commercial needs and problems of your company as well as our members’ legitimate interests. Unite is ready to do that deal,” Woodley said in his speech to the union conference in Manchester, according to a text released by the union.

“But we are not, and never will, be prepared to see our members and our union humiliated, victimized and reduced to ruins, as you seem to want — never.”

The British Airlines Stewards and Stewardesses Association, a part of Unite, says it was close to agreeing with BA on a deal that would have cut costs and allowed the airline to restructure. It complains, however, that the airline has taken disciplinary action against more than 50 members and is angry that BA withdrew travel privileges from striking crew.

Unite says it represents about 12,000 cabin crew.

British Airways says it has made an offer that it believes cabin crew would accept if the union would put it to a vote.

The airline says it has offered to reinstate travel concessions to cabin crew — they pay 10 percent of normal airline fares to commute to work — once all elements of its offer were implemented. It has accused Unite of reopening issues that had been settled.

The strikes are an additional financial hardship for BA, which reported a record annual loss of 425 million pounds ($611 million) for the year ending March 31.

Seven days of walkouts in March cost the airline around 43 million pounds ($63 million).

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LONDON (AP) — Three of Europe’s busiest airports reopened Monday afternoon after a dense volcanic ash cloud from Iceland dissipated and a no-fly zone was lifted. Up to 1,000 flights in Europe were affected by the closures.

Flights were landing and taking off from London’s Heathrow and Gatwick airports and Amsterdam’s Schiphol Airport, but all three warned travelers it would take time for airlines to clear the backlog of delayed flights and to contact their airlines before going to the airport.

Eurocontrol, the continent’s air traffic control agency, said 28,000 flights were expected Monday in Europe, about 1,000 less than normal, mainly due to the disruptions in Britain and the Netherlands.

Icelandic civil protection official Agust Gunnar Gylfason said the ash cloud was traveling to the north, forcing airports in Keflavik and Reykjavik to close. He said seismic activity at the volcano was unchanged.

All British and Irish airspace was open except for smaller airports on remote Scottish islands. Airspace over the North Sea was reopened Monday afternoon, but Faeroe Island airports remained closed.

British Airways chief executive Willie Walsh — facing a fresh wave of strikes by cabin crews on Tuesday — called the latest airspace closures “a gross overreaction to a very minor risk.”

“I am very concerned that we have decisions on opening and closing of airports based on a theoretical model,” he said. “There was no evidence of ash in the skies over London today yet Heathrow was closed.”

Aviation officials have defended the decision to impose the no-fly zone, saying airline representatives and engine manufacturers last week had agreed to find a way to ensure planes could fly safely in the volcanic ash.

Britain’s transportation minister, Philip Hammond, said aircraft manufacturers were examining evidence to see “what inspection regimes they can put in place that would allow safe flying through a somewhat higher threshold of ash.

“If we can do that, the likelihood of volcanic ash disrupting flights will obviously diminish,” he said.

Germany sent up two test flights Sunday to measure the ash cloud, but there was no word yet on the results of those tests. Still, Germany said Monday the latest ash cloud should not affect its airports.

“At this time, the concentration of ash above German air space is so low that there are no reductions in air traffic,” German Air Traffic Controllers said.

Ash can clog jet engines. The April 14 eruption at Iceland’s Eyjafjallajokul volcano forced most countries in northern Europe to shut their airspace between April 15-20, grounding more than 100,000 flights and an estimated 10 million travelers worldwide. The shutdown cost airlines more than $2 billion.

Airlines complained bitterly over the airspace closures last month, calling them an overreaction. The European air safety agency last week proposed drastically narrowing the continent’s no-fly zone because of volcanic ash to one similar to that used in the U.S. The proposal still must be approved.

Eurostar added four extra trains Monday — an additional 3,500 seats — between London and Paris to help travelers cope with the airport closures.

Eyjafjallajokul (pronounced ay-yah-FYAH-lah-yer-kuhl) erupted in April for the first time in nearly two centuries. During its last eruption, starting in 1821, its emissions rumbled on for two years.

Associated Press writers Slobodan Lekic in Brussels, Jan Olsen in Copenhagen, Melissa Eddy in Berlin and Mike Corder in The Hague, Netherlands, contributed to this report.

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United Airlines and Continental Airlines agreed Sunday to a $3 billion merger that will create the world’s biggest airline, people familiar with the discussions said.

Kiosks for Continental Airlines next to a United Airlines check-in area at O’Hare International Airport. An all-stock merger transaction is expected to be announced on Monday.

The boards of both companies approved the all-stock transaction, these people said. A deal is expected to be announced on Monday. The transaction is expected to close in the fourth quarter.

The combined company will keep the United name and will be based in Chicago. It will be run by Continental’s top executive, Jeffery A. Smisek. United’s chairman, Glenn F. Tilton, will be nonexecutive chairman for two years. After that, Mr. Smisek will become the executive chairman.

Jean Medina, a spokeswoman for United, declined to comment. A Continental representative could not be immediately reached for comment.

