Pilots Reach Tenative Pact With Eastern
Negotiators for the Air Line Pilots Assn. reached a tentative settlement with Eastern Airlines Sunday night, a little more than 24 hours after management had told three unions representing its employees that if they did not accept major reductions in wages and benefits, the financially troubled carrier will be sold to Texas Air owner Frank Lorenzo.
Joe Bilotta, a spokesman for the 4,300 pilots, who were set to walk out at midnight Tuesday, stressed the agreement’s tentative nature and said it still must be approved by the union’s master executive council. “It is just a proposal. It is what both sides feel is the best deal they can live with.”
Even if approved, the settlement with the pilots appeared to leave Lorenzo’s buy-out offer in place. Eastern still must reach an agreement with the Transport Workers Union, which represents 6,200 working Eastern flight attendants, who are set to strike at midnight Friday.
Moreover, an informed source within the International Assn. of Machinists said Sunday that his union would not accept cuts in its contract with Eastern. That agreement does not expire until next year, but the airline has been told by its creditors that it must obtain wage and benefit concessions from its unions or face default on its notes.
“As far as we can determine, the choices offered to all union groups presently are to reach a negotiated settlement or have the airline sold to outsiders,” the pilots’ union said in a statement earlier Sunday.
A merger between Eastern and Lorenzo’s Houston-based Texas Air, which already owns New York Air and Continental Airlines, would create one of the nation’s largest carriers. Eastern flew 33 million revenue passenger miles last year and that accounted for 10% of all U.S. carriers. It ranked third behind American Airlines and United Airlines. Continental ranked eighth with 5%.
‘Cash Portion Substantial’
The pilots’ union said in an earlier announcement Sunday that “the cash portion of the (purchase) offer is represented to be substantial.” The union said its representatives had been informed of the offer on Saturday by Eastern Chairman Frank Borman.”
The airline, which was founded in 1927 and which prospered during the quarter of a century that it was headed by renowned World War I ace Eddie Rickenbacker, has fallen on hard times in the last few years. In fact, it is in the midst of its most serious crisis in its history. It has only until the end of the coming week to avert default on its $2.5 billion in debts on which it pays $250 million in interest annually.
According to the machinists’ source, the unions were called last Friday night and told to come to a Saturday afternoon meeting. All three unions were told that they had until midnight Sunday to make major concessions--including a permanent 20% pay cut--or the airline would be sold to Lorenzo. The attendants and pilots decided to negotiate. Earlier last week, in fact, Henry Duffy, president of the pilots’ union, said that the pilots were willing to take a cut if it was temporary and losses could be recovered when Eastern regains financial health. The airline also is asking for substantial benefit and work-rule concessions.
The machinists, however, declined to accept the cuts. “We’ve told the company and the other unions we’ll take our chances with Lorenzo,” the source said. “At least he wants to make money, something that hasn’t happened around here for a long time.”
According to the machinists source, his union is unwilling to strike a bargain with Eastern because it has no confidence in management. “It would probably take them a year or two to fritter it away,” he said, referring to the concessions that the union would have to give the airline.
“We won’t get stampeded into a terrible deal that will destroy the union and destroy the members,” the source said.
Lorenzo is thoroughly distrusted by most of organized labor. When pilots went on strike at Continental in 1983, Lorenzo filed for Chapter 11 of the federal bankruptcy code. He was thus able to impose new wage scales and work rules for Continental’s work force. The unions subsequently thwarted Lorenzo’s attempt to acquire Trans World Airlines, but the machinists source said his union was unwilling to play a similar role in Eastern’s case. With its lower wage scales and higher productivity, Continental has emerged as one of the nation’s most profitable carriers.
John Pinkavage, airline analyst with the New York brokerage firm of Paine, Webber, Jackson & Curtis, said that “it sounds to me as if (Borman) is setting (the unions) up for the lesser of two or three evils. Knowing how much the unions hate Lorenzo . . . that leaves the choice of Chapter 11 or giving in.”
There is no question that Lorenzo could afford to acquire Eastern, industry observers say. Texas Air has $500 million in cash on its balance sheet, and Lorenzo just completed $200-million bond sale and is about to launch another in the same amount. “Lorenzo has been building up his buy-out fund,” Pinkavage said.
According to the union source, Lorenzo’s motives for the purchase offer are several:
--He wants to acquire Eastern’s highly automated modern reservation system. It is said to be one of the best in the industry, and airlines have recently discovered that having their own reservation systems is a key to getting business. Continental does not have one.
--Eastern has a highly regarded maintenance facility in Miami.
--The purchase would give him control of Eastern’s profitable East Coast shuttle and Latin American routes.
--It would improve his position as a cargo carrier in the lucrative Houston market, where Eastern has been beating Continental.
--People Express has been moving into Lorenzo’s Western territories by taking a position in Denver, and this purchase would give him a way to compete with the bargain carrier along its profitable New York to Florida routes.
The airline, which had warned that it would shut down if the pilots walked off their jobs, has said that it had discussed the prospect of merging with several other companies, including TWA, Ozark Airlines, Northwest Airlines and USAir. The Associated Press reported that Borman had approached Lorenzo through an intermediary. Texas Air officials did not return phone calls late Sunday.
It was deregulation that caused Eastern’s trials. The major problem that Eastern has faced is discount competition, especially in one of its biggest markets, the New York to Florida route. The low-cost competitors include People Express, Continental and American.
According to Julius Maldutis, a vice president of the New York brokerage firm of Salomon Bros. Inc., 85% of all Americans flying domestically used a discount fare in 1985. Last December, only 12% paid full fares. And the average size of the discount, he said, was almost 56% off full fare, compared with 51% in 1984.
Eastern’s banks, both in the U.S. and abroad, have said that the carrier will be in default if it does not get $450 million in annual concessions from its three unions. Two of the unions, which have offered substantial wage cuts, have called for the ouster of Borman and other members of management.
