Source: NY Times
Author: Jad Mouawad

The Justice Department said late Friday that it had approved the planned $3 billion merger between United Airlines and Continental Airlines, lifting the biggest regulatory hurdle to the creation of the world’s top airline.

United and Continental, which announced their merger in May, now expect to complete the deal within a few weeks, after shareholders of both companies vote on the proposal on Sept. 17.

In a statement posted on its Web site, the Justice Department said it had “closed its investigation” into the proposed merger after United and Continental agreed to give take-and landing slots to Southwest Airlines at Newark Liberty International Airport.

“United and Continental entered into the arrangement with Southwest in response to the department’s principal concerns regarding the competitive effects of the proposed United/Continental merger,” the Justice Department said in its statement.

After that, the airlines will be owned by a single entity, called United Continental Holding Inc., though they will continue to operate as separate airlines for another year until the Federal Aviation Administration issues a single operating certificate.

Although some analysts had warned that the merger could raise antitrust concerns, particularly in the New York area, where Continental has a dominant hub in Newark, the government’s approval has come at record speed.

The all-stock deal will form a coast-to-coast giant with a leading presence in the top domestic markets, including Chicago, Los Angeles and New York, and an extended network to Asia, Europe and Latin America.

The combined company will keep the United name and will be based in Chicago. Jeffery A. Smisek, Continental’s chief executive, will run the company. The merged airline would replace Delta Air Lines as the country’s largest air carrier.

Combined, United and Continental have 21 percent of the domestic capacity, in terms of so-called available seat miles, or one seat flown one mile. Delta has a market share of 20 percent. Globally, the merged companies would have a 7 percent market share.

The deal itself was completed in a remarkably swift two weeks in May, after United’s talks to seek a merger with US Airways prompted Continental to move in and propose a tie-up. The airlines said that the merger would allow them to fend off low-cost rivals at home and to take on foreign carriers abroad.

To obtain government approval, Continental and United agreed to give up take-off and landing rights at Newark to Southwest to assuage antitrust concerns about competition in the New York area.

The deal is an opportunity for Southwest to increase its small presence in the New York region, something it has been trying to do for years. Southwest currently has eight pairs of landing and take-off slots at La Guardia Airport. It also operates some flights out of Islip.

Under the deal, Continental would lease 18 pairs of take-off and landing slots, or round-trip flights, during peak and off-peak travel times to Southwest. The transaction is contingent on the closing of the merger between Continental and United by Nov. 30.

“Even though it is only 18 daily departures, which is a small number, it is enough of a presence for us to provide a lot of low-fare, customer-friendly competition that does not exist today,” said Robert E. Jordan, Southwest’s executive vice president for strategy and planning.