The combination would jump ahead of Delta Air Lines, which became the top airline after its purchase of Northwest Airlines two years ago. The carriers will have a leading presence in the top domestic markets, including New York, Chicago, and Los Angeles, along with an extended network to Asia, Latin America and Europe.

A combination of United and Continental will have 21 percent of the domestic market share, in terms of available-seat miles, a industry measure of capacity that represents one seat that is flown one mile.

That puts it ahead of Delta, which currently has a 20 percent domestic market share, American Airlines and Southwest Airlines, which both have 15 percent, and US Airways, with 10 percent.

The combination will also account for 7 percent of global capacity, ahead of Delta, the current leader with 6 percent, and American, with 5 percent. United is currently the fourth largest domestic airline by capacity and Continental the sixth.

(Bloomberg) — UAL Corp.’s United Airlines and Continental Airlines Inc. tentatively agreed on an exchange ratio in their all-stock merger of 1.05 shares of UAL for each Continental share, a person with knowledge of the matter said.
United Chief Executive Officer Glenn Tilton and CEO Jeff Smisek of Houston-based Continental have briefed their boards on the terms, said the person, who asked not to be identified because details aren’t public. The CEOs reached their accord at a meeting on April 27, the person said.
An announcement of the merger may come next week, people familiar with the matter have said. UAL directors have scheduled a meeting for today, people have said.
Jean Medina, a spokeswoman for Chicago-based United, and Continental’s David Messing didn’t immediately return messages seeking comment. CNBC reported the ratio earlier today.
–With assistance from Mary Jane Credeur in Atlanta and Mary Schlangenstein in Dallas. Editors: Ed Dufner, John Lear
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
To contact the editor responsible for this story: Jeff St.Onge at jstonge@bloomberg.net;

NEW YORK (Reuters) – Continental Airlines Inc shares jumped more than 5 percent after an analyst said the airline could bid on United Airlines, spurred by news that United and US Airways are in merger talks.

Investors would “react favorably” to a United and Continental (CAL.N) pairing, Stifel Nicolaus analyst Hunter Keay said. He upgraded Continental to a “buy” from a “hold.”

Continental and United, a unit of UAL Corp (UAUA.O), are both part of the Star Alliance and discussed merging in 2008 before Continental ended the talks.

Last week, news emerged that US Airways (LCC.N)and United are in talks to create the No. 2 airline in the United States, which could leave Continental in a tough spot, analysts have said.

“We expect CAL to respond with a bid for UAUA in the near term, partly as a defensive maneuver to protect its immunized JV, but also because of synergy benefits from creating the world’s largest airline,” Keay wrote in a note on Monday.

Continental, the No. 4 U.S. airline, declined to comment, as did United. Keay said he had no knowledge of any merger negotiations or talk between Continental and United.

Continental’s strong presence in New York and the Pacific market could complement United’s routes, whereas US Airways “lacks the rich appeal of new markets,” said GimmeCredit analyst Vicki Bryan in a research note.

“A UAL/CAL combination could generate nearly $2 billion in revenue and cost savings, perhaps twice the benefits versus a UAL/US Airways merger,” Bryan said in a research note.

Continental shares rose 5.7 percent to $22.76, the largest jump since Feb. 9. The Arca Airline Index rose nearly 2 percent, while he broader S&P 500 was up slightly. (Reporting by Deepa Seetharaman; Editing by Robert MacMillan and Steve Orlofsky)

CHICAGO (Reuters) – Shares of UAL Corp (UAUA.O) and US Airways Group (LCC.N) rose on Thursday in the wake of news that the two airlines were in merger talks.

Neither airline confirmed the talks on Wednesday. [ID:nN07137095]

“Clearly these potential talks are a massive positive for US Airways and United, but I think it speaks volumes to the changing landscape in the airline industry,” said Morningstar Equity analyst Basili Alukos.

He said a potential major airline merger, combined with the capacity cuts of 2008 and 2009 hint that the industry “could be en route to earning its cost of capital.”

“History is not on the side of the airlines, but maybe the horrible losses encountered recently have scared newcomers enough to reconsider starting an airline,” Alukos said.

Two sources familiar with the US Airways/UAL talks said the airlines were considering a tie-up that would create the second-largest U.S. airline. The talks were not in advanced stages, they said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Reuters Breakingviews column by Antony Currie [ID:nLDE6370G8] Graphic on US Air and United Airlines link.reuters.com/ded96j ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

US Airways and UAL discussed a merger in 2000 and again in 2008. The chief executives of both airlines are vocal proponents of consolidation for an industry that has long suffered from competitive pressures and overcapacity.

The last merger of two major U.S. airlines was between Delta Air Lines (DAL.N) and Northwest Airlines in 2008.

United Airlines parent UAL shares were up 7.55 percent at $20.38 on Nasdaq. US Airways shares were up 13.78 percent at $7.76 on the New York Stock Exchange.

“We think a deal would help what we see as US Airways’ main problem, a lack of international breadth and scale, while United would gain control over a low cost airline with strong domestic route map,” said Jim Corridore, equity analyst at Standard & Poors’.

“Airline mergers are complex and unions, antitrust regulators or other circumstances could derail a deal,” he said. “We are positive on US Airways shares based on improving airline industry fundamentals and keep our $10 target price.”

