Two of the airline industry’s most powerful and independent entrepreneurs are involved in talks that could lead to the sale of ailing Eastern Airlines to Trans World Airlines, a source close to the negotiations said Thursday.
Carl C. Icahn, chairman of TWA and owner of nearly three-quarters of its stock, has been holding off-and-on meetings for several months with Frank Lorenzo, chairman of the Texas Air holding company that owns Eastern, the source said. The talks are said to be continuing.
Analysts said Eastern’s assets are worth more than $1 billion but that the airline’s price might be lower because it has been a consistent money loser since U.S. airlines were deregulated a decade ago. Only in 1985, when Eastern had net income of $6.31 million, has it shown a profit during that period. Last year, it lost $182 million, and in the first half of this year it reported losses of $120.8 million.
Texas Air purchased Eastern on Nov. 25, 1986, for what at the time was considered a “bargain basement price” of $307 million in cash and $231 million in debt after the carrier’s board failed to win concessions from its unions.
The source said no price for Eastern has been discussed yet by Icahn and Lorenzo and that the deal might not include the airline’s profitable Washington-New York-Boston shuttle operation.
Atlantic City Flights
At the same time, another reliable source confirmed that New York real estate magnate Donald J. Trump is negotiating to purchase the Eastern shuttle for $300 million. Trump was not available for comment.
Trump reportedly would like to own the shuttle, Eastern’s only money-making operation, so that in the evenings and on weekends, when the planes are not needed on the shuttle’s routes, they could be used to fly gamblers to Atlantic City, where Trump owns casinos.
The source close to the Icahn-Lorenzo talks said TWA would be willing to purchase Eastern with or without the shuttle. “If the shuttle is out of it, it would not kill the deal,” he said. “Depending on the price, it would not matter that much.” He added that TWA is primarily interested in the passenger feed that Eastern’s operations in the southeastern United States and South America would provide.
“A combination of Eastern and TWA would be very logical, with or without the shuttle,” said Raymond E. Neidl, an airline analyst with the New York brokerage of McCarthy, Crisanti & Maffei.
“The route systems fit very well,” he added. “TWA is not strong in the Southeast, and it would become a worldwide airline by picking up Eastern’s South America routes. In addition, Eastern has a much more modern fleet than has TWA so the combined fleet would be much more modern.” Eastern’s jets, Neidl said, are mostly between 4 and 20 years old. Most of TWA’s planes are between 12 and 23.
Neidl said that if Icahn buys Eastern, it might delay his plans to take TWA private. About 23% of the airline is owned by public shareholders. Neidl said Icahn might need the $610 million he had planned to use to buy out other shareholders for an Eastern purchase.
The source close to the talks said a deal would be agreed upon only if it were on a friendly basis, including the involved labor unions and all other interested parties. He said Eastern’s unhappy Machinists union had suggested the talks, probably as a means of wresting the airline away from Lorenzo, who is considered the industry’s most anti-union executive.
Observers have said for some time that given the lingering stalemates on the labor front and the results of litigation concerning Eastern’s layoff of 4,000 employees, Texas Air may have no choice but to sell all or part of Eastern. The unions have charged that Texas Air is slowly shifting the assets of unionized Eastern into its other subsidiary, Continental Airlines, which has no unions.
Last week, a three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled that Eastern could lay off the 4,000 employees, who constituted 12% of its work force. However, Charles Bryan, head of Eastern’s International Assn. of Machinists, declined to say Thursday whether his union had urged the Icahn-Lorenzo talks, adding that the union is not seeking to rid Eastern of Lorenzo. “I am not intimidated by anyone,” the union leader said in a telephone interview from his Miami office.
Bryan also said his union opposes the marketing and financial agreement that Texas Air and Scandinavian Airlines System announced earlier this week. Under the agreement, SAS would pay Texas Air $50 million between now and 1991 and would buy $58 million--10% of Texas Air’s stock--on the open market.
He said he “could not imagine a carrier with a worldwide reputation as a premier service airline . . . and (known for) its employee democracy getting involved with Frank Lorenzo.” Bryan said he will seek a meeting as soon as possible with SAS President Jan Carlzon and SAS labor representatives.