NEW YORK — Eastern Airlines' unsecured creditors voted unanimously Tuesday to turn down the carrier's latest reorganization plan and ask a bankruptcy judge to appoint a trustee to sell the airline.
The move came after Eastern reportedly told the creditors--which range from food caterers to engine manufacturers--that it was prepared to pay only 25 cents on the dollar on its nearly $1 billion in debt. When the carrier first declared Chapter 11 bankruptcy on March 9, 1989, Frank Lorenzo, chairman of Eastern and its parent Texas Air Corp., vowed to pay creditors 100 cents on the dollar.
But Eastern has lowered the amount on several occasions, most recently last week when it said it could not pay even 50 cents on the dollar. At the time, the airline said it would lose $330 million in 1990, more than twice what it had earlier predicted.
In the early days of the bankruptcy and until fairly recently, the creditors appeared to have been in Eastern's corner. But Tuesday, the creditors' committee authorized its attorneys to ask the U.S. Bankruptcy Court to appoint a trustee to sell the airline.
Robin Matell, spokesman for Eastern, at first declined Tuesday night to comment on the creditors' action because, he said, such deliberations are "confidential" but then said "the plan presented today serves the creditors far better than any alternative action including sale or liquidation of the airline, both of which are exceedingly remote."
Analysts said Tuesday night that a sale of the airline would be critical for Texas Air, Eastern's parent.
"The issue is whether the word 'sell' means that they will really sell or if they can't find an outright buyer for Eastern if they would be willing to liquidate the company," said Paul Karos, airline analyst with First Boston Corp., a New York brokerage.
He added that in a liquidation Texas Air would be responsible for all or some of the liability for Eastern's under-funded pensions. The Eastern pensions are estimated to be under-funded by between $400 million and $1 billion.
"If they sell, the liability goes to the new owner and could be paid off over a very long time. Any buyer will require a significant reduction in the liabilities associated with the company.