Unions ‘Outraged’ at $225-Million Deal : Eastern to Sell Profitable Shuttle to Subsidiary

In a move that “outraged” its unions, Texas Air said Friday that it will sell its highly profitable Eastern Air Shuttle to a newly created subsidiary for $225 million.

The unions loudly criticized the pending sale as an attempt to strip Eastern of its valuable assets and an effort to break the labor groups.

Separately, Texas Air on Friday reported massive losses in both the fourth quarter of 1987 and for all of last year reflecting heavy losses from airline operations. The Houston-based holding company, which operates Continental Airlines as well as Eastern, carries more passengers and has more airplanes than any other U.S. airline company.

Texas Air said the sale of the shuttle, which operates along the Northeast air corridor, might be completed by April if government agencies give prompt approval.

In a prepared statement, Texas Air said the transaction “strengthens Eastern’s financial condition, assures customers of the continuity of the Shuttle product and protects all employees’ rights and benefits.”

Texas Air said the shuttle service will not change and will provide the same type of hourly flights between New York and Washington and New York and Boston with the same airliners. The name of the 27-year-old service, which operates in the nation’s busiest air corridor, will be changed to Air-Shuttle. The Eastern flights compete with similar shuttle service provided by Pan Am Corp. Air-Shuttle passengers will continue to earn mileage on OnePass, the frequent flyer program of Eastern and Continental.

Texas Air said Air-Shuttle will offer jobs to Eastern employees in order of seniority. Pay and other work conditions will remain the same, the company said.

But union officials did not agree that the jobs of their members were secure. One provision of the Texas Air announcement Friday seemed to be designed to push the unions toward major concessions on wages, benefits and work rules. And one analyst said Friday that Eastern is seeking a total of $490 million a year from the unions in such concessions.

Texas Air, based in Houston, said Friday that Air-Shuttle would recognize Eastern’s unions as representing Air-Shuttle’s employees if more than half of the positions in the involved crafts or classes of workers are filled by current Eastern employees. Eastern has 32,500 employees, of whom 800 work for the shuttle.

But union officials fear that if there is a strike, Eastern employees might ultimately hold less than 50% of the Air-Shuttle jobs involved.

The machinists union’s contract with Eastern has expired and federal mediators are now trying to help negotiate a settlement.

J. B. Stokes, a spokesman for the Eastern local of the Air Line Pilots Assn., said in an interview that Texas Air Chairman Francisco Lorenzo “is literally trying to destroy any legitimate representation for Eastern employees.” He called the Texas Air action “union-busting.”

Bleeding Off Assets

Capt. Jack Bavis, chairman of the local, said the announcement was viewed with “outrage and would not go unchallenged.” He said he is conferring with attorneys on the matter.

Charles E. Bryan, head of the Eastern local of the International Assn. of Machinists, said Eastern’s move “continues the Lorenzo mission to dismantle and cannibalize Eastern to subsidize a failing Continental Airlines. He keeps bleeding off valuable assets of Eastern.”

Analysts and union officials noted that Lorenzo had previously moved some assets from Eastern to other parts of Texas Air. They cited, for example, the sale of Eastern’s computerized reservations system to Texas Air itself and the fact that numerous Eastern routes have been moved to Continental.

But Bruce Hicks, a Texas Air spokesman, said Eastern “certainly has the right to sell assets of the company, to change its routes and to do any number of other things.” But he added that the company has gone to “extraordinary lengths to assure that all employees’ rights are protected.”

In the earnings report, Texas Air said it had a net loss of $265.6 million in the fourth quarter of last year, contrasted with a profit of $21.7 million in the same period a year earlier. For all of 1987, Texas Air reported a consolidated net loss of $466.1 million, contrasted with a net profit of $72.7 million for all of 1986.

Eastern Airlines lost money during the fourth quarter primarily because of “the severe impact of the airline’s labor difficulties on traffic and costs,” a spokesman said. “In addition, Eastern’s results reflect its high labor costs and increased competitive pressures.”

Continental’s fourth-quarter results were affected by more than $21 million of “miscellaneous extraordinary charges” primarily relating to the revaluation of the company’s Japanese yen debt, a spokesman said. He added that Continental also was hurt by bad weather at two of its major hubs during the height of the holiday travel season “as well as by a tragic accident in Denver in November.”