People Express Fades Into History as Merger Is OKd

Times Staff Writer

People Express, the airline that revolutionized the industry with low fares, no frills and a role for workers in company decision-making, was laid to rest Monday when its shareholders voted to sell out to Texas Air Corp.

Texas Air, a Houston-based holding company headed by entrepreneur Francisco A. (Frank) Lorenzo, thus becomes the largest airline company in the non-Communist world. It already owns Eastern Airlines, Continental Airlines, New York Air and three regional commuter lines: Britt Airways, which operates in the Midwest; Provincetown-Boston Airlines and Rocky Mountain Airways. The combined airlines will own 602 jet aircraft and 119 other planes.

The nearly $115-million transaction, plans for which were announced Sept. 15, was forced upon People Express because it faced financial disaster. The company lost $254.4 million in the first nine months of 1986 and said it was no longer viable.


In a proxy statement earlier this month, People Express said the merger with Texas Air was “the best and perhaps only available means of preserving the business and operations of People Express.”

Under terms of the transaction, People Express common shareholders will receive for each People Express share 0.05042 of a share of Texas Air common stock and $2.50 worth of a new Texas Air preferred stock. At current prices that is worth about $4.26 per share. People Express has 26.7 million common shares outstanding.

The meeting Monday in an auditorium at the airline’s Spartan headquarters at Newark International Airport resembled a wake. About 100 shareholders, mostly heavy-hearted employees, watched as the votes, most of which had been sent in by mail, were counted.

The common shares of People Express voted 53% to approve the deal. A company official said the other 47% of the common shareholders were not necessarily opposed to the merger; they simply did not send in their proxies.

After the vote count, Donald Burr, founder and chairman of People Express, opened the meeting to questions, but there were only a few.

What will happen to “all of the people who had dedicated their lives” to People Express?, one shareholder asked, referring to the company’s 3,000 employees.


“I am proud to say that no employee has been furloughed, and it is not planned that any will be furloughed,” Burr said. “That was so even when, in this bleak time, we sometimes had more (workers) than we needed.”

Declines to Answer

After the meeting, Burr was chased by a horde of reporters who wanted to know how he felt about seeing his brainchild fade into oblivion. But he refused to answer their questions and would not even say whether he plans stay with Texas Air. A spokesman for the holding company said later that Burr has a two-year management contract with Texas Air.

But Burr’s response to virtually all of the questions was, “It’s a nice day.”

When one reporter wished him luck and said he expected that they would meet again somewhere else in the airline industry, the 45-year-old Burr managed a smile and said, “I’m young yet.”

The merger becomes effective today. When the merger agreement was announced in September, Lorenzo said that People Express would eventually be incorporated into one of the other Texas Air subsidiaries, most likely Continental. But company spokesmen declined Monday to say whether or when this would take place.

Employees expressed diverse emotions about the demise of the 5-year-old airline, which began with three second-hand jets. “It is sad,” said Irene Goosly, whose title is team manager. “We changed the course of aviation history, and I was proud to have been part of it.”

None of People Express’ workers were “employees”; all were “managers.” Newly hired personnel had to purchase at least 100 shares of the company’s stock, so all were owners of the firm.


Other unusual features included the airline’s “cross-utilization” of employees, which allowed them to work in areas other than their usual jobs. And the firm had no secretaries. “If the phone rings, you answer it,” said Scott Cate, a pilot interviewed in September at the time of the merger announcement. Cate, who was also one of People Express’ 46 general managers, added, “If you want to write a letter, you type it yourself.”

Not Everyone Enthused

But not all employees were enthusiastic about Burr’s management techniques. Pilot Michael Petraszko, who left People Express recently for “greener pastures” at Northwest Airlines, said Monday, “There were mass inefficiencies. We had no controllers. We had no auditors. We had only outside consultants, and there were no cost controls. We succeeded this long despite, not because of, Donald Burr.”

If the chairman “had listened to his employees on such matters as on-board ticketing,” Petraszko went on, the airline might have survived. “The way we did things harassed the customers, and the way we did things internally harassed employees.”

Later, at Newark airport’s People Express counters, other employees voiced their concerns about the merger. One customer service manager, who did not want her name published, said many employees did not yet realize that “we’re not in a position to bargain” with the new Texas Air bosses.

She said People Express’ medical and dental insurance plans have given employees 100% coverage and that that has now changed “dramatically.” At Texas Air, there is $100 deductible per individual, $300 per family, and only 80% of the bills are covered.

“The flexibility of jobs is something we’ll miss,” the customer service manager continued. “I fly a lot as a flight attendant. Tomorrow, if I want to fly, I’ll just go up to the scheduling office and tell them I’ll fill in if they have openings. We’ve been told things will remain the same for a few months, then it will change.”


Times staff writer Michael A. Hiltzik in New York contributed to this story.