Eastern Airlines may be forced to shut down and begin liquidation as early as next week, in a development that may affect the outcome of the Pan American World Airways bankruptcy, it was reported Tuesday.
Eastern, which has been operating under Chapter 11 bankruptcy protection since March 1989, has run low on cash again, after failing in its most recent turnaround effort, The Wall Street Journal reported.A spokesman for Eastern was not immediately available for comment.
U.S. Bankruptcy Judge Burton Lif-land was told Thursday at a meeting that the Miami-based airline is not generating sufficient cash to pay its bills, the Journal said. Lifland reportedly indicated that Eastern had several days at the most to sell assets.
In the past, Lifland has allowed Eastern to dip into an escrow account that holds money generated by asset sales.
In late November, Lifland granted the airline access to up to $135 million over the objections of its creditors, who feared their debts would go unpaid.
The court-appointed trustee for Eastern, Martin Shugrue, said the money would allow Eastern to keep its planes aloft until March, at which point he predicted the airline would begin to generate enough cash to cover expenses.
In the meantime, however, money in the account available to unsecured creditors has dwindled to about $100 million. Those creditors are owed about $1 billion.
The collapse of Eastern could influence the outlook of creditors in the Pan Am bankruptcy case, the newspaper said.
Pan Am filed for Chapter 11 protection last week in Manhattan.
If Eastern's creditors emerge as losers, creditors in the Pan Am bankruptcy may be less willing to support a plan under which the airline uses cash from asset sales to reorganize, the Journal said.