United, Continental to announce merger plans: US media

CHICAGO: United and Continental Airlines were to announce Monday a three-billion-dollar merger that would create the world's biggest airline, in an all-stock transaction approved by the boards of both companies, US news reports said.

The tie-up was to be formally announced within hours, according to the reports.

The Wall Street Journal said United's board met Friday to vote on the deal, while Continental's board voted Sunday to approve it.

The new company would retain the United name and keep the corporate headquarters of the Chicago-based airline, said The New York Times, which also said -- citing sources close to the deal -- that the transaction is expected to close in the fourth quarter.
United's current CEO, Glenn Tilton, is to become non-executive chairman of the board of the new company for a two-year term. Jeff Smisek, CEO of the Houston, Texas-based Continental, is to be the chairman of the new carrier.

The Times said the combination of the two firms would have a 21 percent of the domestic air industry market share, and seven percent of global capacity -- ahead of US airline Delta that currently leads with six percent.

The merger, said the Journal, would give passengers of the two airlines access to many new destinations, as United serves 100 cities that Continental does not, and Continental flies to 136 cities that United does not.

The transaction could be readying for greater scrutiny however from the US government due to the proposed size of the deal, the financial daily said, due to President Barack Obama's administration's vow to "reinvigorate" antitrust enforcement.

Shares of both airlines are expected climb tomorrow in Monday trading ahead of the announcement.

The anticipated merger comes after 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 US Airways chairman Doug Parker.

The two groups had explored a tie-up as airlines grapple with the effects of high fuel prices, growing competition from low-cost carriers and a slump in traffic amid economic recession in many parts of the world last year.

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 United-Continental merger is also being seen as a way for the airlines to maintain economic stability in a downturning industry, as was seen by British Airways in the efforts to reclaim ground with the Spanish carrier Iberia tie-up to avoid being sidelined by rivals Air France-KLM and Lufthansa.

The economic crisis has driven airline alliances and steep cost cutting, as the sector has buckled under the global economic downturn, which has slashed demand for air travel and persuaded many cash-strapped travellers to fly with cheaper low-cost carriers.