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Airline's Survival Threatened, Some Say : Eastern Girds for Battle With Unions

January 28, 1988|From Reuters

MIAMI — Eastern Airlines is headed for a showdown with its labor unions that could threaten the survival of the embattled Texas Air subsidiary, financial analysts and industry officials say.

Some experts predict that the troubled airline will be hit by a crippling strike or stripped of its most valuable assets before the year is out.

"There appears to be no solution other than a direct, damaging confrontation between Eastern and the unions," said Louis Marckesano, airline analyst with Janney Montgomery Scott Inc. of Philadelphia.

Union leaders accuse Texas Air Chairman Francisco Lorenzo, an airline entrepreneur with a reputation for hard-line anti-labor tactics, of pursuing a secret strategy aimed at dismantling Eastern and crushing its main unions.

Since acquiring the Miami-based carrier in February, 1986, Lorenzo has laid off more than 15% of the work force, sold or leased 20 passenger jets, put another 16 planes up for sale and abandoned some key routes.

Eastern has shrunk from the nation's third-largest airline to sixth in less than two years.

"They're going to just start taking waves of layoff activity to dismantle Eastern or further downsize," said Charles Bryan, chairman of the International Assn. of Machinists, Eastern's largest and most combative union.

Russ McGarry, an IAM vice president, said Lorenzo's cost cutting is calculated for Eastern to be absorbed into Texas Air's Continental Airlines subsidiary, a low-cost, non-union carrier.

For its part, Eastern charges that the unions are hurting the company's weak financial condition by refusing to grant wage concessions. The airline wants a total of $490 million in cost cuts from machinists, pilots and flight attendants.

Eastern officials and the machinists' union leaders began federally mediated talks last week in an effort to break a deadlock in negotiations for a new contract. Eastern is demanding pay cuts of up to 50%. The union has countered with a proposed 10% wage increase.

Machinists officials already have warned members to prepare for a strike, and most analysts believe that a lengthy work stoppage may be unavoidable. Eastern has built up $600 million in cash to cope with a possible labor crisis.

Marckesano said Lorenzo may be trying to push the machinists into a strike, after which he could greatly trim the airline's payroll and operate flights with low-cost crews from Continental.

Eastern spokewoman Karen Ceremsak said the pay cuts are needed to return the airline to profitability. Eastern reported a net loss of $67.4 million in the third quarter of 1987, and analysts predict that its full-year deficit will top $100 million.

Bryan blamed the heavy losses on mismanagement by Texas Air. Labor leaders and company insiders agree that worker morale has plummeted to an all-time low and has contributed to a decline in customer service.

The airline has seen a record increase in firings, suspensions and grievances. At least 302 machinists were fired in 1987, compared to an average of 52 a year before the Texas Air takeover.

Eastern officials describe it as a much needed crackdown on past abuses, but union officials complain that the airline is conducting a campaign of intimidation.

Morale has dropped so low at Eastern that the pilots union decided to release an inspirational music video played to the tune of "We Are the World," the theme song for an African famine relief effort.

A pilots union spokesman said hundreds of disgruntled Eastern pilots have defected to other airlines and 1,000 others have applied for jobs with United Parcel Service, which is expanding its air delivery service.

Law on Lorenzo's Side

Analysts say that if Eastern does squeeze out major wage concessions this year, the airline is likely to sell its lucrative Northeast shuttle or transfer it to Texas Air.

The pilots union has threatened to call for a strike vote if Eastern gives up the shuttle, which has been valued at around $100 million.

Lorenzo has built Texas Air into the nation's largest airline company, but his hard-line anti-union tactics have largely alienated organized labor.

He took Continental into Chapter 11 bankruptcy in 1984, threw out union contracts and resurrected the carrier as a low-cost operator.

Nicholas Glaskowsky, a University of Miami economist, said changes in the bankruptcy laws prevent Lorenzo from applying the same strategy at Eastern. But he said Texas Air had plenty of leverage in its power to lay off workers and transfer planes.

Since taking control of Eastern, Lorenzo has reduced its work force to less than 34,000 from about 40,000.

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