The banks listed in a chart in yesterday's Business section showing Continental Airlines' largest unsecured creditors are not direct lenders but are trustees for debt holders. Midlantic National Bank's name was misspelled in the same chart. (Published 12/5/90)

WILMINGTON, DEL., DEC. 3 -- Continental Airlines staggered into federal bankruptcy court today for the second time in a decade -- pushed over the edge by a huge load of debt, surging fuel prices and a slowdown in air travel.

Passengers are unlikely to see any immediate impact from the Chapter 11 filing by the nation's fifth-largest airline. Operations continued normally to the 91 cities Continental serves, and no cutbacks in flights, service or the airline's 37,000-person work force are planned. In addition, U.S. Bankruptcy Judge Helen S. Balick granted a series of motions designed to ensure that travel agents continue to receive commissions from Continental, that ordinary ticket refunds continue to be honored and that the carrier continues flying its full schedule.

"To allow those things to be interrupted would be a mistake which has been made in other cases," said Continental attorney Paul Welsh.

Industry analysts and executives warn that the Houston-based carrier could soon be followed into bankruptcy court by other financially weak airlines afflicted with the same problems. If that happens, it would leave the airline industry even further concentrated in the hands of a few powerful carriers, led by United, American and Delta airlines.

Continental Airlines Chairman Hollis Harris said he expects the company to reorganize successfully and emerge from federal bankruptcy court as it did after its filing for bankruptcy in 1983, when the carrier was controlled by Frank Lorenzo.

The last time Continental filed for bankruptcy, it was caught in a bitter labor dispute. This time it was hit by a heavy burden of debt that was impossible to shoulder when the economic climate took an unexpected turn.

"The thing that kicked us over the edge was the continuing high cost of fuel," said Harris. In October the airline paid $70 million a month more for fuel than it had in the three months before as a result of huge price increases in the wake of the tensions in the Middle East.

Without that drain on cash reserves the airline company could have kept up with the burden of servicing its debt -- much of it high-interest junk bonds that Lorenzo used to build what has become a battered airline empire.

Continental currently has $810 million worth of junk bonds, roughly one-third of its long-term debt. One of the bond issues maturing in 1995 plunged by more than 50 percent on news of the Chapter 11 filing. Its stock price took a similar beating, falling $1.37 1/2 to close at $2 for the day.

Continental, whose major creditors include engine manufacturers, caterers and banks, has $2.2 billion in debt on its balance sheets, only $1.7 billion of which is secured. "I recognize we're in a highly leveraged position, but we could have handled that if it hadn't been for fuel costs," Harris said. He said the airline was facing $250 million in debt payments over the next month.

Lorenzo's heavy discounting of airline tickets and his willingness to use debt to finance his purchases of New York Air, Frontier Airlines and People Express transformed the airline industry in the 1980s, the first decade after airline deregulation. Now the fate of the airlines he acquired may be emblematic of the airline industry in the 1990s. Lorenzo sold most of his stake in Continental to Scandinavian Air System and stepped down as chairman in August, pocketing $30 million as a result of the agreement.

Eastern Air Lines, which was also owned by Lorenzo's Texas Air Corp., is also in bankruptcy proceedings.

The list could get longer.

Harris noted that even the healthiest carriers in the airline industry have been hard-hit by the rapid run-up in fuel costs. But the oil shock is taking the biggest toll on carriers that were hurting before fuel prices soared -- Trans World Airlines, Pan American World Airways, Midway Airlines and America West.

As a step toward turning Continental's fortunes around, Harris said the carrier has completed a deal to sell its prized route between Seattle and Tokyo to American Airlines for $150 million, a route that was once meant to be part of Continental's push into the lucrative Pacific market. That cash will help the airline meet its high fuel costs even if no other relief is forthcoming, Harris said.

No other asset sales are planned, except possibly the sale of Continental's food catering business.

Harris said that he will press the Bush administration to release oil from the Strategic Petroleum Reserve to Continental and other airlines to help offset their higher fuel costs. Harris said he might also seek low-cost loans from the federal government to help airlines ride out the current crisis. Such loans could be made under the Defense Production Act. Still another proposal is to allow foreign investors to buy a larger stake in carriers here, he said. Currently, foreign investors are prohibited from controlling U.S. carriers or owning more than 25 percent of their stock.

Continental's bankruptcy filing may be complicated by the proceedings involving Eastern. Late yesterday, the federal Pension Benefit Guaranty Corp. (PBGC) announced it would file a $700 million claim against Continental for funds to pay the pensions of retirees at Eastern.

Continental previously had agreed to fund some of Eastern's pension obligations for which Continental Airlines Holdings Corp., as Eastern's parent corporation, could have been held liable. James B. Lockhart, PBGC executive director, said his agency has been seeking full funding of Eastern's pension plans during three months of negotiations with Continental.

Continental had agreed to fund the pension plans over a 12-year period, but had not agreed to pledge assets as collateral to assure the payments.

PBGC claims come after those of secured creditors, employee wage payments and administrative expenses. Agency sources said the PBGC is prepared to sue Continental's System One computer reservation system, its leasing company and its food service company to recover the money.

Staff writers Frank Swoboda and Robert J. McCartney also contributed to this report.

SOME OF CONTINENTAL'S LARGEST CREDITORS; THE FOLLOWING ARE UNSECURED CREDITORS,

THOSE WHOSE OBLIGATION IS NOT BACKED WITH SPECIFIC COLLATERAL

INSTITUTION........................LOCATION.......AMOUNT OWED

(IN MILLIONS)

1. Bank One, Texas.................Houston.............$171.0

2. Midatlantic National Bank.......Edison, N.J..........160.8

3. Ameritrust Texas................Houston..............140.7

4. First Fidelity Bank.............Newark................40.0

5. First City, Texas-Austin........Austin, Tex...........37.6

6. U.S. Trust Co. of California....Los Angeles...........32.8

7. IBJ Schroder Bank and Trust.....New York..............29.5

8. Embraer Basilia.................Fort Lauderdale, Fla..19.2

9. MTrust-Houston..................Houston................7.8

10. Bank One, Columbus..............Columbus, Ohio.........6.9

11. Banque Paribas..................Geneva.................4.2

12. General Electric................Dallas.................2.4

13. Douglas Aircraft................El Monte, Calif........1.7

14. Lintas CECO Communications......Warren, Mich...........1.3

15. Boeing..........................Seattle................1.2

SOURCE: Morris, Nichols, Arsht & Tunnel.