Texas Air, NWA in Red; Cost of Mergers Cited

The costs of mergers resulted in large first-quarter losses for NWA Inc. and Texas Air Corp., earnings reports issued Thursday showed.

During the first three months of 1987, NWA, the parent of Northwest Airlines, had a net loss of $35 million, more than twice the $16.4-million loss of the same period a year earlier. NWA had operating revenue of $1.17 billion in the quarter, compared to $638.4 million a year ago.

Northwest, which merged with Republic Airlines last October, said that despite improvement in passenger traffic as a result of the merger, “unusual non-recurring expenses were necessary to improve customer service as we restructured the two carriers into a single operating unit.”

Texas Air had a net loss of $100.7 million during the quarter on revenue of $2.04 billion, compared to a net loss of $11.2 million on revenue of $511.37 million during the same period of 1986. However, Texas Air said Thursday that if it had owned all of Eastern Airlines, People Express and Frontier Airlines in the first quarter of 1986, as it does now, it would have reported a consolidated net loss of about $185 million for the year-ago quarter.

Texas Air, which also owns Continental Airlines, said a “substantial” part of the 1987 first-quarter loss was caused by losses at People Express, which experienced a “severe erosion of its revenue base that began late in 1986 and continued into the first quarter.” Also contributing to the loss was the cost of integrating People Express’ operations into those of Continental, beginning in February.

Texas Air Chairman Frank Lorenzo issued a statement saying that operational and financial results had shown “rapid and continuing” improvement since the consolidation on Feb. 1.

Meanwhile, Steven G. Rothmeier, NWA’s chairman, complained that Texas Air was responsible for both its own and Northwest’s losses during the quarter. “Northwest, as well as the rest of the industry, is in a low-fare environment driven by Texas Air, the country’s largest airline company--that uses the low-cost levels of its Continental Airlines unit to set the basic domestic fare structure.”

Earlier this year, Continental instituted low, no-refund MaxSaver fares. It continued them in May, and other carriers were forced to meet the competition.

Louis Marckesano, airline analyst with the Janney Montgomery Scott stock brokerage in Philadelphia, said Wall Street had expected Texas Air to lose only $50 million to $70 million during the first quarter.

He said merger costs and low fares contributed to the lower-than-expected results, adding that Texas Air had “inaugurated the new fares just when yields had begun to stabilize in the fourth quarter of last year.”

The analyst said one reason for NWA’s losses is that the bigger an airline gets, the larger the seasonal profit-and-loss swings. “As an airline gets larger,” he said, “it loses more in loss periods and profits more in profitable periods.

“Northwest traditionally does poorly in the first quarter. It loses money in the winter and makes money in the summer. Northwest is the nation’s largest carrier to the Far East and has extensive routes to Europe. Both are very heavily traveled in the summer months.”