No merger for Continental Airlines - yet; United weighs in on industry consolidation

By Lisa Kerner

Charlotte, N.C., April 28 - Continental Airlines, Inc. said the board of directors unanimously supports management's recommendation that the company not merge with another airline at this time.

In a message to the company's 45,000 employees, Continental chairman and chief executive officer Larry Kellner, along with president Jeff Smisek, said the decision not to merge followed a comprehensive review of strategic alternatives in conjunction with outside financial and legal advisers.

"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 standalone basis," the letter to employees stated. The letter was included in a company news release.

Continental said it will continue to review potential alliances as well as its membership in SkyTeam.

"We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term," Kellner and Smisek said.

The pair acknowledged the increased pressure Continental faces from record-high fuel prices, the slowing U.S. economy and a weak dollar.

However, Kellner and Smisek highlighted Continental's strengths, including its "enviable position" in the New York market, a "powerful" hub in Houston, hubs in Cleveland and Guam and a "solid" trans-Atlantic route network.

On April 15, Continental announced that it would review its strategic alternatives in order to remain "a strong long-term competitor."

Kellner and Smisek made that announcement in an earlier letter to Continental's employees in reaction to news that Delta Air Lines, Inc. and Northwest Airlines Corp. agreed to merge.

It was previously reported that ExpressJet Holdings, Inc., a Houston-based regional airline operating under the name Continental Express, rejected SkyWest, Inc.'s unsolicited proposal to acquire the company for $3.50 per share in cash.

ExpressJet said its special committee began a review of strategic alternatives that could include engaging in discussions with SkyWest or other interested parties to evaluate a higher-priced merger or discussing a new capacity purchase agreement with Continental Airlines.

SkyWest expressed disappointment that its offer was turned down. The St. George, Utah-based airline plans to review its alternatives, which could include altering or withdrawing its proposal.

UAL Corp. chairman, president and chief executive Glenn Tilton commented on consolidation in the airline industry in a statement released on Monday.

Tilton said that when it comes to consolidating, "ensuring you have the right partner is everything."

"We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders and benefit our employees and customers," Tilton added.

UAL is the parent company of Chicago-based United Airlines, which operates more than 3,200 flights a day and employs 55,000 people worldwide.

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