AIRLINES : Eastern’s Unions Involved in 11th-Hour Takeover Bid
Chicago commodities dealer Joseph Ritchie and Eastern Airlines’ unions came forward Thursday with a new takeover proposal for Eastern that may represent the unions’ last hope to wrest the strikebound carrier from their arch foe, Texas Air Chairman Frank Lorenzo.
At a hearing in which a Bankruptcy Court examiner had been expected to close the door on takeover attempts, Ritchie, the Shearson Lehman Hutton investment firm and the three unions presented a proposal that they said included $100 million in equity and a plan for reviving the carrier.
Although the surprise proposal stretched the deadline for offers, U.S. Bankruptcy Judge Burton R. Lifland postponed the hearing until today to give the examiner and other parties in the bankruptcy proceeding time to evaluate the new bid.
The proposal appeared to be a long shot. Examiner David I. Shapiro, who first heard of the offer at 1 a.m. Thursday, said he did not believe that “this plan . . . is in the real world.”
Also under the court’s consideration are Eastern’s own proposal that it sell $1.8 billion worth of assets and radically shrink the airline, perhaps liquidate it. Eastern, a unit of Texas Air, sought Bankruptcy Court protection from creditors March 9, five days after its machinists went on strike. Virtually all its pilots and flight attendants are in sympathy with the machinists and have refused to cross the picket lines.
Attorneys said the Ritchie group’s $100-million equity stake would include $25 million from Ritchie and his associates, $25 million from the Airline Pilots Assn. and the International Assn. of Machinists and Aerospace Workers, and $50 million from the pension funds of 10 AFL-CIO unions. Shapiro, whom the court assigned broad powers, had required that bidders come up with at least $100 million to demonstrate financial capability.
The Ritchie plan envisions an airline that would emerge from bankruptcy with between 22,000 and 24,000 employees. Eastern had a payroll of 30,000 before the strike began, and has said it hopes ultimately to have a work force of about 17,000.
Michael Crames, an attorney for the Ritchie group, said Ritchie had spent five weeks putting together a plan he said would be “sufficiently attractive” to interest Eastern.
But Eastern’s lawyer, Harvey Miller, denounced Ritchie as an “officious intermeddler” and called the bid “ephemeral.” “There’s no place in the bankruptcy law that says a debtor’s business has to be run by union employees,” he said.
The unions have a long history of battling with Eastern management, but the relationship has been especially sour since Lorenzo’s Texas Air bought the airline in 1986 and demanded millions of dollars’ worth of concessions in pay, work rules and benefits.
Examiner Shapiro rejected as inadequate the other pending bid for the company, from a group headed by former Piedmont Airlines Chairman William R. Howard and Prudential-Bache Securities. He said that group’s effort would quickly run out of money and then Eastern would be “back in Bankruptcy Court in 1990.”
The examiner gave qualified support to Eastern’s proposal that it reorganize and scale itself down. He said that plan could work only if there is no economic recession, that Eastern must meet its goals for adding pilots and set aside a “large amount of money” for improvements. Also, he said, Texas Air must not use Eastern’s assets for its own operations.
