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Continental, United to Link in Star Alliance

Continental (CAL - Get Report) and UAL (UAUA) say they will become partners, linking their networks as Continental leaves the Skyteam global alliance to join United in the Star group.

The move represents an effort to capture some efficiences after Continental backed out of merger talks with United in April. It means Continental will leave both Skyteam, where it had been allied with Delta (DAL - Get Report) and Northwest (NWA), and a code-share alliance with the two carriers.

The planned combination of Delta and Northwest, which is awaiting regulatory approval, could have left Continental as a sort of junior partner in both groupings.

Now Continental will bring its prized Newark hub to Star, where the principal shortcoming has been a near-vacuum at Newark and New York Kennedy, the two international airports in the world's largest travel market. Despite its vast international network, United, a founding Star member, has lacked a strong New York presence.

Additionally, the deal offers a counter to the expanded range of a combined Delta and Northwest, which creates a broad international route system encompassing the trans-Atlantic, Asia-Pacific and Latin America. The deal "allows most of what would be merger economics without the business integration risks such as fleet, systems, real estate and work force," says aviation consultant Robert Mann.

Continental CEO Larry Kellner and United CEO Glenn Tilton were meeting in Chicago Thursday afternoon to sign a framework agreement outlining the alliance and cooperation principles between their carriers.

"In a network business, there is significant value gained from linking with larger networks to provide truly national coverage and expanded global reach, and exploring new ways to reduce costs and improve efficiencies," Kellner said in a prepared statement.
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