UPDATE 3-UAL, Continental close deal to form No. 1 airline

Fri Oct 1, 2010 11:13am EDT

* UAL, Continental close merger deal

* United displaces Delta as world's biggest carrier

* United Continental Holdings begins trade on Friday

* Stock symbol is UAL; shares launch at $25 then slip (Adds new CEO quote, background)

By Kyle Peterson

CHICAGO, Oct 1 (Reuters) - UAL Corp UAUA.O and Continental Airlines Inc CAL.N closed their merger on Friday to form the world's largest carrier, called United Airlines.

The airline is a unit of United Continental Holdings Inc (UAL.N), the holding company formed under the $3.17 billion all-stock merger, and began trading on the New York Stock Exchange under the symbol "UAL" at $25 before slipping to $24.44 by mid morning.

UAL Corp, the acquiring company, said the new 16-member board of directors includes UAL Chief Executive Glenn Tilton, as non-executive chairman, and Continental CEO Jeff Smisek, as president and chief executive.

(For a graphic on airlines ranked by traffic and revenue, click here)

The new United, based in Chicago, hopes its sprawling domestic and international route network will win lucrative corporate travel contracts.

"We believe we will be able to increase the mix of business travelers because we can go to corporations and offer them a very compelling proposition," Smisek told reporters on a conference call.

The airline industry has been battered in the last decade by global terror concerns, economic weakness and volatile fuel prices. Many experts say consolidation and capacity cuts are the remedy. U.S. airlines slashed capacity starting in 2008.

Delta Air Lines (DAL.N), the world's largest carrier before being displaced by United, had been No. 1 since 2008, when it bought Northwest Airlines.

The new United and its region affiliates operate 5,800 flights a day to 371 airports, including to hubs in Chicago, Cleveland, Denver, Guam, Houston, Los Angeles, Newark New Jersey, New York, San Francisco, Tokyo and Washington, D.C.

The new company said it had $9 billion of unrestricted cash at closing. Company executives have said the merger will deliver $1 billion to $1.2 billion of annual cost and revenue benefits by 2013.

The benefits will largely consist of $800 million to $900 million of incremental annual revenue, derived from the expanded network and service, the company said.

United will continue to operate as two separate carriers until it receives a single operating certificate, expected within 18 months.

To achieve the promised cost and revenue benefits, the new carrier must combine the 87,000 employees that make up the work forces of UAL and Continental. Each of the pre-merger carriers was heavily unionized and negotiations are under way to integrate.

UAL and Continental held merger talks in 2008 and came close to merging before Continental walked away because of concerns about UAL's finances. The two carriers later formed a partnership within the global Star Alliance.

The new United's independent directors are Kirbyjon Caldwell, Carolyn Corvi, James Farrell, Jane Garvey, Walter Isaacson, Henry Meyer, Oscar Munoz, James O'Connor, Laurence Simmons, David Vitale, John Walker and Charles Yamarone.

The board also has two union directors, Stephen Canale and Wendy Morse. (Reporting by Kyle Peterson; Editing by Gerald E. McCormick and Steve Orlofsky)

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