AIRLINES : Texas Air Orders 50 Jets From Boeing : Eastern to Get Some of Continental’s Planes
Texas Air Corp., parent company of Continental Airlines and of bankrupt and strikebound Eastern Airlines, said Wednesday that it has ordered 50 Boeing 737-300 jetliners and taken options on another 50 in a deal that could eventually be worth $2.8 billion.
D. Joseph Corr, Continental’s chairman and chief executive, told reporters at a news conference in Houston that his airline will get 30 of the planes and has taken options on 30 more. Continental also actually purchased and took the options on the remaining 40 planes, he said, but they will be assigned to Eastern. He said Continental plans to exercise the options.
The planes, which carry between 120 and 130 passengers, are designed for domestic service. Corr said that it has not yet been determined how the acquisitions will be financed or whether the airliners will be leased or bought. Delivery of the aircraft will take place between 1992 and 1995.
Corr also said during the news conference, in which out-of-town reporters participated by a telephone hookup, that Continental was also talking to Boeing, McDonnell Douglas and Airbus Industrie, the European consortium, about the purchase at a later date of wide-body jets for overseas flights.
Eastern’s Unions Critical
In answer to a question Corr said the transaction requires the approval of Eastern’s creditors committee. Eastern, which filed March 9 for protection from creditors under Chapter 11 of the federal bankruptcy code, must file a reorganization plan with a bankruptcy court in New York by Friday.
The plan to acquire the new 737s and to possibly order the wide-body aircraft was immediately criticized by union officials. Eastern’s machinists, pilots and flight attendants have been on strike since March 4.
“This is a smoke screen designed for the creditors,” said Gary Greska, a spokesman in Miami for the Eastern local of the Air Line Pilots Assn. “Dangling a carrot in front of those creditors with the possibility of aircraft purchases may help sway those creditors to back approval of the Eastern reorganization plan.”
Boeing and General Electric, which makes engines, are among Eastern’s major creditors, Greska noted. Other major creditors include Pratt & Whitney, another engine maker, and Airbus.
Corr also announced that Continental has agreed to acquire 11 Airbus A-300 airliners from Eastern for $291 million, plus $12.5 million in spare parts. Continental also will acquire the leases of two DC-10-30s and buy Eastern’s DC-10 spare parts inventory for $11 million.
Continental to Lease Planes
Eastern no longer needs those large aircraft, Corr said, “as it changes to a smaller, economically viable carrier.” Eastern has said it intends to shrink itself by selling $1.8 billion worth of its assets in an effort to achieve profitability.
Continental, on the other hand, will lease to Eastern 16 DC-9-30s, and Eastern will also have an option to lease up to nine Boeing 727-200s from its sister airline in 1990 and another nine 727-200s the following spring. The planes are now leased to other airlines.
Pilots spokesman Greska said Eastern is getting the “short end of the stick” in this transaction because the DC-9s are old planes that carry only 99 passengers. “They are trading greyhounds for mutts,” he said.
Corr said that the transactions between Eastern and Continental had taken place “at arm’s length” and that they give “fair value to both companies.” In the past, Eastern’s unions have charged that Frank Lorenzo, chairman of Texas Air, was diverting assets from Eastern to Continental to weaken Eastern. Continental is a non-union carrier and Eastern is unionized.
Ritchie Gets Financing
In another development Wednesday, Chicago options trader Joseph Ritchie, whose earlier offer for Eastern was rejected, said he has secured $280 million for another bid to buy the airline.
In an interview with the Reuters news agency, Ritchie said he still wants to buy Eastern and could satisfy creditors’ claims against the carrier. Ritchie said Shearson Lehman Hutton Inc., a New York investment bank, has agreed to secure $280 million in financing for a bid.
“It is not in the form of a signed letter, but we have a commitment from them,” he said.
Lorenzo has said for many months that Eastern is no longer for sale.
