Lorenzo Weighs Sale of Stake in Continental
Frank Lorenzo, the indomitable chairman of Texas Air Corp., said Thursday that he was discussing the sale of part or all of Continental Airlines with several unnamed parties.
Lorenzo, who brought Continental out of bankruptcy in 1985 two years after filing for court protection from creditors, said he was considering the sale of a stake in Continental to give the airline “access to stronger financial or marketplace resources.”
In a statement released after the stock market closed, Lorenzo said there were also several good reasons not to sell the airline. He said Continental had just emerged from a difficult period of consolidation after its bankruptcy and showed potential for improved results. He also pointed out that he and his associates have 17 years experience running Texas Air. Texas Air acquired Continental in 1981.
The announcement by Lorenzo, who controls a large stake in Texas Air, was unexpected. Most airline industry analysts had expected Lorenzo to combine Texas Air’s troubled Eastern Airlines unit with Continental to strengthen both carriers. Eastern is currently operating under Chapter 11 of the U.S. Bankruptcy Code and is starting to rebuild despite a bitter and disabling strike by machinists.
Continental, which has an extensive domestic route system and a large hub in Newark, N.J., earned a small profit of $32.1 million on revenue of $1.3 billion in the quarter that ended June 30. It is the main operating company of Texas Air. The airline isn’t unionized, as a result of the 1983 bankruptcy filing that earned Lorenzo the reputation as a union-buster.
Louis A. Marckesano, an airline industry analyst with Janney Montgomery Scott in Philadelphia, said Lorzeno might be under pressure from Eastern’s creditors to raise cash. Marckesano said Texas Air had guaranteed a portion of Eastern’s $2-billion debt.
LBO Called Unlikely
“Or he may just be testing the waters in light of all the other airline buyouts that have taken place,” said Marckesano.
UAL Corp., the parent of United Airlines, is considering takeover offers from several parties, including a $6.2-billion bid from Los Angeles investor Marvin Davis. Two months ago, Los Angeles investor Alfred A. Checchi acquired NWA Inc., the parent of Northwest Airlines, for $4.05 billion.
Marckesano said it was unlikely that Continental could be acquired through a leveraged buyout. In such a transaction, the purchaser borrows money to buy a company, using its assets or cash flow to repay the debt. Continental’s aircraft and domestic landing slots are “fully valued and over-leveraged,” leaving little ability to borrow against them, said Marckesano.
One possible buyer for Continental was thought to be New York investor Carl C. Icahn, the chairman of Trans World Airways.
