Air Transport World

Will Texas Air go the way of Texas real estate?

The chickens are coming home to roost at Texas Air Corp., parent of Eastern and Continental Airlines and SystemOne Corp. The recent decision by Bankruptcy Court Judge Burton Lifland to place the operation of Eastern in the hands of a court-appointed trustee is only the latest in a series of events that suggest the holding company is losing control of its future. Contributing to its problems is the fact that the financial environment has changed. Junk-bond financing, a staple of the Texas Air's diet, has dried up. Hostile takeovers and excess leverage are out. Equity is in.

As much as was Drexel Burnham Lambert, TAC is a product of the borrow-now-refinance-later school of business philosophy that emerged in the 1980s. With debt seen as the lazy man's way to growth, Texas Air had little trouble borrowing the millions of dollars necessary to purchase Continental, People Express, Frontier and Eastern and a host of smaller commuter/ regional airlines.

Critics who pointed out that Texas Air never had achieved the necessary level of profitability to repay all the money it was borrowing were said to be out of touch with the 1980s' corporate mantra: That cash flow was a better measure of success and stability than was profitability. Texas Air, the experts pointed out, was awash in money generated through noncash items such as depreciation and could easily meet interest payments on its long-term debt while it sorted through its airline properties and made them profitable.

Continental no help

The problem is that Texas Air still hasn't made its airlines profitable and the cash is drying up just as many of the bills are coming due. Last year, the company reported a record airline-industry loss of $885. …

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