Two US-based airlines, United (NASDAQ: UAUA) and Continental (NYSE: CAL) are merging in a 3.1 billion deal, creating the world's largest airline. The combined firm will have nearly 700 planes, 88,000 workers, and fly to 370 destinations in 59 nations.
The airline will be called United Airlines. Continental Airlines' (NYSE: CAL) chief executive, Jeff Smisek, will be the CEO of the combined company, and United Airlines' (NASDAQ: UAUA) boss, Glenn Tilton, will be the chairman. The boards of both companies approved the merger Sunday and announced Monday, but the deal also needs approval by the firms' unions and will be examined by US antitrust (Compton) regulators. The company hopes to save 1 billion USD or more per year by eliminating duplicated staff and operations.
The combined company will have 21% of the US domestic market share, which puts it ahead of Delta (NYSE: DAL), which currently has 20% of the domestic market share. The merger will also make up 7% cent of the global capacity, ahead of Delta, the current leader with 6%. United is currently the fourth US largest domestic airline by capacity and Continental the sixth.
Under the terms of the transaction, United is expected to issue to Continental shareholders 1.05 of its shares for each of their Continental shares. The combined company will keep the United name but will feature the Continental logo and will be based in United hometown of Chicago.
This combination brings together the best of both organisations and cultures to create a world class airline, Smisek said, adding that together we have the financial strength necessary to make critical investments to continue to improve our products and services and to achieve and sustain profitability. The merged airlines expect the deal to be over by the end of 2010.
Earlier, Continental and the Chicago-based United came very close to a merger in 2008, but their talks were suspended at the direction of Continental's board and Continental chose to pursue an alliance instead. Before its latest talks with Continental over a merger deal, United also reportedly had talks with the Arizona-based US Airways.
Observers say Continental would be a better choice for United since their tie-up would form the world's largest airline, with relatively little overlap in their networks. Analysts believe the airlines have ample reasons to move quickly in the direction of combination to make them profitable.
The industry, which struggles with high fuel prices and a pullback in consumer consumption due to a weak economy, has lost some 50 billion USD in the past decade.