Following the labor agreement with International Brotherhood of
United Continental Holdings
) has reached another milestone in integrating its workforce by
ratifying a new labor agreement involving 15,000 United Airlines
flight attendants represented by the Association of Flight
According to the deal, United's employees under AFA will receive
a 10% compensation hike and a signing bonus of $5,000.
Additionally, this new contract will expedite the process of
negotiating a single contract covering flight attendants of both
the airlines, United and Continental.
Although United and Continental merged in 2010 to form United
Continental Holdings, employees belonging to the two carriers
continue to represent two separate unions to date. In February last
year, the company signed a contract with the flight attendants of
Continental Airlines. The International Association of Machinists
and Aerospace Workers, however, still represent Continental's
flight attendants and will continue to do so until a single
contract is approved. We believe that the company's effort to
integrate its work force will have positive implications for its
operational efficiency and also save costs for the combined
Apart from integrating employee groups, the carrier is also
contemplating combining passenger services of both the airlines.
The integration process remains on track with United Continental
Holdings receiving a single operating certificate from the Federal
Aviation Administration (
) on November 30, 2011.The company expects to operate a single
passenger service system by March this year through the
consolidation of its information systems, fleet reallocations,
carrier codes, flight schedules, inventory and departure control
The merger is expected to generate net annual synergies of $1
billion to $1.2 billion by 2013, with $800 million to $900 million
in additional revenue and $200 million to $300 million in cost
savings. Approximately 25% of total synergies were realized last
year. With the company's sound cash position, industry-leading
revenues and competitive cost structure, the merger provides
improved access from Continental hubs to United's strong Asia
network and from United's hubs to Continental's international
network in Latin America and Europe.
However, United and Continental are both highly unionized
companies like its peer
). As of December 31, 2011, United Continental had approximately
87,000 employees (United had approximately 47,000 employees and
Continental approximately 40,000), of which approximately 72% were
represented by various U.S. labor organizations. Thus, union
disputes, employee strikes or slowdowns, and other labor related
disruptions, along with the integration of United and Continental
workforces in connection with the merger may delay expected merger
synergies and increase labor costs or labor disputes, which in
turn, would hurt the profitability of the company.
Currently, we maintain our long-term Neutral recommendation on
United Continental Holdings. For the short term (1-3 months), the
stock retains a Zacks #3 Rank (Hold).
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