UAL/Continental Asset Transfer Assuages Antitrust Division’s Merger Concerns

This posting was written by Georgia Koutouzos, Editor of CCH Aviation Law Reporter.

In light of the recent agreement by United Airlines and Continental Airlines to transfer takeoff and landing slots and other assets at Newark Liberty Airport to Southwest Airlines, the U.S. Department of Justice announced on August 27 that it has closed its investigation into the proposed merger of UAL Corporation, United’s parent company, and Continental.

The two carriers entered into the arrangement with Southwest in response to the DOJ's principal concerns regarding the competitive effects of the proposed United/Continental merger.

The Justice Department’s investigation determined that the proposed merger would combine the airlines’ largely complementary networks, resulting in overlap on a limited number of routes where United and Continental offer competing nonstop service.

The largest of those routes are between United’s hub airports and Continental’s hub at Newark Airport, where Continental has a high share of service and where there is limited availability of slots, making entry by other airlines particularly difficult.

The transfer of slots and other assets at Newark to Southwest—a low cost carrier that currently has only limited service in the New York metropolitan area and no Newark service—resolves DOJ's principal competition concerns and is likely to significantly benefit consumers on overlap routes as well as on many other routes, the agency said. The slot transfer is through a lease that permanently conveys to Southwest all of Continental’s rights in the assets, in compliance with FAA rules.

Text of the Department of Justice news release appears here.

In announcing the settlement in an August 27 statement, United and Continental said that the slot pair transfer was expected to have minimal impact on combined carrier's route network.

Jeff Smisek, Continental's Chairman, president and CEO, described the leasing arrangement as “a fair solution that would allow Continental and United to create an airline that will provide customers with an unparalleled global network and top quality products and services, while enhancing domestic competition at Newark.”

In a further statement, UAL Corporation chairman, president and CEO Glenn Tilton said that he looked forward to the airlines’ stockholders’ votes on September 17 and expected to close the merger by October 1, 2010.

Continental and United announced an all-stock merger of equals on May 3, 2010. In July, the airlines’ proposed merger received clearance from the European Commission, which found that the transaction would not raise competitive concerns in Europe or on trans-Atlantic routes.