Creditors yesterday asked a federal bankruptcy court to shut down Eastern Air Lines and begin selling off its remaining assets, a move that would commit to history one of the oldest names in U.S. aviation.
"Eastern is not, and is not likely to become under any realistic scenario, a viable stand-alone airline," the creditors said in a motion filed with the U.S. Bankruptcy Court in New York. The creditors, which include such major corporations as Boeing Co., Airbus Industrie and American Telephone & Telegraph Co., recommended against giving Eastern more money to continue operating and said it was time "the airline should be closed."
U.S. Bankruptcy Judge Burton R. Lifland will decide today whether to give Eastern additional money or proceed with the liquidation request.
Although Eastern insists that any speculation about its demise is premature, the creditors said they are determined to push for a liquidation even if Lifland rules against them today.
With the creditors now writing off Eastern's future, there appears little likelihood the airline can survive in the long run, according to a number of airline analysts.
If Lifland goes along with the creditors, Eastern could be shut down within weeks.
Any plan to close the airline probably would not affect passengers holding tickets for the Thanksgiving holidays, but could affect Christmas travel.
"One of the real issues now for the bankruptcy court is that you've got Thanksgiving and Christmas coming up and a lot of tickets already sold," said Edward Starkman, an airline industry analyst for the investment firm PaineWebber Inc. in New York. What would happen to ticket holders if the airline were shut down before then was unclear.
The end of Eastern would also cost 19,000 airline workers their jobs and further reduce competition in an industry where a handful of carriers dominate.
If Lifland turns down Eastern's request for an additional $30 million today, the unsecured creditors probably will file a motion for liquidation within a week, said attorney Joel Zweibel.
Eastern has already prepared a plan for shutting the carrier at the direction of the creditors.
Citing "stupendous losses" of $1.5 billion since Eastern filed for bankruptcy reorganization in March 1989, the creditors said that keeping the airline alive would simply deplete what little money is left and might mean that current employees and suppliers may never be paid.
The unsecured creditors said that Eastern's problems go beyond higher costs for jet fuel -- a factor that has created huge losses for many airlines.
Despite some success with the airline's "first class" marketing program that was launched with great advertising fanfare, the creditors said "there is no reason to believe that the marketing program will be any more successful than other failed marketing schemes.
Eastern is suffering not only from an overall slump in the travel industry, but also from higher-than-projected operating expenses in every other category, the creditors said.
Eastern was forced into bankruptcy as a result of a strike by the International Association of Machinists. When the machinists walked out March 4, 1989, so did the airline's pilots and flight attendants, virtually grounding the airline for several days.
From the bankruptcy filing until April 19 of this year, the creditors supported efforts by former Texas Air Corp. chairman Frank Lorenzo to reorganize or sell the airline.
In April, when the creditors lost confidence in Lorenzo, Lifland agreed to their request to appoint Martin R. Shugrue as trustee to run the airline. Now the creditors have lost confidence in Shugrue.
The creditors also said there no longer appears to be any chance to sell the airline to a competitor. "There is no viable third-party offer for the purchase of Eastern as a going concern," the creditors told the court. An earlier proposal by Northwest Airlines to buy Eastern "has been withdrawn," the creditors said. "While TWA has announced an offer for Eastern's Atlanta hub and certain other assets, its offer was deemed by the trustee and the committee to be inadequate."
The Department of Transportation said yesterday it is monitoring the situation and would review any proposal to liquidate the airline. DOT approval is not required for a liquidation, however.
Even if Eastern is liquidated, frequent fliers in the carrier's One Pass program could use those credits on Continental Airlines and other affiliated carriers. However, awards that stipulate travel only on Eastern would not be honored.