Texas Air Given Tentative OK to Acquire Eastern

The $600-million plan by Texas Air to acquire Eastern Airlines won tentative approval on Wednesday from the Transportation Department.

The agency, which must approve airline consolidations, said its study suggests that the merger would not significantly lessen competition among air carriers. But it added that a number of issues must still be resolved before final approval is given.

Originally, the Justice Department had opposed the merger because Eastern and New York Air--a Texas Air subsidiary--are competitors in the New York-Boston-Washington corridor, one of the nation’s busiest air routes. But that opposition was later dropped.

The Transportation Department conditioned its final approval of the merger on completion of Texas Air’s deal to sell certain assets to Pan American World Airways, which would enable Pan Am to operate shuttle-type service in the Northeastern corridor. Texas Air said last May that it would sell some of its airport takeoff and landing rights and facilities in New York, Boston and Washington to Pan Am for $65 million.

Selling Gates to Pan Am

Under the agreement, Texas Air sold Pan Am one gate at Boston’s Logan Airport and two gates at New York’s LaGuardia Airport. Also part of the deal are nine “slots,” or takeoff and landing rights, at Washington’s National Airport and 23 such slots at LaGuardia.

In granting tentative approval, the department also said that Texas Air would not be permitted to buy back the assets being sold to Pan Am without express government approval. The agreement with Pan Am contains a “snap back” provision that would permit Texas Air to repurchase the assets if Pan Am fails to maintain a certain level of service. This provision creates a “potential loss of competition” if Texas Air exercises its snap-back rights and then does not resell the assets to another carrier, the department said.

The transaction with Pan Am is scheduled to be completed Oct. 1.

“We are delighted with this tentative approval,” Texas Air official Bruce Hicks said. “It confirms what we have said, that this is a pro-competitive and pro-consumer merger.”

Under the Transportation Department’s tentative approval, consummation of the merger cannot take place until after a 21-day period in which the department will accept written objections or comments regarding the sale.