Eastern Urged to Cut Pay or Seek Protection : Airline Says Chapter 11 Filing Appears Unlikely
Financially troubled Eastern Airlines confirmed Wednesday that an outside consulting firm has recommended the carrier file for protection under bankruptcy laws unless its unions quickly agree to drastic wage cuts.
But the Miami-based airline said filing for Chapter 11 bankruptcy protection appears unlikely. “Everything we’re doing is to solve our problems well short of that,” said Jerry Cosley, Eastern senior vice president for corporate communications.
The Wall Street Journal reported in today’s editions that Avmark Inc., an Arlington, Va., aviation-management consulting firm, recommended that Eastern seek “far more Draconian” wage cuts from its unions than it had in the past. If reductions aren’t forthcoming, the firm suggested Eastern file for protection under federal bankruptcy laws.
The Journal said the confidential report said Eastern “stands at the head of the airline ‘endangered species’ list,” and “faces the probability of insolvency within 12 months unless drastic action is taken--or a miracle occurs.”
Markets Eroded
The report said that although Eastern is holding its own against Delta Air Lines, “newer and more aggressive carriers” with lower cost structures are eroding its markets.
Eastern’s major creditors recently told the company to have all of its labor contracts settled by Feb. 28 or face default on an estimated $2.5 billion in long-term debt.
Eastern, which hasn’t had an annual profit since 1979, showed a record first half profit last year of $122.3 million. But Eastern Chairman Frank Borman has said that 1985 may not be profitable overall for the company because of increased competition and air fare wars.
Cosley said the report, commissioned by Eastern’s executive committee, will be presented to the airline’s full board for consideration at their next meeting a week from today.
Despite the bleak prognosis, Borman was quoted by the Journal as saying he rejected such extreme solutions as filing for protection from creditors.
“The Chapter 11 option is one that is unpalatable and absolutely the court of last resort,” Borman was quoted as saying.
Robert Callahan, president of the Transport Workers Union Local 553, agreed that filing for protection from creditors is undesirable.
“As far as I’m concerned, Chapter 11 is a loss for both sides,” Callahan said in an interview today. “We’re a relatively healthy organization with financial problems, that unfortunately come when the industry is in turmoil” because of deregulation.
