Sale of Its Assets Won’t Be Lucrative or Easy for Eastern
Although Eastern Airlines has folded its jetways and posted the “For Sale” sign, it may not have a very easy time disposing of its assets. And what Eastern’s bankruptcy trustee--Martin R. Shugrue Jr.--does sell, analysts say, undoubtedly will bring only bargain-basement prices.
That’s because the one asset to which Eastern has an undisputed claim--its fleet of aircraft--will be flooding into a glutted market.
“There are good times to sell planes and bad times,” said Jack Feir, a New York-based consultant specializing in aircraft value. “This has got to be the worst of times.”
Some of the reasons are the same as the ultimate causes of 62-year-old Eastern’s demise late Friday.
Economic recession--along with travel jitters and months of high jet-fuel prices resulting from the unrest in the Middle East--have prompted airlines to trim fleets, and, certainly, to discourage carriers from buying used aircraft.
Worldwide, the inventory of used planes exceeded 500 for the first time in November, according to ESG Aviation Services of Ponte Vedra Beach, Fla. The fleet of idled planes has grown rapidly, passing the 300 mark in October, 1989, and the 400 level last June, ESG says.
The 510 planes on the market in November represented 5.7% of the world’s fleet of commercial aircraft, said Edmund S. Greenslet, managing director of ESG. The surplus of planes will continue to grow for the next year, he predicted--to 1,300 in 1992.
Because new planes are coming off assembly lines at a rapid pace for delivery to the more prosperous airlines--and because the older aircraft are not fuel efficient--the number of parked planes “is clearly accelerating,” Greenslet said.
He calculates that it is taking 15 months to sell a used plane, also an all-time high.
The aircraft in Eastern’s fleet--it owns just under half the 170 planes bearing its colors and has leased the rest--are not all that desirable either.
Eastern’s fleet is the fourth-oldest in the industry, averaging 14.6 years as of last June. Trans World Airlines’ fleet is the oldest, averaging 16.1 years, followed by Pan American World Airways at 15.7 years and Northwest Airlines at 15.3 years--the latter a figure that will drop shortly, because Northwest has a large number of new planes on order.
By comparison, American Airlines’ average fleet age is only 9.6 years and will also become steadily younger as large numbers of new planes on order are delivered.
Beyond aircraft, Eastern’s most valuable assets probably are its gates--and especially its takeoff and landing slots at airports where such slots are rationed, including New York’s La Guardia Airport; National Airport in Washington and Chicago’s O’Hare Field.
The airline owns more than 70 slots at National, 70 at La Guardia and 21 in Chicago. Ray Neidl, an airline analyst with Dillon, Read & Co., estimates that each slot is worth $500,000 to $1 million.
But there is some question whether the slots will be Eastern’s to sell.
The takeoff and landing positions are assigned by the federal government on the understanding that they will be used more than 65% of the time. If an airline falls short over a two-month stretch, the slot normally is lost and may be assigned to another carrier.
The government could let Eastern sell its slots at the three airports before the two-month period expires. But observers say other carriers that covet the positions might challenge in court any government action that denies them the chance to claim the slots for free.
Eastern has hardly any routes it could sell to raise cash. Domestic routes are deregulated, so other carriers can begin serving Eastern’s routes at their whim. Having already sold its Latin American routes to American Airlines for $365 million, Eastern has only a few routes to the Caribbean and several to Canada that it can place on the market.
None of this augers well for the companies that Eastern owes money.
The Miami-based airline’s unsecured creditors--who are owed about $2 billion--have been badgering U.S. Bankruptcy Judge Burton L. Lifland for at least a year to liquidate the airline so they could get back some of their money.
When the carrier first filed for Chapter 11 bankruptcy in March, 1989, then-Chairman Frank Lorenzo promised creditors 100 cents on the dollar. By last April, the airline had used so much of its cash for daily operations that the creditors were promised only 25 cents.
Now, after the shutdown, it looks as though the creditors might not get anything.
Neidl says that even Eastern’s secured creditors--those that have liens on the airline’s aircraft and spare parts--won’t get all their money.
Those with the highest-priority claims in bankruptcy court will probably get most of their principal but no interest. Those with the second-highest priority may get only 60 cents on the dollar. The next tier of creditors may get as little as 30 cents.
Another reason Eastern can expect little for its assets is that some prospective buyers, realizing that the airline was in dire need of cash and about to fold, simply waited until Eastern was grounded.
“This will be a fire sale of assets,” predicted independent New York analyst John W. Mattis. “Now that Eastern has shut down, virtually any price can be offered for its assets. Before Friday, they were using these assets and had no need to sell them. Right now it is a clearance sale.”
