Former People Express president Harold J. (Hap) Paretti is forming a new airline based at Washington Dulles Airport to provide jet service between Dulles and cities in New England and the South.

The airline, to be called Presidential Airways, Inc., is seeking the money to buy a fleet and start service by midsummer, Paretti announced yesterday.

"Money is obviously a major challenge," he said. "We have a commitment on the first two phases of financing, with insider capital of $1 million and venture capital of $675,000. The next step is to raise additional funds for aircraft purchase."

Presidential Airways has filed an application with the Department of Transportation to start a Dulles-based service, and has received a letter of intent from Metropolitan Washington Airports promising lobby, ticketing and baggage-handling facilities at Dulles. Metropolitan Washington Airports is the Federal Aviation Administration agency that runs Dulles and Washington National.

Presidential would be the first airline to make Dulles its hub.

Paretti said that Presidential Airways will be a full-service airline, with first-class as well as coach seating. "We haven't decided exactly which cities" to serve initially, he said. "We'd be looking at north-south routes, New England, the Carolinas and Florida. He said New York cities such as Syracuse and Buffalo would be of more initial interest than the difficult New York City market.