Talks Deadlock; Eastern Accord May Be Doomed
Peter V. Ueberroth’s effort to acquire Eastern Airlines appeared doomed early today after a rancorous battle in which lawyers for the strikebound carrier rebuffed union efforts to wrest control of Eastern from its current owners even before it is sold.
“The agreement is dead,” a well-placed source close to Ueberroth said early this morning.
Ueberroth himself could not be reached for further comment at his Manhattan apartment after a midnight Tuesday deadline for all parties to agree to the sale passed inconclusively. Federal Bankruptcy Judge Burton R. Lifland ordered lawyers to return to his office at 8:30 a.m. for a “status conference.”
‘It Looks Bad’
But a short time earlier, a dramatic late-night meeting of the judge, Ueberroth and Frank Lorenzo, chairman of Eastern parent Texas Air Corp., ended with the former baseball commissioner declaring: “I’m not optimistic.” One of his aides added: “It looks bad.”
The deal appeared to turn on the naming of a trustee to run Eastern while the airline remains in bankruptcy, a demand made by the airline’s unions in return for wage concessions. But serious doubts also were raised by Eastern’s creditors committee about whether Eastern would be a viable company if the Ueberroth deal is consummated.
The Ueberroth group said its proposal depended on approval by the unions and Texas Air, owner of Eastern, by midnight, and both sides reserved the right to back out. But it remained to be seen whether the passing of the deadline indeed doomed the deal.
“It’s not my deadline,” Lifland said just before midnight. “There was an earlier deadline for certain things that I set and it was met.” He did not elaborate.
James Linsey, one of the lawyers for the pilots union, said: “I don’t think any single person has the whole picture.”
The appointment of a trustee to run the airline in the next 60 to 90 days while the company is reorganized in bankruptcy was described as an absolute condition of the unions’ agreement to a deal with Ueberroth. They are adamant that Lorenzo and his management not be allowed to continue to run the airline.
Lorenzo and his lawyers have objected because it would mark their loss of control over Eastern even before ownership of the airline shifted to Ueberroth’s group.
Two union lawyers and a Ueberroth lawyer said they thought there was a possibility that Lifland would appoint a trustee if he came to the conclusion that Lorenzo was “the roadblock” to a deal being concluded.
Unusual Procedure
It is highly unusual for a trustee to be appointed in a voluntary bankruptcy proceeding, according to Robert J. Rosenberg, one of Ueberroth’s lawyers. However, he said, it was warranted under the circumstances in part because “our partners--the unions--insist on it.”
Joseph Guerrieri Jr., a Washington lawyer representing the machinists, said he believed that Lorenzo opposed the appointment of a trustee because he not only would lose control of Eastern’s operations but power over its reorganization plan in bankruptcy court. It could also foreclose other options he might have in determining the company’s future, Guerrieri said.
Earlier in the day, lawyers said Lifland told them he was reluctant to name a trustee if Lorenzo would contest it in court. The judge said he would prefer that both sides reach an agreement on whether to name a trustee.
After a full day of hotel-room meetings aimed at meeting the midnight deadline, Lorenzo, Ueberroth and their advisers arrived at the federal courthouse in lower Manhattan about 7:30 p.m. to discuss the trustee issue.
Sources said Lorenzo’s advisers had told him by phone that there was an urgent need to talk with the judge about the trustee issue. Lorenzo was accompanied by Phil Bakes, the president of Eastern. Ueberroth was joined by partner J. Thomas Talbot.
About 9:30 p.m., Lorenzo and Ueberroth left the judge’s office. Then someone in the hallway said: “The judge is calling you back in.” Lorenzo re-entered the office, but Ueberroth said to an associate: “I’m not going back in. . . . Let’s go.”
Then Lorenzo and Philip Bakes emerged again and left the building. Lorenzo, surrounded by a throng of reporters and cameramen shoving microphones in his face, declined to comment on the elevator ride down to the lobby or on his way to a waiting car.
None of the parties would discuss the meeting with Lifland.
Nerves grew frayed and tempers got short as another long day without a completed sale wore on at the federal bankruptcy courthouse. In the morning, negotiations were held at the Vista International Hotel in lower Manhattan.
At one point, Lifland was overheard by reporters in a hallway as he shouted at Harvey Miller, Eastern’s chief bankruptcy lawyer.
“Damn it, Harvey, if you want the planes in the air, all you have to do is sign the paper,” Lifland yelled at Miller.
