TIME: Almanac 1993/TIME Almanac 1993.iso/time/080690/0806208.000

Text File | 1992-08-28 | 3.8 KB | 86 lines

                ·                                                              BUSINESS, Page 48

Skeletons in Eastern's Hangar


Criminal charges of poor maintenance may be the final blow


    Advertisements usually rely on persuasion rather than
outright pleading. Not this summer's TV campaign starring
Martin Shugrue Jr., the macho court-appointed trustee of
bankrupt Eastern Air Lines. In the latest spot Shugrue, an
intense Jack Nicholson look-alike, touts the airline's virtues
and exhorts would-be passengers, "We're there! Try it!"

    Getting people to fly Eastern became an even more daunting
task last week when a federal grand jury in Brooklyn indicted
the company and nine of its managers for a conspiracy that
involved falsifying repair records and failing to maintain its
aircraft. The 60 counts are the first criminal charges for poor
maintenance ever leveled against an airline. They cover a
period from 1985 to October 1989, six months before Shugrue
took command from union-buster Frank Lorenzo, head of Eastern's
parent, Continental Airlines Holdings. The indictment is a
major blow to the trustee's struggle to revitalize the airline,
which has been losing more than $1 million a day since a
machinists' strike began last year.

    In announcing the charges, U.S. Attorney Andrew Maloney
contended that upper management forced underlings "to keep the
aircraft in flight at all costs" at three major airports: John
F. Kennedy International and LaGuardia in New York City and
Hartsfield International in Atlanta. Many charges involve an
illegal practice known as pencil whipping, or signing off on
work that has not been performed. Mechanics allegedly failed
to perform maintenance on cockpit gauges, landing gear, radar
and fuel systems. While no accidents resulted from the
neglected work, "thousands of innocent passengers may have been
put at risk every day," Attorney General Dick Thornburgh
declared.

    Eastern contends that the violations have long since been
remedied and that it now operates a safe airline. The Federal
Aviation Administration, which has fined the company more than
$12 million since 1987, agrees.  Moreover, Eastern officials say
the airline is being victimized by malicious strikers who have
made exaggerated claims in grand-jury testimony, as well as by
politicians and prosecutors hungry for scapegoats. "The U.S.
Attorney has explained to us that Eastern is being used to send
a message to the airline industry," complains Eastern spokesman
James Ashlock. But critics of Eastern ask why, if the airline
is earnest, it has failed to discipline any of the nine men
named in the indictment, seven of whom were still employed as
of last week.

    Whatever the prosecution's outcome, few airline experts
expect Eastern to lure enough business travelers to remain
independent. The company will lose at least $500 million in
1990, and is currently filling 63% of its seats on its 800
daily flights -- up from 53% in May but far below the 80%
needed to break even. Moreover, the recent gain is due more to
deep discounting than to Shugrue's aggressive ad campaign.

    One suitor for Eastern's planes and gates is Northwest
Airlines, whose chairman, Alfred Checchi, is a friend of
Shugrue's. Will the indictment frighten him off? Not likely.
"The die is cast. Eastern has a limited life," says analyst
Robert McAdoo. "The indictment may even scare creditors enough
to enable a company like Northwest to cut a sweeter deal."
Though Eastern's absorption by a rival would increase airline
concentration and reduce competition further, some travelers
seem untroubled. Says Christopher Witkowski, director of the
Aviation Consumer Action Project, a group formed by Ralph Nader:

deserve the faith of the flying public. It will have broken the
public trust."


By Richard Behar.