Wednesday, September 29, 2010

UA and CO closer to becoming one airline

The marriage of United Airlines and Continental Airlines will be official as early as this week, but the honeymoon will be fleeting as the carriers confront the monumental task of blending 87,000 employees into one work force.

The work is well under way for the airlines as they form a new United Airlines -- the world's largest carrier. But the biggest chores remain, as the carriers attempt to realize more than USD$1 billion in annual revenue and cost savings by 2013.

"In order to get the synergies and cost benefits, you really have to go to a single entity," said airline consultant Robert Mann.

Mann said staff integration will be an enormous hurdle. The new company and its unions must negotiate transition agreements, and seniority integration and single contracts.

"Those are going to be really intensive efforts," he said.

The airlines are targeting October 1 to close United's USD$3.17 billion all-stock purchase of Continental. Shareholders at both airlines approved the deal on September 17.

The new carrier will be based in Chicago and be led by chief executive Jeff Smisek, the current CEO of Houston-based Continental. UAL is led by CEO Glenn Tilton, who will be president of the new United.

United and Continental formed a strategic alliance in 2008 after previous failed merger talks, setting the stage for the full merger.

"We have a significant competitive advantage here because of the alliance between the two companies that existed previously," Tilton told reporters after the shareholder vote. "Much of the work actually took place when Continental agreed to come into the Star Alliance."

"So a good bit of formational work has been done, which is really helpful," he said.

The bulk of the new United's work force is represented by unions, and several of the labor groups are represented by competing unions.

That means the unions on each side of the nine work groups must negotiate with each other over representation, seniority integration and contracts.

In each case, talks could easily become thorny. That risk is illustrated by US Airways, which merged with America West Airlines in 2005 and has yet to fully integrate its labor groups.

Delta Air Lines, which bought Northwest Airlines in 2008, has had much easier staff integration, although the work groups still are not blended.

The new United hopes to follow Delta's example.


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