Bankrupt US Airways (search) on Friday confirmed it was in talks with America West Airways (AWA) on a "strategic transaction," but said there is no assurance a deal will be reached.

While US Airways Group Inc. would not characterize the talks, reports this week said the two carriers were in advanced discussions on a merger. Such a deal would lift No. 7 US Airways out of Chapter 11 and give America West Holdings Corp., the eighth- largest carrier, a strong foothold in the East.

Other reports have said the two could enter into an agreement short of a merger under which America West would invest in US Airways and the two would "code-share" — cross-market and sell seats on each others' flights.

Although US Airways officials were until Friday close-mouthed on the subject and America West Chief Executive Douglas Parker refused to discuss the matter at an industry conference this week, the talks became the industry's biggest open secret.

On Wednesday, Wall Street reacted negatively to the prospect of a merger. America West shares fell by more than 6 percent on the same day the company reported a profit.

America West shares closed down 35 cents, or 7.6 percent, on Friday to $4.27 on the New York Stock Exchange.

US Airways is searching for at least another $100 million in financing to emerge from bankruptcy by the end of August and said it has been in talks with a number of potential investors.

Arlington, Va.-based US Airways has already struck deals with two regional carriers, Air Wisconsin (search) and Republic Airways (search), for $250 million in financing. But the deal with Republic requires it to come up with the additional money.

Some analysts were cool to a US Airways-America West link-up, saying both companies have cash problems and labor could withhold support.

US Airways spent much of last year and the early months of 2005 driving its labor and other costs down to levels paid by low-cost airlines, such as America West.