Eastern Unveils Plan to Repay All Its Creditors
Vowing to repay all of the $3.3 billion it owes, Eastern Airlines late Friday filed a formal reorganization plan in federal bankruptcy court here.
Its creditors quickly lauded the plan and said they would support the airline’s emergence from bankruptcy before the end of this year.
Eastern filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code on March 9, five days after its machinists, pilots and flight attendants went on strike. It said at that time that all of its creditors would be paid 100 cents on the dollar.
The payments to the creditors will come, Eastern has said, from the proceeds of the sale of $1.8 billion worth of its assets. The airline has already disposed of many of those assets, including the sale of its valuable Northeastern shuttle operation to hotel magnate Donald J. Trump for $365 million in early June. As part of a business plan filed several months ago, Eastern said it would substantially reduce its size.
The airline, owned by the Texas Air Corp. holding company, had more than 30,000 employees and operated more than 1,000 flights a day before the strike began. It intends to shrink drastically in an effort to operate more efficiently and profitably.
“The (reorganization plan’s) treatment of the creditors is beneficial to them,” said Adam C. Harris, an attorney representing the committee of Eastern’s creditors appointed by a U.S. bankruptcy trustee. “It is a good deal for them. The short period in which this has been agreed to is fairly unprecedented in a bankruptcy.”
The creditors committee, which had been in intense negotiations with the airline for several days, said it supported the reorganization, based on a business plan presented to creditors on April 24. The committee Friday issued a formal endorsement of the reorganization plan.
The plan, provides that all of Eastern’s “valid” debts and claims will be satisfied “in full, with interest, mostly through cash payments to most of the creditors or through reinstatement” of debt.
To Pay Ticket Holders
As part of the plan, the airline intends to pay all valid claims by ticket holders, employees, travel agents and suppliers and all other current payables, in cash, with interest. Such obligations, the airline said, total about $640 million.
People who hold Eastern tickets bought before March 9 have several options. They can use the ticket for travel of equal value with a free upgrade to first class when space is available; they can use the ticket for travel of equal value with the right to buy a companion ticket for half fare, or they can exchange the ticket for travel credits valued at 135% of the purchase price of the ticket.
Among other things, Eastern also promised to pay off early or reschedule its bonds. All other valid claims, including secured obligations of about $2.1 billion, will be either reinstated to pre-bankruptcy maturity dates, prepaid in whole or in part, or otherwise paid in full with interest.