$606-Million Texas Air Bid for Eastern Airlines OKd
Ailing Eastern Airlines, the nation’s third-largest, said Monday that it has agreed to be purchased by aggressive Texas Air Corp. in a $606-million transaction that, by one important measure, would create the nation’s largest air carrier.
Texas Air, based in Houston, owns Continental Airlines and New York Air also. It is headed by Francisco A. (Frank) Lorenzo, who held a low-ranking managerial spot at Eastern more than two decades ago.
Eastern Chairman Frank Borman said there is “tremendous potential” in the proposed merger and that it is in the best interests of Eastern’s employees and shareholders.
And he lashed out at the stubbornness of Charles Bryan, head of Eastern’s local of the International Assn. of Machinists, for not taking the action needed to bring his 12,000 members into Eastern’s wage and benefits concession program, which the carrier had said was vital to its survival.
The machinists have a three-year contract that does not end until next year, but Eastern had sought to renegotiate it, seeking wage reductions of 20% and improvements in workers’ productivity.
Jerry Cosley, Eastern’s senior vice president for communications, said in an interview shortly after the agreement was reached at about 3 a.m. Monday that Bryan’s “lack of cooperation left us no other choice but to agree to the sale of the airline.” Borman said the only alternative to the sale would have been to file for protection under Chapter 11 of the federal bankruptcy laws, a course that he said was not acceptable.
Eastern has 289 airplanes and operates 1,500 daily flights to 145 cities in 25 countries. It carried 42 million passengers last year. It operates 13 flights a day in and out of Los Angeles, where it has 251 employes, and three flights a day into and out of Ontario, Calif., where it employes 12 people.
Continental, which also owns Continental West, has 133 planes and flies to 51 U.S. cities and 30 abroad. It has 25 flights to the Los Angeles area, including Burbank and Ontario. New York Air serves 16 cities and has 29 aircraft, with 18 more on order.
In terms of revenue passenger miles, the combined operation will be the nation’s largest, ahead of 1985 leader American Airlines and No. 2 United Airlines.
At a news conference early Monday morning, the union leader said that Borman, a former astronaut who joined Eastern 14 years ago and has been at its helm since 1975, had told him and other members of the board that he plans to resign. He said that Borman would get a “lucrative” pay-out if he left. However, Eastern spokesman Joe Scott later called the report “bull.”
Borman’s Ouster Urged
During tense negotiations in the last several months, all three of Eastern’s unions--including the Transport Workers Union, which represents 1,200 flight attendants, and the Air Line Pilots Assn., which represents 4,300 pilots--had called for Borman’s ouster.
The two other unions had reached agreement with Eastern late Sunday, apparently hoping to stave off a sellout. The pilots’ agreement was signed immediately, but the flight attendants’ agreement was only tentative.
The pilots’ union, which agreed to pay cuts totaling 20% and to work rule changes, indicated Monday that the Sunday agreement would hold and that the union would not try to block the sale. However, in a statement, the union criticized the proposed merger as “a disservice to both Eastern Airline employees and stockholders.”
Lorenzo is widely disliked by union members because of the tactics he used when he took Continental Airlines into bankruptcy during a pilots’ strike, reorganizing the carrier, breaking its contract with the pilots’ union and returning to operation with a staff of non-union pilots.
Nevertheless, it appeared Monday that many members of the rank and file were willing to give Lorenzo a chance.
“I’ve heard some nasty stories about Lorenzo,” flight attendant Algirdas Simukonis, a 13-year veteran, said during a flight Monday from New York and Miami. “I hope he tries to deal with us in a reasonable way. He is supposed to be a good manager, and, if he can replace our current management, that will be a good change for Eastern and its employees.”
Financial Details Told
Borman and other Eastern executives are scheduled to hold a news conference today to answer questions about the proposed merger. Late Monday, the financial details of the transaction were disclosed in a statement issued jointly by Eastern and Texas Air.
Once the merger is approved by government agencies and shareholders of both companies, Eastern will become a wholly owned subsidiary of Texas Air. It is believed that Eastern will continue to be operated as a separate entity, at least for the time being.
Under the terms of the merger, Eastern shareholders will receive $10 face value for each outstanding share of Eastern common stock. Of this, $6.25 will be in cash and $3.75 will be in Eastern bonds. The stock closed Friday at $6.375 a share on the New York Stock Exchange but rose Monday to $7.875 on news of the proposed sale.
In addition, Texas Air has agreed to buy approximately 11.2 million shares of a new issue of Eastern common stock, representing 18.5% of the company’s currently outstanding 63 million shares, for $6.25 a share. Half will be payable in cash and the remainder in Texas Air bonds. In addition, Texas Air received an option to purchase additional shares of new Eastern common stock for $7.50 cash.
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