Eastern Airlines cleared a critical hurdle yesterday in its attempt to reorganize under bankruptcy laws by reaching an agreement to have Pension Benefit Guaranty Corp., a federal agency that oversees pension plans, take over the payment of the retirement benefits of Eastern employees.
But to satisfy the agency's concerns, Continental Holdings Inc., the parent of Eastern Airlines, must secure the payments with its assets -- a liability that some officialssaid could total more than $500 million-plus interest because of a shortage in the financing of the pension plan.
This could strain Continental's finances when the carrier is making progress toward building itself into one of the nation's leading carriers.
Continental's liability could beless, however, depending upon how much the assets in the pension fund earn from interest on investments.
Martin R. Shugrue Jr., Eastern's court-appointed trustee, called the settlement yesterday a "major milestone on the way to the reorganization of Eastern under Chapter 11."
Since he took over the airline in April, Mr. Shugrue has struggled to win back customers by offering low fares and promotions to stem the carrier's losses.
The agreement is good news for the 51,000 former and current Eastern workers, whose pensions are now guaranteed in full.
James B. Lockhart, the executive director of the federal pension agency, said yesterday that the settlement would "protect retirees and the insurance program from one of the largest potential losses we faced -- almost three-quarters of a billion dollars before today's agreement."