Pigs can fly

3 May 2010 By Antony Currie Follow @AntonyMCurrie

United and Continental reckon their merger can add almost $1 billion a year to the top line. Investors in other industries would scoff at such optimism. But for airlines much of the revenue juice is actually akin to cutting costs and there’s precedent for making it happen.

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United Airlines and Continental on May 3 announced plans to merge. The merger will be an allstock deal, with Continental shareholders receiving 1.05 shares in United parent UAL for each Continental share they own. UAL shareholders will own 55 percent and Continental shareholders 45 percent of the combined company.

The two airlines expect to cut between $200 million and $300 million in costs and generate $800 million to $900 million in revenue synergies. Around 75 percent of synergies should be realized within two years of the deal closing, and 100 percent by the third year, the companies said. They hope to close the deal by the end of this year.

Continental chairman, chief executive and president Jeff Smisek will be chief executive of the combined firm. Glenn Tilton, his United counterpart, will be nonexecutive chairman for the first two years after the merger. Once he steps down, Smisek will add the role of executive chairman to his responsibilities. The 16member board will include the two current chief executives, two union representatives and six independent board members from each company.

The combined holding company will be called United Continental Airlines, while the airline will be called United and use Continental's branding.

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