UAL, THE parent of United Airlines, and Continental Airlines have announced a $3.2 billion stock-swap merger of the two US carriers.
It is a move that creates the world’s largest airline and threatens to reshape the domestic and global industry.
Based on where each company’s shares ended last week, the combined entity would have a market value of about $6.8 billion, or $8.3 billion on a fully diluted basis.
In terms of passenger traffic, the pair will overtake Delta, which merged with Northwest Airlines two years ago, as the global leader, and relegate American Airlines to a distant third place in the domestic US league table.
The merged airline will have combined revenues of about $29 billion based on 2009 numbers and unrestricted cash of about $7.4 billion.
It will serve more than 144 million passengers a year, flying to 370 destinations in 59 countries.
In an Irish context, Continental flies transatlantic from its hub in Newark, New Jersey, to Shannon and Belfast.
United, meanwhile, has a joint venture with Aer Lingus that began flying between Washington DC and Madrid in March.
The proposed merger adds to the momentum behind consolidation within the airline industry. Executives are turning to scale as a way to respond to long-standing problems of overcapacity.
“You can see a clear trend whether it is in Europe, in Asia or in the US,” Jeff Smisek, Continental’s chief executive who will lead the combined company, said yesterday. “Having the scope and scale to develop a large presence in the key business market segments is absolutely crucial to succeeding in the industry.”
Analysts and executives expect more routes and better pricing options to make the combined company a forceful presence in key business markets that provide much of the profits for airlines.
That will add to the pressure on carriers such as American Airlines and US Airways, which have been left without an obvious partner in the consolidation dance.
US Airways was in talks with United about a potential merger until Continental intervened.
American has said it is more focused on developing international alliances.
The deal will mean Continental shares exchanged for 1.05 United shares in an at-the-market stock swap. United shareholders will end up with 55 per cent of the company’s stock and Continental’s shareholders will receive about 45 per cent, including certain convertible securities.
The deal is expected to be completed in the fourth quarter of 2010. JPMorgan, Goldman Sachs and Cravath, Swaine Moore advised United and Lazard, while Morgan Stanley, Jones Day, Vinson Elkins and Freshfields Bruckhaus Deringer acted for Continental. – Copyright The Financial Times Limited 2010
