Proposed $1.8-Billion Selloff Would Shrink Eastern a Third
Eastern Airlines, bankrupt and strikebound, proposed Monday to shrink itself by more than one-third in a drastic selloff of assets that it declared would lead it out of bankruptcy by Sept. 1 and back to profitability next year.
Unveiling its financial plan to creditors, the airline called for big cutbacks in its fleet, employment and the roster of cities it serves. Eastern proposed to sell off $1.8 billion in assets, about one-third of the total, and to repay more than one-third of its debt.
There was no immediate response from creditors. But proposals to buy Eastern continued to surface, prompting bankruptcy Judge Burton R. Lifland to postpone until May 3 a hearing on a suit seeking to force an auction of the airline.
David I. Shapiro, a court-appointed examiner, asked for the delay because there are as many as five “credible” potential bidders for Eastern. They include Chicago hotelier Jay Pritzker, TWA chairman Carl C. Icahn and three others whom Shapiro would not identify.
Eastern has been virtually grounded since a strike March 4 by the airline’s machinists, pilots and flight attendants unions. It sought the protection of Chapter 11 of the federal bankruptcy code five days later.
Eastern spelled out its proposed cutbacks to the 15-member creditors committee in a meeting at the swank Plaza Hotel with Phil Bakes, president of the airline; Frank Lorenzo, chairman of Eastern and its parent, Texas Air Corp., and other Eastern executives.
Afterward, none of the creditors would comment about the proposal, citing a letter of confidentiality each had to sign before entering the meeting.
Asked about the reception of the plan, Bakes said: “They did not throw us out and they did not applaud afterwards. My sense is that they were pleased with the direction (of the plan) and were quite interested.”
But Louis Marckesano, an airline analyst with Janney Montgomery Scott in Philadelphia, expressed skepticism about Eastern’s plan: “I’d be leery of it if I were a creditor. . . . It’s very difficult in the airline business to shrink to profitability.”
Highlights of the Eastern plan:
- A reduction of its fleet to 157 aircraft versus a pre-strike total of 255. Bakes said deals have already been struck to sell 98 of the planes.
- A cutback in the number of cities Eastern serves to 77 from the pre-strike 102. The Atlanta hub would be expanded. Overall, Eastern would keep 164 of its 281 domestic gates and sell or lease the rest.
- A reduction of the work force to 17,000 people compared to 30,000 before the strike began. There would be 1,700 pilots, down from 3,600.
- Repayment of $914 million of the airline’s $2.4 billion in debt, which Bakes said will “drastically reduce future interest expenses and depreciation and make the company significantly stronger financially and operationally.”
No ‘Switch to Click’
Bakes said the airline would pay off its creditors and emerge from bankruptcy no later than Sept. 1. He said he hoped that the airline would complete its reorganization plan with its creditors within a few weeks and be a profitable airline sometime next year.
“It is no longer a realistic option for Eastern--wish that it were but it is not--for us to click a switch and have Eastern grow back to its pre-strike size,” Bakes told reporters. Bakes declined to identify the cities where service would be cut, nor would he reveal what assets would be sold.
He did say American Airlines, which has publicly stated its interest in Eastern’s lucrative Latin American routes, is not the only potential buyer for the routes.
Eastern’s financial plan must be approved by the creditors and by Judge Lifland.
Any plan to return Eastern to the air hinges on attracting and training pilots, a task the airline suggested won’t be too difficult but that the striking pilots maintain is all but impossible.
“The plan would welcome many of our striking employees to come back to work,” Bakes said. “But is is not dependent on any of them to come back to work. The 5,000 people who are working (for Eastern) today will be the core that will rebuild the airline.”
No Shortage of Pilots
Joe Leonard, a vice president of Eastern, said the airline was not having any trouble attracting pilots to take the place of the pilots who have refused to cross the picket lines of striking machinists. He said there had been 2,100 applications, of which 1,300 meet Eastern’s requirements.
“The notion that there is a shortage of pilots is like saying there is a shortage of ice in Alaska,” Bakes said.
But Ron Cole, a spokesman for the pilots union, accused Eastern of waging “a media blitz to try to coerce and intimidate pilots back off the picket line. . . . I think the creditors committee and the court will see through it as being smoke and mirrors.”
Cole said there is “nothing new or unexpected” in the airline’s plan, and that Eastern’s effort to get pilots back into the cockpit is “something we don’t believe he can accomplish in timely enough fashion to satisfy the creditors and the bankruptcy court.”
A machinists union source characterized Eastern’s plan as “a partial liquidation to lull the creditors to sleep. It basically is a Continental protection plan,” he said, referring to Texas Air’s non-union airline.
