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Business

Continental, United to merge, creating world's biggest airline

Video by By France 24

Text by News Wires

Latest update : 2010-05-04

United and Continental Airlines confirmed Monday that they have agreed to merge in a share swap deal that will create the world's largest carrier.

AFP - United Airlines and Continental Airlines announced Monday they had agreed to merge, creating the world's biggest carrier in an all-stock transaction approved by the boards of both companies.

The transaction, which has been approved unanimously by the boards of directors of both companies, still needs to be approved by the shareholders.

But the companies said they expected to complete the transaction in the fourth quarter of 2010.

The new merged giant, which will keep the United name and maintain its headquarters in Chicago, will account for seven percent of global airline capacity, ahead of US rival Delta, which currently leads with six percent, US media reported.

It will also have a 21 percent share of the huge US air market.

"The consumers are the ones who will want to look very carefully at this deal".


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 percent of the equity of the combined company and Continental shareholders would own approximately 45 percent, including convertible securities.

The combined company would have annual revenues of approximately 29 billion dollars and an unrestricted cash balance of approximately 7.4 billion as of the end of first quarter 2010, officials said.

The merger is expected to deliver between one billion and 1.2 billion dollars in net annual gains by 2013, including between 800 million and 900 million dollars of incremental annual revenues, the companies projected.

Glenn Tilton, president and chief executive officer of UAL Corp., will serve as non-executive chairman of the combined company's board of directors while Jeff Smisek, Continental's CEO, will be chief executive officer.

"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 pointed out 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," Smisek argued.

In their combined effort, Continental and United will serve more than 144 million passengers per year as they fly to 370 destinations in 59 countries, the joint announcement said.

The combined company promised to offer enhanced service to Asia, Europe, Latin America, Africa and the Middle East from 10 well-placed hubs on the East Coast, West Coast, and Southern and Midwestern regions of the United States.

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 US Airways chairman Doug Parker.

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 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.

Shares of both airlines are expected to climb in Monday trading.

Date created : 2010-05-03

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