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Prospects Appear Dim for Ailing Eastern Airlines : Bankruptcy: The carrier still faces $1-million-a-day losses and 'murderous competition.' Martin Shugrue, the new trustee, has a big job on his hands.

April 20, 1990|ROBERT E. DALLOS and BOB BAKER | TIMES STAFF WRITERS

NEW YORK — Martin R. Shugrue Jr., a former naval aviator and commercial airline pilot, today begins the toughest mission of his life. As the newly appointed special trustee of Eastern Airlines, he's been assigned to fly the ailing carrier out of its woes.

Mounting competition, low labor morale, steady losses, a devastated image and an aging fleet are just some of the factors that make Eastern's outlook very dim--despite the vow of the bankruptcy judge who appointed Shugrue that Eastern will not be sold off piece by piece.

Shugrue "can't pull rabbits out of a hat," said Nicholas A. Glaskowsky, professor of management and logistics at the University of Miami and an expert on Eastern. "He can't perform miracles. Eastern is losing between between $1.5 million and $2 million a day. Its fares are almost being given away and its competitors are matching them. The competition is murderous. There is a real possibility that Eastern Airlines will ultimately have to be liquidated."

One aspect of operating under a trusteeship that increases the Miami-based company's odds of survival is that under Shugrue it has a better chance of smoothing out its differences with its unions.

Union leaders indicated on Thursday a willingness to work with Shugrue. Some also say a buyer for Eastern may emerge now that the airline is no longer controlled by Texas Air Corp.'s controversial chairman, Frank Lorenzo, a man who some say is hard to negotiate with.

The bleak forecasts for Eastern greeted Shugrue on Thursday, the day after U.S. Bankruptcy Judge Burton R. Lifland issued what he termed an "extraordinary" order to take Eastern out of Lorenzo's hands and put a new captain in Eastern's cockpit.

Texas Air Corp., Eastern's now former parent, said Thursday that it would not appeal the decision.

"Texas Air and Eastern's management will cooperate with trustee Martin Shugrue," the two companies said in a joint statement. The statement said that while the companies did not feel that a trustee was warranted, they were "gratified" that the judge had made clear that the company will be "reorganized and not broken up into pieces."

At the same time, Philip J. Bakes, president of Eastern, sought to assure the carrier's 18,000 employees of its continued operation. "The daily operation of our airline will continue as normal, today, tomorrow and in the future," he said in a statement to Eastern's work force.

Bakes' statement came less than 24 hours after he testified in bankruptcy court that there would be a mass exodus of workers if a trustee were appointed.

Shugrue, who was fired last year by Lorenzo as president of Texas Air's Continental Airlines unit, later was considered a candidate to head Eastern when former baseball commissioner Peter V. Ueberroth tried unsuccessfully to buy the airline. Which of Eastern's current managers Shugrue retains remains to be seen. In a statement made through Eastern, he indicated that he would retain most of them.

"I am pleased," he said, "to announce that I have received strong pledges of cooperation from Eastern Airlines' management . . . in my efforts to successfully reorganize Eastern and restore it to a position of pre-eminence and profitability in the airline industry."

But the current consensus among airline analysts, academics who specialize in transportation, labor leaders and travel agents is that Eastern won't make it despite the Shugrue appointment and ousting of Lorenzo.

And it won't be because the 49-year-old Shugrue will lack the clout. "He'll have more powers than the typical chief executive officer of a major American corporation," said the University of Miami's Glaskowsky. "He will be responsible only to the court. And he has a responsibility to the creditors of the company. The shareholders will be out of the picture."

Others agreed. "I don't think the appointment of a trustee is going to make an awful lot of difference," said Richard A. D'Aveni, professor of corporate strategy at the Amos Tuck School of Business at Dartmouth College. "The fundamental operating and strategic factors are not going to change if you have a trustee or not. The only thing that might change is who gets a share of the pie."

Western's unions now face the challenge of orchestrating a back-to-work agreement that preserves the unions' pride and saves Eastern enough money to make it viable.

Leaders of the International Assn. of Machinists, whose strike against Eastern 13 months ago triggered the financial crisis that threw the airline into bankruptcy, acknowledged that the odds of saving the airline have been hurt by the passage of time.

"What we're doing is taking one breath and saying, 'Hot damn!' (to celebrate Lorenzo's ouster) and then we're saying: 'What the hell do we do now?' " one machinist strategist said.

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