People in the airline business are well accustomed to turbulence, but last week they fastened their seat belts and reached for the air-sickness pills. In the wake of the proposed Texas Air-Eastern and TWA-Ozark mergers, everyone from chief executives to flight attendants was wondering nervously just how much those megadeals would shake up the industry. The already fierce competition in the skies is sure to become even more cutthroat. Many airlines may find it increasingly hard to turn a profit, and union members will face new threats to their high salaries. But air travelers, faced with the prospect of more and bigger fare bargains, stand to come out ahead.
The most stunning development was Texas Air's agreement to buy Eastern Airlines for about $600 million. For Eastern Chairman Frank Borman, the deal was an unfortunate, but unavoidable act of a company close to bankruptcy; for many of the employees it was a shameful sellout; and for the rest of the industry it was a shocker. If the merger goes through, it will create the largest U.S. airline, flying some 55 million passengers annually and serving 212 domestic and 71 overseas destinations. United would drop to second.
Running the biggest airline would be a dream come true at last for Frank Lorenzo, Texas Air's ambitious chairman, who failed in earlier efforts to buy Trans World Airlines and then Frontier Airlines. But a Texas Air-Eastern combination would be a nightmare for other airlines. Lorenzo has made Houston- based Texas Air, which owns Continental Airlines and New York Air, highly successful by paying relatively low wages and offering passengers cut-rate prices. As head of Texas Air and Eastern, he could easily trigger the most vicious fare wars that the industry has ever known.
As dramatic as the Eastern deal was, it was only the first installment of the one-two punch that rocked the airline business in a single week. Four days later TWA Chairman Carl Icahn said the carrier would buy St. Louis-based Ozark Air Lines for $225 million. That union would increase TWA's annual traffic by 30%, to some 27 million passengers, and strengthen its position as the fourth- largest U.S. airline. The merger would be a coup for Icahn, a New York financier who gained control of TWA only seven months ago. Though a TWA-Ozark deal was already in the works, he rushed to complete the negotiations after the Eastern deal was announced. Icahn realized that in the increasingly competitive skies, only the big and strong are sure to survive. Said he: "Texas Air-Eastern is telling you a story, and anybody who doesn't read it is a fool."
But several obstacles still stand in the way of a successful Texas Air- Eastern merger. For one thing, Lorenzo, who has long been viewed as a foe of organized labor, could have trouble making peace with Eastern's unions. The airline narrowly averted threatened strikes last week by the pilots and flight attendants, but the uncertainty surrounding the carrier has made many passengers wary of flying Eastern.