As Texas Air Corp.'s board of directors gathered in Houston to consider a bid from baseball executive Peter V. Ueberroth to buy its Eastern Airlines, another potential suitor indicated that he, too, remained interested in buying the strike-crippled carrier.
Carl C. Icahn, owner of TWA, wants to make a bid for Eastern, said Brian Freeman, a financial adviser to the International Assn. of Machinists. But he said Icahn is reluctant to act because Texas Air Chairman Frank Lorenzo “threatened to file a lawsuit against him alleging tortuous interference with business relations.”
Another source who has been in contact with Icahn said the TWA owner is “very unhappy that Texas Air is allowing all prospective bidders to talk with the unions except him. He thinks he is entitled to a level playing field.”
Eastern’s three unions are at the center of buyout talks because prospective buyers want to know what concessions the unions would make to a new owner. Among other things, it is considered critical for Eastern to lower its labor costs to be competitive.
Art Kent, a spokesman for Texas Air Corp., declined to comment on the prospects of a Ueberroth bid or any matter involving a possible sale of Eastern.
However, sources said the Texas Air board would consider a bid today from a consortium headed by Ueberroth. Carl R. Pohlad, the owner of the Minneapolis Twins baseball team who is a Texas Air director, reportedly is one of those supporting a sale to Ueberroth, whom he greatly admires.
Pohlad declined to return calls Tuesday and Ueberroth declined comment when asked about the possible deal. But Eastern pilots were hopeful.
“Everybody’s pretty ecstatic,” said Rick Chapman, an official with the Eastern pilots union. “We hope this comes true. We’re trying to keep a lid on the euphoria.”
Sources close to the Air Line Pilots Assn. said Tuesday that that they understood that entertainment mogul Kirk Kerkorian, who has known Ueberroth for close to 30 years, is the principal backer in what would be a $500 million to $600 million deal.
But Terry Christensen, Kerkorian’s lawyer, reiterated on Tuesday statements made Monday that Kerkorian is not involved in any deal to buy financially ailing Eastern, which has lost more than $500 million in the last two years.
A source close to the unions said Kerkorian’s role in the deal may be diminished, but that other substantial backers, possibly including Drexel Burnham Lambert Inc., would provide the financing for Ueberroth.
A source close to the machinists noted that “Drexel has raised money for Lorenzo for years. This fits. Lorenzo would try to facilitate this.”
The Eastern strike began March 4 when 8,500 machinists began picketing that day after refusing to accept $125 million to $150 million in concessions. Pilots and flight attendants have overwhelmingly observed picket lines set up by the unions, forcing Eastern to cancel all but 10% of its flights. The company filed for protection from its creditors under Chapter 11 of the federal bankruptcy code earlier this month.
Sources close to the machinists said they thought Lorenzo would be more receptive to selling to the Ueberroth group than to Icahn because Texas Air also owns Continental Airlines. If Ueberroth bought Eastern, it would become an independent entity and less of a threat to Continental, they said, compared to Eastern as part of an expanded TWA owned by Icahn.
“Lorenzo has done everything he can to build up Continental and now is doing everything he can to protect it,” said one of these sources. “That may or may not be in the best interest of Eastern, its creditors or Texas Air shareholders.”
Freeman, the machinists’ financial adviser, said if the Texas Air board agrees to a purchase by the Ueberroth group the unions would want to make sure that there were adequate “protective covenants” in the agreement. He said such covenants ought to include provisions that would prohibit asset sales and other actions that would endanger the continuing viability of the carrier and its employees’ jobs.
The machinists took the position before the strike began that there was no point in making concessions to Lorenzo because he had stripped the company of several of its most valuable assets in recent years and wanted to liquidate the company and create a situation in which Continental, his non-union airline, could become a bigger, profitable company.
“Someone will have to come up with a lot of money to satisfy the bankruptcy judge” that a sale of Eastern is in the best interest of the company’s creditors, said Nicholas Glaskowsky, professor of management and transportation at the University of Miami at Coral Gables. “It would amaze me why someone would even want to buy Eastern Airlines,” he said. “I think there are a lot of people blowing smoke here.”
Along the same line, Raymond Neidl, an airline analyst with the New York brokerage house McCarthy, Crisanti and McCarthy, expressed doubts that an independent company would buy Eastern regardless of the price. “It is both a matter of price and the fact that the airline is highly leveraged,” Neidl said. “I don’t think Eastern is big enough to stand alone in this age of megacarriers.”
In a related development, a spokeswoman for America West said the Phoenix-based carrier had told Texas Air officials that it was interested in buying Eastern’s northeast Air Shuttle. Earlier, Lorenzo had made a deal to sell the shuttle to real estate tycoon Donald Trump for $365 million. But after the strike began, Trump publicly announced that he wanted to lower the purchase price by about $125 million because he said the shuttle’s value had diminished substantially as a result of the strike.
Henry Weinstein reported from Los Angeles. Robert E. Dallos reported from New York.