For Eastern, Pilots’ Return Is Non-Event : Airlines: The company is adding flights but its problems aren’t over.
When the pilots of Eastern Airlines joined with the carrier’s machinists and went on strike last March, the impact was enormous.
Without crews in the cockpits, any hope that Eastern could maintain something close to its normal flight schedule was dashed. The crippled airline was put into Chapter 11 bankruptcy less than a week after the walkout began.
But now that Eastern’s pilots have called off their strike, the impact is almost nil. For, while it is true that members of the striking Air Line Pilots Assn. (ALPA) have voted to put away their picket signs, Eastern doesn’t need them anymore.
A slimmed-down Eastern has all the pilots that it needs and its corporate strategy is well in place. Neither Wednesday’s end to the pilots strike nor Thursday’s conclusion to the flight attendants strike is likely to change the course of Eastern Airlines.
The airline said it employed 3,500 pilots when the strike began. It currently has 1,850 on the payroll. Of those, just under 900 are original Eastern pilots who either never joined the strike or have crossed the picket lines since March. The rest are newly hired pilots. Eastern said it currently has a list of about 100 pilots who had struck and are awaiting a call to return.
“The strike ceased to affect our ability to operate a long time ago,” Karen Ceremsak, an Eastern spokeswoman, said Friday.
Opinions vary on who came out ahead in the 264-day strike.
“It is a victory for management,” said John W. Mattis, an airline analyst with Shearson Lehman Hutton, a New York brokerage firm. “It (now) gives the company total flexibility.”
When the strike came, Eastern’s daily schedule dropped from 1,050 flights to practically zero. Since then, it has slowly increased its activity. It now has 780 flights a day and has told the bankruptcy court that it expects to reach about 900 flights by early in 1990.
But the head of Eastern’s striking pilots, Charles (Chip) Stokes, said Friday that it was a hollow victory for the Miami-based airline.
“It is Pyrrhic victory at best,” he said in an interview. “The long, bitter battle cannot be called a win for Eastern management. Its creditors, its employees and its customers will all feel the effects of (Eastern parent) Texas Air Corp.’s scorched earth policy for many years to come.”
Stokes said he did not know how long the pilots who stayed with the strike will continue to receive $2,400-a-month payments from special assessments of ALPA members nationwide. He said the payments would continue for at least 60 days.
Eastern has benefited in some ways from the long walkout. For one thing, it hired its new pilots and flight attendants at much lower salaries than it was paying its veterans. For instance, pilots with top seniority earn just over $70,000 a year, while the newly hired pilots are making about one-third that amount. And Eastern is paying its newly hired flight attendants about half of the $2,300 a month that veteran flight attendants earn. (By law, new hires cannot be laid off to make way for returning strikers.) Moreover, the machinists’ work is being contracted out at about one-third of what it cost to pay the machinists who went out strike.
The higher productivity that the airline is getting from its employees, coupled with the lower wages it is paying, has resulted in a much lower cost structure than before and one of lowest in the industry. Only non-union Continental Airlines and the newly founded carriers, America West Airlines and Midway Airlines, have lower costs.
And as result of this improvement, Eastern executives predict that the carrier will make a profit next year. If so, it would be the first time since deregulation a decade ago that it ended up in the black.
But Eastern clearly has a long way to go before it is profitable. It had a net loss of $569.7 million on revenue of $1 billion in the first nine months of this year. This compares to a net loss of $233.7 million on revenue of $3 billion in the like period of 1988.
The airline also must satisfy its creditors with its business plan and resulting repayment schedule so that it can emerge from Chapter 11, which it has said it expects to do early next year.
Eastern said in its original plan that it would dispose of $1.8 billion in assets. So far, among other things, it has sold its highly profitable Northeastern shuttle to hotel magnate Donald J. Trump for $365 million and is negotiating with American Airlines to sell its South American routes, which analysts say are worth $300 million to $400 million.
Not everyone thinks that Eastern is out of the woods.
Nicholas Glabkowsky, a professor of business at the University of Miami who specializes in Eastern, said that despite its return to its near-strike operations and despite its predictions of future profitability, the airline will not survive.
He said Eastern is still losing $2 million daily.
Even though Eastern expects to earn a profit from operations soon, Glabkowsky said, its interest payments--as much as $300 million a year on its $2.4-billion debt--will still drag it into the red. And while it is true that such payments are temporarily suspended until it is out of Chapter 11, the interest is “piling up.”
“If anyone believes that Eastern is going to become profitable,” Glabkowsky said, “I’ve got a bridge I want to sell them.”
The professor said all that is keeping Eastern afloat right now is its ability to lure passengers with discount fares.
For example, on flights to Nassau, where Glabkowsky often travels on business, Eastern offers a round-trip discount fare of $64, nearly half the fare charged by its competitors.
In October, the airline flew with average loads of 63%, a percentage point higher than it predicted in its reorganization plan. But those numbers would not hold up after a price hike.
“If Eastern raises its fares in an effort to begin making some money, travelers will stop torturing their schedules to fly Eastern,” Glabkowsky said.
He said Eastern is losing so much money that its profits from the sale of the shuttle have already been spent on operations, and if it sells the South American routes, “that money will be gone in six months.”
As a result, he said, Eastern’s suppliers of such things as fuel and food catering services extend it very little credit.
“People want cash on the barrel head from Eastern,” he said.
Historically, disagreements between unions and airlines have come down to the strike deadline and then it generally has been the pilots who actually walk out. That was because they were the ones who could quickly bring an airline to its knees. Because of their clout, the pilots tended to lead the pack. Usually, within a few weeks, the unions would have made their point and the strike would be settled. But the most recent walkout against Eastern was actually more a vendetta against an individual than a typical union action.
The Eastern unions have described the action as a fight to the death against Frank Lorenzo, chairman of Eastern and its parent, Texas Air Corp., whom they called a trade union wrecker because of his actions in breaking the pilots union at Continental Airlines, the other Texas Air subsidiary. “This was a total union war against the union-busting devil incarnate,” said one observer.
Whether a rift will now develop between the unions because the pilots and the flight attendants have voted to end their strikes remains to be seen. A rift between pilots at United who staged a 1985 walkout and those who crossed the picket lines has still not been reconciled. Even in the cockpit, crew members often do not talk to each other.
