UAL, Continental Await Holders' Votes as U.S. Backs Biggest Airline Merger

UAL Corp.’s United Airlines and Continental Airlines Inc. await shareholder approval next month for their $3 billion all-stock merger creating the world’s largest carrier, after the U.S. government cleared the deal.

To win Justice Department backing, the companies agreed to give up rights for 18 daily round-trip flights at Newark airport in New Jersey to Southwest Airlines Co., and the agency said yesterday it had closed its antitrust review.

“Airlines are now using these slot-swap deals as trade bait,” said Bob Mann, a former American Airlines executive who runs consultant R.W. Mann & Co. in Port Washington, New York. “It’s the new grease for regulatory approval. Slots are one area where regulators like to see some give-ups.”

The Justice Department’s action moved UAL and Continental toward their goal of closing their merger by Oct. 1. Newark Liberty International Airport will be a new destination for Southwest, the largest discount airline. Continental operates a hub at Newark for domestic and international flights.

“The transfer of slots and other assets at Newark to Southwest, a low-cost carrier that currently has only limited service in the New York metropolitan area, and no Newark service, resolves the department’s principal competition concerns,” the Justice Department said in a statement.

Stock Swap

UAL and Houston-based Continental announced plans May 3 to merge in a stock swap valued yesterday at $3 billion, based on data compiled by Bloomberg. Each Continental share will be exchanged for 1.05 shares of Chicago-based UAL. The European Union approved the merger on July 27.

“We are pleased to have achieved this critical milestone and look forward to our respective stockholders’ votes next month,” United Chief Executive Officer Glenn Tilton said in a statement.

UAL rose 81 cents, or 4.1 percent, to $20.45 yesterday in Nasdaq Stock Market composite trading, while Continental gained 87 cents, or 4.2 percent, to $21.80 on the New York Stock Exchange. The Justice Department commented after regular trading, and the shares were little changed.

United and Continental are the third- and fourth-largest U.S. airlines by traffic. Continental’s hubs include its Houston home and Cleveland in addition to Newark, and United operates hubs in Chicago, San Francisco, Denver and Washington.

United Name

United’s name and Chicago headquarters will be retained, while Continental CEO Jeff Smisek will run the carrier. Combined revenue for UAL and Continental was almost $29 billion last year.

The tie-up was the first test of President Barack Obama’s airline antitrust policies after the George W. Bush administration cleared three mergers, including the 2008 combination of Delta Air Lines Inc. and Northwest Airlines Corp.

Bush regulators also approved buyout firm TPG Inc.’s takeover of Midwest Air Group Inc. in 2008 and US Airways Group Inc.’s merger with America West Holdings Corp. in 2005.

The new United will surpass Delta for top spot among U.S. airlines for flights across the Atlantic, with 40 percent of passenger traffic, and handle 53 percent of flights across the Pacific, where United leads, based on data compiled by Bloomberg.

Starting service at Newark lets Dallas-based Southwest achieve its goal of expanding in New York after failing to obtain room for more than eight daily flights at New York’s LaGuardia airport.

To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net

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