Can Eastern Airlines be sold?
Many players in the current struggle over Eastern, ranging from the striking unions to the shareholders of Texas Air Corp., Eastern's parent company, have assumed that the answer is yes.
But Eastern could have financial obligations that add up to $1 billion. That, combined with millions of dollars in losses being added by the strike, could make finding a buyer a difficult task.
The question of Eastern's value has taken on new immediacy with reports by industry officials that Texas Air has retained an investment banker to seek a buyer for Eastern.
The investment banker is Drexel Burnham Lambert Inc., whose respected airline analyst, Michael Derchin, has long been an advocate of the theory that Eastern could, and would, be sold.
On Feb. 10, he forecast that the sale would be made within two months.
While some of the unions have assumed Eastern could be sold as an operating airline, there is reason to doubt any other existing airlines would be interested in the transaction, at least at a price that would bring in any cash for Texas Air.
A liquidation of the airline, on the other hand, would run the risk of losing jobs for union members and of leaving Eastern with proceeds that were inadequate to pay off its bondholders and preferred shareowners.
This would leave nothing for Texas Air, which owns all the common stock of Eastern.
In a worst-case scenario, it is even possible to envision Texas Air being left with a substantial part of Eastern's liabilities, which cover such things as unfunded pension obligations and health-care benefits for retirees.
Those pension obligations are put at $320 million by Eastern's president, Phil Bakes, but are estimated at $750 million by the Pension Benefit Guarantee Corp., the federal agency that was created to assure that workers receive pension benefits.
The difference is based partly on assumptions regarding how rapidly assets in the pension fund will grow until workers reach retirement age.
Were the pension funds to be terminated and annuities purchased to cover the pension benefits to be paid after employees reach retirement age, the cost would probably be closer to the government's estimate than to Texas Air's, said one pension consultant, who asked not to be quoted by name.
The other big liability is the cost of employee health-care benefits for the airline's retirees, which one Wall Street analyst estimates at about $300 million.