US airlines planning merger deal

The transaction, which was approved unanimously by the boards of directors of both companies, would have combined annual revenues of approximately $29bn.

Glenn Tilton, president and chief executive officer of United Airlines will serve as non-executive chairman of the combined company’s board of directors while Jeff Smisek, Continental’s chief executive officer will serve in the same role after the merger.

Under the agreement, Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own. 

United shareholders would own approximately 55 per cent of the equity of the combined company and Continental shareholders would own approximately 45 per cent, including convertible securities.

“This combination will provide a strong platform for sustainable, long-term value for shareholders, opportunities for employees, and more and better scheduled service and destinations for customers,” Tilton said in a statement.

Smisek said that the merger would create “a world-class airline with tremendous and enduring strengths”.

“Together, we will have the financial strength necessary to make critical investments to continue to improve our products and  services and to achieve and sustain profitability,” he said.

The carriers are planning a 16-member board with six directors from each airline, including Tilton and Smisek, and two seats from labour unions.

The combined airline will serve more than 144 million passengers per year, flying to 370 destinations in 59 countries, the joint announcement said.

Stricken industry

The merger is seen as part of an industry-wide move by airlines to survive in the crisis-stricken industry.

British Airways is going  through a tie-up with Spanish carrier Iberia to avoid being sidelined by European rivals Air France-KLM and Lufthansa.

US Airways broke off merger talks with United last month, but said it expected consolidation of the fragmented airline sector in the near future.

“It remains our belief that consolidation makes sense in an industry as fragmented as ours,” said Doug Parker, the US Airways chairman.

Parker stressed that consolidation would lead “to a more efficient industry, better able to withstand economic volatility, global competition and the cyclical nature of our industry”.

The sector has buckled under the global economic downturn, with demand for air travel falling and cash-strapped travellers turning to cheaper low-cost carriers.