American Air To Buy Eastern's Latin Routes
December 20, 1989|By Carol Jouzaitis, Chicago Tribune
American Airlines, adding a Latin flavor to its growing overseas presence, said Tuesday it agreed to buy Eastern Airlines' Central and South American routes and other assets for $471 million.
The deal with Eastern's parent company, Texas Air Corp., gives American, the nation's largest carrier, routes to 20 cities in 15 Latin American countries.
In addition, American agreed to purchase the Miami-London route from Continental Airlines, Eastern's sister carrier, along with Eastern's routes to Toronto from Miami and Tampa.
American would also acquire landing slots at O'Hare International Airport as well as at airports in Washington and New York, and airport facilities in San Juan, Puerto Rico.
The sale is subject to approval from the government and federal bankruptcy court, where Eastern is in Chapter 11 reorganization.
Eastern would continue flying the routes until the sale is completed, which is expected to take about six months, Eastern officials said.
The deal underscores the increasing strength of the nation's biggest carriers and their ability to pick up valuable assets from struggling carriers such as Eastern and Trans World Airlines, which are selling parts of their operations to raise money.
Only a day earlier, American said it would pay $195 million for TWA's Chicago-London route and airport facilities at O'Hare.
As part of the Eastern deal, Texas Air Corp. agreed to drop a $1 billion antitrust lawsuit against American's computer reservations system, Sabre.
While expanding its Miami hub, American is continuing to build its sizable trans-Atlantic network and service to the Orient.
The Eastern deal "will allow our company to continue building our international network," said American Chairman Robert Crandall. "It will make the United States a stronger competitor in Central and South America by linking that region to American's extensive route system."
The sale means a significant cutback for Eastern in Miami, its longtime home base. Eastern is expected to focus on Atlanta as its major hub.
Eastern's retrenchment in Florida would be a shot in the arm to another troubled carrier, Pan American World Airways, which has been expanding in Miami.
Eastern officials told creditors Monday the carrier planned to emerge from bankruptcy at about two-thirds its pre-strike capacity. The airline filed for bankruptcy in March, shortly after its machinists union went on strike.
American faces an uphill battle rebuilding Eastern's Latin American division.
Kevin Murphy, analyst with Morgan Stanley & Co. in New York, noted that Eastern's Latin American operation has been losing money for years and lost a lot of customer good will during the strike.
"American is spending close to $500 million on something that isn't making any money," Murphy said. "It probably won't see a return on its investment until 1990."
Charles Bryan, head of Eastern's striking machinists, said his union would oppose the sale.
"The dismantling of Eastern is an absolute atrocity," Bryan said.
"There are tremendous antitrust problems, and the Justice Department should be outraged."
Analyst Murphy said he didn't expect the deal to raise significant antitrust concerns in Washington.
"There could be some problems with market share concentration in Miami and San Juan. But American could deal with those by selling some gates in those cities," Murphy said.
