Texas Air Urges Court to Expedite Eastern Hearing

NEW YORK —  Eastern Airlines and its parent firm asked a federal bankruptcy court here Tuesday to give speedy approval to a $280-million settlement they have reached with the court-appointed bankruptcy examiner.

Examiner David I. Shapiro said in a report filed with the court last week that the parent, Texas Air Corp., had paid less than fair market value for certain assets it bought from Eastern before the airline entered Chapter 11 bankruptcy proceedings a year ago. Texas Air will pay the $280 million to Eastern, the report said, to avoid litigation of the matter.

Miami-based Eastern and Houston-headquartered Texas Air promptly criticized the report and said “serious . . . actions will be taken to clear the companies’ names.” They said the report contained “many errors,” was “fundamentally misleading” and that they had been “sandbagged.”

Even though Eastern’s president, Phil Bakes, said Tuesday that he still feels that way, the two companies said the court should expedite its consideration of the settlement.

Bakes said the court action is needed to “clear the air” and to confirm the fairness of the relationship between Texas Air and Eastern and of the transactions between them. He added that Texas Air has “consistently maintained its dedication to facilitating Eastern’s reorganization and return to health.”

Late Tuesday, it was learned that U.S. Bankruptcy Judge Burton R. Lifland has scheduled a hearing on the settlement for April 6.

The airline’s plan to reorganize and emerge from bankruptcy is subject to approval by Lifland and by Eastern’s creditors. Normally, a hearing on the settlement with Shapiro would not take place until after the reorganization plan was given final approval, but Eastern and Texas Air asked the judge to move it ahead.

Bakes said press reports last week on Shapiro’s 500-page report to the court “incorrectly” implied that the settlement was an admission of guilt. The executive said the settlement was an attempt to speed the process of getting the airline out of bankruptcy.

Shapiro said in his report that in 12 of the 15 deals he investigated in which assets were transferred from Eastern to Texas Air “there is sufficient evidence to warrant the bringing of charges that the transactions provided Eastern with less than fair consideration.” But he did not say they were illegal.

Bakes cited a letter written Monday by Shapiro to Rep. Thomas S. Foley (D-Wash.), Speaker of the House of Representatives, in which Shapiro expressed concern that his report had been misinterpreted. Specifically, he said, he had not found that Texas Air had improperly diverted assets from Eastern.

In a telephone interview Tuesday after the Eastern news conference here, Shapiro, a lawyer in Washington, said, “I stand by my report. If anybody has any complaints, let them take it up with the judge.”

Bakes, backed at the news conference by five outside directors of the airline, insisted Tuesday that the transactions entered into by Texas Air and Eastern had been of “tremendous benefit to Eastern.” He added that commonly owned companies, especially those in the same industry, should work together for mutual benefit. Texas Air also owns Continental Airlines.

One source close to the Eastern bankruptcy situation, who asked not to be identified, said the airline--in holding the news conference--was simply seeking another forum to say that it had done nothing wrong in moving assets from one entity to the other.

“They are just posturing,” he said.