THE EASTERN BANKRUPTCY : Travelers’ Dilemma : What the Ailing Air Carrier’s Filing Means
QUESTION: Why did Eastern file for bankruptcy court protection?
ANSWER: The company, facing fierce competition and deepening losses, said it was pushed to the brink by a 6-day-old strike by its machinists and pilots that has grounded almost the entire Eastern fleet. The company said it has been losing $4 million a day since the strike began last Saturday.
Q: What advantages does Eastern seek in filing for bankruptcy?
A: The federal bankruptcy laws give companies wide latitude to reorganize their finances under the supervision of a federal bankruptcy judge. During reorganization, Eastern is temporarily freed from having to pay its debts as it tries to stabilize the business.
Q: How will this affect the strike?
A: That’s up to the federal bankruptcy judge, and the battle will be fought before the U.S. Bankruptcy Court in New York. Eastern will try to persuade the court to allow it to forge new labor contracts that reduce its costs. It will also ask permission to sell off further assets.
Q: What are the unions expected to do?
A: The unions are expected to resist both those efforts and to try to convince the court that Eastern’s parent company has plenty of money to meet Eastern’s obligations.
Q: Meanwhile, what’s happening in the air? How many Eastern flights are still flying?
A: On Thursday, Eastern was still operating its shuttle between Washington, New York and Boston, as well as three weekly flights from Miami to South America. By this weekend, the company hopes to increase flights to South America and perhaps also to resume others on the East Coast. But analysts expect the resumption of flights will be slow, unless Eastern reaches an accord with the unions.
Q: Will other airlines increase their flights on Eastern’s idle routes to accommodate the extra passengers?
A: Other airlines are expected to shift their fleets to pick up some of the extra burden, assuming Eastern does not reach a quick labor agreement. But don’t expect other airlines to move too quickly. In the meantime, travelers may face more crowded conditions on some of Eastern’s key routes, which are through Miami and Atlanta, between other major East Coast cities, to Puerto Rico and some Caribbean destinations, and from the United States to South America.
Q: What options do holders of Eastern tickets have?
A: The bankruptcy court filing may complicate life for anyone still holding an Eastern ticket. Continental Airlines, which is owned by the same parent company, is accepting Eastern tickets for its flights. American Airlines said late Thursday that it was continuing to accept Eastern tickets. Delta said it had been accepting Eastern tickets but was reconsidering its policy. United and USAir said they were restricting exchanges.
Refunds for Eastern tickets may be months in coming, since Eastern is operating with a skeleton staff and since all payments much be approved by the bankruptcy court.
Q: What about travelers who have accumulated frequent flier bonus points with Eastern?
A: These travelers can still use their points for free flights on sister airline Continental, which does travel to such vacation destinations as Denver, Mexico and the West Coast. (Indeed, Continental officials have lamented that Eastern travelers have too often used their Eastern frequent flier privileges for flights on their airline.) Eastern officials insist that customers will be able to use the points for free flights on Eastern when the airline is fully operational again.
Q: What will be the effect on travelers if Eastern emerges from bankruptcy a much smaller airline or is liquidated?
A: To the extent that Eastern abandons routes, competition will be reduced and travelers are likely to find it more difficult to find inexpensive seats, analysts say. The competitors are probably not likely to raise standard fares on those routes but probably will reduce the number of special discount seats as planes in these areas become more crowded, they say.
Q: What will the reorganized Eastern be like?
A: Eastern executives say they plan to produce a smaller but more profitable airline. Analysts say they expect that the company will probably try to keep key routes around its home base of Miami, and routes between Miami and such East Coast points as Washington and New York. Also high priority is the airline’s profitable routes to South America. Some analysts believe that Eastern may give up some or all flights through Atlanta and those to Puerto Rico and elsewhere in the Caribbean. Eastern officials insist that they still plan to sell their profitable Eastern shuttle to real estate magnate Donald J. Trump.
Q: What are the chances that the airline will be liquidated or sold to another buyer?
A: Eastern officials insist that they are determined to keep the airline running. Some analysts, however, say liquidation is still a possibility. They say the company’s labor problems are formidable and contend that its parent company, Texas Air, could make much more money selling off the company in pieces.
There is also the possibility that a buyer for the entire company would emerge. For instance, Carl C. Icahn--the corporate raider and chairman of TWA--said Wednesday that he would like to discuss purchase of the airline with the airline’s union, if he could win permission for such discussions from Eastern management.