European airline mergers, long expected, are now taking wing.

Air France-KLM in January bought a 25-percent stake in Alitalia after a failed attempt at buying the entire carrier last year. The airline fought it out with Lufthansa, which lost the battle but didn’t sit around moping. It quickly launched Lufthansa Italia, which took its maiden flight a few days ago.

Ryanair, Europe’s largest discount airline, has withdrawn its bid for Aer Lingus after the irish government rejected the $1 billion deal. Ryanair is now expected to look for alternative targets.

British Airways remains in merger talks with Spain’s Iberia. Those talks have become complicated by the pound’s recent slide against the euro, making Iberia’s market capitalization now higher than BA’s.

It’s not just European airlines engaging in merger talks. Australia’s native carrier — Qantas Airways — is looking at merger opportunities in Asia.

The question now is - when will U.S. airline merger talks take off again?  The Delta-Northwest merger last year led to a slew of other merger talks that yeilded no deals. But competing with the giant has become even more difficult as airlines struggle with a travel slump caused by a weak economy. And it’s not just leisure travelers that are pulling back: corporate travel, the main backbone for profits, is on a decline as well.

Last year, U.S. airlines were raising prices. This year, they are cutting prices to lure more travelers. With overcapacity and lower prices, U.S. airlines could probably sit up straight, tighten their seatbelts and brace themselves for another round of talks.

The logic behind Delta’s purchase of Northwest was based on the price of oil staying above $100 a barrel. This is what the parties sold to unions, shareholders, creditors and politicians when making the case for the deal; the airline industry was going to have to overhaul everything about its business to manage costs.

New high-efficiency jets were going to be rolling off Boeing’s assembly lines, and airlines would have to find billions of dollars to buy them. Yes, prices for carry-on luggage would keep rising, and free in-flight peanuts could become a thing of the past. Worries about an economic malaise derailing vacation plans and choking corporate travel budgets would grow to full-blown fear of the worst recession in generations by the time the Delta-Northwest deal was struck.

The new, larger Delta will be an international powerhouse with unparalleled scheduling and pricing strength with service to 375 cities worldwide, experts said. The company estimates $2 billion in cost savings and revenue enhancements annually from the merger.

With savings like that, it’s a whole lot easier to forget the high-oil-price argument. The deal is expected to reignite merger plans throughout the industry, as the logic shifts to competitiveness rather than cost. Oh sure, there may still be a recession to deal with, but cutbacks in capacity are already offsetting some of that. Airline investors are so beaten down that they’ll probably be willing partners — and heck, perhaps airlines can use their costly fuel hedging strategies to convince the Fed to lend a hand. There’s a place in the handout line right behind GM.

Deals of the day:

* Top miner BHP Billiton’s chief executive ruled out adding a cash sweetener to its all-share $69 billion offer for rival Rio Tinto, saying financial turmoil hitting commodity markets was no reason to change.

* Newcrest Mining, Australia’s largest gold producer, sees ample acquisition opportunities ahead and its low debt levels mean it has the firepower to take advantage of them, it said.

* The head of Mazda Motor > said he did not expect any change in the Japanese automaker’s relationship with Ford Motor, amid reports that the struggling U.S. automaker would sell part of its controlling stake.

* British billing and support systems company Intec Telecom Systems said it ended talks about a potential offer for the company, given current market volatility and the fact that it had not received a suitable offer.

* An Italian investor group planning to buy Alitalia was in a stand-off with unions, after failing to agree on new work contracts at late-night talks, unions said.

The aftershocks of Bear Stearns’ collapse are front and center. China’s CITIC Securities is moving on, formally calling off its $1 billion strategic tie-up; JPMorgan is moving in, ditching plans for a new office building now that it owns the $1.5 billion Bear Stearns HQ.

The Federal Reserve — hours away from the most aggressive rate cut in years — is arranging shotgun weddings for failing financial institutions, but policy makers might be running out of eligible suitors. “There may be some potential buyers left, but the list is looking pretty thin,” said Adam Compton, co-head of global financial stock research at RCM Global Investors.

Across the Atlantic, the European Commission said that while it was not asking for job cuts at stricken British mortgage lender Northern Rock, the bank would have to slim down to be a viable business in the future without state support. UK newspapers reported that one-third of staff could be axed.

Delta Air Lines’ pilots union confirmed that has failed to reach an agreement with Northwest Airlines’ pilots union on how the groups would resolve issues like seniority if the companies merged, the Atlanta Journal Constitution. throwing the long-anticipated deal into doubt. Look for heaps of comment today, as senior execs from the industry debate the future of aerospace at the JP Morgan aviation conference.

India’s Tata Motors has signed a deal to receive a $3 billion one-year bridge loan from Citigroup and JPMorgan to help finance a potential purchase of luxury brands Jaguar and Land Rover, according to sources familiar with the deal. “It is signed, but it’s still at an early process,” said one of the sources, who was not authorised to speak to the media. Tata is expected to agree on a deal by the end of the month to purchase the two well-known UK brands from U.S. auto maker Ford Motor, according to media reports in India.

Chinese aluminum giant Chinalco, which earlier this year led a $14 billion investment in Rio Tinto, is more likely to raise its stake than reduce it. Chinalco and U.S. aluminum firm Alcoa jointly purchased 12 percent of Rio’s London-listed shares, or 9 percent of the total equity of the firm at an average price of almost 59 pounds per share. The shares closed at 50.61 pounds on Monday.

Saudi Telecom plans to spend about $15 billion acquiring firms and licenses outside its home market during the year, according to a report in London-based MEED magazine. The Middle East’s largest telecom company by market value will target mobile phone licenses in Bahrain and Lebanon, and also wants to win the second fixed-line licence in Egypt.