NEW YORK — Billionaire real estate magnate Donald J. Trump said Monday that he is no longer prepared to pay crippled Eastern Airlines $365 million for its lucrative Northeast Shuttle.
Within hours, Eastern told Trump that it had received other "substantial unsolicited offers" for the shuttle, which has two routes: New York-Washington and New York-Boston. A statement issued by the airline said it is its "obligation to all of its constituencies--creditors, shareholders, employees and the communities and traveling public we serve--to ensure that any shuttle sale is completed on the best possible terms for Eastern."
It said it would solicit offers from other potential buyers.
Trump, who agreed last October to buy the shuttle, told Eastern Chairman Frank Lorenzo in a letter that his decision was a result of Eastern's current problems--a strike by its machinists and pilots and its subsequent filing for protection from creditors under federal bankruptcy laws. "The shuttle has become an entirely different business in that its market share and customer base may be lost for some time to come, if not forever," the letter said.
Worth Up to $125 Million
In a return letter to Trump, Barry P. Simon, senior vice president of Eastern, said one offer came in as recently as Monday. Eastern declined to identify any of the interested parties.
However, one informed source, who declined to be identified, said millionaire Los Angeles businessmen Marvin Davis is one of those interested in the shuttle. Another is Jay Pritzker, the Chicago hotel owner who once owned a major share of Braniff Airlines. Neither Davis nor Pritzker could be reached for comment.
Trump said in an interview Monday that the shuttle, which operates 62 flights daily, is now worth $100 million to $125 million less than he originally agreed to pay for it. "I bought an asset and it was a different asset three weeks ago than it is today. It is an asset that has been decimated."
The flamboyant Trump, who is known for stamping his name on just about everything he owns, had planned to call the airline the Trump Shuttle. The shuttle operation is widely used by business travelers during the week, but Trump planned to use it on weekends to carry gamblers to his two Atlantic City, N.J., casinos.
"Last fall, I agreed to buy a fully operational shuttle which held nearly 60% of the market, commanded the principal loyalty and confidence of business travelers, and provided excellent service to the customer," the Trump letter said. "However, today the business is worth considerably less than the price negotiated last fall and it will take a great amount of time and a great deal of money to bring the shuttle back to the position which it previously enjoyed."
The sale of the shuttle had passed all required government hurdles and was to have been finalized soon. "I could close this in a week," Trump said, "if they could make a deal on the price." In his letter, he emphasized that he is still interested in acquiring the shuttle--but only at a lower price.
Even before the machinists walked out at Eastern on March 4, the airline had lost much of its Northeast shuttle market share to its rival, the Pan Am Shuttle. Pan Am, which claims to have had a 48% share of the Northeast shuttle market before the strike, declined to comment on Trump's action Monday. It says its planes are flying full and that it has had to add many extra sections.
The shuttle is one of Eastern's few profitable operations. It is said to yield about 38 cents per passenger revenue mile, compared to an average of 12 to 16 cents for the airline industry as a whole. (To record a revenue passenger mile, an airline must carry one paying passenger one mile.)
Eastern's shuttle is valuable also for the gates it owns at New York's LaGuardia Airport and Washington National Airport and for its landing slots, which are limited at the two airports.
Some analysts said Trump is simply trying to take advantage of Eastern's troubles. "I think he is posturing himself," said Raymond Neidl, an analyst with McCarthy, Crisanti & Maffei, a New York stock brokerage. "I think that Trump is being Trump. He wants to see if he can get a better bargain. Maybe it will work and maybe it won't."
Eastern has tried various gimmicks to lure people to the shuttle since the strike began. For example, it cut fares to $12 one-way for one weekend. And it tried to appeal to business travelers for a time by cutting weekday one-way fares to $49 from $99.
On Monday, it came up with another, saying that it would return fares to any travelers whose first-section flights depart more than five minutes late. The airline operates second sections of scheduled flights once the first section is full.
In another development Monday, a federal judge in New York filed a preliminary injunction barring workers at four New York commuter railroads from honoring picket lines of Eastern workers if they were to be set up. The effect of the orders will be to keep the airline strike from also shutting down the railroads.