Deal Is On Again: Trump Will Buy Eastern’s Shuttle
The on-again, off-again sale of Eastern Airlines’ Northeast shuttle to real estate tycoon Donald J. Trump was on again late Friday.
Texas Air, parent company of both Eastern and Continental Airlines, first agreed last October to sell the profitable shuttle operation and its airplanes to Trump for $365 million. But Eastern’s machinists went on strike March 4, and virtually all of its pilots observed the picket lines, crippling Eastern. The airline company filed March 9 for protection from creditors under the federal bankruptcy laws.
On March 20, Trump said the value of the shuttle had diminished substantially during the strike and that the price should be lowered by $125 million. If it was not, he said, he wanted out of the deal.
In maneuvers not unlike a hotly contested game of Monopoly, Eastern agreed Friday to throw four additional jet aircraft worth about $20 million into the deal. Trump, who in the best Monopoly tradition already owns two hotels on the Boardwalk in Atlantic City, agreed.
Texas Air said the $365-million price would remain the same. In addition to the 17 shuttle aircraft that were part of the original deal, Trump will get four old 727-200 aircraft. An airline observer said these planes, worth between $5 million and $5.5 million each, are short-range airliners that can be used only on routes like those of the Eastern shuttle, which flies New York-Washington and New York-Boston routes.
The Trump deal must still be approved by the U.S. bankruptcy court court in New York that is presiding over Eastern’s affairs, and it is expected that this process will take about 60 days. However, the transaction has received all other necessary regulatory approvals. Trump had intended to begin service, under the name Trump Shuttle, on April 1. “We’re ready to go tomorrow,” he had said in an interview on March 20.
Rick Chapman, a spokesman for Eastern’s striking pilots, said he did not think the deal would have any short-term effect on the strike.
It was not clear how the sale of the shuttle to Trump would affect the possible sale of the rest of Eastern. But Phil Bakes, Eastern’s president and chief executive, said Friday, “This agreement proves that the value of Eastern’s assets remains high and continues to be attractive to various parties.”
There are at least three potential buyers for Eastern, but it is not known whether their interest and their offered prices have been diminished by the shuttle sale.
Late Thursday, several sources said Chicago hotel magnate Jay A. Pritzker had presented Texas Air and its embattled Chairman Frank Lorenzo with a higher bid than the $464 million offered by outgoing baseball Commissioner Peter V. Ueberroth. A spokeswoman for Pritzker, whose family owns the Hyatt Hotel chain and about 10% of Braniff Airlines, declined to comment Friday. Carl C. Icahn, head of Trans World Airlines, is also known to be interested.
Eastern has been valued by some of these investors at about $500 million, the reported amount of the Pritzker bid. Chapman of the pilots’ union said he thinks Pritzker’s interest is real.
“I anticipate he’ll come to us in the near future,” Chapman said, referring to the fact that for any sale of Eastern to be consummated the buyer would have to reach agreement with the company’s three unions on wage reductions and work-rule changes to make the airline more competitive.
Estimates of Eastern’s value fluctuate widely. “I’d have to be smoking some of the stuff that comes out of their engines to be interested at those prices,” said a source close to a potential buyer, apparently referring to the $500-million figure.
An Eastern source responded: “Some of these people are vultures waiting for the carcass. Eastern’s gates, landing slots, airplanes, South American routes and other things are worth a lot more than that. Its assets are very valuable.”
Paul P. Karos, an airline analyst with the First Boston investment firm, said he thinks the shuttle deal was good for both Trump and Eastern, though he said that, as a result of the strike, it would probably take Trump longer to make it profitable than he had originally expected. “For Eastern,” Karos said, the price “could have been a lot worse, given the strike.”
Karos said he did not think the sale of the shuttle would have much effect on the prospect for a sale of the remainder of the company. However, one union source, who requested anonymity, expressed disappointment: “Every time Eastern gets smaller, it makes it that much harder for Eastern to survive. The name of the game in this business is size.”
Robert E. Dallos reported from New York and Henry Weinstein reported from Los Angeles.
