Eastern Says It’s Discussing Merger With Northwest

NEW YORK —  Eastern Airlines’ court-appointed trustee confirmed for the first time on Friday that the struggling carrier is holding active merger talks with Northwest Airlines.

Martin R. Shugrue Jr. told reporters after meeting with the airline’s unsecured creditors that he had met once with Northwest Chairman Alfred A. Checchi and plans further sessions.

“The talks are substantive and quite serious,” Shugrue said. “They have expressed a serious interest in looking at Eastern, and we have expressed a willingness to explore what a combination would look like and under what terms it could be accomplished.”

But Shugrue cautioned that “we do not have a deal and no proposal has been made. . . . I think a sweet deal with Northwest would be a very good thing for us to entertain.”

Northwest declined to confirm on Friday that such talks are under way but noted that Checchi was examining ways to expand the Minneapolis-based carrier.

Separately, news reports indicated Friday that several Eastern supervisors will be indicted on charges of covering up maintenance violations in the late 1980s.

Speculation that Eastern and Northwest were in merger talks arose earlier this month when the International Assn. of Machinists said it planned to meet with Checchi to determine if Eastern’s labor problems could be resolved.

Shugrue, named Eastern’s trustee in April by the bankruptcy court supervising its reorganization under Chapter 11 of the U.S. Bankruptcy Code, said the carrier had been approached by other unidentified suitors, including airline and nonairline entities.

He said he did not intend to sell Eastern’s assets piecemeal, adding that it would be the “wrong way.” In any merger, he said, he would want to retain all of the Miami-based airline’s employees.

Shugrue said a merger is not the only alternative for Eastern. He said there was a “50-50 chance” that the airline could remain independent.

The executive said he told Eastern’s unsecured creditors that the carrier would have an operating profit in 1991 and a positive cash flow. The airline would still show a substantial loss this year, he said, but the deficit would be substantially less than last year’s loss of $852 million.

Eastern has not “assumed any specific reorganization plan, but it is our objective to develop one by the end of the year,” Shugrue said. He added, however, that there are no specific deadlines.

Regarding the possible indictments for maintenance violations, NBC Nightly News reported Friday that federal regulators will file the criminal charges. The news program said Eastern lawyers will meet with prosecutors Monday to decide whether to fight the charges, which involve doctored aircraft safety and maintenance records at LaGuardia and Kennedy airports in New York and at Eastern’s hub in Atlanta.

The New York Daily News reported Friday that the yearlong probe into the violations should be wrapped up by the end of July.

The paper said the carrier’s No. 2 executive, Joseph Leonard, is no longer expected to be indicted. Such an indictment could have been a serious blow for Eastern, since it would establish that top management was directly involved.