Takeover at People Express

<w Be Luke Skywalker, not Darth Vader. Ultimately love is stronger than evil, и

Donald Burr, founder of People Express

People Express had done exceedingly well at the beginning, expanding its route structure and purchasing more and more aircraft. Revenues grew at an astonishing rate, from $38 million in 1981 to $1 billion in 1985. People Express even bought Frontier Airlines, headquartered at Denver, to give it a western hub and to rapidly increase its rate of growth. This purchase also gave People Express an elementary CRS system, the lack of which Burr concluded was severely undermining his airline’s ability to compete in 1985. But Frontier was a union airline, and its culture did not mesh well with People Express, not that any conventional carrier could.

It was said that working at People Express was akin to being in a cult, with its emphasis from the top down on philosophical intangibles like love, equality, peace, and brotherhood. All this was the direct influence of Don Burr, who had been caught up in the message of a popu­lar inspirational and self-help book called The Greatest Salesman in the World. The tenets of this book became the basis for his personal phi­losophy. Attempts to put these teachings into practice at Texas International inevitably brought him into conflict with Frank Lorenzo, who had a very different approach to running a corpora­tion for profit. Now at People Express Burr was free to apply these teachings liberally, and he did, in upbeat posters, presidential messages, manuals, and meetings. Morale was high, and most employees joined in the upbeat new-age philosophy that infused the company, attending pep rallies in the company auditorium by chief cheerleader Burr. The employee stock purchase plan swelled, as workers paid out substantial portions of their salaries to the company in stock purchases, stock that went up and seemingly never could go down.

Burr had pulled off the Frontier acquisi­tion right out from under his mentor, Lorenzo, who was also vying for the property. But it had been costly. Lorenzo had offered $22 per share in October 1985, but Burr had successfully lined up employee support at Frontier because of Lorenzo’s anti-union reputation, and secured sig­nificant employee concessions. These, coupled with Burr’s countering bid of $24 per share, were enough to convince Frontier’s board of directors to vote in favor of the People Express acquisition.

People Express’s cash stores were imme­diately and firmly tapped in order to pay Fron­tier’s expenses. It was much worse than anyone had expected. Burr learned from his financial people right after the deal was closed that People Express could expect to lose $100 million in just the next few months covering Frontier’s hemor­rhaging. By June 1986, less than a year after acquiring it, Burr realized he had to dump Fron­tier if People Express was to survive. Within a period of nine months after the Frontier acquisi­tion, People Express was essentially out of cash.

There were not a lot of suitors interested in Frontier. United offered to take Frontier off Burr’s hands for less than one-half of what Burr had paid just a few months earlier. But United’s pilots soon put an end to the takeover discussions with People Express, and United pulled out of the discussions. With no more cash to infuse into Frontier, Frontier filed for Chapter 11 protection on August 28, 1986.