United Airlines and Continental Airlines plan to merge in a $3.17 billion deal, creating the world's largest airline.

The Continental board voted Sunday evening to OK the all-stock deal. That vote came shortly after UAL directors voted to give their assent.

"Together, we will have the financial strength necessary to make critical investments to continue to improve our products and services and to achieve and sustain profitability," Continental CEO Jeffrey Smisek—who will be chief executive of the combined airline—said in a statement early Monday.

The "merger of equals," as the companies termed it, still faces votes by shareholders of the two airline companies and regulatory approval. The deal is expected to close in the fourth quarter.

UAL Corp., United’s parent company, will issue 1.05 shares for each Continental share. United shareholders will own about 55 percent of the equity of the combined company and Continental shareholders will own 45 percent.

The combined airline will fly under the United name, but jets will also feature the Continental logo and colors. It will be slightly larger than the current biggest airline in the world, Delta Air Lines, carrying about 21 percent of all U.S. air passengers.

The new airline will carry an estimated 144 million passengers a year to 370 destinations in 59 countries. The two U.S. carriers have minimal domestic and no international route overlaps.

Many airline-industry analysts have said airline mergers are needed to shore up struggling carriers by reducing what they see as excess competition. Some see the United-Continental merger, as well as the recent Delta-Northwest combination and others that may be to come, as leading to a rise in what have been historically low airfares by cutting passenger capacity.

The merger might have a particular effect on international fares, given that it reduces the number of U.S. carriers with major overseas operations to three: the combined United-Continental, as well as Delta and American Airlines. United's international routes are focused on Asia, while Continental is more dominant on routes to Europe and Latin America.

The impact on front-line employees will be minimal, the companies said, with reductions coming mainly from retirements, attrition, and voluntary programs.

Still, the International Association of Machinists and Aerospace Workers union, which represents some 26,000 workers at the two airlines, said Monday it had concerns about the proposed deal.

"A Continental-United combination must have what many past mergers failed to achieve: broad employee support," Robert Roach Jr., the Machinists' general VP, said in a statement. "The Machinists will work closely with members of Congress and the departments of Transportation and Justice to ensure that if a merger is approved, it will not be at the expense of workers at either carrier."

The union said it is particularly concerned about the deal's impact on pensions, benefits, seniority, and job security.

The Association of Flight Attendants voiced similar concerns.

Before Sunday's board votes, the two sides previously worked out many details of a merger, including that it will be an all-stock transaction, that it will be based in Chicago, and that Smisek will be its chief executive and United CEO Glenn Tilton its chairman.

The merger rollout will use the marketing slogan "Let’s Fly Together."

As rumors of the looming merger spread in late April, officials in Houston, Continental's hometown, made an unsuccessful bid to have the combined airline headquartered there.

Tilton will serve as nonexecutive chairman through December 31, 2012, or the second anniversary of closing, whichever is later. Then, Smisek will become chairman.

"Today is a great day for our customers, our employees, our shareholders, and our communities as we bring together our two companies in a merger of equals to create a world-class and truly global airline with an unparalleled network serving communities worldwide with outstanding customer service," Tilton said in a statement.

United and Continental explored a merger two years ago, without success.

On a pro forma basis, the combined company has annual revenues of about $29 billion based on 2009 financial results, and an unrestricted cash balance of about $7.4 billion as of the end of first quarter of 2010, including United's recently closed financing transaction.

In a statement, the airlines said the merger is expected to result in $1 billion to $1.2 billion in net annual synergies by 2013, including between $800 million and $900 million in incremental annual revenues, "in large part from expanded customer options resulting from the greater scope and scale of the network and additional international service enabled by the broader network of the combined carrier."

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Mark Harden writes for the Denver Business Journal