Preferred Holders Want to Make Eastern Independent

Eastern Airlines’ preferred shareholders, who are near the bottom of the list of who gets paid in the airline’s bankruptcy proceedings, proposed Monday that the carrier be reconstituted as an independent entity under new management.

Eastern, which filed for bankruptcy protection a little more than a year ago, is owned by Houston-based Texas Air Corp., a holding company that also owns Continental Airlines.

The plan, which the committee of preferred shareholders filed with federal bankruptcy court here, called for the reorganization of Eastern as an independent, stand-alone airline that would be owned by its unsecured creditors and preferred shareholders and operated by a new management team.

Analysts said the plan came about because the preferred shareholders were upset about not being offered enough under the airline’s own reorganization plans.

But the plan is believed to have only a slim chance of being accepted. For one thing, Eastern still has the exclusive right to come up with its own reorganization plan. Judge Burton R. Lifland of the bankruptcy court will make a final ruling on the troubled airline’s future.

The preferred shareholders are near the bottom of the ladder when it comes to getting paid what is owed them in bankruptcy proceedings. Before them come payroll payments, settlement with secured creditors who hold collateral such as leased airplanes, and unsecured creditors such as engine makers, fuel suppliers and caterers. Only common shareholders stand behind the preferred shareholders in the debt-payoff pecking order.

“The plan is being proposed as an alternative to the liquidation scenario for Eastern suggested in a recent press report,” a statement by the preferred holders said.

Wilbur Ross, an official of Rothschild Inc. and the financial adviser to the preferred shareholders, said Monday that the preferred holders were offered 10 cents on the dollar some months ago when Eastern offered its unsecured creditors 50 cents on the dollar.

Since then, Eastern has told the unsecured creditors that it will not be able to pay them that much but, according to Ross, the airline has not modified its offer to the preferred shareholders. The unsecured creditors subsequently called for the liquidation or sale of the airline and appointment of a trustee to manage the carrier until that can be done.

Some observers said they believe that Eastern would be unable to stand alone as an independent carrier. As a subsidiary of Texas Air, Eastern would have an easier time financing such things as the purchase badly needed airplanes.

The preferred shareholders “have something to gain and nothing to lose” in making their proposal, said Raymond Neidl, an analyst with the New York investment firm of Dillon, Read & Co.

John Mattis, an analyst with Shearson Lehman Hutton, another New York brokerage, said: “They have been squeezed in terms of what has been offered to them--hardly anything at all. I think this is the way of posturing themselves to get a better deal from Eastern.”