UAL, Continental in no-premium merger talks: source

NEW YORK (Reuters) - United Airlines parent UAL Corp UAUA.O and Continental Airlines Inc CAL.N are considering a stock-for-stock merger with no premium, creating a company valued at roughly $6.6 billion, a person familiar with the matter said on Thursday.

UAL Chief Executive Glenn Tilton would become chairman of the combined company, while Continental Chief Executive Jeff Smisek would become chief executive, according to the person, who declined to be named because the talks are private.

UAL spokeswoman Jean Medina and Continental spokeswoman Mary Clark declined to comment.

Earlier Thursday, US Airways Group Inc (LCC.N) said it has dropped out of merger talks with UAL. Many experts believe UAL entered talks with US Airways only to draw Continental, arguably a better match, into separate talks.

Continental had restarted merger negotiations with UAL last week, two years after walking away from similar talks after nearly reaching an agreement. The Houston-based carrier instead chose to pursue an alliance.

Under the terms discussed in 2008, Larry Kellner and Smisek, then respectively Continental's chief executive and president, would have retained those positions in a combined company. Tilton would have gotten a seat on the merged company's board of directors.

UAL shares closed Thursday up 28 cents at $21.71. Continental shares closed down 3 cents at $21.43.

(Reporting by Jui Chakravorty; Additional reporting by Jonathan Stempel; Editing by Phil Berlowitz and Valerie Lee)