United Airlines to buy Continental

• Continental aircraft at Heathrow. Picture: Getty

The tie-up, creating an industry giant that will carry more than 140 million passengers annually, was outlined yesterday following weekend talks.

However, the plans have already sparked fears of job losses among a combined workforce of almost 90,000.

The International Association of Machinists and Aerospace Workers said it was concerned about the effect of the proposed merger on benefits and job security of its 26,000-plus members at both carriers.

Under the terms of the $3.2 billion (2.1bn) deal, which requires shareholder approval, United shareholders would own roughly 55 per cent of the combined group. Cost savings are likely to top more than $1bn a year.

Continental chief executive Jeff Smisek will run the Chicago-based combined airline with annual revenues in excess of $29bn, while United boss Glenn Tilton will be non-executive chairman.

Smisek will become executive chairman when Tilton steps aside, expected two years after the merger is completed. The combined group will be called United Airlines, with new branding combining the current Continental colours with the United name.

Tilton described the marriage as "great… for our customers, our employees, our shareholders and our communities".

He added: "We are creating a stronger, more efficient airline, both operationally and financially, better positioned to succeed in a dynamic and highly competitive global aviation industry."

The deal marks the first major US airline merger since Delta Air Lines' 2008 purchase of Northwest, and caps months of speculation that more industry consolidation was ahead.

Last month British Airways and Spanish peer Iberia unveiled merger plans to create one of Europe's largest carriers.

United and Continental said they expected to complete their tie-up in the fourth quarter of 2010. Confirmation of the plans came as an industry body noted that airlines were faring better financially this year, with share prices and fares up, despite last month's volcanic ash disruption.

In its latest financial snapshot, the International Air Transport Association (IATA) said strong operating profits reported by major US airlines in the first quarter augured well for the rest of the industry.

The IATA, whose 230 airline members include BA, Lufthansa and Singapore Airlines, had already estimated the six-day shutdown of much of European airspace last month cost carriers $1.7bn in lost revenues.

But yesterday it said markets were now keen on the sector, whose performance tends to be cyclically tied with the broad economy which is rebounding from financial crisis.

According to the IATA's financial health monitor, passenger travel was up an annualised 9 per cent in the first quarter.