Hard Landing (61 page)

California indeed became a battleground between Crandall and Lorenzo, not only over passengers but over travel agents. Lorenzo dispatched salespeople to persuade travel agents to abandon Sabre (and United’s Apollo as well) and sign on with System One instead. Outraged, Crandall called the System One salespeople “
Lorenzo’s raiders” and chased Lorenzo from courthouse to courthouse trying to block Sabre agents from defecting to System One. Lorenzo in turn showered Sabre subscribers with cash, offering inducements and agreeing to pay any legal fees and damages they faced in switching networks. In time Lorenzo’s raiders would spend the breathtaking
sum of $250 million to entice travel agencies from rival reservation networks, an outlay that ultimately went down as more debt.

After buying AirCal and bringing in still more airplanes under the Growth Plan, American in November 1988 officially became the largest single airline in America, a position it had not held since 1961. Lorenzo still had more airplanes and more total market share than Bob Crandall, but his assets were divided between the two lobes of Texas Air. Crandall, by contrast, now controlled under a single
brand nearly 17 percent of the airplane capacity in the United States. United was a close second. Delta, having recently acquired Western Airlines, was third. At the same time, American was reporting the highest profits in the history of commercial aviation.

Crandall proudly referred to American’s industry-leading distinctions as “the trophy” during the annual conference of American’s sales executives. “All winners
hate to lose,” he told them, “and one of the marks of a consistent winner is a sharp ear for the footsteps of those who envy the trophy.”

He went on: “When do people feel good about their company and themselves? When they’re winning. I’ll tell you where low morale comes from. It comes from losing. How would you like to be working right now for Continental, or Pan Am, or TWA, or—God forbid—Eastern? Now
there’s
low morale. Why? Because they are losing.”

In fact the unions at Eastern cared much less about their position against American than about their position against their own sister company. Planes, people, routes, and a vital computer network had all been plucked from Eastern for Continental’s benefit, reducing jobs, promotion opportunities, and the asset base on which Eastern might hope to earn a profit. It was these asset transfers that finally provoked the unions into launching counteroffensives against Texas Air.

The pilots established a program called “Max Safety,” in which they flooded the flight line with brochures and stickers urging pilots to push to the limits of their discretion in holding back flights. “Better safe than sorry,” “Fly by the book,” “Take the time to be sure.” The economic toll was tremendous. Delays due to requests for
replacement altimeters increased 247 percent. Eastern’s red ink flowed faster.

Before long, with a
$2 million subsidy from ALPA headquarters in Washington, the pilots expanded their attack into the political arena. They carried preprinted cards addressed to the FAA and Department of Transportation on which they could detail individual safety problems observed on any aircraft. Washington was
inundated with postcards listing complaints ranging from the horrific (a
fire detection system left in “marginally acceptable condition” for more than three weeks) to the hilarious (“aircraft full of roaches”).

Charlie Bryan’s machinists, for their part, cast their lot with the flight attendants in a campaign to vilify Lorenzo in the public eye. As profound and emotional as the workers considered their fight, they recognized that the public might not easily be won over on issues of asset switching and wage cuts for $40,000-a-year baggage handlers. Thus, as detailed in a planning memo, the unions resolved to “
make Frank Lorenzo the issue—personalize the conflict to one between him (i.e., the man who’s the pillager of the American dream; the man who’d cut any corner to make a buck; the man who’s a brutal, unscrupulous corporate autocrat)—and us (ordinary working people, fathers and mothers …).”

The memo outlined a campaign to investigate Lorenzo (including the use of a “pro-labor ‘private eye’ ”), to pressure Merrill Lynch and other Lorenzo financial backers, and to whip up opposition in the Congress and through the media, all with the goal of ultimately forcing Lorenzo to sell Eastern either to its employees or to “an acceptable third party.”

Lorenzo’s likeness was printed on a poster behind the concentric circle of a gunnery target. “Stop Lorenzo” buttons and stickers spread like a virus. A Lorenzo “wanted” poster was printed.
Jesse Jackson got into the act, leading a crowd of cheering anti-Lorenzo demonstrators at Lorenzo’s 25-year reunion at Harvard Business School. The AFL-CIO organized a noisy demonstration against Merrill Lynch.

