Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 19, 1990 TAG: 9004190603
SECTION: BUSINESS PAGE: B7 EDITION: EVENING
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
"Justice has finally been served by stopping the most renowned corporate pirate of the past decade," said Michael Flynn, president of a union local representing about 2,000 striking Machinists in Atlanta.
Judge Burton Lifland late Wednesday granted the request of Eastern's unsecured creditors, who sought a trustee because of frustration over the carrier's mounting losses and its plans to cut payments to creditors.
"The flying public's interest must at all times be taken into account," Lifland told a packed courtroom. "It's time to change the captain of Eastern's crew."
The judge appointed as trustee Martin Shugrue, a pilot and airline executive who formerly worked for Lorenzo, chairman of Eastern parent Texas Air Corp.
Shugrue, a former president of Continental Airlines, resigned last year under pressure from Lorenzo. Texas Air also is the parent of Continental.
Lorenzo left the courtroom without comment before the decision. Eastern President Phil Bakes said he did not know if the company would appeal.
Miami-based Eastern has been in Chapter 11 bankruptcy reorganization since March 1989, after a strike by its pilots, Machinists and flight attendants crippled its operations.
The unions had sought a trustee from the start, claiming that Lorenzo was bleeding Eastern by transferring its assets to non-union Continental and Texas Air, and they had heaped practically all their hostility on him alone.
Dick Nellis, a representative of Eastern's pilots union, said he was "overjoyed" at the ruling but added: "It is really very sad that it has taken so long for the system to recognize why the real Eastern employees left the property in the first place.
"Literally, there have been thousands of careers that have been shattered and billions of dollars of Eastern Airlines assets wasted," he said.
Earlier, Bakes testified that appointment of a trustee would prompt employees to quit, hurt business further and heighten the chance Eastern eventually would have to be liquidated.
E.J. Breen, a spokesman for the pilots union in Miami, said the appointment of Shugrue would give Eastern another chance to succeed.
The appointment of a trustee in a bankruptcy case is rare, legal experts observed.
Lifland said naming a trustee "is an extraordinary remedy," but he cited Eastern's staggering losses of more than $1.2 billion since the bankruptcy filing, which he said had "wiped out the parent's equity."
The judge also noted numerous instances where the company had projected overly optimistic results and then cut the amount it proposed to repay creditors in successive reorganization plans.
The unsecured creditors, who are owed $980 million, had repeatedly emphasized that they did not seek a liquidation of the airline. Instead, they asked for a trustee to operate Eastern and perhaps seek a buyer for it.
Lifland also said during the four-day hearing, which began Friday, that if a trustee were appointed it would be someone to operate rather than liquidate the airline.
In closing statements, Eastern's court-appointed bankruptcy examiner used strong language to describe the carrier's losses and Lorenzo's management style, although he did not formally take a position on the trustee request.
Examiner David Shapiro told the court that other companies in Chapter 11 had never been allowed to continue operating with such big losses and with such a total lack of confidence from creditors.
"Can Mr. Lorenzo now be allowed to wipe out the creditors' interest? Can anyone blame the creditors for being outraged?" he said. "Mr. Lorenzo only starts negotiating at the very last minute. . . . He's just a tough guy to make a deal with."
Because of Lorenzo's style, Shapiro added, it would be easier to sell Eastern under a trustee than under current management.
by CNB