Sloan Off Target on Deal for Continental

Alan Sloan’s article, “Who Wins in Continental’s Takeover?” (Nov. 15), is the second piece in which he is highly critical of plans to take Continental Airlines out of bankruptcy. I believe Sloan gives inadequate consideration to two major points.

The original Maxxam deal, which spurred his original piece, did become the opening bid in an auction that attracted interest from several parties and groups. Of the groups listed in the press, all but two failed to submit definitive proposals following their performance of “due diligence,” most notably the Lufthansa group.

As a result, one can only infer that Continental selected the best deal it could get, and even the unsecured creditors seem pleased. The bargain terms that Sloan doesn’t like I view as a measure of the risk in the deal, the lack of assets in Continental, its aged and incompatible fleet and a very poor earnings performance record. I’m amazed that anyone could be found to risk anything.

Sloan makes a big deal of the unsecured nature of the loan portion of the winning bid. Continental has virtually no tangible assets that are not leased or encumbered in previous financings. Air Micronesia is a highly speculative asset to serve as the basis for loan collateral. It has old leased aircraft and little else except an interesting route system that has limited protection under international treaties.

However, most importantly, Air Micronesia is not a viable company in its own right as it is now organized. It has been utterly dependent on Continental for everything from maintenance of its aircraft to the accounting and processing of tickets. Continental’s management has been going through a high-priority attempt to make Air Micronesia stand alone, but this will be a long process that will require Continental’s intimate involvement for a long time. This is some great piece of collateral in the event of Continental’s ultimate failure!

The competitive bid process has worked. While working capital may be a legitimate concern, a superior bid was not made. I can only conclude that there are good reasons for this that go far beyond any chicanery that Sloan implies.

KENNETH J. LISS

Manhattan Beach