Any large airline merger is done to improve efficiency and that nearly always means closing redundant routes. Mergers also usually led to layoffs -- a tactic combined carriers use to reduce costs.
UAL (UAUA) announced on Monday that it will "buy" Continental (CAL) in a transaction that is more a merger of equals. In a $3 billion stock swap, UAL shareholders will get 55% ownership in the new company and Continental CEO Jeffery Smisek will become chief executive of the new carrier. By most estimates, the marriage will create the largest airline in the world. The deal still needs to be approved by federal regulators, which may demand that the company divest certain routes to prevent a monopoly on flights between some destinations.
We can certainly expect job losses among UAL's 47,000 workers and Continental's 81,000, although no one knows for certain how many. Some cuts will involve negations with unions. Management of UAL and Continental will have to make arrangements with pilots, and workers whose jobs may be cut could stage strikes that could partially shut the new carrier's routes.
Mergers nearly always lead to job losses. The Delta (DAL) buyout of NWA was estimated to have eliminated as many as 3,000 workers in NWA's home state of Minnesota. The first round of layoffs announced by the merged company amounted to 2,500. The British Air merger with Iberia will also cause a number of layoffs, which have not yet been announced.
So unions will almost certainly strike in an efforts to save jobs. They will also probably argue that the deal is bad for passengers. But if the past is any indication, thousand of people will be out of work when the combination is done.
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »