The United-Continental Merger

United and Continental confirmed this morning that the airlines would merge, a combination that will create the world’s biggest airline. In a press release, the carriers say the all-stock deal – worth about $3 billion – will bring the airlines together in a “merger of equals.”

The Associated Press writes “the new airline would jump past Delta Air Lines in size and have flights reaching from Shanghai to South America. That should lure more business travelers, who pay higher fares. The United name will live on, although the planes will have the Continental colors and logo.” The sides hope to finalize the deal before the end of the year.

USA TODAY writes “before any duplicative flights are cut, the United-Continental combination would be nearly 10% larger than Delta by the number of passenger miles flown. Even after consolidation, United should be larger than Delta. American, which had been No. 1 for more than a decade before Delta surpassed it by acquiring Northwest in 2008, would become a distant No. 3.”

USA TODAY adds that the post-merger United “would be the market-share leader in six of the USA’s 10 largest air travel markets: New York, Chicago, Los Angeles, San Francisco, Houston and Washington. Those markets have a large number of business travelers who pay higher fares and on whom conventional network carriers are heavily dependent.”

The Wall Street Journal says the deal “also would give passengers of United and Continental access to many new destinations: United serves 100 cities that Continental doesn’t, and Continental flies to 136 cities that United doesn’t.”

All of that, of course, brings up an obvious question: How much anti-trust scrutiny will the proposed United-Continental merger get from federal regulators?

Bloomberg News tackles that subject, writing the airlines “may need to cede some flights to win U.S. approval for the first proposed airline merger reviewed by the Obama administration.” In particular, Bloomberg says “the U.S. Justice Department may question whether the deal announced today would limit competition on routes to China and Japan and from New York to Europe, prompting the airlines to give up routes or airport takeoff and landing slots, Mike Goldman, a Washington aviation attorney, said in an interview.”

The Wall Street Journal writes “the Bush administration’s Justice Department speedily approved Delta’s merger, finding it pro-competition.” But, the Journal adds, “United and Continental could face greater scrutiny because of that combination’s size and the Obama administration’s vow to ‘reinvigorate’ antitrust enforcement.”

The New York Times adds that “unlike the Bush administration’s six-month review of the Delta-Northwest deal, analysts expect a lengthier and more complex review of this merger.” Already, the Journal goes on to write, “this Justice Department has shown skepticism about airlines’ claims that they should be allowed to cooperate more closely.”

Still, USA TODAY says “despite concerns, most analysts expect United and Continental to face few antitrust objections.” The Wall Street Journal echoes that sentiment, writing “some antitrust lawyers say there isn’t enough route overlap between the carriers [for the Justice Department] to justify killing the deal.”

The New York Times makes an interesting observation on the regulatory front, noting that the new United’s headquarters will remain in Chicago. The Times writes the company’s “Chicago connection could provide additional benefits. [Current United CEO Glenn] Tilton has been courting local politicians, and the city is eager to retain a major business. United now could use that leverage with the Obama administration, whose ties to Chicago run deep.”

As for the details of the deal, CNNMoney.com writes that “under the terms of the deal, Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own, the companies said in a statement. United shareholders would own approximately 55% of the combined company and Continental shareholders would own approximately 45%.

Of course, there are labor issues that The Washington Post understatedly notes “could another complication.” The Post adds “unlike the Delta-Northwest merger, no single union contract has been agreed upon ahead of the United-Continental merger announcement. Still, there have been encouraging signs; Wendy Morse, head of the pilots’ union at United, recently gave a favorable view of a merger with Continental.”

On that note, the Chicago Tribune writes “unions representing pilots, ramp workers and flight attendants cautioned Monday morning that the merger’s success will also depend on how quickly the new carrier can form new collective bargaining agreements with its workers.

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