3/09/1989: Eastern Airlines Files for Chapter 11 Bankruptcy

DALLAS — Today, in 1989, a major American airline since 1926, Eastern Airlines (EA) filed for Chapter 11 bankruptcy protection in Federal Court.

In its early years, EA was led by WWI aviation ace Eddie Rickenbacker and was one of the "Big Four" domestic airlines founded by the Spoils Conferences of 1930. From the 1930s until the 1950s, it enjoyed a near-monopoly on air travel between New York and Florida, and it continued to dominate the market for decades afterward.

Amid the US airline deregulation period in the late 1970s and early 1980s, labor disputes and high debt loads strained the airline under the leadership of former astronaut Frank Borman. Frank Lorenzo acquired Eastern in 1985 and moved many of its assets to his other airlines, including Continental Airlines (CO) and Texas Air Corporation. 

The 1989 filing came as the airline attempted to survive its ongoing financial crisis. EA was in the midst of a crippling labor dispute, costing the carrier an estimated US$4m per day. Owner Frank Lorenzo had ordered the lockout of EA's engineers and ground crews.

Sympathy Strike

In sympathy, the airline's Pilots and Flight Attendants called a strike. Aside from its Boston-New York-Washington air shuttle and some Latin American flights, EA was forced to ground most of its domestic operations.

Speaking at the time, the airline's CEO Phil Bakes said, "The pilots' strike has not only paralyzed our operation and severely inconvenienced customers but has precipitated a looming cash crisis at Eastern that can only be avoided, regrettably, by bankruptcy protection."

Bakes hoped the bankruptcy would provide time to persuade its employees to return to work while preserving cash. However, its pilots and engineers planned to use the process to create their way of reorganizing the 60-year-old airline.

Selling Off Assets

The airline had a staggering US$2.5bn in debt. Its reorganization plans would see numerous assets sold. This included its lucrative Eastern Air Lines Shuttle being sold to Donald Trump, who renamed the operation the Trump Shuttle (TB) before selling it to US Airways (US) on April 7, 1992.

Lorenzo sold other parts of the business to Texas Air Holding Company and its subsidiary Continental Airlines (CO). However, these transactions were seen as detrimental to EA. 1990, the bankruptcy courts removed EA from Texas Air's control to turn around its ailing fortunes.

However, EA would never emerge from Chapter 11 bankruptcy. On January 19, 1991, the United States's third-largest airline was permanently grounded.

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