Eastern Airlines was expected to be in technical default today on about $600 million in debt as it missed a Friday deadline to reach agreement on wage and productivity concessions with all three of its major unions.
By late Friday, only two of those unions--those representing about 4,000 pilots and more than 6,000 flight attendants--had agreed to cuts, with the flight attendants reaching agreement early Friday morning.
The third union, the 12,500-member machinists union, has refused to grant any concessions on its contract, which runs to 1987. No change in the union's position is expected soon.
But a spokesman for the company and sources at its lead banks said the roughly 60 lenders were virtually certain to withhold action on the default until at least Monday, when representatives of the lenders meet in Miami with Eastern's management. Eastern has $2.5 billion in debt, but only $600 million is directly subject to the cost-cutting covenants that had to be met by midnight Friday, bankers said.
"The leading lenders are in active discussion with Eastern with the aim of extending the current covenant relief," a spokesman for Chase Manhattan Bank said Friday.
Early Monday, Eastern announced that its board of directors had agreed to sell the airline to Texas Air Corp., a holding company that also owns Continental Airlines and New York Air.
Then, on Thursday, Eastern executives met in New York with representatives of Chase Manhattan and Citibank, its two lead banks. At that session, the company "outlined the real-world economic benefits of the pilots' and (the anticipated) flight attendants' agreements and the benefits of the merger with Texas Air," an Eastern spokesman said.
"The collective weight of all those pluses argues that the lenders should consider relaxation of the deadline," he said.
Today's technical default means that any lender can theoretically call its loan now, requiring the company to pay its principal and accrued interest. But banking sources said it is almost certain not to happen, as it would destroy Eastern's chance for recovery and puncture the lenders' hopes of ever getting their money back.
Meanwhile, Eastern, hoping that its merger agreement with Texas Air will lead to a revitalization of its business prospects, announced a package of fare reductions aimed at regaining customers who have shunned the airline during its series of strike threats this year.
The reductions, company executives said, come to as much as 75% from standard coach rates and will cover flights serving more than 100 cities between today and March 20. Most of the usual restrictions associated with deeply discounted fares, including cancellation penalties and advance purchase requirements, will be waived.
"This is pretty much what happens when a company tries to regain traffic after a strike or threatened strike," said Louis Marckesano, airline analyst for the Philadelphia investment firm of Janney Montgomery Scott.
But a combined Eastern-Texas Air may have a struggle ahead of it as the airline industry, not known for sedate competition, becomes even more cutthroat. On Friday alone, two other airlines flying some of the same routes as Eastern and Continental announced fare cuts to boost traffic during the traditionally slow late winter and early spring seasons.
USAir said it will expand its "ultimate super saver" plan to reduce fares to as much as 76% below standard coach rates for flights from April 1 to May 22. People Express said it will reduce fares by up to 50% on flights between New York and six cities, including Chicago, New Orleans and Atlanta, from March 3 to April 30.
Eastern's tentative agreement with Texas Air could take as long as six months to work its way through regulatory scrutiny in Washington. The merging companies on Friday filed notice of their tentative agreement with the Department of Transportation, which will review the proposal. They asked for expedited approval of the merger to eliminate "uncertainty in the minds of the traveling public, the communities which depend upon Eastern, and, of particular importance, Eastern's employees."
Texas Air, whose chairman, Francisco A. (Frank) Lorenzo, placed Continental Airlines into Chapter 11 bankruptcy protection in 1983 to cancel that airline's union contracts and reduce its labor costs, pledged in the filing to honor all Eastern employee contracts in force at the date of merger.
The airline's agreement with the attendants' union, announced at 7 a.m. Friday, calls for longer hours for attendants, pay cuts of 20% and cuts in health and other fringe benefits.