Texas Air Gets Final OK to Buy People Express
The Transportation Department gave final approval Friday to the acquisition of People Express and the remaining assets of bankrupt Frontier Airlines by Texas Air Corp., creating the nation’s largest airline system.
Houston-based Texas Air already owns New York Air and Continental Airlines and is in the process of taking over Eastern Airlines.
The new combination would have more than 600 airplanes, compared to Chicago-based United Airlines, until now the largest U.S. carrier, which has 371 planes. The Texas Air carriers combined would carry slightly more revenue passenger miles than United, which had 17% of last month’s total. The new entity would have had 17.9%.
The approaching disappearance of People Express ends an era that has brought sweeping changes to the airline industry.
“People Express’ initial successes forced all other airlines to address their employee cost and to learn to compete in a deregulated marketplace,” said Helane Becker, airline analyst with the brokerage house Drexel Burnham Lambert. “As a result of their initiatives--off-peak and peak fares--that reduced industrywide fares, traffic growth in the airline industry has accelerated. . . . Unfortunately,” Becker added, “People Express did too much, too soon, and wound up self-destructing.”
Some observers maintain that Texas Air will be the most debt-ladened carrier flying and that there are risks in that.
“The integration process will not be easy and will tax management resources,” cautioned RoseAnn Tortora, airline analyst with First Boston. “If an economic downturn were to occur . . . the company is much more vulnerable than competitors with stronger balance sheets.”
The department said its prompt approval of the proposed takeover was necessitated by “the extremely precarious financial condition” of People Express. “Without quick action,” it said, “there would be a significant and unnecessary risk that People Express would fail and Frontier’s system would not be revitalized.”
Approval normally takes about six months, but the department gave its tentative approval to the transaction last Oct. 14. At that time, it expressed concern over aspects of the $298-million transaction. These included the potential impact on the level of competition on routes between Washington and Newark, N.J., and on flights through Denver.
One Stumbling Block
But the department concluded that the acquisition would not substantially reduce competition in any market.
One stumbling block remains: People Express’ public debt holders must agree by Nov. 6 to reduce interest rates and lengthen maturities on six issues. Lower interest would save People Express $12.6 million a year.
When the proposed acquisition was announced last month, Francisco A. (Frank) Lorenzo, founder and chairman of Texas Air, said People Express would cease to exist as a separate entity in about a year. Meanwhile, Texas Air is to give People Express $54 million--$40 million of which has already been paid--to keep flying.
Texas Air said approval will allow it to restore service lost when Frontier ceased operating in August and will permit redeployment of former Frontier personnel. Continental Airlines will start operating the first of 40 aircraft within days, it said, and plans to hire Frontier employees and restore competitive service from Denver to at least 22 cities by the end of the year.
Continental will begin operating former Frontier aircraft to four cities on Nov. 1, to eight more cities on Nov. 8 and to at least another 10 by the end of the year, the parent firm said.
