Merger in the Air

Like the ailing railroads, the nation's ailing airlines hope to merge their way out of their difficulties. Last year United merged with Capital; last month money-making Continental agreed to combine with money-losing National. Now the most likely candidate for a corporate marriage is Eastern Air Lines, the nation's third largest. It is in the handholding stage with two other giants--American and Trans World Airlines.

Eastern has plenty of reasons for considering a marriage. Last year it accounted for an estimated $5,400,000 of the industry's overall loss of $30 million. By merging, Eastern could pare payrolls, eliminate duplicate ground facilities, and cut the costly competition that on some routes is the prime cause of its losses. Despite its red-ink balance sheet, Eastern offers an attractive dowry: 1) the biggest route system in the eastern U.S., 2) the best on-time performance in the industry, and 3) a savvy president, Malcolm MacIntyre, 53, a lawyer who was brought to Eastern by Big Investor Laurance Rockefeller and has pioneered cut-rate air shuttles to gain more passengers.

On the surface, an Eastern-TWA union seems sensible because TWA's East-West routes could offset seasonal fluctuations on Eastern's North-South runs. But TWA has two heavy handicaps: it lost an estimated $15 million last year, and it is 78% owned by eccentric Howard Hughes, who, though he was forced by financiers last year to put his stock in trusteeship in return for a loan of $165 million, can still stir up a lot of turbulence.

More promising are prospects of an Eastern-American hookup, which would allow a money-saving consolidation of ground facilities and maintenance plants in 29 key points already served in common by the two lines. Equally important, American's transcontinental routes mesh nicely into Eastern's system; American is also making money (about $6,000,000 in 1961). And prideful President C. R. Smith, 62, is well aware that a merger would re-establish American as the world's biggest airline--a position it lost when archrival United absorbed Capital.

An Eastern tieup with any big airline would very likely win the blessing of CAB's merger-promoting Chairman Alan Boyd. Under the Federal Aviation Act of 1958, CAB approval gives an airline freedom from antitrust prosecution.

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