Eastern’s Losses Mount Since Its Sale to Texas Air : Staff Shrinks and Assets Are Sold, Newspaper Says

In the two years since Eastern Airlines was sold to Texas Air, nearly one in three employees has left or been fired, its only profitable assets have been sold and its losses continue to mount, a report said Sunday.

Eastern continues to shrink while Texas Air’s other airline, the barely unionized, lower-cost Continental, continues to grow, according to a report in the Miami Herald.

The newspaper noted that, when Texas Air owner Frank Lorenzo took control of Eastern on Nov. 15, 1986, he promised that he would make no changes in the airline.

“We have no plans to diminish the size of the airline,” Lorenzo said when he agreed to buy Eastern.

Huge Losses Cited

Lorenzo, however, said that considering Eastern’s huge losses--$233.7 million so far this year--he had no choice but to raise cash by selling the company’s best assets.

“We are committed to ensuring the liquidity of Eastern Airlines. As the company loses the kind of money it is losing, that requires selling the infrastructure of the company,” Lorenzo said.

Lorenzo’s Houston holding company, Texas Air, already owned Continental and New York Air when it bought Eastern. Lorenzo soon acquired People Express and Frontier and folded them and New York Air into Continental.

Lorenzo broke Continental’s unions by taking the company into bankruptcy proceedings. Eastern’s union leaders insist that Lorenzo also wants to force them out and turn Eastern into a lower-cost, non-union operation. They accused Lorenzo of cannibalizing Eastern for the benefit of Continental and Texas Air, the newspaper reported.

12,500 Fewer Employees

Eastern has had three major rounds of layoffs since Texas Air took over and now has about 12,500 fewer employees than in the fall of 1986.

“There’s a lot of stress,” said Michael Glover, a nine-year flight attendant who is trying to hold on for one more year to qualify for a pension. “This is almost a textbook study of how to run an airline into the ground.”

In other changes at Eastern since Texas Air took over, the paper noted:

--Since the fall of 1986, 30 of Eastern’s 286 jetliners have been grounded, sold or leased and Eastern has retreated from 14 cities.

--According to reports filed with the Securities and Exchange Commission, last year Eastern paid $15.1 million in management and administrative fees to Texas Air.

--Eastern also agreed to pay Texas Air a service fee of 1 cent for virtually every gallon of fuel it used, an agreement the unions say could siphon millions of dollars a year from Eastern.

Possible Strike-Breakers

--Eastern also funneled at least $30 million to Continental for maintaining standby non-union pilots and flight attendants for possible strikebreaking duty at Eastern. The arrangement ended last month.

--Eastern also failed to collect a $16-million debt owed by Texas Air since the 1986 takeover.

--Eastern sold its System One reservations system to Texas Air for a $100-million note. Two years ago, Eastern’s investment banker valued the system at more than $200 million.

Eastern then ended up paying a Texas Air unit $1.65 for every seat it booked through the system, spending $130 million a year to use the system it once owned.

--Earlier this year, Eastern tried to transfer its Northeast shuttle, its only consistently profitable operation, to a Texas Air unit for $225 million in cash and notes. The unions blocked the deal and Eastern later sold the shuttle to Donald Trump for $365 million in cash.