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Eastern Dodges Death Threat, Trustee Blasts Creditors As Reckless

November 15, 1990

NEW YORK (AP) _ The head of Eastern Airlines predicted today that the embattled carrier would strengthen soon and he denounced the creditors who sought to choke off its life-giving supply of cash in a bankruptcy-court brawl.

″Their actions in public and in the media are nothing short of reckless and shameful. They have set back our recovery efforts,″ Eastern trustee Martin R. Shugrue Jr. told a news conference, a day after he convinced a bankruptcy judge to release more money from a $273.6 million escrow fund to keep Eastern operating.

Shugrue also said he believed that Eastern, one of the country’s oldest, biggest and most troubled airlines, ″will stay on the path to profitability and will continue to maintain the support of the court.″

The airline’s creditors wanted U.S. Bankruptcy Judge Burton R. Lifland to deny Eastern any more money, force it to close and auction off whatever assets remain to help pay its enormous debts.

Analysts say Eastern has a total accumulated debt of some $2.5 billion.

At a packed hearing that lasted nearly nine hours Wednesday night, the creditors and Eastern officials sparred over whether the airline could survive, especially in view of the nation’s economic downturn and a dramatic rise in fuel prices caused by the 3-month-old Persian Gulf crisis.

Burton finally ruled Eastern could have $15 million immediately, half of what it requested through late December. The judge said he’d release another $15 million if Eastern’s projections were on track as of early December.

Burton said he was making ″a close call″ with his ruling. He also said Eastern could revise performance estimates to account for any harm that comes from news stories written about creditor attempts to liquidate the airline.

″There’s a great sense of relief,″ Eastern spokesman Jim Ashlock said Wednesday night after a judge approved the life-saving infusion. ″This was the big one.″

Eastern was taking steps today to assure its 18,000 employees that they would still be flying, at least for now.

The brush with near death was the latest in a history of trauma at Eastern, which has been operating under bankruptcy court protection since March 1989 when most employees struck in a bitter dispute with management over concessions to save money. Eastern hired strike replacements and is a much smaller airline now, but it is still suffering staggering losses of about $1 million a day.

In addition to the $30 million Shugrue requested for December, he also said during the hearing that the airline probably will need another $40 million in late December and an additional $10 million in January before it can turn the corner and halt losses that have come to about $1 million daily.

Shugrue said Eastern will be able to repay the fund with even more cash by February. But the unsecured creditors’ committee said it put no faith in his plans for resurrecting the carrier.

The creditors say Eastern’s plans are based on an assumption that fuel prices will drop, as well as Shugrue’s contention that he will be able to take business away from his more healthy competitors through a program that offers first-class service at coach class rates.

The creditors said fuel costs are likely to keep rising, but the judge faulted them for making a court filing on Tuesday that included news stories about a dramatic rise in oil prices late last week. The creditors left out subsequent news stories that showed oil falling sharply over the next couple of days.

Eastern even pointed out that one of the creditors’ expert witnesses has even been quoted in at least two recent news stories as saying oil prices are likely to fall.

″Your speculation and your arguments about prices may be no better than theirs,″ the judge told lawyers for the creditors, who include banks, airplane companies and labor unions.

The creditors said Eastern’s competitors will find ways to compete with the first-class program, and they are particularly motivated to do so as the airline industry endures hard times amid high fuel prices and a sluggish economy.

Shugrue said Eastern has failed to meet his previous projections for business improvements because of the unpredictable downturn in the U.S. economy and Iraq’s invasion of Kuwait in August.

Alan S. Boyd, chairman of the creditors’ committee and chairman of airplane-maker Airbus Industrie Holdings of North America, stopped short of saying the judge’s ruling will delay the inevitable death of Eastern.

″How this process will work out, God only knows,″ Boyd said, speaking to reporters outside the courthouse.

The judge said in issuing his ruling that Shugrue had shown reasonable business judgment in asking for the additional money.

″I’m not sure the creditors’ committee has exercised business judgment superior to that of the trustee,″ Lifland said.

The hearing coincided with the release of Eastern’s earnings statement for the third quarter of 1990, which showed the airline lost $252.8 million, bringing its total loss for the year to $424.9 million.

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