Ailing Eastern Closes Down Its Operations : Airlines: Two years in Chapter 11 failed to revive the carrier. Ticket holders will be assisted in getting on other flights or in receiving refunds.
Debt-burdened Eastern Airlines, once one of the nation’s largest carriers, shut down at midnight EST Friday after 62 years in business.
Eastern, which was operating under bankruptcy protection, planned to complete its scheduled flights, then park its planes at its Atlanta hub and its Miami headquarters and send its 18,000 employees home.
All but several hundred employees who are needed to help shut down operations reportedly will be laid off, sources said.
Eastern officials declined late Friday to elaborate, saying trustee Martin R. Shugrue Jr. would hold a news conference today.
“This is a decision to cease flying airplanes,” said spokesman Jim Ashlock. “There’ll still be people here tomorrow. We’ll have people at our counters.”
Eastern said all passengers holding tickets for flights scheduled after the shutdown will receive refunds. American, Delta and Northwest airlines said they would honor Eastern tickets under most circumstances, and other carriers were expected to follow suit.
American also said it had applied to the Transportation Department for emergency authority to take over Eastern routes between Miami, Tampa and Toronto and between New York’s La Guardia Airport and Montreal to provide continuity of service.
Eastern, founded in 1928, still has about 150 planes and was still operating about 800 flights a day through Friday. It is $1 billion in debt to a host of creditors.
Eastern has been in Chapter 11 bankruptcy proceedings for nearly two years. It had become so short of cash that its trustee, Shugrue, reportedly told Federal Bankruptcy Judge Burton R. Lifland that if a buyer could not be found this week, it would be forced to shut down. But in a speech Wednesday, Shugrue said there were two potential partners whose investment interest was “real.”
Travel agents contacted Friday said they had not been selling tickets on Eastern in the past two weeks and were faxing messages to each other all day about the airline’s pending closure.
Union officials said they weren’t surprised, but were emotional about the announcement.
“It’s something that was clearly a tragedy from start to finish; from what we once had to what could have been,” said Charles E. Bryan, the machinists union leader who led the crippling strike that pushed Eastern into bankruptcy.
“It’s almost like civil war; so many people hurt,” said Bryan, who worked for Eastern 34 years.
Besides its own problems, Eastern was plagued by the current woes of all the other airlines in the industry--skyrocketing fuel prices, recession and anxiety over the Middle East situation.
The last time the trustee went before the bankruptcy court, it was to ask for $135 million of its own cash, which was being held in escrow. The judge granted the payout in November despite the protests of Eastern’s creditors. The money came from the sale of many of the airline’s routes and gates. It sold its entire Latin American operations to American Airlines for $365 million.
In asking for the cash infusion, Shugrue said Eastern would be profitable during the first quarter of 1991. He said in his speech this week that a new reorganization plan had been devised to allow the airline to pay off creditors and emerge from bankruptcy.
“They had a new business plan, but they didn’t have enough time,” Charles H. Copeland, a spokesman for the Air Line Pilots Assn., said.
From asset sales and cash on hand, Eastern had at one time after its bankruptcy amassed $1.2 billion. When it first filed, then-Chairman Frank Lorenzo vowed that the creditors would be paid 100 cents on the dollar. But it continually dipped into its escrow account for operating funds, and there is only about $500 million said to be left.
Creditors have sought Eastern’s liquidation for more than a year, maintaining that any funds that the carrier was given for operations were going down the drain.
Eastern’s creditors include Boeing Co. and General Electric Credit Corp. Its largest creditor is Airbus Industrie, the European aviation conglomerate to which it owes about $100 million. About $500 million is owed to the Pension Benefit Guaranty Corp., the government agency that operates workers’ pensions.
Eastern was once the private toy of World War I flying ace Edward Vernon Rickenbacker, known as Capt. Eddie, who took the airline’s helm in 1935. Until 1958, when things went sour with the emergence of the jet age, Eastern had a reputation of efficiency and punctuality. But it had also been known for poor service.
Rickenbacker thought that giving free meals on planes was a waste of money. For years he balked at hiring female flight attendants, arguing that they did not stay on the job long enough to make their training worthwhile.
“Rickenbacker’s airline philosophy was that his airline’s only job was to fly from point A to point B as frequently and as safely as possible,” astronaut Frank Borman, a former Eastern chairman, said in his autobiography. “Let the other airlines do the pampering.”
Analysts agreed that Eastern’s demise was no surprise. “It was just a matter of time,” said Hans J. Plickert, an airline analyst with the Transportation Group, an affiliate of the Paine Webber investment firm. “The war was the last thing they needed. In the last several weeks business was suffering, fares were down. It was getting difficult to see how they could survive this period.”
Times staff writer Denise Gellene and Associated Press contributed to this story.
