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Continental Employees Ratify Agreements With Airline

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Pilots, mechanics, dispatchers and simulator engineers of Continental Airlines have ratified new collective bargaining agreements with the airline.

The flight attendants, represented by the International Association of Machinists and Aerospace Workers, were the only work group that failed to ratify their agreement and join the rest of Continental’s employees in the needed pay and benefit reductions.

The unions with ratified agreements have chosen to go forward and implement their contracts despite the flight attendants’ failure to ratify.

The company also will implement previously announced pay and benefit reductions at the beginning of April for its airport, cargo, reservations, Chelsea food services, management and clerical employees.

Continental’s officers and its board of directors already implemented their reductions on Feb. 28.

With the implementation of reduced pay and benefits for all domestic employees except flight attendants, and including reductions already achieved from certain Continental Micronesia and international work groups, Continental expects to achieve approximately $418 million of annual pay and benefit savings on a run-rate basis. Additionally in 2005, Continental will record an approximately $43 million non-cash curtailment charge related to the pilots’ pension plan and an incremental $23 million non-cash expense associated with a bridge retiree medical plan.

Having achieved the vast majority of its cost savings goal, the company can avoid having to seek larger pay and benefit reductions in the future from all work groups other than flight attendants, and it will significantly improve its liquidity position.

The current levels of pay and benefits for flight attendants are not sustainable. The company will promptly reengage in discussions with the flight attendants to reach a revised agreement on pay and benefit reductions. Unfortunately, the needed pay and benefit reductions under that agreement will be larger. The longer this process takes, the deeper the pay and benefit reductions will be in order to achieve the needed cost savings from the flight attendants and to be fair to their co-workers who have taken reductions.

“I recognize that these pay and benefit reductions are painful, and I appreciate that our pilots, mechanics, dispatchers and simulator engineers made the decision to support their co-workers and our airline,” Continental Chairman and Chief Executive Officer Larry Kellner said. “While I am disappointed that the flight attendants failed to ratify their agreement, I believe they recognize our need for cost reductions and want to support our co-workers, but were influenced by other factors.”

With the implementation of the ratified agreements, Continental is confirming delivery of the aircraft under its previously announced Boeing aircraft order. The company will now grow by leasing eight Boeing 757-300 aircraft starting this summer and accelerating delivery of six Boeing 737-800 aircraft into 2006. These aircraft will provide the opportunity for Continental to further expand its international network while supporting its domestic system. The airline also will acquire 10 Boeing 787 aircraft beginning in 2009.

Also, as a result of the ratifications, Continental has issued to all domestic employees, except flight attendants, stock options for approximately 8.7 million shares of Continental’s common stock. These options represent approximately 13 percent of the currently outstanding shares of common stock of Continental and have an exercise price of $11.89 per share. As a result of options granted under the new employee stock option plans, Continental expects to incur a non-cash expense of $18 million in 2005.

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Continental Employees Ratify Agreements With Airline
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