Continental calls off United merger talks
28.04.08
Continental Airlines said yesterday that it has abandoned merger talks with United Airlines and is planning to remain an independent airline. The news is seen as a blow to lengthy efforts by United to find a merger partner, but could be good news for British Airways.
Continental’s decision, announced by the airline yesterday afternoon, will change the complex game of musical chairs that the airline industry is playing after the merger announcement last week by Delta Air Lines and Northwest Airlines.
The move was a stunning development for United’s parent, UAL, which had been negotiating in expectation of reaching a deal by late this week. As recently as Friday, it looked as though Continental, based in Houston, and United, based outside Chicago, were on the way to reaching a merger agreement.
Continental decided to drop the discussions after UAL announced worse-than-expected earnings, which sent shares falling last week. On Tuesday, United said it lost $537m during the first quarter, on sharply higher costs for jet fuel. The airline, which spent more than 3 years under bankruptcy protection earlier this decade, said it would cut flights and eliminate a further 1000 jobs.
Directors at Continental, who met Sunday afternoon, feared that a merger with United could put their company in peril. Continental, which had been expected to take management responsibilities in a deal with United, survived two bankruptcy filings of its own in the 1980s and 1990s, and has been considered one of the industry’s best-run carriers.
In a letter to Continental employees, Lawrence W. Kellner, the airline’s chief executive, and Jeffery A. Smisek, its president, wrote: ‘The board very carefully considered all the risks and benefits of a merger with another airline, and determined that the risks of a merger at this time outweigh the potential rewards, as compared to Continental’s prospects on a stand-alone basis.’
With the United-Continental deal scrapped, a new set of pairings is likely to take place. UAL is expected to push to reach a deal with US Airways, with which it had also been discussing a merger, people involved in the talks said. Meanwhile, Continental is expected to press ahead with preliminary talks to create a three-way alliance - short of a full merger - with American Airlines and British Airways.
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