Eastern’s Trustee Stops Payments to Texas Air

Eastern Airlines’ court-appointed trustee has halted management services payments to Texas Air Corp. and moved forcefully to untangle Eastern from its parent company.

In an interview published Thursday in the Miami Herald, Martin A. Shugrue said Eastern no longer pays Texas Air $250,000 a month for management services.

He said he also expects to negotiate with Texas Air to settle claims over asset transfers that bankruptcy court adviser David Shapiro said may have cost Eastern $403 million.

A settlement “is very important to the viability of Eastern,” he said. While a negotiated settlement is likely, the airline is prepared to go to court to collect if necessary, Shugrue said.

“We’re not about to roll over and play dead to anybody,” said Shugrue, who was appointed two weeks ago to run Eastern.

In a 500-page report to the bankruptcy court, Shapiro said the management fees were one of 12 areas in which Texas Air may have overcharged Eastern. The fee was reduced from $500,000 a month to $250,000 a month when Eastern filed for bankruptcy protection.

Some management services Texas Air provided, including advice and legal support, were no longer needed, Shugrue said.

Eastern has also stopped leasing planes and crews from Continental Airlines, which is owned by Texas Air, Shugrue said. Eastern still buys fuel and leases planes from Texas Air, but the transactions are independent of the management services contract, he said.

Shugrue said he would proceed with plans to sell Latin American routes to American Airlines. Like the previous managers, he believes that would allow Eastern to pare its money-losing Miami hub and marshal its forces in Atlanta.

But he rejected speculation that Eastern may move its headquarters to Atlanta.

Separately, Texas Air reported that it lost $107.1 million in the year’s first quarter.

The loss came on revenue of $1.86 billion and compares to a loss of $255.53 million on revenue of $1.88 billion a year ago.

Eastern, which has been operating under bankruptcy court protection since employees struck in March, 1989, recorded a net loss $136.5 million on revenue of $557.2 million before a $7.8-million charge for dividends payable to its preferred stockholders.

A year ago, Miami-based Eastern lost $255.2 million on revenue of $620.6 million before a $10.4-million charge for preferred dividends.

Under generally accepting accounting principles, Eastern’s operating results will be excluded from Texas Air’s future reported operating results beginning April 19.

Earlier this week, Houston-based Continental Airlines reported first-quarter earnings of $21.3 million, contrasted with a loss of $16.5 million a year ago.