A sweeping consolidation of the airline industry—long sought by Wall Street and aviation chieftains for an industry that operates on razor-thin margins even in the best of times—may be about to begin.

Delta Air Lines and Northwest Airlines have made significant progress in merger talks and could announce a deal within the next two weeks, according to several reports. A merger would create the largest passenger airline in the world, vaulting over American Airlines.

And that could step up a mating dance within the rest of the industry, with United Airlines and Continental expected to combine as well.

For years, investors and industry officials have pointed to a need for airlines, with their high cost structures, to combine in order to cut expenses, eliminate overlapping routes, and take seats away, enabling them to raise fares.

The sharp climb in crude oil and jet fuel prices has lent the merger talks greater urgency. High jet fuel prices were largely responsible for Delta's $70 million loss in the fourth quarter. Even UAL, parent of United, which through a trading alliance with Morgan Stanley had strong gains from hedging energy prices in the fourth quarter, said that its jet fuel costs had risen 26 percent from the quarter a year earlier.

At the same, a number of airline labor contracts are coming up for negotiations.

Pardus Capital Management, an investment firm that is being advised by Gordon Bethune, a former chief executive of Continental Airlines, estimated that a merger of Delta and Northwest could result in annual cost savings of $1.5 billion a year, according to the New York Times. Pardus owns stakes in both Delta and UAL.

But nearly as important as the economic issues are the political ones. And it is not just the politics of soothing corporate egos. Where an airline's hub is based, where its planes fly, and how many jobs will be lost in a cost-cutting effort will receive intense scrutiny from lawmakers.

And that is why the airlines need to reach deals now—while the merger-friendly Bush administration is still in office.

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