Texas Air Sells Half of Reservation System

Texas Air Corp. said Wednesday that it will sell half of its System One computer reservation system to Electronic Data Systems for $250 million.

EDS, a subsidiary of General Motors Corp., said it expects to generate income of $4 billion from the deal. Under a 10-year joint venture, EDS will furnish information technology services to Continental Airlines and Eastern Airlines, both of which are Texas Air subsidiaries. The EDS-System One partnership will provide computer reservations services to nearly 8,000 travel agents.

“This is the first time that an outside (non-airline) company has gotten involved in a business which provides the services which System One does,” Texas Air Chairman Frank Lorenzo said at a New York news conference.

Lester M. Alberthal Jr., chairman of Dallas-based EDS, said it was the largest contract his firm had ever signed. “The opportunities are enormous,” he said. There will be “an immediate cost saving for Texas Air and its affiliates.”

Lorenzo was vague about his company’s apparently deepening involvement in helping Eastern emerge from the bankruptcy proceedings in which it has been enmeshed for almost a year. But he vehemently denied that any of the income from the sale of half of System One would be used to solve Eastern’s problems. He also reiterated that Eastern would not be liquidated.

“I am quick to point out that Texas Air is not entering this transaction because of a need for cash,” Lorenzo said. “Texas Air entered the year with $600 million in cash.”

He consistently sidestepped questions concerning Texas Air’s liability to aid Eastern.

“Six months ago, nine months ago and throughout the Eastern bankruptcy, continuing to the present,” he said, “we are liable for those liabilities we are liable for and not those we are not liable for.”

Last fall, Texas Air helped Eastern meet some of its pension obligations, but as far as is known it has not injected other funds.

Lorenzo said discussions with Eastern’s creditors were designed “to work out arrangements fair to all parties.” It had been reported that the parent company is willing to provide cash and stock to pay off unsecured creditors of the Miami-based carrier, which filed for Chapter 11 protection from creditors last March 4.

Eastern’s exclusive right to submit a reorganization plan with the bankruptcy court in New York expired at midnight Tuesday, and the airline did not file for an extension. However, Lorenzo said he had not heard that anyone else had offered a reorganization plan to bring Eastern out of bankruptcy.

Lorenzo also defended the price Texas Air received for half of System One, which would value the entire reservation system at $500 million. In a controversial transaction three years ago, Eastern sold the system to Texas Air for a $100-million note.

Eastern’s unions decried the sale, charging that Texas Air was siphoning off Eastern’s assets. Three lawsuits claiming that Texas Air paid less than fair market value for System One are still pending in attempts to overturn that deal.

Lorenzo said Wednesday that the surge in the value of the system resulted primarily from investments made in it since then. “System One is a very different system than the one the company bought three years ago,” he said.