United, Continental to announce merger Monday

United, Continental to announce merger Monday
By Julie Johnsson
Copyright © 2010, Chicago Tribune
April 29, 2010 6:41 PM
http://www.chicagobreakingbusiness.com/2010/04/united-continental-closer-to-deal.html


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 must still 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 Friday, which was reached in less than three weeks. Continental directors are meeting Friday to review the transaction's terms and are expected to vote Sunday.

The transaction is the first major strategic initiative undertaken by new Continental CEO 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 CEO 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 Continental'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 badly 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 will likely remain in the market until the carrier receives a single operating certificate from the FAA, a process that took the recently merged Delta and Northwest Airlines two years to accomplish. Over that time, Smisek and his team plan to work hard to ensure there is a uniform level of service at the new United, a source said.