Airline mergers no longer look like a panacea for the industry. They do not solve the problem of higher fuel costs. They often drive the ire of unions which do not want to lose any more jobs. And, integration problems usually make customers mad, which can send them off to fly other carriers.

Perhaps because of some of these factors, United (NASDAQ: UAUA) and US Air (NYSE: LLC) are cooling talks about a tie-up. Or, it may be that each airline thinks it can find a better deal. "Even as its talks with US Airways were continuing, United had begun talks with Continental for a possible alliance," Reuters reports.

The most likely case is that managements at airlines are looking for ways to stay out of Chapter 11. Rising jet fuel prices and the potential of lower passenger traffic in a recession have executives working overtime to keep losses from piling up.

A merger does no good if neither party in the marriage is in good enough shape to add much to the deal.

Douglas A. McIntyre is an editor at 247wallst.com and author of Ten Stocks Under $10 letter.

The conventional wisdom is that labor unions in the US are close to dead and no longer have much influence on the managements of big companies. Tell that story to the boards at Northwest (NYSE: NWA) and Delta (NYSE: DAL). Disagreement at the pilot's union may undermine a merger between the two airlines.

According to The Associated Press ,"the pilots unions have agreed on a comprehensive joint contract, but they are unable to agree to how seniority for the 12,000 pilots would work under a combined carrier."

The dubious theory behind airline mergers is that putting two carriers together saves money, but concessions to labor to get a deal done may undermine that. It is also not clear that a newly combined airline can avoid the customer service problems early in the process. These troubles often drive customers away.

While the industry looks at a number of business combinations, pilots and other unions are pushing their agendas. The message is simple. If you want a merger, it is going to cost you.

Douglas A. McIntyre is an editor at 247wallst.com.

Earlier this month, rumors hit the market that United Airlines (NYSE: UAUA) and Delta Air Lines (NYSE: DAL) were considering a possible merger. Shortly afterward, Delta officially denied the rumors, but not surprisingly, United Airlines CEO Glen Tilton did not deny that they were considering merger options, as many industry analysts believe that United is the perfect company for a possible merger.

The airline, which took flight in 1930, filed for bankruptcy following the 2001 terrorist attacks and has appeared to be preparing for a sale ever since emerging from its bankruptcy proceedings. United came out of bankruptcy last year, but the company is still up to its eyeballs in debt, and boasts a miserable 2% profit margin over the past year.

When looking at United a couple of factors jump out at you pointing to the notion that the company feels a merger is the best avenue to explore:

The Associated Press reports that UAL Corporation (NYSE: UAUA)'s United Airlines and Delta Air Lines (NYSE: DAL) are in discussions about a merger. The firms would take United's Chicago headquarters and its name. One possible scenario involves Delta CEO Richard Anderson being the chief of the combined airline.

Why merge? Pardus Capital Management LP, a hedge fund, owns 7 million Delta shares and 5.6 million shares of United. Pardus pushed Delta to merge with UAL. It argued that it was "imperative" that the company merge with another airline in view of soaring fuel prices and what it described as the increased risks of going it alone. Pardus believes that "consolidation is needed to de-risk the industry, and time is of the essence as now is the right regulatory environment."

If Pardus is right, it seems to me that it must be forecasting that Hillary Clinton will be the next president. That's because Pardus believes that the regulatory environment for airline consolidation will deteriorate under the next president -- and I wouldn't be surprised if it thought mergers would be viewed more favorably under a Republican than a Democrat.

For years I have been wondering why there has not been an abundance of airline mergers. I have asked many people I thought wiser than I in the investment world and not received a satisfactory answer. Think about how many industries have seen rampant mergers and acquisitions in the last ten years alone: banking, communications, insurance, software, aerospace, brokerage, real estate, construction, energy, retailers, manufacturers and just about anything else you can think of.

It seems to me that Bank of America, AT&T, or Oracle have each independently been responsible for more M & A activity than the entire airline industry. Furthermore there are few industries that would benefit as much as airlines from a reduction in the number of carriers, overlap of service areas and greater efficiency. Why no M & A's I asked over and over with no adequate response...until Wednesday evening January 24, 2007 at about 8:15 PM, PST.

The light bulb came on at a lecture on business ethics by the renowned Rabbi Dr. Meir Tamari, an octogenarian economist visiting from Israel. According to his bio, he served the Bank of Israel for 30 years rising to the position of Chief Economist in the Office of the Governor and also served as a special consultant in the fields of risk evaluation, small firms and entrepreneurship for the British, Japanese, French and U.S Governments as well as the World Bank.

In the early part of the lecture he was discussing openness, forthrightness and disclosure in business for both private and public companies. This lead to important points about insider trading and why the United States had the best markets for investment. He followed with the issue of bankruptcy explaining the problem he had with someone being able to walk away from their obligations so easily.

He felt that if someone damaged someone else financially they should have an obligation to make amends for the rest of their life. He believed that management had plenty of early warnings and should take corrective actions, reducing risk as much as possible. As examples think about how Enron and Worldcom did the opposite, leveraging further and taking more risk instead of less. (my examples, not his.)

I have over simplified the discussion points that ensued but here is a portion of his reasoning. He claimed that quite some time ago he had theorized, and then proven to the World Bank, that bankruptcy is predictable five years in advance in the majority of cases. That there are factors in play that can be observed and that proper monitoring could reduce the risk of bankruptcy. Of course this position is not now unique and that is why we ask for so much information about business plans, cash flow, debt, management and the like prior to investing or major business transactions.

So with thoughts of insider trading and the predictability of bankruptcy in my mind the flash point came. The reason the airlines have not merged is extremely simple - THE AIRLINE BUSINESS IS A LOUSY BUSINESS!

Airline management has 'inside information' about every detail about the business and advance knowledge of most trends, an understanding of how capital intensive the business is, how regulated, how speculative and how competitive. There has not been any M & A activity because they know you would have to be nuts to buy an airline and they know it better than anyone else....they have inside information!

So now we are starting to hear about possible airline mergers -- why now? That is simple also and comes back to the Rabbi's discussion about bankruptcy. The airline business has not gotten any better. It is just that through bankruptcy, they can walk away from so many financial obligations without owing anything to their employees, shareholders and most creditors that in the short run it becomes a worthwhile investment.

In the long run I think all the things that haunt the industry will return so in the long run I think it is still a questionable investment for most of the investing public. If anyone knows why this will change I am all ears.

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Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Current architecture projects include work at military airports, general aviation airports and LAX.