The chairman of Texas Air Corp. Friday defended a decision by the company's subsidiary, Eastern Airlines, to lay off 4,000 employees and cut service as a way to ``stabilize the company'' by cutting losses. Frank Lorenzo, testifying at a federal court hearing on Eastern's plans to eliminate service to 14 cities, said the layoffs and schedule changes were a necessary step to save the financially troubled carrier. ``If Eastern's management is not permitted to take the actions to save this company, then Eastern may run out of cash,'' Lorenzo said, rejecting suggestions by union attorneys that he was trying to bust organized labor at Eastern by transferring the carrier's assets to Continental Airlines, another Texas Air property. Three labor unions that represent Eastern employees have challenged the plans and obtained a temporary restraining order that bars the airline from making layoffs. U.S. District Judge Barrington D. Parker is holding hearings on the union's bid for a permanent injunction. Lorenzo defended the proposed cutbacks ``as an attempt to stabilize the company ... and decrease the losses.'' Eastern currently is in federally supervised contract negotiations with two of its unions, the Association of Air Line Pilots and the International Association of Machinists and Aerospace Workers. Lorenzo denied suggestions that Texas Air planned to merge Eastern's operations into Continental. Union attorneys produced a draft of a speech that Lorenzo was to give to Japanese investors in 1986 after Texas Air had purchased Eastern. The draft said that the purchase of Eastern gave Texas Air leverage over the unions. ``Eastern's airplanes can be repainted and moved over to Continental where they will be flown by non-union pilots,'' the speech draft said. But Lorenzo said the draft was prepared by an investment banking firm. It was unclear from the testimony if Lorenzo ever delivered that portion of the speech.