AIRLINES : Eastern Air Must Shrink or Liquidate, Examiner Claims

A court-appointed bankruptcy examiner told Congress on Thursday that the only alternatives for strikebound Eastern Airlines are a reduction in its size or liquidation.

David I. Shapiro said at a crowded hearing that a plan by a Chicago businessman to take over the airline in partnership with Eastern’s unions and with temporary management by former Defense Secretary Frank C. Carlucci is not viable.

However, Carlucci and businessman Joseph Ritchie told the House Public Works and Transportation Committee’s aviation subcommittee that their plan offers the only hope for restoring Eastern as a major airline.

The subcommittee, in calling the hearing, had said its goal was to find a way to rebuild Eastern, which was the nation’s sixth-largest airline before the March walkout of its mechanics, pilots and flight attendants.

The panel is also examining the role of the New York bankruptcy court, which has had authority over Eastern since the airline filed for reorganization under bankruptcy laws after the strike.

$200 Million in New Debt

“These past months have left me with the reluctant but firm conviction that only two practical alternatives remain in this case,” said Shapiro, who represents the bankruptcy court. “The first is a reorganization plan premised on a smaller Eastern Airlines; the second is liquidation.”

Eastern’s management has announced plans to sell off $1.8 billion worth of assets and operate the airline on a smaller scale.

Ritchie’s plan would add about $200 million in new debt to the airline and restore its full operations.

“I intend to use my energies to oppose liquidation and promote the best reorganization plan possible,” Shapiro said. He said he is continuing to meet with unions to try to get them to accept the idea that Eastern’s operations must be scaled down to survive.

Shapiro said the Ritchie plan to purchase Eastern presented no firm offer to Frank Lorenzo’s Texas Air holding company in payment for the airline and failed to present an operational plan that would keep the airline flying.

Carlucci said he is still willing to act as interim chief executive of the airline if Ritchie’s offer is accepted.

In New York, meanwhile, Eastern and its major creditors, indicating that they were nearing agreement on a reorganization plan, have asked a federal bankruptcy judge to extend Eastern’s exclusive right to submit such a plan, the parties said Thursday.

The joint request to extend the period for two weeks through July 21 was made because the parties have made “good progress” in negotiations, Joel Zweibel, the attorney representing Eastern’s major creditors, said.