Continental, United in $3-billion deal to form world's biggest airline

NEW YORK (AP) – United and Continental Airlines plan to announce that they’re joining to form the world’s largest airline, testing the notion that the money-losing industry can work better on a large scale.

Corporate travelers love a wide choice of departure times and a worldwide network, and the combined United and Continental will have flights reaching from Shanghai to South Amerca.

The $3-billion stock swap gained approval from both airlines’ boards Sunday, people with knowledge of the deal said. They declined to be identified because the transaction hasn’t been announced.

The companies are expected to describe it as a merger of equals. But travelers will see more of United once the deal closes. The United name will live on and the headquarters will be in Chicago, United’s hometown. United shareholders will own about 55 percent of the combined company, the people said.

Continental CEO Jeffery Smisek will run the combined airline. Its chairman will be Glenn Tilton, current chairman and CEO of United parent UAL Corp., who has been looking to do a major airline deal for years. One of the people said the airline’s board will include six independent directors from each airline, as well as two union representatives and Smisek and Tilton.

Continental shareholders will get 1.05 UAL shares in exchange for each one of theirs. The companies hope to close the deal by the end of the year, the people said.

To do that they’ll need approval from shareholders as well as antitrust regulators. Just 18 months ago the Justice Department allowed Delta Air Lines Inc. to buy Northwest Airlines to form what is currently the world’s largest airline. But many in the industry have wondered whether the Justice Department under the Obama administration will be as inclined to approve a mega-airline as it was under George W. Bush.

Continental and United overlap on 13 nonstop routes, JP Morgan analyst Jamie Baker wrote in a note on Friday, compared with 12 overlaps in the Delta-Northwest deal. Of the overlapping United-Continental routes, 11 would have just one or two carriers. Baker gave the deal a 75 percent chance of winning regulatory approval.