Transportation Dept. Ruling : Texas Air Gets Tentative OK to Buy People Express

The Department of Transportation on Tuesday tentatively approved Texas Air Corp.’s planned purchase of financially ailing People Express Inc. but expressed concern about possible competitive problems on flights serving three markets.

It also tentatively approved Texas Air’s acquisition of bankrupt Frontier Airlines, a Denver-based subsidiary of People Express that ceased flying in August.

People Express last week asked the government to act on the proposed transaction by Tuesday so that it could pay $13.4 million of interest due today. People Express said dwindling passenger traffic has produced a severe cash shortage and reported late Tuesday that its planes are currently flying only 44.9% full, down from 67% earlier.

Concerns About 3 Markets

In issuing its tentative approval, however, the Department of Transportation said it has “concerns with the level of competition” in three markets.

People Express, which has its headquarters at Newark International Airport in New Jersey, routes most of its flights through that hub, while Denver was the center of operations for Frontier Airlines. New York Air, also a Texas Air subsidiary, and Eastern, which it is trying to acquire, compete with People Express in flights between Newark, Washington, Boston and other cities.

The competitive questions in Denver revolve around whether a shortage of gates at Stapleton International Airport will restrict entry of other carriers and limit competition once Frontier’s assets are turned over to Texas Air Corp. Before its shutdown, Frontier battled United Airlines and Continental Airlines, another subsidiary of Texas Air Corp., at Denver.

Creditor Not Identified

The ruling also noted that People Express and Texas Air had “failed to identify the creditor to whom the interest was owed and that they had provided no evidence that the creditor would not agree to a delay in the payment, or that People Express’ failure to pay the interest on Oct. 14 would in any way be injurious to itself.”

The department gave interested parties seven days to file objections to its tentative approval. It said it didn’t issue an immediate approval because the applicants “failed to support their claims of People Express’ possible imminent collapse.”

If objecting parties can demonstrate that the transaction will create competitive problems that need correcting, it said, the government would not provide a remedy but would require the applicants to devise a remedy.