US OPERATORS Continental Airlines and United Airlines will merge to establish a stronger network carrier handling more than 144 million passengers per year on routes to 370 destinations in 59 countries. The two companies reported combined annual net losses of $1.3 billion during 2009 and the arrangement is viewed as a logical step in safeguarding the future of both businesses.
The proposed $3.2 billion deal, dubbed “a merger of equals,” will see Continental stakeholders receive 1.05 shares of United common stock for each Continental common share they own, giving United shareholders approximately a 55% of the equity of the combined company and Continental shareholders the remaining 45%. On a pro forma basis, the combined company would have annual revenues of approximately $29 billion based on 2009 financial results.
The new company will be known as United Continental Holdings and will be headquartered in Chicago. It will trade under the United Airlines name but will use the Continental Airlines corporate livery. The largest operational hub for the ‘new’ United Airlines will be Houston, but a further nine major hubs will be retained across the US.
Glenn Tilton, Chairman, President and CEO of United’s parent UAL Corporation, will serve as non-executive Chairman of the combined company’s Board of Directors through December 31, 2012, or the second anniversary of closing, whichever is later. Jeff Smisek, Continental’s Chairman, President and CEO, will be CEO officer and a member of the Board of Directors and will take up the position of Executive Chairman of the Board on Tilton’s departure.
According to a joint statement the merger is expected to deliver $1.0 billion to $1.2 billion in net annual synergies by 2013, including between $800 million and $900 million of incremental annual revenues. The combined company is also expected to realise between $200 million and $300 million of net cost synergies by 2013. The majority of these savings are expected to be achieved by 2012 when the two airlines hope to have US Federal Aviation Administration (FAA) clearance to fly under a single Air Operator’s Certificate (AOC). Until then all aircraft will continue to fly under the existing AOCs with the first aircraft appearing in the new branding from later this year when the merger deal is formalised.
It has emerged that Continental’s Jeff Smisek first contacted United’s Glenn Tilton about the proposed merger on April 9 after it was revealed in the US press that the latter was holding informal talks with US Airways’ Chairman and CEO Doug Parker. Confirming the details of the merger, Jeff Smisek verified that the talks between United and US Airways had driven Continental to look at its own long-term options. “I didn’t want him [Glenn Tilton] to marry the ugly girl. I wanted him to marry the pretty one,” he joked.
The merger has been approved unanimously by the Boards of Directors of both companies, but is conditioned on approval by the shareholders of both companies, receipt of regulatory clearance, and customary closing conditions. Company officials are confident that the US Department of Justice (DOJ) will approve the merger concessions as there are more than 80 US domestic destinations served by United and not Continental and around 40 more linked by Continental and not United. This will enable the transaction to be closed in the fourth quarter of this year.