Eastern Airlines filed for protection from creditors in bankruptcy court today, on the sixth day of a bitter strike by machinists that virtually shut down the nation’s seventh-largest carrier and cost it up to $7 million a day.
The filing under Chapter 11 in U.S. Bankruptcy Court in New York is designed to give tottering Eastern a reprieve from bills and debts while it tries to restructure and extricate itself from the worst crisis in the history of the 60-year-old airline.
“The bankruptcy process will assist Eastern in rebuilding itself,” Eastern President Phil Bakes told a packed and tense news conference. “We shouldn’t look at this as a death warrant for Eastern,” he added.
Eastern boss Frank Lorenzo said the animosity many union leaders have expressed toward him have “hurt my family and me.”
“But I suggest that the intensive focus on a single person does a real gross injustice to the real issues that are at stake in airline deregulation and, indeed, in our business climate today,” he said.
“The issue is fundamentally whether a troubled and sick business in a competitive marketplace should be allowed to change itself and manage its survival for the benefit of all its constituencies, its employees and their families, its suppliers, its investors, the communities we serve and, of course, the traveling public and our customers,” he said.
The head of the machinists’ union at Eastern, Charles Bryan, said in Miami: “Frank Lorenzo did not bring anything into the airline industry, Frank Lorenzo has extracted everything he has, his fortune, from the backs and the suffering of thousands and thousands of employees throughout the airline industry.”
Eastern’s labor leaders said they believed that Lorenzo would try to use the protection of bankruptcy proceedings to break the unions. Lorenzo earned the hatred of organized labor when he took Continental Airlines into bankruptcy in 1983, threw out its union contracts and revived the carrier as a non-union operator.
However, Lorenzo, chairman of Eastern parent Texas Air Corp., would have a tougher time imposing lower wages on the unions than he did when he reorganized Continental. Congress amended federal laws in 1984 to require bankrupt companies to negotiate with unions and prove economic necessity before abrogating their contracts.
Lorenzo denied today that bankruptcy is part of a plan to break the unions.
“I never thought we would be here today,” he said.
Eastern, running just 4% of its flights with a skeleton crew of 1,500, had warned that it could end up in bankruptcy court by week’s end if pilots continued to honor picket lines. Analysts’ estimates of the carrier’s daily losses have ranged from $2 million to $7 million.
Bakes said Eastern faces a “cash crisis that can only be averted and stabilized by” turning to the bankruptcy court. But he said the airline intended to continue to operate and to “prudently but unmistakably” restore routes as its financial situation is resolved.