Pan Am Deal Will Increase Competition in Shuttle Corridor : Texas Air Moves to Clear Eastern Merger Hurdle

Texas Air Corp. moved Friday to overcome Transportation Department objections that the proposed merger of Texas Air with Eastern Airlines would reduce competition in the New York-Boston-Washington air shuttle corridor.

It filed with the department an amended agreement that it has reached with Pan American World Airways that will have the effect of increasing the number of Pan Am’s shuttle flights that will compete with those of the merged Texas Air-Eastern. If the merger is completed, it would create the nation’s largest airline holding company.

Eastern and New York Air, a subsidiary of Texas Air, have been major competitors on the shuttle routes. Pan Am does not now operate shuttle service in the corridor. Last month, the Transportation Department rejected the proposed merger on grounds that Pan Am would not be able to provide effective competition for the merged carrier in that market.

The department said Texas Air’s $600-million acquisition of Eastern would substantially reduce competition on the Northeast corridor because Pan Am lacked sufficient landing slots at New York’s LaGuardia Airport to operate hourly service in the Boston-New York-Washington markets.

At the time of its order, the department said it would lift its objections if an acceptable plan were developed to ensure competition on the heavily traveled air corridor. Eastern is now dominant on these routes.

The new agreement provides Pan Am with enough takeoff and landing slots in the Northeast shuttle market to operate 15 hourly round trips a day between LaGuardia and both National Airport in Washington and Boston’s Logan Airport.

As part of the agreement, Texas Air sold Pan Am 14 slots for $9.8 million and traded six more to Pan Am for six of Pan Am’s at different times of day.

Texas Air also rescinded the $12-million sale to Pan Am of two gates at LaGuardia. The total price of the deal, according to Texas Air, including both the original sale of gates and slots and the new amendment, is $62.8 million.

Texas Air said the new agreement “fully meets the criteria” set by the Transportation Department.

In a statement, Texas Air Chairman Frank Lorenzo said: “We are gratified to put this issue behind us and move forward with the merger with Eastern that will bring tremendous benefits to the traveling public and the employees of both companies.”

Texas Air said it expects approval from the department by Oct. 1. Pan Am said it plans to launch shuttle service on that date.

A Transportation Department spokesman declined to comment on whether approval of the Texas Air-Eastern merger will now be forthcoming. But most observers said they expect quick approval by the agency.

“This new agreement seems to fill a lot of the holes,” said Hans J. Plickert, airline analyst with the New York brokerage of E. F. Hutton.