United, Continental Shareholders Vote On Deal
Shareholders of United’s parent company and Continental Airlines are voting on a deal that would create the world’s biggest airline.
Results of voting that started in late August will be announced Friday. If shareholders approve, the $3 billion stock deal could close in two weeks.
Then the real work begins, including dealing with labor issues, combining reservations systems and even putting new paint jobs on the planes.
There’s also the matter of a lawsuit by several dozen passengers who claim that a United-Continental combination will lead to fewer flights and higher fares. A federal judge in San Francisco is scheduled to hear closing arguments Friday on a request to block the deal.
It likely will be some time before passengers notice much difference when they fly Continental or United.
The airlines expect to operate separately for at least another year until they get permission from the Federal Aviation Administration to merge their fleets. Eventually, the combined carrier will be called United Airlines and based in United’s hometown of Chicago. It will be run by Continental CEO Jeff Smisek.
Shareholders of United parent UAL Corp. are scheduled to meet Friday morning in Chicago, while Continental shareholders will gather in Houston. UAL would acquire Continental in the stock-swap deal.
The companies hope to attract more corporate travelers by combining United’s strength in the Midwest, the West Coast and over the Pacific with Continental’s presence in Texas, the East Coast and routes to Europe and Latin America.
Measured by traffic – the number of miles flown by paying customers – the new United would leapfrog Delta Air Lines Inc., Air France-KLM and American Airlines to become the world’s biggest airline.
Size is no guarantee of profits in the airline business. UAL and Continental together lost nearly $7 billion in 2008 and 2009 due to high fuel costs and the recession. Both returned to profitably last quarter, as fees and higher fares boosted revenue.
The new parent company will be called United Continental Holdings Inc. It would have had $29 billion in revenue last year.
The history of the airline industry has been littered with mergers that didn’t work out as well as planned.
American Airlines parent AMR Corp. bought TWA during a recession in 2001. Within a few years, American had dropped TWA’s St. Louis hub and furloughed most of the TWA workers. The 2005 deal to combine US Airways and America West is still plagued by animosity between the two labor groups.
Continental and United talked about a merger in 2008, but Continental – the smaller but more financially secure of the two – walked away from the table. Talks resumed this year after Delta’s acquisition of Northwest seemed to go smoothly, creating a more powerful competitor.
UAL and Continental stock will continue to trade until the deal closes, at which time Continental shareholders will get 1.05 shares in the new United for each Continental share they owned. Current UAL shareholders will own 55 percent of the combined company.
(Copyright 2010 by The Associated Press. All Rights Reserved.)