Lorenzo Says Eastern ‘Noise’ a Spur to Sell Continental
Texas Air Corp. Chairman Frank Lorenzo says he is considering a sale of Continental Airlines because the “noise” at strike-torn Eastern Airlines was hurting the sister carrier’s business.
In an interview Friday, Lorenzo said the sale of part or all of Houston-based Continental was under discussion partly because of the negative impact from Eastern’s bitter strike and bankruptcy proceeding.
“We have to be responsible to our shareholders,” Lorenzo said in his New York office. “We have an obligation to look for alternatives. . . . (Continental) has been impacted by the noise level from all of our friends over in Miami.”
He made the surprise announcement about Continental late Thursday in response to a question at a company meeting.
Miami-based Eastern has been under Chapter 11 bankruptcy protection since March 9, five days after pilots, machinists and flight attendants walked off the job. Eastern has been reorganizing as a smaller carrier and has hired non-union workers.
The spillover from the Eastern situation has eroded bookings on Continental flights and cut into its profits in the second quarter, said Lorenzo, whose Texas Air is the parent of the two carriers. Continental showed a net profit of $32.1 million in the quarter, compared to a loss of $150.9 million a year earlier.
Just One Option
Continental could benefit from “distance” from Eastern, Lorenzo said. He cited the success of the Trump Shuttle, which enjoyed a sharp rise in passenger traffic as soon as developer Donald Trump bought it from Eastern in early June for $365 million.
Lorenzo stressed, however, that a full or partial sale of Continental is merely being considered as possible option and a final decision hasn’t yet been made.
“We have been approached” by parties interested in a possible sale, he said.
Despite the strife at Eastern and Continental’s reputation as a fare-cutting carrier with inferior service, Texas Air stock has soared from around $9 or $10 a share at the beginning of the year to over $20 currently. It rose 87 1/2 cents Friday to close at $20.75 on the American Stock Exchange, after jumping as high as $22.25.
Possible buyers of Continental could include Scandinavian Airlines System, which has a 10% interest in Texas Air, and Pan Am Corp., which has expressed a desire to merge with another airline. There also has been speculation that Carl C. Icahn, the owner and chairman of Trans World Airlines Inc., may be interested in a combination with Continental.
Lorenzo, however, appears to have rejected the idea of a merger with another airline, according to a source close to the company who asked not to be named. That would make more likely a buyout from an investor group, possibly including SAS or another foreign carrier.
SAS spokeswoman Barbara Levites and Pan Am spokeswoman Pamela Hanlon, both in New York, declined comment on the matter Friday.
Continental would carry a sale price of about $2 billion if it were sold in its entirety, and Lorenzo may be trying to find out what the carrier could fetch, some analysts suggested.
“The worst may be over, and it surprises me he (Lorenzo) would be considering a major sale,” said Daniel Hersh, an analyst with Bateman Eichler, Hill Richards in Los Angeles.
Lorenzo may be seeking to capitalize on the takeover frenzy sweeping the airline industry, which could make struggling Continental a hot property.
A group led by California investor Alfred Checchi recently acquired Northwest Airlines parent NWA Inc. for $4 billion, while United Airlines parent UAL Corp. is being ardently pursued by investor Marvin Davis, British Airways PLC and others.
