Crippled Eastern Files for Bankruptcy

NEW YORK--Eastern Airlines filed for protection from creditors in bankruptcy court yesterday, the sixth day of a Machinists strike, blaming pilots for a "cash crisis" that paralyzed the nation's seventh-largest airline.

The move came a day after Eastern insisted such a step remained a last resort in the airline's effort to endure the strike, which had strong support from pilots and flight attendants and was costing Eastern an estimated $4 million a day.

The filing under Chapter 11 in U.S. Bankruptcy Court in New York is designed to give Eastern a reprieve from debts while it tries to restructure and extricate itself from the worst crisis in its 60-year history.

Eastern boss Frank Lorenzo blamed "the damage that has been caused by the pilots' union." He and Eastern President Phil Bakes insisted they intend to restore the airline in bankruptcy court, though in a smaller form.

"We tried mightily to keep Eastern from bankruptcy," Bakes said at a news conference. "We intend to operate our airline, make no mistake about that."

Bakes said Eastern faces a "cash crisis that can only be averted and stabilized by" turning to the bankruptcy court.

Union leaders lashed out at Lorenzo as a "robber baron." Machinists called for a public boycott of Eastern's sister airline, Continental, and said they would oppose Eastern's reorganization plan and any sale of assets.

Lorenzo and Bakes pledged that all creditors would be paid in full; shareholders would receive "fair value"; passengers would be protected; and as many employees as possible would return to work. Eastern had 31,200 employees before the strike.

John Peterpaul, a Machinists vice president, said Eastern filed for bankruptcy on payday "in a spiteful attempt to deny Eastern workers their last paycheck earned before the strike." Paychecks were frozen by the move.

John Bavis, head of the Eastern pilots union, said management continued calling pilots at home in hopes some will return to work. He said the effort would fail.

Henry Duffy, president of the Air Line Pilots Association, said he hoped the move meant Lorenzo is "finished" at Eastern.

The company, which has a staggering $2.5 billion in debt, has admitted it was taken by surprise when most of the 3600 Eastern pilots honored Machinists' picket lines, forcing Miami-based Eastern to shut down nearly all operations Monday and lay off 9500 non-union employees.

Union leaders long have said they believe Lorenzo wants to break them and tear Eastern apart. But Lorenzo would have a tougher time imposing lower wages at Eastern than he did when he reorganized Continental in 1983. Congress amended bankruptcy law in 1984 to require bankrupt companies to negotiate with unions and prove economic necessity before abrogating contracts.

Lorenzo stressed the filing covered only Eastern and not its parent Texas Air Corp., of which he is chairman. But yesterday, Sen. Howard Metzenbaum (D-Oh.) filed a bill to allow Eastern creditors to collect from the parent company.

"This bill would prevent Frank Lorenzo and any other airline buccaneers from using bankruptcy to escape their creditors and destroy their workers," Metzenbaum said.

Bakes and Lorenzo avoided specific comment on news that Lorenzo rival Carl Icahn had been asked by Eastern strikers to consider a buyout of Eastern.

The Chapter 11 filing would not prevent such a takeover but would force approval by the bankruptcy court as well as creditors, making such a transaction cumbersome. Unions would also have a say.