Continental and United: This "Merger of Equals" Isn't a Great Plan

Continental (CAL) and United (UAUA) keep playing up this notion that they're engaged in a "merger of equals," which is pretty ridiculous on its face. Calling it a merger of equals either means you're lying (not good) or that you're bound to have an absurd amount of gridlock (also not good).

When it comes to mergers, the math for the headquarters staff is not good. While you need people to fly a bunch of planes around, you don't need duplicate headcount in the head office for the most part. That's where it becomes one or the other.

When you call it a merger of equals, what happens? Everyone thinks they're entitled to stay and it ends up creating fiefdoms of insanity. Last week, United CEO Glenn Tilton said "[Continental CEO] Jeff [Smisek] and I are committed to equal representation at the top of the new company." Why? Because that's what makes people feel good. But that's not the right thing. You pick who can run a better group under the vision and direction of the combined company. That's it.

So now they'll most likely just find a way to carve it up so it doesn't look like anyone is really in control. How is that a good plan? It means that some groups will be full of United folks and others will be full of Continental people. Will they be able to work well together? What if you end up getting rid of good people just for the sake of splitting things down the middle?

This really has to stop. I mean, it goes right down to the airline's livery (see above). Photoshopping the United name on to a Continental-branded plane may seem like a nice idea, but it still adds to the confusion. What does this airline want to be and who is really going to be running it? (Also, was a third grader hired to do the artwork?)

I want to see a merger where one side says, "we're in charge. We'll take the best of what you do, but only if it makes sense in this new organization that we're running." Should that be Continental or United? Everyone will say Continental, and they'd be right. But a word of caution -- doing this is a lot harder than you might think.

United may do a lot of things poorly, but they do some things well. I think CFO Kathryn Mikells, for example, has done a very good job of somehow making the financials look significantly better than anyone would have predicted was possible. Economy Plus has worked very well for the airline too.

So if Continental were to simply take over, I can just picture cowboy Texans running around lassoing United people and throwing them out the window. The people who take charge often get a superiority complex that tends to push aside the good from the company being acquired.

While I think it's better to have one company take over, there's still a decent chance that can turn out badly. You need a uniquely skilled management team that is able to truly look at the vision of the combined company and pick the right people to fill every role, regardless of where they come from. That's a rarity, but if it works, then you have a rock star.

Instead, in this merger, what we're likely to see is that you'll lose a lot of good people who may very well have been better fits for the combined company than the people who remain. It's happened in previous mergers and it'll happen again. I just wish someone was ultimately in charge here with the foresight to prevent that from happening.