Eastern grounded but company lives on Tying up loose ends, dealing with creditors

January 22, 1996|By COX NEWS SERVICE

Five years after Eastern Airlines stopped flying, the company is still very much alive.

There are no pilots, flight attendants or mechanics. No blue-and-silver jets filled with passengers. Just 40 administrative workers in the threadbare Miami headquarters tower, with 7,000 boxes of paperwork left to do.

"It's difficult for some people to comprehend that there's still an entity around," said John Sicilian, a lawyer leading the effort to tie up loose ends. "Any time you have a 60-year-old institution that was as asset-laden as Eastern, it takes a long time to settle affairs."

Eastern grounded its last planes in the predawn hours of Jan. 19, 1991. The airline had spent 23 months and $1.5 billion trying to recover from a strike by pilots, machinists and flight attendants that forced it into bankruptcy court. By the end of that epic struggle, Eastern had come to symbolize the worst of labor-management conflict and a flawed bankruptcy system.

But it wasn't bad business for everyone: Lawyers and other professionals walked away from the bankruptcy case with fees totaling more than $95 million.

Since Eastern's shutdown, Mr. Sicilian and his predecessor, Martin Shugrue, have worked to recover as much value as possible for Eastern's creditors and retirees by selling assets and settling lawsuits.

Assets worth about $1 billion have been sold at a recovery rate far higher than in most airline bankruptcies.

Last February, about 70,000 unsecured creditors -- each owed less than $100,000 -- were paid about $200 million, or about 11 cents on the dollar, for their claims. About $19.4 million of that went to 26,000 former Eastern employees.

About 80 large unsecured creditors remain -- an odd assortment of companies ranging from an investment banking firm to paper towel and uniform suppliers "who did business with Eastern and happened to be in the wrong place at the wrong time," Mr. Sicilian said.

Those large creditors hope to eventually receive 13 or 14 cents on the dollar for their $1.1 billion in claims. So far, they have received 6 3/4 cents on the dollar.

About half of the money recovered from Eastern's estate goes to the Pension Benefits Guaranty Corp., a quasi-governmental agency that took over the airline's pension plans.

"To the extent that we continue to do a good job, theoretically, it goes to the benefit of Eastern retirees," Mr. Sicilian said, adding that about $45 million went to the agency in the past year.

Additionally, $50 million has gone to pay for health insurance coverage for Eastern retirees.

When will it all end?

"It's very difficult to determine," Mr. Sicilian said. "We have so many outstanding obligations over such a long period of time."

Assets worth $30 million to $100 million remain to be sold, and many lawsuits are pending.

All of Eastern's airport property around the world is gone, and Mr. Sicilian and his assistants will soon move out of the old headquarters -- known as Building 16 and the "ivory tower" -- beside Miami International Airport so it can be remodeled into local government offices.

Eastern still owns a 150,000-square-foot building that was headquarters to its System One reservations operation. Mr. Sicilian is working with a developer in the hope that it can become home to the U.S. Army's Southern Command, which is moving to Miami. "This would be a multimillion-dollar deal for us," he said.

Could Eastern fly again?

While he might be interested in selling the famous Eastern name and blue logo to some upstart airline entrepreneur, Mr. Sicilian has no plans to try to restart the airline. Mr. Shugrue floated that idea in 1994, but was unable to raise enough new capital.

"Eastern continues, because it has a very strong brand name, to evaluate all sorts of possibilities," Mr. Sicilian said, adding that he doesn't want to give anyone false hope. "There are so many people out there who still bleed blue."

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