Creditors Reject Eastern’s Plan, Call for Trustee : Airlines: The hearing in bankruptcy court will determine whether parent company Texas Air will be allowed to continue running the carrier.
The unsecured creditors of Eastern Airlines rejected a last-minute effort by the bankrupt carrier to settle their claims Friday and instead pushed ahead with their campaign to have a U.S. Bankruptcy Court appoint a trustee to run the airline.
Friday’s hearing, which began in mid-afternoon and ran well into the evening, was, in effect, a trial to decide whether Texas Air Corp., Eastern’s parent company, will be allowed to continue running the airline. Texas Air also owns Continental Airlines.
After the testimony of only one witness, the judge adjourned the hearing until 10 a.m. Monday.
The airline also implored Judge Burton R. Lifland to allow it to withdraw $80 million of its own money from an escrow account in order to conduct day-to-day business.
Eastern attorney Bruce Zirinsky told the court that the airline would run out of money by Monday or Tuesday if it can’t make the withdrawal. However, his statement was undercut shortly afterwards by Eastern spokesman Art Kent, who said: “The consensus seems to be that the company has sufficient funds to keep flying through the end of the month. (However) this is a serious cash problem.”
Asked during a recess of the hearing what the airline plans to do if the court does not allow it to obtain the cash, Phil Bakes, president of the carrier said: “I guess we’ll have to be very frugal Tuesday.”
Frank Lorenzo, chairman of both Eastern and Texas Air, sat glumly throughout the proceedings. He was listed as a witness for Eastern but was not expected to testify until next week. “He just wanted to come down and listen,” Kent said.
Details of the latest reorganization offer to the creditors, who include caterers and fuel suppliers as well as engine makers and ticket-holders, were not revealed. They were proposed by the airline late Thursday, Joel Zweibel, the attorney representing the 15-member creditors committee, told the court when the hearing began at 10 a.m.
Judge Lifland, who has been growing increasingly impatient with both sides, gave them the morning to make one more try at a settlement. But when the adjourned session reconvened at 2:30 p.m., Zweibel said no meeting of the minds had been found.
Bruce Simon, an attorney who represents the Air Line Pilots Assn., one of the creditors, complained after the morning adjournment that each of the several settlement offers had been lower than the one before. (When Eastern first declared bankruptcy on March 9, 1989, Lorenzo vowed that creditors would be paid 100 cents on the dollar.)
Simon said Friday’s offer was just another ploy Texas Air to keep the court from ousting Eastern’s current management.
“Texas Air would turn itself into a three-legged buffalo to prevent the appointment of a trustee,” he said.
But since it filed for bankruptcy, the airline’s business has declined drastically and it has had to reduce its payment offers. The airline has consistently complained that the bad publicity resulting from its financial troubles as well as its year-long machinists strike, has caused customers, especially business passengers, to shun the carrier.
In court Friday, the airline also accused the creditors of hurting Eastern’s situation by leaking information to the media.
The creditors are owed nearly $1 billion. After supporting Eastern for nearly the entire 13 months it has been in bankruptcy, they reversed their position last week when Eastern made a reorganization offer that would have paid them 25 cents on the dollar.
Texas Air’s Kent declined to reveal the elements of the latest offer. But he said the two sides had nearly reached agreement. “We were so close. We almost made it happen,” he said in an interview outside the courtroom.
The airline’s strategy appeared to be trying to prove that the creditors’ real motive is to force a liquidation rather than have the airline reorganized under a trustee.
“The committee’s motion to appoint a trustee,” Eastern said in a motion opposing the appointment of a trustee, “is a ruse designed to seduce this court and make it an unknowing party to the first step in the liquidation of Eastern Airlines.”
“Judge Lifland is presiding over the destruction of Eastern Airlines,” said Kent.
