Trump to Pay $365 Million for Eastern Shuttle : Two Unions Vow Fight, Say Texas Air’s Lorenzo Is Trying to Chop Up Airline
New York real estate magnate Donald J. Trump agreed Wednesday to purchase Eastern Airlines’ highly profitable Washington-New York-Boston air shuttle operation for $365 million cash.
Trump, a flamboyant billionaire who also owns two casinos in Atlantic City, N.J., and might use the aircraft to fly gamblers to the gaming mecca on weekends, will rename the carrier “Trump Shuttle.” He said he would make a “diamond” out of his new acquisition.
Trump and Frank Lorenzo, chairman of Eastern and its parent company, Texas Air Corp., announced the transaction during a news conference at the swank Plaza Hotel in Manhattan, which Trump bought recently. The deal, which will be consummated Dec. 15, includes 17 Boeing 727 aircraft, facilities and landing positions at airports in New York, Boston and Washington.
Two of Eastern’s major unions, the Air Line Pilots Assn. and the International Assn. of Machinists & Aerospace Workers, immediately said they would fight the sale. They have consistently charged that Lorenzo plans to chop Eastern into pieces and sell them off.
“We’ll be in federal court faster than you can say Frank Lorenzo,” one IAM official said in an interview Wednesday.
Forced to Sell
“It is ironic that Eastern’s parent . . . constantly cries poverty on the one hand, blaming the unions for the company’s lack of profitability, and then turns around and sells off those assets that most contribute to profitability,” said Capt. Jack Bavis, chairman of Eastern pilots local.
Lorenzo said the sale of the shuttle “was not our preferred course.” He said he had been forced to sell the shuttle because he was unable to get wage concessions from the unions.
Texas Air purchased Eastern two years ago. It paid about $600 million for the strapped carrier, according to President Phil Bakes, of which about $350 million was cash. The shuttle is Eastern’s jewel, its only profitable operation.
Lorenzo said Wednesday that sale of the shuttle, which accounts for about 4% of Texas Air’s revenues, will give Texas Air a capital gain of $240 million. Analysts say that since Eastern’s huge losses in recent years have given it whopping tax credits estimated at between $700 million and $1 billion, any profit on the sale of the shuttle should be free of taxes.
"(Lorenzo) really made out well on this deal,” said John W. Mattis, an airline analyst with the New York brokerage firm of Morgan Stanley & Co.
Lorenzo has been feuding with Eastern labor unions since the day he purchased the airline. He said Wednesday that, although there is $300 million currently in Eastern’s treasury, the additional cash would be an important capital infusion for Eastern.
Could Provide War Chest
He suggested that the extra money would provide a war chest in case the machinists struck Eastern. The airline’s contract with the union expired nine months ago.
Both Trump and Lorenzo said the 850 shuttle employees will stay on with the new owner at full pay and benefits.
The Eastern Air Shuttle inaugurated service in 1961 with hourly guaranteed-seat service between Washington’s National Airport and New York’s LaGuardia Airport and between LaGuardia and Boston’s Logan Airport. Until 1986, it had no competition. But then Pan American World Airways launched a similar service. At the start, the Pan Am shuttle garnered only 25% of the business. It has since increased its share to just under 50%.
According to the Transportation Department, the Boston-New York air corridor is the most heavily traveled in the nation, with 3.4 million passengers having traveled between those cities in 1987. By comparison, 2.6 million people traveled by air between New York and Washington last year, and 2 million traveled by air between Los Angeles and San Francisco.
The major reason the Eastern Air Shuttle has been so profitable is that it is patronized heavily by business travelers who prefer convenience and flexibility of schedules over discount fares. The shuttle currently charges $99 each way between New York and Washington.
Despite Lorenzo’s frequent denials, some industry analysts viewed the sale as a sure sign that the rest of Eastern will now be sold. Louis Marckesano, airline analyst with Janney Montgomery Scott, said the remaining portion of Eastern may now be purchased by millionaire investor Carl C. Icahn, who has made it known that he would like to merge it with Trans World Airlines, which he already controls.
At Wednesday’s news conference, Lorenzo confirmed that he has held talks with Icahn. Though he insisted that Texas Air had no plans to sell the rest of Eastern, he said that “we did not feel it appropriate to deny our board of directors the opportunity to listen to an Icahn proposal as long as it is a serious proposal.”
Marckesano speculated that Icahn really wants Eastern’s remaining domestic routes and its Latin American routes.
“It creates a tremendous opportunity for Icahn,” the analyst said. “It would allow TWA to stay up with its major competitors--American, United, Delta and Northwest. It could grow at a rapid pace. The combined operation would have 16% of American market.”