Eastern Airlines filed for protection from creditors in bankruptcy court Thursday, the sixth day of a bitter strike by machinists that virtually shut down the nation's seventh-largest carrier and cost it up to $7 million a day.
The filing under Chapter 11 in U.S. Bankruptcy Court in New York is designed to give Eastern a reprieve from bills and debts while it tries to restructure and extricate itself from the worst crisis in its 60-year history."It is the company's intention to reorganize," Bruce Zirinsky, an attorney for Eastern, said at bankruptcy court.
Eastern boss Frank Lorenzo, in an interview in The Washington Post Thursday, said he would "resurrect as much of Eastern as possible" if the airline is forced into bankruptcy court.
"We will do everything we can to put Eastern into the air," he said. "I don't want to be one of the people in history who was involved in the loss of this great company."
At a news conference Thursday in New York, Lorenzo said, "I'm not going to kid you by saying some of those efforts haven't hurt, haven't hurt my family and me. They have. But I suggest that the intensive focus on a single person does a gross injustice to the real issues that are at stake in our business climate today."
Eastern faces a cash crisis that can be averted and stabilized only by turning to the bankruptcy court, Eastern President Phil Bakes said at the news conference. But he said the airline intended to continue to operate and to "prudently but unmistakably" restore routes as its financial situation is resolved.
Bakes continued to blame the pilots' union for virtually shutting down the airline and avoided specific comment on talk of Lorenzo rival Carl Icahn being asked by Eastern strikers to buy out the carrier.
Zirinsky said the court filing included a list of Eastern's 20 largest unsecured creditors and a rundown of assets and liabilities. "The summary reflects an equity well in excess of $1 billion after all liabilities," Zirinsky said.
"This company has lied to us, to the media and to the community, saying they've had plenty of money and bankruptcy was only an alternative," said Frank Ortis, vice president of Machinists Local 702 in Miami. "Then all of a sudden clandestinely they come out only five days into the strike and file Chapter 11. Something is wrong."
Eastern, running just 4 percent of its flights with a skeleton crew of 1,500, had warned it could end up in bankruptcy court by week's end if pilots continue to honor picket lines. Analysts' estimates of the carrier's daily losses have ranged from $2 million to $7 million.
On Wednesday, Eastern desperately tried to stay aloft by slashing fares and selling airport gates.
A Chapter 11 filing by Eastern would not prevent a takeover of the airline by Icahn. But an acquisition would require approval by the bankruptcy court as well as creditors, making such a transaction more cumbersome. Unions, which have pension interests in the airline, would also have a say in the deal.
The strike began Saturday with a walkout by 8,500 machinists in a dispute over $125 million in proposed wage cuts and escalated with the support of pilots and flight attendants.
Icahn, chairman of Trans World Airlines, said Wednesday he would consider several requests made this week by the machinists.
"I would be willing to speak to the unions only if Eastern permits me to, because I do not want to be accused of interfering with the collective bargaining process," he said.
Under Chapter 11, a company obtains a federal court order that frees it from the threat of creditors' lawsuits until it can develop a plan to put its finances in order.
However, Lorenzo, chairman of Eastern parent Texas Air Corp., would have a tougher time imposing lower wages on the unions than he did when he reorganized Continental Airlines under federal bankruptcy law in 1983. Congress amended federal laws in 1984 to require bankrupt companies to negotiate with unions and prove economic necessity before abrogating their contracts.
The machinists were allied with Icahn before, when they helped him snatch control of TWA in 1985 despite Lorenzo's competing bid. Icahn mulled a bid for Eastern last fall, but talks faltered when he asked for $300 million in labor concessions in exchange for an equity stake.
Lorenzo wanted the machinists to give up $125 million in a new contract. But Machinists leaders, joined by pilots and flight attendants, insist the strikers want to get rid of the hard-line Lorenzo almost as much as a $50 million raise.
No negotiations with the machinists have been scheduled. However, the Air Lines Pilots Association said talks requested by the airline were set on that union's contract, which expired in June. There was no word what effect the court filing would have on those talks.
In a desperate effort to stem its losses, Eastern reduced one-way fares on its Northeast shuttle to $12 on weekends, from $69-$99, and to $49 on weekdays, down from $99. Pan Am said it would not match the fares.
George Brennan, marketing vice president, denied the slashed fares were a move to protect the pending $365 million sale of the shuttle to developer Donald Trump.
"We are confident the sale will go through," despite the bankruptcy filing, Bakes said Thursday.