Reuters Breaking Views columns [BRV] (Reporting by Kyle Peterson; Editing by Derek Caney)

(Bloomberg) — American Airlines will expand its foothold at New York’s Kennedy airport under an agreement with JetBlue Airways Corp. in a bid to counter growth by Delta Air Lines Inc. in the biggest U.S. aviation market.

AMR Corp.’s American, the world’s second-largest airline after Delta, will get 12 pairs of landing and takeoff slots at Kennedy from JetBlue. In return, JetBlue will receive eight slot pairs at Washington’s Reagan airport, and the airlines said they are “exploring other commercial cooperation.”

American’s move will sharpen New York competition with Delta, which operates an international hub at Kennedy and has almost doubled service in the region since 2005. American uses Kennedy as its base for trans-Atlantic flights and New York’s LaGuardia airport mainly for domestic routes.

“It’s going to get heated, it’s going to get dicey,” Helane Becker, an analyst at Jesup & Lamont Securities Corp. in New York, said today. “American has a position to defend.”

Some parts of the swap agreement may require regulatory review, according to a joint statement from Fort Worth, Texas- based American and JetBlue. Terms of the slot transfers weren’t disclosed.

Marketing Accord

American also agreed to a two-year marketing deal with New York City in which they will promote each other with a $3 million advertising campaign and a $3.5 million payment by the carrier to NYC & Co., the city’s marketing bureau, Mayor Michael Bloomberg’s office said.

AMR dropped 2 cents to $8.92 at 11:06 a.m. in New York Stock Exchange composite trading, while Atlanta-based Delta fell 13 cents to $14.49. JetBlue rose 5 cents to $5.55 in Nasdaq Stock Market composite trading.

No carrier dominates New York, a gateway for overseas business travelers who typically pay the highest fares.

The market is also geographically fragmented, divided among JFK, LaGuardia and New Jersey’s Newark Liberty, a Continental Airlines Inc. hub. The airports collectively handled 100 million passengers last year, more than Atlanta’s Hartsfield, the world’s busiest, which had 88 million, according to the Airports Council International trade group.

‘Strange Bedfellow’

JetBlue makes a “strange bedfellow” for American because the two have been “brutal competitors” in New York and the Caribbean for years, said Daniel McKenzie, an analyst at Hudson Securities in Chicago.

“However, American lags Delta and Continental internationally, so the additional slots at JFK will help AMR execute on further international initiatives,” McKenzie said.

McKenzie and Becker both recommend buying Delta shares and holding AMR. American’s planned New York expansion follows a battle with Delta over a partnership with Japan Airlines Corp. American fended off an attempt by Delta to lure Japan Air away from the Oneworld alliance.

American has 96 daily departures at Kennedy, and 129 at LaGuardia, including flights by its American Eagle regional unit. Delta said it has more than 160 Kennedy departures at peak times, and 149 daily departures at LaGuardia, counting regional trips.

American said it would add 7 new destinations and 23 flights to and from Kennedy and LaGuardia, in addition to 6 new routes and 8 flights announced earlier. All those flights will start in 2010.

JetBlue Growth

The agreement will allow JetBlue into Reagan, the only major Washington-area airport it doesn’t serve, and provide one pair of flights at Westchester County Airport in suburban White Plains, New York. JetBlue also is seeking regulatory approval to acquire five slot pairs at Reagan from US Airways Group Inc. as part of a larger swap involving Delta.

“It’s a great way for them to expand,” said Jim Corridore, a Standard & Poor’s equity analyst. “Reagan is viewed as the most attractive Washington airport to be flying out of. That’s where the high-quality traffic going into and out of the area would be.”

Delta is trying to build LaGuardia as a domestic hub under the proposed US Airways agreement, which still needs government approval. Delta said this month it wants 110 slot pairs at LaGuardia in exchange for giving US Airways 37 of its flight pairs at Reagan plus routes to Tokyo and Sao Paulo.

“American is doing what it can to fend off Delta,” said Jesup & Lamont’s Becker. “Does this catch them up? Absolutely not. But it helps.”

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

NEW YORK (AP) – Boeing will speed up production plans for its 777 and 747 models in anticipation of greater demand from commercial airlines in a couple of years.

Both are wide-body planes capable of carrying more than 300 passengers and flying longer routes. They’re also more fuel-efficient than other aircraft models.

Most major airlines reported losses in 2009 as travel demand slumped. The aircraft maker said Friday that it sees the airline industry recovering this year, followed by a return to profitability in 2011. That should lead to demand for new aircraft in 2012 and beyond, the company said.

Boeing, based in Chicago, will increase production of its 777 in mid-2011 to seven airplanes per month from five. The ramp-up was originally planned for early 2012. The 777 seats more than 300 people.

The 747-8, the newest version of Boeing’s iconic jumbo jet, has been plagued by production problems. The passenger version, which carries more than 400 people, is scheduled to be delivered in the second quarter of 2011. Production will increase to two airplanes per month from 1.5 in mid-2012. The ramp-up had been scheduled for mid-2013.