April 30, 2010 in Business

Airlines to vote on merger

United, Continental to announce deal Monday
Julie Johnsson Chicago Tribune
 

CHICAGO – Wrapping up the corporate equivalent of speed-dating, United and Continental Airlines are expected to announce Monday that they are combining operations to create the world’s largest airline.

The transaction, which still must be approved by both airlines’ boards, would be structured as a merger of equals, with neither side paying a premium for the other’s stock, said a person close to the talks.

United’s board is expected to vote on the deal today, which was reached in less than three weeks. Continental directors are meeting today to review the transaction’s terms and are expected to vote Sunday.

The transaction is the first major strategic initiative undertaken by Continental chief executive Jeff Smisek, 55, who took the helm of the Houston-based carrier at the start of the year. Continental entered into talks with United earlier this month on the condition that Smisek head the merged entity, sources said.

United chief executive Glenn Tilton, 62, will be named non-executive chairman of the new airline and is expected to serve on its board through a two-year transition period. The rest of the management team will be named later by Smisek.

Although the new carrier will continue to be called United and its headquarters will remain in Chicago, Smisek and other Continental executives hope their carrier’s culture of fostering good relations with customers and employees will prevail, sources said.

That could prove a challenge, observers said. United’s reputation was battered during its three-year bankruptcy last decade that also damaged the morale of employees, who took steep pay cuts and gave up their pensions to ensure the carrier’s survival.

But over the past two years, United has placed greater emphasis on pleasing customers. Its planes are cleaner, many are outfitted with new interiors, and it routinely posts the best on-time performance among its network airline peers.

Continental, however, sets the bar for service among large domestic carriers, receiving the highest marks from passengers in Zagat’s 2009 Airline Survey by a wide margin.

The Continental and United brands likely will remain in the market until the carrier receives a single operating certificate from the Federal Aviation Administration, a process that took the recently merged Delta Air Lines and Northwest Airlines two years to accomplish.


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