United, Continental to form largest airline
New York, May 3, 2010
UAL Corp, parent of United Airlines, will buy Continental Airlines for $3.2 billion, forming the world's largest carrier in a merger that further shrinks the embattled US airline industry and could drive up air fares, sources said.
The boards of directors of both companies unanimously approved the deal, which was expected to be announced by the carriers later today, sources familiar with the discussions said.
UAL and Continental declined to comment and neither airline has confirmed the votes.
If given regulatory approval, the carrier would be called United Airlines and would be based in Chicago, with over $29 billion in annual revenue, a source said. The deal would generate up to $1.2 billion in revenue and cost benefits for the combined company.
'The combined firm would have more staying power than each of them individually,' Robert Mann, airline consultant at RW Mann & Co, said. 'Part of it is the consolidation provides pricing power and the opportunity for pricing power for the entire industry.'
'The margins on the combined business would be better,' Mann said. 'The share of revenue that's consumed by revenue will be lower. Margins will be better.'
The airline industry is recovering from an economic downturn that drained travel demand and forced carriers to downsize.
Experts have said consolidation would lend much-needed stability to the industry, which has been dogged by low-fare competition, terror concerns, volatile fuel prices and overcapacity.
UAL and Continental have agreed to an exchange ratio of 1.05 UAL shares for each Continental share in all-stock deal, the sources said. That value would be determined by the market, and could change by the time the deal closed. - Reuters