NEW YORK, JULY 13 -- Bankruptcy court trustee Martin Shugrue, in New York to outline a business plan for Eastern Air Lines, said he is involved in substantive, ongoing discussions to sell the battered carrier to Northwest Airlines.
Shugrue called the sale or merger of Eastern with Northwest "a very viable way to go," but he cautioned that no deal has been struck.
"We have had some substantive conversations with the executives of Northwest and we are scheduling more," Shugrue said at a news conference after painting a dreary picture of Eastern's financial health to its major creditors. It was the first time Eastern has officially acknowledged it was in active negotiations to sell the carrier to Northwest.
Shugrue said Eastern had earlier discussions with Pan American Airways, but that the current discussions with Northwest were the only continuing talks.
Northwest Chairman Joseph Checci met last week with representatives of the International Association of Machinists to discuss the viability of buying Eastern. Although details of that meeting were not made public, it is known that Eastern's unions want Northwest to buy only Eastern's assets, such as its planes and routes, rather than merge with Eastern.
If Northwest simply acquires Eastern's assets, it would not have to hire the replacement pilots and mechanics who have crossed union picket lines when the machinists union struck Eastern in March 1989. The union is still on strike against the airline.
If Northwest acquires the planes and routes only, it will likely attempt to negotiate a new contract with the unions that would bring their members back to work.
"The deal I'm interested in is an entire company sale, including the people who are working for it or have rights to work for it," Shugrue said. But he added, "I cannot rule out anything at this stage." He was adamant that he had no interest in breaking up Eastern and selling it off piecemeal to satisfy its creditors.
Northwest had no immediate comment on Shugrue's statement, although the company has acknowledged an interest in Eastern.
The business plan presented to Eastern's unsecured creditors was the first since control of the airline was wrested from Texas Air Corp. Chairman Frank Lorenzo in early April. Texas Air, which is now Continental Holdings, owns Eastern.
At the 2 1/2-hour meeting, Shugrue projected that Eastern would lose more money this year than had been predicted by Lorenzo.
Previous management had estimated the carrier would lose $330 million in 1990. Shugrue refused to be pinned down on a precise projection, saying only that it would be more than Lorenzo projected and less than the $852 million the airline lost in 1989.
At the same time, much like managers before him, Shugrue painted a much rosier long-term picture for the airline in 1991. He said Eastern would have $1 billion in cash by the end of this year, although 60 percent of it will be pledged to creditors, and he said he expects to have new labor contracts in place, a continuing return of business passengers as a result of ongoing marketing campaigns and an expectation of continued lower fuel prices.
As a result, Shugrue predicted a "break-even performance" for 1991.
Sources close to the creditors committee said the latest business plan was met with much the same skepticism as previous plans in the bankruptcy. One source said the make-or-break point will be at the end of summer when Eastern receives all the cash for the sale of its Latin American routes to American Airlines, but it has a number of critical payments due.