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Ailing Eastern to Cut Jobs, Flights, Some Service to West

July 23, 1988|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — Eastern Airlines, taking drastic action to cut mounting losses, said Friday that it will drop nearly 12% of its flights, eliminate as many as 4,000 jobs, stop flying to 14 airports--including those at San Diego, Las Vegas and Lake Tahoe--and sell an unspecified number of airplanes.

The airline said it will stop using Kansas City as a hub airport, although it will continue flying to the Missouri city. It will retain its other two principal hubs--in Miami and Atlanta.

Los Angeles International Airport will remain on Eastern's route list, but the number of daily flights will be reduced from a maximum of 11 to about seven, depending on the day of the week.

It is the second time in less than a year that Eastern, which is owned by the Texas Air holding company, has imposed major layoffs. It dropped 3,500 jobs last November, mostly in Atlanta and Miami.

Noting that the Miami-based airline has lost $1 billion since airline deregulation 10 years ago, Phil Bakes, president and chief executive, said at a news conference in Miami that the moves will allow the carrier to "become more competitive and more secure financially."

He said Eastern lost $182 million in 1987, $64.5 million (before gains on sales of assets) in the first quarter of 1988 and expects to report a "sizable loss" for the second quarter.

"No company can absorb losses of this magnitude indefinitely," Bakes said. He added that the cutbacks, which will go into effect Aug. 31, were "painful but, nevertheless, logical and necessary. Certainly it's not our preferred course. But there's really no other way."

He said Eastern's financial situation has deteriorated because of competition, high operating costs and the inability to come to terms with labor unions, from which Eastern seeks major wage concessions.

Airline analysts interviewed agreed with Bakes' assessment.

"This is not unexpected. The first thing Eastern has to do is to stop the hemorrhaging," said Timothy Pettee, airline analyst with the New York brokerage of Bear, Stearns & Co. "These cuts are necessary. There is not even an option."

Bakes said Eastern will reduce the number of daily flights it operates to 1,085 from 1,225. The 4,000 jobs, he said, will be cut by layoffs and by offering early retirement inducements. Of the total, 520 jobs will be eliminated in Miami and 300 in Atlanta. The company now employs about 32,000 workers.

Bakes said all job classifications will be affected, with the number of machinists on the payroll being cut to 8,618 from 10,500 and the number of pilots reduced to 3,234 from the current 3,700. Eastern's management staff will be cut by 30%, he said.

Most of the 14 airports being dropped are in the Western part of the country, and Bakes said Eastern is "going back to our roots." The airline's "60-year base in the North, East and South will remain solid," he said, insisting that it will continue to be a strong competitor in Boston, New York, Washington, Atlanta and Miami as well as in Central and South America.

Besides San Diego, Las Vegas and Lake Tahoe, airports that will lose Eastern service are Albuquerque, Minneapolis/St. Paul, Oklahoma City, Omaha, Dallas, San Antonio, Tucson, Tulsa and three in the Caribbean--in Martinique, Guadeloupe and St. Lucia.

Bakes said that the schedule changes will reduce the number of airliners Eastern needs and that the excess planes will be sold, providing needed cash. Eastern has 270 planes, but Bakes would not say how many of them will be sold.

He said that the company has been disposing of unneeded assets for some time and that "this has provided the liquidity and running room to keep the airline in business."

Since August, 1986, he said, asset sales and new borrowings have generated $560 million. "Had we not taken these steps," he said, "Eastern would have run out of cash."

The airline cut its passenger-carrying capacity by about 14% in the first six months of this year, he said, and traffic declined 19% during the period.

Bakes said the carrier is also asking for a waiver of a $105-million pension fund payment for 1987 that is due Sept. 15.

Eastern's unions were clearly unhappy about Friday's developments. Ron Cole, a spokesman for the Air Line Pilots Assn., told the Associated Press that the plan to close the Kansas City hub is "a real slap in the face to the loyal Eastern employees at Kansas City who made the hub a success."

Offers Early Retirement

Bakes explained that many of the flights out of Kansas City were to cities that Eastern will no longer serve. Therefore, he said, a hub operation will not be needed at Kansas City.

The airline president also acknowledged that "it's not easy to tell talented people to look for other jobs." He said Eastern would "do everything we can to minimize the number of actual furloughs by offering early retirement opportunities and severance payments."

Wally Haber, an official of Eastern's local of the International Assn. of Machinists & Aerospace Workers, said it was a "tragedy that Eastern was moving out of some cities it had served for more than 30 years."

He reiterated what Eastern's unions have said for a long time, that Frank Lorenzo, chairman of Texas Air, plans to divert Eastern's assets into those of non-union Continental Airlines, which the holding company also owns. "He is doing exactly what he said he would do when he bought Eastern--downsize Eastern and increase the size of Continental."

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