The parent company of United Airlines and the Houston-based Continental Airlines said on Monday that they have agreed to merge into the world's largest carrier in a deal worth about 3 billion dollars.
The deal, valued at nearly US$3.2 billion, would create the world's largest airlines, the New York Times quoted sources close to the companies as saying. The boards of both companies approved the all-stock transaction on Sunday afternoon, the sources said.
Under the terms of the transaction, United is expected to issue to Continental shareholders 1.05 of its shares for each of their Continental shares.
The combined company will keep the United name and will be based in United's hometown of Chicago, and run by Continental CEO Jeffery Smisek. United CEO Glenn Tilton will be chairman, the report said.
Continental and the Chicago-based United came very close to a merger in 2008, but their talks were suspended at the direction of Continental's board and Continental chose to pursue an alliance instead.
Before its latest talks with Continental over a merger deal, United also reportedly had talks with Arizona-based U.S. Airways.
Observers say Continental would be a better choice for United since their tie-up would form the world's largest airline, with relatively little overlap in their networks.
A combination of United and Continental will have 21 percent of the U.S. domestic market share, which puts it ahead of Delta, which currently has a 20-percent domestic market share.
The United-Continental merger will also make up 7 percent of global capacity, ahead of Delta, the current leader with 6 percent. United is currently the fourth largest domestic airline by capacity and Continental the sixth.
Analysts believe the airlines have ample reasons to move quickly in the direction of combination to make them profitable.
The industry, which struggles with high fuel prices and a pullback in consumer consumption due to a weak economy, has lost some 50 billion U.S. dollars in the past decade.
