Lorenzo Hints at Continental, Eastern Merger

Frank Lorenzo, chairman of Texas Air Corp., was reported Tuesday to have strongly suggested that he intends to merge bankrupt Eastern Airlines into Continental Airlines. Both carriers are Texas Air subsidiaries.

Lorenzo made his intentions known at a meeting with airline analysts for securities firms. The gathering was closed to the press, and Lorenzo could not be reached for comment afterwards.

“He all but implied that the two would be combined,” said one analyst who asked for anonymity. “He said it was clearly feasible and that it makes sense to do it.”

The analyst said Lorenzo “was very careful not to be definitive. This was all in the context of a feasible plan.”

Lorenzo was said to have described how the fleets of the two carriers are compatible, and, in fact, airliners are already being moved back and forth between the two airlines. Lorenzo also reportedly said the labor costs of unionized Eastern and non-union Continental are comparable.

Another analyst who attended the luncheon said Lorenzo indicated that talks about such a consolidation have taken place between Eastern and its creditors.

Eastern, which filed for protection from creditors last March under Chapter 11 of U.S. Bankruptcy Code, last week presented a reorganization plan that must be approved by the creditors. The creditors are reported to be less than happy about the plan since they are being offered only 10 cents on the dollar in cash and another 70% of what they are owned during the next decade with no interest. In return, Texas Air would transfer ownership of 40% of Eastern’s stock to the creditors.

If a merger of the two airlines were attempted before Eastern emerges from bankruptcy, the creditors and the bankruptcy court in New York would also have to give their approval. Spokesmen for the creditors could not be reached Tuesday.

One analyst said Lorenzo did not make the comments concerning the merger in answer to a question but brought up the subject himself at the start of his talk.

Art Kent, a spokesman for Texas Air, said, “The discussions (with the analysts) were meant to be private.” However, he conceded, “The merger of the two airlines is among the many options that have been considered, but no decision has been made.”

After a reporter sought comment on Lorenzo, Kent said he reached the chairman, who told him that “he had not said anything about a merger that he had not said in the past.” Lorenzo had told Business Week magazine last week that such a merger “is not a crazy idea.”

Russ McGarry, a representative of the machinists union, which went on strike against Eastern five days before the carrier filed for bankruptcy, said: “What is the difference how we feel about (a merger). It is something we thought he would do a long while back. It would come as no surprise.”

Officials of the pilots and flight attendants, which honored the machinists’ picket lines until recently, could also not be reached.

Meshing Eastern’s unionized workers with Continental’s non-union work force would undoubtedly draw opposition from Eastern’s unions, but since they have no contract with the carrier, it is believed that they would not be able to block a merger.