Deadline Is Set for Eastern Bids; Shuttle Offer Made

Times Staff Writers

A Federal bankruptcy judge Wednesday set May 10 as the deadline for bids to buy bankrupt Eastern Airlines and said he would consider all alternatives for the airline’s future a week later.

At the same court hearing, former Piedmont Airlines Chairman William R. Howard emerged as the head of the latest group interested in buying and reorganizing Eastern, which has been virtually idled by a strike since March 4.

Separately, America West Airlines bid $726 million for Eastern’s Northeastern shuttle and 10 Boeing 757 planes. The offer is higher than a pending one made by New York billionaire Donald Trump.


The bid by the Phoenix-based carrier would place a value of $390 million on the shuttle. Trump’s bid is for $365 million.

But it was clear that Eastern was not happy about the America West offer. David Boies, a special counsel to Texas Air Corp., Eastern’s parent, shook his head in the negative when asked if the offer for the shuttle was realistic.

He said that the America West offer would not be sufficiently larger than Trump’s bid for several reasons. For one thing, he said, Texas Air would have to pay Trump an $8 million “walkaway” fee for not completing the deal. Also, he said, the Trump purchase, having secured all government approvals, could be completed long before a new America West bid would be consummated. Eastern, which has suffered huge losses for several years, is anxious to complete a deal as soon as possible.

Furthermore, Boies said, the Trump purchase would cover all of the shuttle’s employees, including its 200 pilots, while America West, a non-union carrier, would not hire any Eastern workers. Pilots union officials said Trump has told them he would use unionized Eastern pilots who have flown the shuttle.

The deadline for bids for Eastern was included in recommendations by David I. Shapiro, the court-appointed bankruptcy examiner. In approving them, bankruptcy Judge Burton R. Lifland said bids would be considered on May 17, but the court would also, at that time, consider any other proposals, including a liquidation of the airline and Eastern’s proposal to reduce its size by 40%, selling off a large part of its assets. Any asset sales must be approved by the court, which has been overseeing Eastern’s affairs since it filed for Chapter 11 bankruptcy on March 9, five days after Eastern’s machinists struck the carrier.

Lifland also granted Shapiro’s requests that:

- Eastern’s lawyers be required to make financial information available to any prospective bidders within 24 hours of their request.


- Eastern’s plan to sell its Philadelphia hub facilities and its Canadian routes be deferred.

- Pending the conclusion of his investigation, the proceeds of the shuttle sale be held in escrow.

In the most controversial passage of the public summary, Shapiro made a statement that gave cheer to Eastern’s unions, which have contended for some time that the interests of Texas Air may diverge from the interests of Eastern’s creditors:

“Texas Air’s (and Jet Capital’s) decision to operate Eastern and Continental as separate subsidiaries may be justifiable from a business standpoint, but it has given rise to a web of personal and financial interrelationships among the four corporations and their management that creates substantial conflicts of interest in this case. For example, Eastern’s rebirth as an independent competitor to Continental might disadvantage Continental, but nevertheless might be in the best interest of the estate; and decisions concerning how a downsized Eastern should be configured might conflict with Continental’s business interests. Even Eastern’s sale of its air shuttle division will, if successful, have a direct economic effect on Jet Capital.” Jet Capital owns 34% of the voting stock of Texas Air.

Harvey Miller, Eastern’s lead bankruptcy lawyer, objected to these conclusions as premature. The unions have contended that Texas Air Chairman Frank Lorenzo was resisting selling the carrier to TWA Chairman Carl C. Icahn because Eastern, combined with TWA, would represent a threat to Continental.

Howard, 66, who had been a vice president of Eastern until he joined Piedmont, would run Eastern for a consortium headed by the New York brokerage firm Prudential-Bache Securities. The bid was made public by Lewis B. Kaden, a lawyer representing the consortium during a hearing in bankruptcy court. He said the group had asked for financial information from Eastern and had requested meetings with the airline’s top five executives.


After the court hearing Kaden declined to say how much the Howard group was willing to invest or discuss any other aspects of the proposal. He said talks had been held with representatives of the airline, with the unions and with Eastern creditors.

A key union source said it was significant that Kaden, a partner in the large New York firm of Davis, Polk & Wardwell, is handling the transaction. Kaden, the source noted, was the lawyer for Eastern’s outside directors when Eastern was sold to Texas Air in February, 1986, and when Eastern’s SystemOne reservations system was sold to Continental in a highly controversial transaction later that year. “He knows where the bodies are buried, and he knows the management types they want to talk to,” the source said.

Howard is credited with turning Piedmont, a regional airline, into one of the nation’s most successful major carriers. Piedmont, which was acquired by USAir in November, 1987, for $1.6 billion, will cease to exist as an independent entity this summer.

Howard had also headed an effort by the pilots of United Airlines in 1987 and 1988 to purchase that carrier. Had they been successful, he would have run United.

The Eastern unions immediately applauded the possibility. “Bill Howard has all the capabilities to turn Eastern around, to make it a viable, successful airline again,” said Dan Ashby, a spokesman for the Air Line Pilots Assn. local at Eastern.

“He would love to” run Eastern, said a former Piedmont executive who had worked for Howard. “It would be the capstone of his career.”


Bruce Zirinsky, an Eastern bankruptcy lawyer, said that the Howard-Prudential group hadn’t yet made any proposal but that it had been provided with confidential financial information on Wednesday. The group said it would have a bid prepared by the end of the week.

Times researcher Chuck Hirshberg contributed to this story. Robert E. Dallos reported from New York and Henry Weinstein from Los Angeles.