Before long the separate campaigns of the Eastern unions blended into a single orgy of hate against Lorenzo, and Congress began to take notice. Norman Mineta, the California Democrat who had provided a crucial swing vote in favor of airline deregulation partly at the behest of Phil Bakes, introduced a bill urging the Transportation Department “to conduct a
full investigation into the management of Texas Air Corporation.” The congressional opposition took on a bipartisan ring when the ranking Republican on the subcommittee, Newt Gingrich, also cast his lot with the union-backed legislative effort; his Georgia district encompassed Hartsfield Airport in Atlanta, around which lived a heavy concentration of Eastern union members.

For Lorenzo the far greater problem at Eastern remained the inertia
of the federal agency that was still blocking wage cuts for the machinists. Eastern was devouring cash with losses. To keep Eastern alive long enough to conduct the final confrontation with Bryan, Lorenzo had to find some more furniture to throw into the fireplace. Eastern, he announced, would sell the venerable Eastern shuttle. The buyer, on
extremely favorable terms, was Texas Air.

When the proposal to cleave the shuttle from Eastern landed at the Department of Transportation, it sent the agency’s legal department
into a stupor. The paperwork for the deal included a labyrinthine flowchart showing that Jet Capital, the personal holding company of Frank Lorenzo, was destined to receive 5 percent ownership of the shuttle, as a “fee” for having put the deal together. As they scratched their heads, the DOT people picked up
The Wall Street Journal
and read a page-one article about the financial “house of mirrors” at Texas Air, including an analysis of the cash that the parent company was “upstreaming” from its struggling airline subsidiaries. The following evening the DOT people tuned into ABC’s
20/20
for a broadcast on alleged safety infractions at Texas Air.

The Transportation Department had finally seen enough. In April 1988 James Burnley, the secretary of transportation, announced that the FAA would swoop down on every airplane in the Texas Air fleet for a “white glove” inspection. Financial investigators, meanwhile, would pore over Lorenzo’s records and take depositions from all his top aides, with the objective of deciding whether Texas Air was “fit” to operate an airline, let alone several of them. There had never been an investigation remotely approaching such a scale.

To Lorenzo it was all just “noise.” With his entire empire under the microscope Lorenzo stood before the International Aviation Club in Washington and expressed thanks for the chance to discuss “the
noise level that seems to surround Texas Air today.”

Ten years ago, this platform [at the Aviation Club] and many others around town were filled with industry officials and others debating deregulation. Some argued that with deregulation the consumer would be better served … others argued just the opposite.…

It will surprise many of you, no doubt, that initially we opposed deregulation. I argued in Congressional hearings and in speeches that deregulation would be very unfair to small airlines like Texas International … that it would pit us between the larger national carriers with substantial resources and the largely nonunion companies like Southwest. [Lorenzo did not mention that Southwest was now almost entirely unionized.] Little did we realize just how right we were.… So we set about the task of transforming our little airline.

Our little airline. Lorenzo went on to say that after taking control of Texas International in 1972 he built the number of jobs in his domain from 2,500 to nearly 70,000 and the annual revenue of his enterprises from $60 million to nearly $8 billion, all of it through “sound business strategy,” he noted, “not ‘corporate mirrors.’ ”

While we don’t harbor any beliefs that the noise surrounding us will disappear any time soon, nevertheless it is our hope that we will be better understood as we go forward. Texas Air has been on the cutting edge of positive change in this industry. We’ve saved 68,000 jobs and breathed life into several near-paralyzed airlines. Along the way we’ve angered some who have not appreciated our responsiveness to the consumer and the marketplace. I cannot offer them much solace, since we intend to continue to be responsive to consumer-driven market forces.

