Sky's the limit for Donald Trump. Real estate mogul agrees to buy Eastern's lucrative shuttle
Almost according to script, Eastern Airlines is now being dismantled and sold - piece by piece. Act One, of what analysts say may become a drama in several scenes, occurred yesterday. Texas Air chairman Frank Lorenzo agreed to sell the East Coast air shuttle, the highly profitable jewel in the tarnished crown of Eastern Airlines, to New York real estate developer Donald Trump.
For $350 million, the acquisitive Mr. Trump gains a small, but profitable airline serving Washington, New York City, Boston - and now Atlantic City, N.J. Trump owns casinos in Atlantic City, which he expects to be more profitable once the renamed ``Trump Shuttle'' begins service there.
For Mr. Lorenzo, the move is a strategic one that fulfills two immediate purposes, financial and industry analysts say. He gains cash with which to weather any future strike by unions, and the deal dilutes the bargaining strength of the Air Line Pilots Association and the International Association of Machinists. IAM spokesman Al Hansen says ``before the day is out we'll be in court'' trying to block the sale to Trump.
The seemingly unflappable Lorenzo is a central figure in the continuing labor strife between Eastern management and its unions. Lorenzo's Texas Air is the airline holding company that controls both Eastern and Continental Airlines. And Lorenzo has promised to make what remains of Eastern profitable, or sell the pieces. Some analysts think Lorenzo would prefer to deal with a strike. If one occurred, Lorenzo could proceed with his game plan and shift Eastern passengers over to Continental, many of whose routes parallel Eastern's. He would soon know whether Eastern could be made profitable.
With the sale to Trump, ``he brings the whole thing to a head, which is what he's trying to do,'' says Robert Joedicke, an airline analyst with Shearson Lehman Hutton, a New York brokerage. ``Lorenzo does not like stalemates. He thought he'd have a strike by March or April.''
``It matters not who tries to run Eastern airline, there will have to be significant cost reductions. This is not a new song, it's reality,'' says Frank Borman, former president of Eastern.
Many in the financial community consider Lorenzo a financial genius who acquired Eastern primarily for its assets - including its computer reservation service, air shuttle, dominance of the East Coast market and Caribbean air routes.
One of Lorenzo's first moves upon acquiring Eastern was to sell its System One reservation system for $100 million to Texas Air. In 1987, Eastern paid $150 million for the use of computer reservations services it once owned. That year, the airline lost $181 million.
``That reservations system was probably worth a half billion, and [Texas Air] got it for $100 million,'' says Barry Gordon, president of National Aviation & Technology Corporation, a mutual fund. ``It's just part of the slow selling-off process.''