Eastern Creditors May Ask Court to Liquidate Airline

Unsecured creditors of Eastern Airlines may try to have the airline liquidated, sources say.

A source close to the creditors’ committee said Thursday that there is a “50-50 chance” the group will ask the bankruptcy court to appoint a special trustee to oversee a liquidation of Eastern.

The creditors are said to be exasperated at the carrier’s mounting losses and its new plan to reduce debt payments.

A liquidation request would be a radical shift by the creditors. They have supported Eastern since it filed for Chapter 11 bankruptcy reorganization on March 9, 1989, five days after it was struck by machinists, pilots and flight attendants.

The naming of a trustee who would take control of the airline from Frank Lorenzo, chairman of Eastern’s parent Texas Air Corp., has long been advocated by the airline’s unions but rejected by both the company and its creditors.

A move for liquidation also could imperil Eastern’s agreement to sell its prized Latin American routes to American Airlines for $349 million. Proceeds from that sale are central to Eastern’s plan to rebuild.

On Tuesday, Miami-based Eastern sharply scaled back its business prospects, forecasting a bigger loss for this year and a delay in this summer’s planned emergence from bankruptcy reorganization.

Eastern said difficulties in rebuilding its strike-battered business also meant it would be unable to fulfill a tentative agreement to pay unsecured creditors 50 cents on the dollar. They are owed $980 million.

The creditors’ committee privately passed a resolution late Tuesday authorizing its attorneys to seek the appointment of a trustee and to propose a plan of liquidation, said sources.