Northwest Airlines Chairman Alfred A. Checchi met with Eastern Air Lines trustee Martin Shugrue and representatives of Eastern's creditors yesterday to begin putting a price on the struggling airline.
Checchi, who has expressed an interest in buying Eastern's Atlanta hub as well as other assets of the carrier, met with Chemical Bank's Arthur Newman, an airline expert for the creditors, apparently as a first step in making a bid for the airline's assets.
Representatives of the two airlines are scheduled to meet tomorrow with negotiators for the Pension Benefit Guaranty Corp. to discuss one of Eastern's biggest liabilities -- its $800 million pension obligation. A spokeswoman for the PBGC said the agency expects "a significant amount of cash from the proceeds of any asset sales."
That demand could complicate negotiations over a sale because creditors would realize smaller profits unless they can force Eastern's owner, Frank Lorenzo, to pick up the tab for the pension fund. Under an agreement reached last April in federal bankruptcy court, Continental Holdings (then called Texas Air) agreed to assume responsibility for Eastern's huge pension liability. PBGC is negotiating with Eastern in an effort to get more money to fund past pension liabilities.
If Northwest bought the airline's assets but did not buy the company -- including its employees -- it could avoid liability for the pension.
Eastern's unsecured creditors have given Shugrue some time to either reorganize the airline or sell it as a going concern, but that time may be running out, said one investment banker yesterday. In August, Eastern will be getting the last big infusion of cash from the sale of its Latin American routes to American Airlines. At the same time it will be staring at a $95 million pension payment due in September. That payment would come in addition to any cash the PBGC might seek from asset sales.
Shugrue said yesterday that the company has received no offer from Northwest to acquire any part of Eastern. He reiterated earlier statements that he is interested "only in offers for the complete airline with its employees and that there is no intention to liquidate the carrier."
Ten days ago, after meeting with the airline's creditors, Shugrue called a possible sale to Northwest a "viable" solution to Eastern's problems, which include continuing huge losses. Shugrue said that, while he hopes to include Eastern's current employees in any sale, the creditors would have the final say.
Acquisition of a substantial part of Eastern's operations would give Northwest a strong foothold in the southeastern United States, where it is relatively weak. One approach to disposing of the assets that Northwest doesn't want might be for Northwest to take the assets that don't fit into its business and agree to sell them on contingency from the creditors, taking a share of the proceeds when the assets are sold.