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Continental chief downplays talk of merger
Wednesday, September 27, 2006 BY SUSAN TODD
Star-Ledger Staff
With speculation building over the prospect of a major airline merger, the chief executive of Continental Airlines told a group of Wall Street analysts yesterday his own expectations for industry consolidation were more subdued.
Continental has figured prominently in the merger rumor mill, with industry experts and Wall Street analysts predicting a possible alliance between the Houston-based carrier and United Airlines.
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"It's a question we've heard continually since the late 1980's. There's been a lot of conversation, but not a lot of consolidation," Continental Chief Executive Larry Kellner told analysts during an investor conference that was webcast from Houston.
As the U.S. airline industry appears to be rebounding from a five-year period of heavy losses, excessive capacity -- or too many airlines flying too many planes -- continues to impact pricing and profitability.
Adding to the speculation are the restructurings of Delta and Northwest, two major airlines that have spent the past year operating under Chapter 11 bankruptcy protection. Both airlines are considered more attractive partners -- even in a merger with one another -- as they emerge from bankruptcy, according to industry analysts.
Earlier this week, Crain's Chicago Business reported United Airlines had hired investment banker Goldman Sachs to explore the carrier's strategic options. Those options included the possibility of a merger as well as assessing the value of United's domestic and international business.
"I would encourage you all to be careful not to confuse the importance (of consolidation remaking the industry) with the probability," he said in response to an analyst's question. "I wouldn't put the probability that high."
"It's been in the news a lot in the last 10 days, but it's been in the news a lot in the last 10 years," he said.
While Kellner seemed to throw doubt over the actual prospects of consolidation, he also indicated Continental's preference to remain independent could change if merger activity started changing the playing field.
"As the industry is configured today with six large hub and spoke carriers, we're very well positioned," he said. "We would prefer to remain independent as the industry is set up today."
Kellner also described Northwest's stake in Continental -- its so-called golden share -- as "another piece of the puzzle" in the event of a deal involving his carrier.
Northwest Airlines, which was once a major shareholder in Continental, has a deciding vote -- a golden share, as it described -- before Continental can be acquired or agree to a merger. The agreement was forged as part of an anti-trust lawsuit brought against Northwest by the Department of Justice in 2001.
The golden share can be redeemed by Continental at "a nominal price" when the company's alliance with Northwest expires in 19 years * or in the event Northwest partners with another carrier, according to documents filed with the Securities and Exchange Commission.
Wednesday, September 27, 2006 BY SUSAN TODD
Star-Ledger Staff
With speculation building over the prospect of a major airline merger, the chief executive of Continental Airlines told a group of Wall Street analysts yesterday his own expectations for industry consolidation were more subdued.
Continental has figured prominently in the merger rumor mill, with industry experts and Wall Street analysts predicting a possible alliance between the Houston-based carrier and United Airlines.
"It's a question we've heard continually since the late 1980's. There's been a lot of conversation, but not a lot of consolidation," Continental Chief Executive Larry Kellner told analysts during an investor conference that was webcast from Houston.
As the U.S. airline industry appears to be rebounding from a five-year period of heavy losses, excessive capacity -- or too many airlines flying too many planes -- continues to impact pricing and profitability.
Adding to the speculation are the restructurings of Delta and Northwest, two major airlines that have spent the past year operating under Chapter 11 bankruptcy protection. Both airlines are considered more attractive partners -- even in a merger with one another -- as they emerge from bankruptcy, according to industry analysts.
Earlier this week, Crain's Chicago Business reported United Airlines had hired investment banker Goldman Sachs to explore the carrier's strategic options. Those options included the possibility of a merger as well as assessing the value of United's domestic and international business.
"I would encourage you all to be careful not to confuse the importance (of consolidation remaking the industry) with the probability," he said in response to an analyst's question. "I wouldn't put the probability that high."
"It's been in the news a lot in the last 10 days, but it's been in the news a lot in the last 10 years," he said.
While Kellner seemed to throw doubt over the actual prospects of consolidation, he also indicated Continental's preference to remain independent could change if merger activity started changing the playing field.
"As the industry is configured today with six large hub and spoke carriers, we're very well positioned," he said. "We would prefer to remain independent as the industry is set up today."
Kellner also described Northwest's stake in Continental -- its so-called golden share -- as "another piece of the puzzle" in the event of a deal involving his carrier.
Northwest Airlines, which was once a major shareholder in Continental, has a deciding vote -- a golden share, as it described -- before Continental can be acquired or agree to a merger. The agreement was forged as part of an anti-trust lawsuit brought against Northwest by the Department of Justice in 2001.
The golden share can be redeemed by Continental at "a nominal price" when the company's alliance with Northwest expires in 19 years * or in the event Northwest partners with another carrier, according to documents filed with the Securities and Exchange Commission.
