Baseball Commissioner Peter V. Ueberroth, who made millions in the travel business before becoming the czar of the 1984 Summer Olympic Games, is negotiating to buy strikebound Eastern Airlines, with financial backing from entertainment mogul Kirk Kerkorian, several knowledgeable sources said Monday night.
The deal, the sources said, is to be discussed at a board meeting of Texas Air Corp., Eastern’s parent company, scheduled to be held Wednesday in Houston.
Some of the sources said the possibility of resuscitating Eastern, a company that has lost more than $500 million in the last two years, was a challenge relished by Ueberroth, who is known as a demanding executive. When he became president of the Los Angeles Olympic Organizing Committee, it was considered likely that the Games would lose money or at best break even, but, ultimately, they made $223 million.
The complicated Eastern transaction would be a $500-million to $600-million deal that would include Eastern’s lucrative East Coast air shuttle, previously slated to be sold to New York real estate tycoon Donald J. Trump, said the sources, who spoke on condition of anonymity.
The likelihood of the Trump deal being consummated appeared to crumble last week when he publicly announced that he had informed Texas Air Chairman Frank Lorenzo that he wanted the price lowered by about $125 million from the original price of $365 million because he considered the shuttle’s value substantially diminished in the wake of a strike that has shut down about 90% of Eastern’s flights since March 4.
Several sources said that Ueberroth has had numerous discussions with Lorenzo, Jack Bavis, chairman of the Air Line Pilots Assn.'s Eastern executive council, and Charles Bryan, president of the largest machinists union local at Eastern, about a possible deal.
Ueberroth was first approached by the pilots about taking over the airline last fall. The pilots told him that Eastern’s three unions would be willing to make wage and work rule concessions if the company were run by someone other than Lorenzo who could make the carrier profitable again. Eastern’s unions have charged that Lorenzo has attempted to strip the company of some of its most valuable assets while building up Continental Airlines, a non-union carrier also owned by Texas Air.
Backed by Minnesota Banker
More recently, Carl R. Pohlad, 73, a Minnesota banker who also owns the Minnesota Twins baseball team, paved the way for Ueberroth to begin discussions with Lorenzo. Pohlad also is on the board of Texas Air Corp. and owns about 12% of Jet Capital Corp., Texas Air’s holding company.
“Carl Pohlad has been trying to tell Frank to sell this thing (Eastern) for more than a year,” a union source said.
“Pohlad thinks the world of Ueberroth,” who is scheduled to step down as baseball commissioner on Saturday, said Tom Mee, public relations director of the Twins. Mee said he had no independent knowledge of the deal. Pohlad could not be reached Monday night.
A spokesman for Ueberroth in New York said he had been instructed to make no comment on any rumors about Ueberroth and Eastern. Spokesmen for both Texas Air and Eastern said they would not comment on reports of the pending deal.
Ueberroth, 51, has known Kerkorian, majority owner of MGM/UA Communications Co., for close to 30 years. In 1961, at age 23, he became a minority partner in Trans International Airlines, whose principal owner was Kerkorian. The following year, Ueberroth founded First Travel, a firm that became the second-largest travel agency in the country.
Now 71, Kerkorian also owns MGM Grand Air, a first-class-only carrier that flies mainly between New York and Los Angeles.
Terry Christensen, a lawyer for Kerkorian, said: “Kirk is not preparing an offer for Eastern.”
However, several sources said discussions about a Ueberroth deal had intensified in recent days.
The deal reportedly would include $250 million in cash, about $80 million in notes, $140 million in intercompany transfers from Eastern to Texas Air or its affiliates, and perhaps some valuable rights to air terminal gates, according to one source. Another source cautioned that the structure of the deal had not been finalized.
Employees would have to make about $210 million in wage and work rule concessions a year for the next five years, sources said. There would be the possibility that wages could be raised after three years, depending on how Eastern fared. Lorenzo had been demanding that the machinists make $150 million a year in concessions, which the union has resisted.
However, the Ueberroth transaction also would establish an employee stock ownership plan as an incentive to Eastern’s workers to make the concessions.
The sources said that if Texas Air’s board approved a deal with the Ueberroth group, a new management team would open up discussions with Eastern’s creditors in hopes of securing their swift consent to the sale. The goal would be to get Eastern operating again by mid-April and to get the company out of Chapter 11 bankruptcy proceedings within 60 to 90 days. Eastern filed for bankruptcy earlier this month.
Don Skiados, a spokesman for the pilots union, said he had no comment on the possibility of a Ueberroth purchase. However, several sources said that the pilots union was quite enthusiastic about the deal. Pilots union President Henry Duffy “is ecstatic” about the prospective deal, said one union source. “This is our best . . . dream,” he added.
Sources close to the machinists union said they would look closely at the terms of a Ueberroth deal. “It’s all dependent on what the deal looks like,” one of these sources said. “We have to make sure Frank (Lorenzo) isn’t throwing us a curve.”
For some time, there have been reports that Carl C. Icahn, chairman of Trans World Airlines, wanted to buy Eastern, and that move has had support from the machinists.
Staff writers Robert E. Dallos in New York and Ross Newhan in Los Angeles contributed to this story.