Eastern Sues Pilots and Machinists Unions : $1.5-Billion Lawsuit by Lorenzo’s Airline Alleges Fraud, Extortion

Charging that two major unions are out to destroy it, Eastern Airlines slapped its pilots and mechanics Friday with a $1.5-billion lawsuit.

The suit, filed in U.S. District Court in Miami, charges the Air Line Pilots Assn. and the International Assn. of Machinists and their respective locals with fraud, extortion, racketeering and defamation in an effort to wreck the company.

The action was the latest round in the fierce feud between the unions and Frank Lorenzo, chairman of Texas Air, the holding company that is the parent of Eastern and Continental Airlines. Lorenzo has been trying to get substantial concessions on wages, benefits and work rules from Eastern’s labor unions, saying that is the only way the airline can survive.

The unions charge that Lorenzo has been trying to strip Eastern of important assets and transfer them to non-union Continental. Some employees have expressed fear that once this has been done the company would simply shut down Eastern--thus getting rid of its unions--and expand Continental.

The suit alleges that the unions are engaging in “Eastern bashing” in an attempt to drive down the value of the beleaguered airline so that they can buy the stock at depressed prices.

Separately, Texas Air on Friday reported a consolidated net loss of $124.3 million for the first quarter of 1988, compared to a net loss of $100.7 million during the same period last year. The company said it had an operating profit of $1 million during the 1988 quarter, down significantly from $51.8 million a year earlier

Inspections Add to Problems

Both Eastern and Continental have suffered financially from the bad publicity they have received in recent months because of poor service and late and canceled flights.

Eastern said recently that it had reduced its scheduled flights by 11% and that further reductions were expected. One major reason for the cuts is a shortage of pilots. Labor strife at the airline has reportedly caused pilots to retire or quit in unprecedented numbers.

Adding to Texas Air’s problems are the inspections begun last month by the Federal Aviation Administration of all of the aircraft of both carriers. The investigation was triggered in large part by union complaints that Eastern and Continental were not safe. In addition, the Transportation Department is investigating the financial stability of Texas Air.

“It is not common, but it is also not unusual, for companies to sue unions,” said professor Charles Craypo, chairman of the economics department at the University of Notre Dame. But most such suits, he added, are brought by companies in an effort to recover revenue “allegedly lost as a result of an improper strike.”

For example, the Springfield Terminal Railway Co. last December sued the United Transportation Union for more than $15 million in Portland, Me., charging that the union had engaged in extortion and mail fraud. The company said the union was trying to force the company to amend the union shop and seniority provisions of its labor contract.

Craypo, who said the pilots and machinists unions could clearly not afford to pay Eastern $1.5 billion if they lost the suit, said the airline’s legal action was “part of the ongoing struggle between Texas Air and the various airline unions. It seems the two biggest and strongest, ALPA and the Machinists, are also the most troubling to the airline.”

The two unions lost no time in responding. The head of ALPA called the suit “a publicity smoke screen totally without merit.”

Capt. Henry Duffy, the union’s national president, added: “I think what what we are seeing is a desperate attempt to draw attention away from Texas Air’s and Eastern’s growing problems. It is a frivolous lawsuit, top to bottom . . . and a demonstration of the weakness of their position.”

Charles Bryan, head of Eastern’s Machinists union local, told reporters in Atlanta that the suit was “clear evidence of a last-ditch effort by a very desperate man, and that man’s Frank Lorenzo. (The suit) is a typical gesture on his part to blame others for his problems.”