Texas Air Clears Takeover Hurdle : Sale of Landing Rights to Pan Am Aids Eastern Deal
Apparently removing the only major obstacle standing in the way of its acquisition of Eastern Airlines, Texas Air Corp. said Tuesday that it is selling some of its airport takeoff and landing rights and facilities in New York, Boston and Washington to Pan American World Airways for $65 million.
Texas Air said it had taken the action “to resolve any potential antitrust concerns relative to its proposed acquisition of Eastern Airlines.” Texas Air and Eastern announced in February that they would merge in a deal valued at more than $600 million.
However, the Justice Department opposed the merger because of antitrust concerns raised by the fact that Eastern and a Texas Air subsidiary--New York Air--are competitors in the New York-Boston-Washington corridor, which contains the busiest air routes in the world, and because a merger would reduce competition there.
But Amy Brown, a spokeswoman for the department, said Tuesday that Texas Air’s sale of the takeoff and landing rights and facilities had “resolved the competitive concerns.”
Also, in a letter from Deputy Assistant Atty. Gen. Charles F. Rule of the Justice Department’s antitrust division to Clark Onstad, a Texas Air vice president, the department said Texas Air’s sale of the facilities to Pan Am is “likely” to be “pro-competitive.” Rule said the sale “alleviated the only potential competitive problem associated with the proposed acquisition.”
The withdrawal of Justice Department opposition is expected to eliminate the need for hearings on the proposed merger by the Transportation Department, which has final authority on airline consolidations. Hearings have been scheduled to begin May 27.
3 Gates Sold in Boston, N.Y.
Bruce Hicks, a Texas Air spokesman, said Tuesday that it is hoped that the merger will be completed this summer.
Under the agreement announced Tuesday, Texas Air sold Pan Am one gate at Boston’s Logan Airport and two gates at New York’s LaGuardia Airport.
Also included in the deal are nine “slots,” or takeoff and landing rights, at Washington’s National Airport and 23 slots at LaGuardia.
Such slots are controlled at only four U.S. airports: LaGuardia, Washington National, Chicago’s O’Hare and New York’s John F. Kennedy. There is a bill in Congress aimed at preventing such sales of slots.
Pan Am has agreed to provide at least 12 daily round trips between LaGuardia and National and 12 between Logan and LaGuardia. A Pan Am spokesman said the airline’s service will begin Oct. 1. He said he did not know whether Pan Am would need to purchase planes for the service or whether it would undercut current fares.
Currently Eastern operates its highly profitable shuttle between New York and Washington and between New York and Boston. New York Air competes heavily with Eastern on both routes.
As part of the agreement, Texas Air agreed that its subsidiaries (New York Air and Eastern) will not fly more than a combined total of 20 round trips a day on either route in the 18 months after Oct. 1 to allow Pan Am to establish itself on the routes.
New York Air President Douglas C. Birdsall said that the transaction announced Tuesday involved no transfer of aircraft and that New York Air’s planes will be deployed elsewhere.
“This will allow a pocket of profitability for Pan Am,” said Edward Starkman, an airline research assistant with the brokerage firm of Paine Webber Inc.
