Creditors of Eastern Air Lines Inc., convinced a financial turnaround is no longer possible, will oppose any more cash payments to the airline, sources said yesterday.
If successful at a bankruptcy hearing tomorrow, the creditors could force liquidation of the airline, ending a two-year struggle for survival by one of the oldest names in the nation's aviation history.
Barring a last minute change of heart, members of the airline's unsecured creditors committee will ask the federal bankruptcy court in New York to deny Eastern's request for an additional $30 million cash infusion from a court-controlled escrow account of Eastern funds.
"The creditors are looking for a major confrontation," said a source close to the committee. He said the committee wants bankruptcy trustee Martin Shugrue to "throw in the towel."
Several sources described tomorrow's court hearing as key to Eastern's survival. Negotiations to convince the creditors to change their minds were expected to continue right up to the start of the hearing.
The creditors, according to sources, are not unhappy with Shugrue's efforts to save the airline after he took control from former owner Frank Lorenzo last spring. But the creditors believe any attempt to salvage the airline is doomed, given the current environment in which high fuel costs and a slowdown in travel are producing losses at even the strongest carriers.
Creditors are expected to outline their opposition to further cash payments to Eastern in a filing with the court today. One source said he expected the brief to be a detailed account of why the creditors are now convinced Eastern is no longer financially viable. Until now, the unsecured creditors have wanted the airline to keep flying.
Eastern was forced into bankruptcy court in March 1989, just days after it was struck by its three unions -- the International Association of Machinists, the Air Line Pilots Association and the Transport Workers Union, which represents flight attendants. Since then, the airline has dramatically reduced the size of its operations and sold off assets to survive.
Although the creditors want to block more payments from the escrow account, it was unclear yesterday whether they would actually call for liquidation. One source suggested that the creditors would try to block the money in the hope Shugrue would come back to the court with a liquidation plan of his own.
But Shugrue said he is far from ready to toss in the towel. "I don't see any reason at all to throw my hands up in despair," he said yesterday.
He said Eastern was indeed "being tested" by the rising fuel costs. "It is no doubt slowing down our recovery efforts; it is not destroying our recovery efforts," he said.
According to Shugrue, Eastern's passenger load factor, the percentage of paying passengers, so far this month is at "the upper end of the 50s at the moment, 3 to 4 percent ahead of our internal forecasts."
Even with that, Shugrue said Eastern's losses for the year would be "higher" than the most recent projection of $510 million. He attributed the increase to higher fuel costs.