AIRLINES : Judge Tells Eastern to Prepare Downsizing Plan

A U.S. bankruptcy judge told strike-crippled Eastern Airlines and its creditors Monday to stop wasting time appraising buyout offers and to get on with devising a viable plan to allow Eastern to emerge from bankruptcy as a smaller carrier.

The development all but closed the door to the possibility that Eastern, which was struck by its machinists March 4 and filed for Chapter 11 bankruptcy five days later, will be sold. And it appeared that Eastern will be permitted to do what it has said for several months that it wants to do--sell $1.8 billion in assets, downsizing itself by a third.

There also remains the possibility--though most observers believe it to be unlikely--that the court could order Eastern to be liquidated.

Bankruptcy Judge Burton R. Lifland voiced his position after being told during an hourlong court session that Eastern’s creditors had not accepted the only buyout proposal that remained--by a group of investors headed by Chicago commodities trader Joseph Ritchie. Offers by a number of other prospective buyers have also been rejected.

Eastern’s unions are part of Ritchie’s effort to wrest the airline from Frank Lorenzo, the chairman of both Eastern and its parent firm, Texas Air Corp. The labor groups have offered major wage and benefit concessions in their effort to support the Ritchie proposal.

At the request of court-appointed bankruptcy examiner David I. Shapiro, the court had extended several deadlines to give the Ritchie group time to come up with adequate financing. The businessman had been trying to put financing together for about five weeks.

“A further deadline will serve no purpose,” the judge said. “(I urge) the parties to work on a consensual plan. I urge a dialogue between all of the parties.”

After the hearing, Barry Simon, Eastern’s general counsel, said, “Now we can begin to build a company--which we will do.”

Michael Crames, an attorney for Ritchie, told the court that even while the airline and its creditors work on a reorganization plan, the investor will still attempt to sweeten his offer.

Members of the Ritchie group met with Texas Air representatives Saturday but failed to win support for its buyout plan, which includes an equity investment of $100 million and $210 million in union concessions.

Lifland said the Ritchie group could continue discussing its buyout offer with creditors, but he said the court will no longer consider it unless it is acceptable to Eastern.

Bruce Simon, a lawyer who represents the pilots’ union, which has honored the machinists’ picket lines, was optimistic after the court session. “We are in round eight of 15 and we are ahead on points,” he said.

Later in the day, a Ritchie spokesman said, “We are encouraged with our discussions with the creditors. . . . The level of the financial and other support obtained from labor is unprecedented, and we are optimistic for the outlook of our proposal.”

During the court session, Joel Zweibel, the attorney for the creditors, said they had decided that, although the Ritchie proposal is “interesting and constructive, it is not feasible” without Eastern’s consent.

Shapiro told the judge that he found it awkward that none of the various bidders for Eastern, including the Ritchie group, had been able to line up financial backing from major institutional investors.

Both Zweibel and David Boies, one of Eastern’s major bankruptcy lawyers, said the airline could be ready next month to submit a reorganization plan to the court.

Commenting on the development regarding the Ritchie offer, Boies said, “It’s all over.”