It took the government six weeks to conclude that Continental and Eastern were indeed safe and Texas Air indeed “fit” to run airlines. But while signing off on Texas Air’s safety practices, investigators reacted with alarm to the strife gripping Eastern. In a memorandum to the transportation secretary, FAA administrator T. Allan McArtor noted that “the
discord and complexity of the labor-management issues are deeper and more complex than at any other carrier.… Both sides have stated that they are ‘at war.’ ”

Lorenzo and Bakes did soften their approach, though their efforts seemed intended less for peace than to get the Mediation Board off dead center and declare an impasse in the negotiations with Charlie Bryan. Bryan and Lorenzo eventually met face-to-face for the first time, over a three-hour dinner in Houston, during which Charlie Bryan proposed that they star together in a series of television ads for Eastern. “
Nobody’d believe it!” Bryan said. Nothing substantive came of the dinner.

Finally the Mediation Board could put it off no longer. On February 1, 1989, more than a year after the machinists’ contract had expired, the agency finally declared that an impasse indeed was at hand.

Tick … tick … tick
. That glorious ticking of the 30-day clock.

It was now one month until the moment that Bakes’s people had been
referring to as “D-Day.”

In Dallas Bob Crandall’s people were also making plans.

For some time Crandall had been pressuring his scheduling genius, Mel Olsen. “What are you going to do when
Eastern goes under?” Crandall ceaselessly asked. This was in fact a matter of some urgency, not because Eastern was in danger of imminent demise, but because American was continuing to choke on airplanes. Even after adding hubs in Raleigh-Durham, Nashville, San Jose, and San Juan—on top of Dallas and Chicago—
American’s internal studies showed that the airline needed more destinations for all of its incoming aircraft. Crandall needed new territory, and there was none more inviting than Eastern’s.

But where?
Crandall seemed intent on attacking Eastern’s hub in Atlanta. Eastern had been slugging it out there with Delta for years, and Delta, strong but ponderous, did not intimidate Crandall.

Atlanta did not feel right to Olsen, however. He loaded every airline schedule in the United States into a forecasting model, including the Transportation Department’s route-by-route passenger load figures. Then Eastern’s
schedules were removed entirely—eradicated from the data—allowing the forecasting models to run as if the airline industry suddenly existed without Eastern and its nearly 300 airplanes. The model projected a windfall of new business for Delta in Atlanta, business for which American could attempt to compete. But the analysis also showed a number of other routes—“hot spots,” Olsen called them—that had nothing to do with Atlanta, routes on which there was no carrier around to pick up Eastern’s business.

These routes all seemed to converge on Miami. Moreover there were international route authorities from Miami that were available immediately—to Guatemala City, Costa Rica, and elsewhere. “Bob, we should start
positioning ourselves now,” Olsen said. That way American could justify outbidding anyone else for Eastern’s assets in
Miami, including its vital South American routes. Moving into Miami quickly would have the additional virtue of hastening Eastern’s demise.

In August 1988, as Texas Air was announcing a quarterly loss of $256 million, American announced that it would establish a crew base in Miami. Publicly American insisted that the move was in no way related to the problems at Eastern,
as mendacious a denial as a corporation could utter.

In Miami Phil Bakes had a strange, uneasy feeling—a
sense of disconnect, as he later described it.

Soon, on March 3, 1989, the 8,500 remaining members of the machinists’ union at Eastern would walk off the job. Elaborate preparations had been made to replace them with nonunion workers making a fraction of union wages. Bakes would then launch the rebuilding of Eastern. But as the great day approached, “I felt like I had nothing to do with it,” Bakes would say. The battle had become fixed in almost everyone’s mind as a personal confrontation between Frank Lorenzo and Charlie Bryan, as if Eastern itself did not matter. Bakes’s old Washington friend Alfred Kahn had put it best when he was quoted in
The Wall Street Journal
calling Lorenzo and Bryan “
two scorpions in a bottle.” Bakes could not disagree, but couldn’t people see that he and 32,000 other Eastern employees were in the bottom of that bottle as well? “It was as if the people who
worked
and
managed
were marionettes,” Bakes later said, “carrying out the wishes of the unions and Texas Air.”

Bakes could practically hear his credibility deflating. The dramatic rebuilding of Continental, the greatest airline turnaround in history, had endowed him with all the standing he had walking into Eastern. Now it was clear even to him that
Continental was cratering. He could feel his miracle-worker image fading as he talked to employees and even his own managers about his goals and plans and programs for Eastern. Bakes had come in as a savior; now he felt like a bumbler.