Time Appears Right for United Airlines-Continental Merger

 - May 14, 2010, 7:22 AM
Continental operates an all-Boeing fleet and holds an order of its own for eleven 787-8s and fourteen 787-9s.

It appears United Airlines' public flirtation with US Airways might have generated the desired effect, as Continental Airlines has finally agreed to merge with UAL two years after Continental spurned United's last proposal to wed. The $3.2 billion merger would result in the biggest airline in the world and leave the U.S. with three major international carriers: the new United, Delta and American Airlines. Of course, any deal would need the approval of federal antitrust regulators, a process that could take until the fourth quarter. But as business travel turns upward along with signs of an improving U.S. economy, both UAL and Continental appear much more attractive suitors, together amassing more than $7 billion in cash.

The merger of the two companies would create a combined airplane orderbook worth $22 billion and no doubt raise some questions about their status. United recently split a $10 billion order between Boeing and Airbus for twenty-five 787s and 25 A350XWBs, respectively. Continental, meanwhile, operates an all-Boeing fleet and holds an order of its own for eleven 787-8s and fourteen 787-9s.

At least for UAL's employees, the deal appears less problematic than the attempted tie-up with US Airways only three weeks earlier, due in large part to the fact that the carriers' domestic route networks overlap relatively little. The new airline plans to keep all eight of its domestic hubs, none of which serve both carriers. Combining seniority lists almost always presents difficulties, but regional airline scope-clause considerations could also complicate matters in this case. 

The combined company will keep the United name and base its headquarters in Chicago, but Houston will be its combined largest hub. Continental chairman, president and CEO Jeffery Smisek will run the new airline, while United's chairman, Glenn Tilton, will serve as non-executive chairman for two years. Plans call for Smisek to become the executive chairman after two years.

United Continental Holdings will serve as the name of the holding company of the new entity, which will operate under the name United Airlines. Aircraft will carry the Continental livery, logo and colors with the United name.

Under the plans for the merger, UAL will issue 1.05 shares for each Continental share. United shareholders will own about 55 percent of the equity of the combined company and Continental shareholders will own 45 percent, according to the official merger announcement from United and Continental.