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Airline Merger Called Off

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By ANDREW ROSS SORKIN and MICHELINE MAYNARD

The New York Times

Published: April 28, 2008

Continental Airlines said Sunday it has abandoned merger talks with United Airlines and plans to remain an independent carrier, a blow to lengthy efforts by United to find a merger partner.

Continental's decision, announced by the airline Sunday afternoon, will change the complex game of musical chairs the airline industry is playing after the merger announcement last week by Delta Air Lines and Northwest Airlines.

Continental's move was a stunning development for United's parent, UAL, which had been negotiating in expectation of reaching a deal by late this week. As recently as Friday, it looked as though Continental, based in Houston, and United, based outside Chicago, were on the way to reaching a merger agreement.

Continental, the fifth-busiest airline at Tampa International Airport, dropped the discussions after UAL announced worse-than-expected earnings, which sent shares falling last week. On Tuesday, United said it lost $537 million during the first quarter, on sharply higher costs for jet fuel. The airline, which spent more than three years under bankruptcy protection this decade, said it would cut flights and eliminate a further 1,000 jobs.

Directors at Continental, who met Sunday afternoon, feared that a merger with United could put their company in peril. Continental survived two bankruptcy filings of its own in the 1980s and 1990s, and has been considered one of the industry's best-run carriers.

With the United-Continental deal scrapped, a new set of pairings is likely to take place. UAL is expected to push to reach a deal with US Airways, with which it had also been discussing a merger, people involved in the talks said.

UAL could not be reached for comment.

Meanwhile, Continental is expected to press ahead with preliminary talks to create a three-way alliance - short of a full merger - with American Airlines and British Airways.

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