Cliff-Hanger

By George Russell

The suspense thriller known as The Perils of People Express took a sudden new turn last week -- but the denouement was not yet in sight. Almost three weeks after the revolutionary no-frills airline announced that it was looking to sell part or all of its operations to fend off bankruptcy, People found the buyer it needed. People's five-member board declared that United Airlines, the largest U.S. commercial carrier, would pay $146 million for Frontier Airlines, the Denver company that People picked up only last November. The same day, People's board rejected as "inadequate" an offer from Houston's Texas Air to buy the entire airline for $9 a share, a sum that some analysts estimated to be about $240 million.

Behind that seeming resolution of People's difficulties, however, the plot thickened. There were muted signs of a boardroom power struggle in Newark, the airline's headquarters, that might still be unresolved. People's financial woes, meanwhile, could hardly be described as over. At best, the deep-discount airline appeared to have bought additional, limited time in which to become a more traditional, full-service passenger carrier. That would be the very opposite of the strategy that in five years made the carrier's name a byword and irrevocably shook up the economics of U.S. flying.

Under the terms of the buyout, United will pay $50 million for Denver-based Frontier by this week, a clear sign of People's desperation for cash. After dropping an estimated $103 million in the first half of the year, People was believed to have less than $50 million in cash on hand, and is still losing about $4 million a week. Even so, the decision to sell off some of the company's assets was not made voluntarily by People Founder and Chairman Donald Burr. The move was forced on Burr by the remaining board members. The insurgents were led by Venture Capitalist William Hambrecht of San Francisco, whose firm raised $23.5 million in the early development of People, and by Charles Phillips, a managing director of Morgan Stanley, People's investment banker. Said an airline-industry expert: "The board has clipped Burr's wings and is now running the show."

Experts estimate that the distress sale gave People a cash transfusion good for perhaps several months of life. Within that time, the airline must begin to succeed on the new course that it set in May, to become a conventional airline competing for business travelers. Many industry specialists are doubtful that People, with its reputation for spartan travel conditions and first-come, first-served seating, will be able to convince passengers that it has made the switch. Says J. Henry Riefle, general manager of Manhattan's Hardach Travel Service: "No matter what People Express does, it will always be perceived as a low-cost, no-frills carrier. You can't expect a $300,000-a- year executive to worry about saving $45 on a flight to Pittsburgh."

If People is to continue to fly, it must build up clientele to make it through the lean winter flying period. Last week's sale may just make that possible, but for some time to come, one of the airline industry's biggest success stories is likely to remain a cliff-hanger.

With reporting by Thomas McCarroll/New York, with other bureaus