They're Already Lining Up Outside Continental's Gate

After word leaked that Maxxam Inc. Chairman Charles E. Hurwitz was readying a proposal to buy a chunk of Continental Airlines Inc., one might have expected the airline to murmur hopeful acknowledgment. It's not every day an investor steps forward with a possible $200 million in equity. But Continental had nothing to say about the offer. No comments either from lawyers for Continental's unsecured creditors, who will own the airline when it emerges from bankruptcy protection and who would dearly welcome a capital infusion.

Ungrateful? No--just playing it cool. The airline and its creditors are hoping the offer will get other bids flowing, say sources close to both. "There have been a number of parties kicking the tires and looking things over for some time," says one source close to the creditors. A Continental board member adds that Continental has boosted sales and profits strongly in recent months, and that has sparked a "feeding frenzy" of interest. "Now we have to see if someone else steps up to the plate," he says.

Although Los Angeles billionaire Marvin Davis and Fort Worth developer H. Ross Perot Jr. have expressed interest in Continental before, airlines top the list of possible bidders. Industry sources say British Airways PLC is looking. BA has been seeking a U.S. partner, which is one reason it earlier discussed a merger with KLM Royal Dutch Airlines, 20% owner of Northwest Airlines Inc..

SAS is another name dropped frequently. The Swedish carrier paid $100 million for 16.8% of Continental in 1990. That equity will vanish when Continental reorganizes, but SAS and Continental still have an agreement to feed passengers to each other's flights at Continental's Newark (N.J.) hub. An SAS spokesman says, "We don't see any need to make a further investment"--but some in the industry feel SAS might try to box out European rivals by buying new equity.

SNAGS. And don't rule out Northwest Airlines, which talked with Continental CEO Robert L. Ferguson III last fall about a merger. With $4.2 billion in long-term debt and a highly unionized labor force that might clash with nonunion Continental, Northwest is hardly an ideal candidate. But its domestic route structure would fit nicely with Continental's, and its Asian routes would be a valuable addition to Continental's growing global presence. Northwest Chairman Alfred A. Checchi remains acquisition-minded, say people close to him.

Any new investor would have to reckon with the Pension Benefit Guaranty Corp. The federal agency wants $700 million from Continental to fund the pensions of its defunct sister carrier, Eastern Air Lines Inc. The PBGC is trying to hold up Continental's proposed $290 million sale of its majority stake in Air Micronesia or limit what Continental can do with the proceeds.

Hurwitz isn't talking, but he faces other potential snags. A source close to the creditors says Hurwitz "wants too much for too little." Moreover, his reputation as a raider, acquired while building Maxxam's real estate and timber portfolio, and his friendship with former Continental boss Frank A. Lorenzo may not sit well with the rank and file.

Directors expect Hurwitz to present a formal proposal at Continental's Mar. 31 board meeting. It probably won't be the last bid the board hears. After all, if the economy and airline traffic continue to improve, so will Continental's prospects.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE