Eastern Accord Stalled by Clash Over a Trustee

Peter V. Ueberroth’s effort to acquire Eastern Airlines faltered Tuesday and the atmosphere turned rancorous as lawyers for the strikebound carrier continued to object to the naming of a trustee to run the company while it remains in bankruptcy.

There appeared at one point late Tuesday to be a possibility that a federal judge would name a trustee in order to keep the deal on track. But grim-faced bargainers left after a meeting with the judge and warned that the outlook had grown worse.

“I’m not optimistic,” Ueberroth told reporters. One of his lawyers added: “It looks bad.”

Demand by Unions

The critical issue was the naming of a trustee to run Eastern, a demand made by the airline’s unions in return for wage concessions. But as bargainers raced against a midnight Tuesday deadline to salvage the deal, 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 Corp., owner of Eastern, by midnight, and both sides reserved the right to back out.

Late Tuesday, Texas Air Chairman Frank Lorenzo arrived at the federal courthouse in lower Manhattan to meet with federal Bankruptcy Judge Burton R. Lifland on the trustee issue.

Lorenzo and his lawyers have objected because it would mark their loss of control over Eastern while the airline remained in bankruptcy.

Two union lawyers and a Ueberroth lawyer said they thought there was a possibility the judge would appoint a trustee if he came to the conclusion that Lorenzo was “the roadblock” to a deal being concluded.

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.”

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.

Tempers Get Short

Nerves grew frayed and tempers got short as another long day without a completed sale wore on at the federal bankruptcy courthouse here, after earlier morning negotiations 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.

“Dammit, 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.

Non-Union Workers

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.

Beyond the harsh words and hot tempers, the appointment of a trusteee shaped up as critical to the deal. The naming 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.

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,” said Bavis, aware that in commenting he was defying a “gag order” that had been imposed by Shapiro last week. Bavis 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.”

At about 7:30 p.m. Tuesday, Lorenzo showed up at the courthouse and went into a meeting with his advisers, who had told him on the phone that there was an urgent need to talk with the judge about the issue of a trustee.

Philip Bakes, the president of Eastern, accompanied Lorenzo. Shortly thereafter, they went into a meeting with Lifland. Lorenzo declined to answer any questions from reporters.

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.”

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.