Lifland has repeatedly voiced his desire to get Eastern--which the judge has described as a “national asset”--flying again. Eastern has had to cancel about 90% of its flights since a strike was launched against the company by the International Assn. of Machinists on March 4.
Moments later, David Shapiro, a Washington lawyer serving as a special court-appointed examiner in the bankruptcy case, tried to get Miller’s attention as Miller walked by in the courthouse hallway.
“Harv,” Shapiro shouted. Miller looked at him and declared: “Shove it, David,” before stalking away.
Shortly thereafter, a machinists union official, LeRoy Washington, said: “Lorenzo’s trying to pull the plug on the deal. He thinks if the unions will give concessions to Ueberroth, they ought to give concessions to him.”
He was referring to the fact that Eastern’s machinists, pilots and flight attendants have agreed to give the Ueberroth group $199.6 million in annual wage concessions for the next five years in return for a 30% ownership interest in the newly re-formed company, to be called the Eastern Airlines Employees & Service Co.
Knowledgeable sources said that $168 million of those wage concessions would be given yearly by the machinists, $28 million annually by the pilots and $3.6 million by the flight attendants. Additionally, sources said that Eastern’s 11,000 non-unionized workers would be asked to make about $10.4 million in concessions annually, coming from their current benefits, not from their wages.
Jack Bavis, chairman of Eastern’s pilots’ union, said the pilots agreed to sign off on the concession deal at 4 a.m. Monday in Washington when they were told by Shapiro that he would fly to New York that day and recommend to Lifland that a trustee be appointed to run the company. Former Defense Secretary Frank C. Carlucci flew to New York with Shapiro, Bavis, Ueberroth and the other key figures in the deal.
“I understood that he (Shapiro) had extraordinary powers,” Bavis said, explaining that he expected that a trustee would be appointed. But lawyers for Eastern and Texas Air balked Monday and the transaction was delayed, necessitating further talks.
“I’m pissed,” Bavis said. He said it was essential to get Eastern planes flying quickly because the airline has been losing “a million dollars a day” as well as market share during the strike, and that its value continues to diminish.
In order to save the airline, he said, Eastern must start flying before the 60 to 90 days it would take to consummate the Ueberroth deal.
Bavis said that starting up operations now represented “a risk” to the employees because the Ueberroth deal was not finished. He said it was a risk they are only willing to take if Lorenzo is out.
“Our people aren’t going to take that risk for the guy they hate the most--Lorenzo. Giving up $210 million a year in concessions is quite a bath. Our deal is with Peter.”
Earlier in the day, Joel Zweibel, the chief lawyer for the 15-member Eastern creditors committee, presented a resolution to lawyers for Ueberroth, Texas Air and Eastern, as well as Lifland, expressing reservations about “certain significant aspects” of the Ueberroth deal.
In particular, he said the creditors committee had not been given “any demonstration . . . of the economic viability of a business plan for a reorganized Eastern.”
Transfer of Assets
Additionally, Zweibel said the committee was disturbed “by the apparently substantial transfer of assets from Eastern to Texas Air without equivalent value” being given to Eastern from Texas Air. The Ueberroth purchase plan calls for a transfer of $79 million of Eastern’s assets to Texas Air.
The creditors committee also expressed reservations about Eastern incurring an additional $100 million in new debt as part of the Ueberroth deal.
Zweibel said he thought the issues raised by the creditors committee were significant, but he said he did not think they were the principal reason why the deal had not been consummated.
A lawyer for Ueberroth acknowledged that creditors have significant statutory rights in a bankruptcy proceeding and could present a significant obstacle.
In Miami, U.S. District Judge Edward Davis, after consulting by phone with Lifland, said he planned to release his ruling this morning on whether Eastern’s pilots should be forced back to work.
Davis, speaking to reporters and lawyers for both sides in his chambers, said he had decided to delay his ruling Tuesday to give Lifland more time to work out a final agreement.
“I have determined that it would not be appropriate for me to interfere with the negotiations that are ongoing tonight,” said Davis, who signed his ruling and sealed it.
But he said he would again delay his ruling if both Eastern and the pilots union requested it. Eastern lawyer David Ross said the airline did not want any further delays in the release of Davis’ decision.
In its suit, Eastern has asked Davis to order its 3,400 pilots to end their walkout in support of striking machinists. The company contends the pilots union is conducting an illegal strike in pursuit of its own contract goals, while union leaders say it is a legal sympathy walkout.
