Ties Between Eastern, Continental Disputed in Court

Eastern Air Lines has paid Continental Airlines about $30 million in the past year to hire and train more than 400 pilots who could be used to keep Eastern flying in the event of a strike, Eastern’s president testified Wednesday.

The relationship between the two airlines, both subsidiaries of Texas Air Corp., has become a major issue in the continuing dispute between Eastern and its unions. The unions maintain that the airlines are actually one and claim Eastern management is attempting to dismantle the airline to benefit Continental, which has lower labor costs.

The testimony of Eastern President Phil Bakes came during hearings over whether the airline’s unions should be granted an injunction barring Eastern from reducing operations by 12% and eliminating about 4,000 jobs.

Bakes said the payments to Eastern’s sister airline amounted to “an insurance policy” to protect the troubled airline if its pilots decided to honor another union’s picket lines or to strike. Bakes said he does not know whether the pilots, for which Eastern makes monthly payments of $1.9 million, are flying for Continental in the meantime.

Bakes rejected the assertion by James Linsey, an attorney for the Air Line Pilots Assn., that the payments represent a monthly subsidy to Continental. The payment represented a fair price for having the pilots on reserve, Bakes said.

Eastern also had planned to lease airplanes to a cargo airline and use cargo pilots to keep Eastern flying in the event of a strike, but that plan was rejected by the same judge before whom Bakes appeared Wednesday.

The unions have argued that Eastern’s moves to cut back operations violate a provision of the federal law governing airline industry negotiations that forbids an airline from making major changes in wages, hours or working conditions during contract bargaining. On Aug. 3, U.S. District Judge Barrington D. Parker granted a temporary restraining order blocking the cutbacks. Parker is considering now whether to grant a broader motion for a preliminary injunction against the Eastern plan.

Bakes defended the cuts as prudent, and said they were intended to take resources from routes and an operations hub where Eastern was losing money to allow the airline to concentrate on more profitable operations. Such cutbacks are not unusual in the airline industry, Bakes said.

He also testified that Eastern lent $40 million to Continental this spring because it was a good deal for Eastern, earning an interest rate of 17.5% on funds that Eastern did not immediately need.

Bakes said it was “totally false” that Eastern’s cutbacks were designed to benefit Continental.