• U.S.

Aviation: The Merger Cotillion

5 minute read

As soon as the nation’s second and third domestic airlines—American and Eastern—declared their agreement to merge, opposition revved up on all sides last week. Other airlines, fearing sharper competition, protested. Democratic Senator Estes Kefauver said the merger plan has “the most serious of monopolistic implications”; Representative Emanuel Celler said he would investigate. Mike Quill’s Transport Workers Union worried about layoffs among the 9,000 American maintenance men that it represents, threatened to strike after Feb. 1 unless the two lines pledged that there would be no job cuts. Bobby Kennedy was yet to be heard from.

Bigness was the basic issue. Merger would produce the world’s largest airline, the fourth largest private transportation system (in annual revenues, it would rank just after the Pennsylvania and New York Central railroads—which recently announced their own merger intention—and the Southern Pacific). The combined airline route would span 35,000 miles from Montreal to Mexico City, San Francisco to San Juan. Its 400 planes and 41,000 employees would serve 120 cities, handle some 35% of the nation’s air traffic, ring up sales of $700 million (1961 total) v. $500 million for its nearest competitor, United Air Lines.

The Driving Force. If this marriage comes off (TIME, Jan. 26), American will play the husband. American will give its name to the combined company, and American’s bluff president, C. R. Smith, will become chairman and boss. Eastern’s chief, Malcolm A. Maclntyre, 54, a former Under Secretary of the Air Force (1957-58), will become president and next in command to “C.R.,” who is a vigorous 62. Eastern’s pioneering chairman, Eddie Rickenbacker, 71, who lately has been more active on the banquet circuit than in the board room, will probably fold his wings. And somewhere, keeping a weather eye on the finances, will be Laurance Rockefeller, 51, who, as Eastern’s biggest shareholder (with 94,000 of the 3,235,000 shares), was the driving force behind the merger. Rockefeller will also be the biggest shareholder in the merged company.

For each Eastern share, now selling at $25.75, American will swap stock and warrants worth $33 at last week’s close. American will wind up with 67% of the new company’s shares, get 16 seats on the 24-man board.

More Matchmaking. With Eastern in the red by $5,400,000 last year, President “Mac” Maclntyre says that he has contemplated merger with almost every other major airline (and airmen buzz that he kept several of them on tippytoes to wangle sweeter terms out of American). American’s C. R. Smith, flourishing a $6,800,000 profit and ardently disclaiming that he is fascinated by bigness alone, says the merger makes economic sense for both sides. Both presidents deny that the new line would be monopolistic, since it would still face from one to seven competitors on all its major routes. They figure that the merger would save them $50 million a year, mainly by eliminating overlapping in routes, ticket counters and hangars. But instead of closing either Eastern’s sprawling maintenance center at Miami or American’s still bigger plant at Tulsa, they may well let each plant handle what it is best geared for.

Obviously there will be layoffs, but not for a while. Pilots’ Union Chief Clarence Sayen is not opposed to the idea of mergers. “Most mergers have been good mergers, providing better service,” says he. “The net result is often increased employment.” Civil Aeronautics Board Chairman Alan Boyd likes mergers in principle, though whether he will approve such a big one remains to be seen.

“Before three months are up,” predicts Eastern’s Maclntyre, “there will be more marriages. The cotillion has just begun.” United and Capital are already under the same hangar (with CAB blessing), Continental and National have announced their intention to join, and almost every other U.S. trunk airline is seeking a mate on the presumption that two can live cheaper than one in an industry that last year lost $30 million. This is the lineup:

> NORTHWEST, whose new jet fleet lifted it more than $3,000,000 into the black during 1961, is reportedly talking merger with Delta. Northwest’s passenger load factor is a so-so 52%.

> DELTA, which has relatively good loads (59%) and strong earnings ($4,900,000), is also considered as a candidate to join the Continental-National team. Because Eastern is Delta’s toughest competitor, Delta would be hit harder than any other line by an Eastern-American tie.

> BRANIFF, with a load factor of at least 57% and earnings of $1,275,000 last year, is not yet in the hand-holding stage with any line, but would also fit well into the Continental-National system.

> NORTHEAST, with a 50% load and an $8,000,000 loss, was bailed out recently by loans from Howard Hughes, who hopes to merge Northeast into his Trans World Airlines—if and when he gets his TWA stock out of trusteeship.

> TWA, which last year had a 55% load factor but lost $15 million because of heavy interest payments on its jet debt and sharp competition on its foreign routes, is also being mentioned for a three-way TWA-Delta-Northwest merger.

> WESTERN, which earned about $500,000 last year with a 56% load factor—and would have earned more were it not for a strike of flight engineers—is fiercely independent, but nonetheless a potential third mate in the United-Capital combine.

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