Eastern Shaves Payroll by 3,500; Bid to Stem Cost Hemorrhaging

Eastern Airlines, buffeted by a $67.4-million third-quarter loss and intent on paring the size of its fleet, Wednesday announced the layoffs of 3,500 workers.

The layoffs, like the sale and lease of 19 planes in the past year, are part of an effort by the Miami-based carrier to cut its costs, among the highest in the industry.

“These cost reductions, painful as they are, are absolutely essential in our current environment,” Phil Bakes, Eastern’s president, said.

He also delivered a not-so-veiled threat to the International Assn. of Machinists, the airline’s biggest union, whose contract expires Dec. 31.

“The long-term answer to Eastern’s problems is a revamped labor cost structure,” he said. “Lacking that, further reductions and restructuring should be anticipated.”

The latest layoffs affect most of the airline’s divisions, including ticket clerks, cleanup crews, baggage handlers and management. Exempt are pilots, flight attendants and most aircraft mechanics.

Ad Budget Also Cut

Eastern, which was purchased last year by the Texas Air holding company, is the second-largest private employer in South Florida. About 1,000 of the layoffs are targeted for the Miami area, 700 in Atlanta and 33 in Los Angeles.

The reductions, beginning immediately, put 9% of the airline’s 38,000 workers out of jobs and followed elimination of 2,000 jobs over the past year. Advertising and promotional budgets also are set for cutbacks.

Industry analysts were not surprised by the action. “Their costs are ridiculously out of line,” said analyst Edward Starkman of the Paine Webber investment firm. “There has to be a slimming down.”

In the past year, Eastern has reduced its available seat miles by 10%, discontinuing many scheduled flights. In just the past week, it has sold five airplanes, including two new wide-body A-300s.

“The message is pretty loud and clear to most people: Management is super-serious about restructuring costs,” said David Sylvester, an airline analyst with the Kidder, Peabody & Co. brokerage.

John Mattis, an analyst with the investment firm of Morgan Stanley, said: “The layoffs sent a message to the machinists. . . . You see, on the labor side, Eastern is at a disadvantage on wages. They also have very restrictive work rules and that keeps productivity down.”

The IAM represents not only Eastern’s skilled mechanics but also baggage handlers and cleanup crews.

Skilled mechanics earn approximately $18 an hour, about the industry standard, Eastern spokeswoman Paula Musto said. But non-skilled IAM members, she said, earn up to $16 an hour, far above the wages paid by other carriers.

‘Union-Busting’ Charged

“You can’t make money these days paying cleanup people, baggage handlers and other unskilled labor that kind of salary,” Musto said.

Negotiations with the IAM have already begun but seem to be stalemated.

Charles Bryan, president of IAM District 100, Wednesday called the announced layoffs “a typical union-busting movement.” He said the layoffs, coupled with the recent airplane sales, “are further evidence (Texas Air Chairman Frank) Lorenzo is going to cannibalize Eastern” to help his other subsidiary, Continental Airlines.

Wally Haber, general chairman of the machinists local, said the union remained unsure Wednesday evening just which of its members will be affected by the layoffs.

“I’ll tell you this, we had ramp mechanics laid off today in Atlanta and a half dozen auto shop mechanics got the word here in Miami, so it’s affecting even some of the very skilled people,” he said.

Very Heavy Debts

Of the current negotiations, he said the company has offered non-skilled employees a $5-an-hour pay decrease, with another $1 cut in each of the following two years. “They’re telling us to take it or take a walk, very hardball,” Haber said.

Eastern, which has lost $350 million since 1983, has $2.5 billion in long-term debt, more than any other airline.

Its huge third-quarter loss this year wiped out small profits during the first six months of the year. A fourth-quarter loss is likely.

“With many employees receiving severance payments and the time required for layoffs to directly impact costs, the expense reductions are not expected to affect fourth-quarter financial results,” according to a statement issued by the company Wednesday.

Other recent troubles at Eastern have included a record $9.5-million fine levied by the Federal Aviation Administration after the airline was cited for maintenance violations.

Also, the Airline Pilots Assn. has accused Eastern of cutting corners on repairs in order to save money. Management denies the charge.