Texas Air Corp., owner of New York Air, yesterday removed the major obstacle to its proposed merger with Eastern Air Lines when it sold takeoff and landing rights at Washington National and New York LaGuardia airports to Pan American World Airways for $65 million.
The move means that Pan Am will replace New York Air as the competition for Eastern on hourly flights between New York and both National and Boston's Logan International Airports. Pan Am will operate at least 12 round trips daily between National and LaGuardia and between LaGuardia and Logan.
Both Eastern and New York Air currently operate 15 round trips daily between LaGuardia and National. New York Air apparently will eliminate its shuttle-type service to New York, but will continue to serve the Washington market.
Charles S. Rule, chief of the Justice Department's antitrust division, said in a letter to Texas Air Vice President Clark Onstad that "the divestiture . . . resolves all of the department's concerns about possible competitive problems arising from Texas Air Corp.'s acquisition of Eastern."
Rule said that Justice will not oppose the proposed merger and will support Texas Air's proposal for expedited action by the Department of Transportation. DOT, the final authority on the merger, already had scheduled hearings later this month and a decision by Aug. 31.
If the purchase is approved, Texas Air will become the nation's largest carrier, pushing aside United. Texas Air also owns most of Continental Airlines and is moving to purchase Rocky Mountain Airways, a small commuter airline based in Denver.
Texas Air already owns 41 percent of Eastern Air Lines and has options to purchase enough to control Eastern. However, Texas Air's Eastern holdings are in trust pending the DOT decision.
It has been legal for airlines to sell takeoff and landing rights, called slots, only since April 1, and there have been threats from Congress to prohibit the practice.
According to the Federal Aviation Administration, 52 slots have been sold in 14 transactions, and a number of other slots have been traded.
Transportation Secretary Elizabeth Hanford Dole approved the regulation permitting slot sales at four airports where landing and takeoff rights are a valuable commodity -- National, LaGuardia, New York John F. Kennedy International and Chicago O'Hare International.
The deal with Pan Am takes effect Oct. 1 regardless of whether the Texas Air-Eastern merger is approved. "This is what we call a hell-or-high-water deal," Onstad said.
Pan Am will purchase 18 slots at National (each takeoff and each landing counts as one slot), 46 slots at LaGuardia, two gates at LaGuardia and one gate at Boston's Logan International Airport.
That means a slot is worth about $1 million. One of the criticisms of permitting the buying and selling of slots is that the airlines did not pay for the slots in the first place, but simply inherited the status quo on April 1, with some adjustments.
Pan Am spokesman James Arey said that the shuttle-type service will be operated by a new Pan Am subsidiary. "We haven't decided on the name," he said.
Pan Am is committed to operating the competitive service for at least two years. Texas Air -- meaning both New York Air and Eastern -- will not fly more than 20 round trips daily between LaGuardia and National or Logan for at least 18 months.
The potential anticompetitive problem with the merger revolves around the slot issue. At most airports, access is relatively unlimited and airlines can legally fly to any airport.
In his letter to Onstad, Rule said that, "Outside the Northeast corridor, the acquisition may lower costs, may significantly increase competition among air carriers and thus may provide air travelers with substantial pro-competitive benefits." Texas Air has been a leader in cheap fares.
New York Air, a creation of Texas Air Chairman Frank Lorenzo, started the first significant competition for the Eastern shuttle after airline deregulation was passed in 1978. With the shuttle flying every hour on the hour, New York Air took the half-hour slots and utilized aggressive marketing to become a significant force.
Eastern fell into Texas Air's arms in February when it was on the brink of technical default on its debt of more than $2 billion. When Eastern Chairman Frank Borman was unable to wrest significant long-term wage concessions from all of his labor unions, bankers began looking for a buyer and Lorenzo was ready. The purchase price is estimated at $600 million.
The objections to the proposed merger have centered around the issue of competition for the shuttle. USAir, American, Delta, People Express and Presidential Airways all complained to DOT about this point, and both American and USAir publicly offered to buy the Eastern or New York Air services.
Onstad said that Texas Air talked to more than one potential slot buyer, but would not reveal the others.