Frank Lorenzo
Encyclopedia
Francisco Anthony "Frank" Lorenzo (born May 19, 1940) is an American
businessman and philanthropist
. He is most famous for his leadership of Texas International Airlines
and its successor holding company Texas Air Corporation between 1972 and 1990, through which he formed or acquired a number of major U.S. airline
s including Continental Airlines
, Eastern Air Lines
, Frontier Airlines
, New York Air
and Peoplexpress Airlines
.
As an airline manager, he gained a reputation of union busting
, stemming from his leadership during the 1983 bankruptcy of Continental Airlines
that enabled the company to void its union contracts, and during the strike and bankruptcy of Eastern Airlines that eventually led to its permanent shutdown in 1991. Lorenzo’s history is contentious, both “despised by unions and admired by airline strategists.” In 1990, after Lorenzo liquidated his holdings after 18 years in the airline industry, Alfred E. Kahn
, the “main architect of airline deregulation,” offered this perspective on Lorenzo’s leadership: “I don’t think there is any question that he saved Continental, but his tactics obviously didn’t work when he took over Eastern.”
Since 1990, Lorenzo has been chairman of Savoy Capital, Inc., professionally devoted to asset management, private investments and venture capital, as well as a number of philanthropic activities.
immigrants
Olegario (d. 1980) and Ana (née
Mateos), Lorenzo grew up in Queens
, New York. His father was a private investor and long-time salon proprietor in Manhattan
.
Lorenzo attended Forest Hills High School
and then worked his way through Columbia University
, working several jobs, including at Macy's
. He graduated in 1961 with a B. A.
degree in economics
, followed by an MBA
from Harvard Business School
in 1963. He spent a short time in the army
that year, and then returned to New York.
, working in financial analysis, from 1963—1966. He then formed Lorenzo & Carney, Inc., a financial advisory firm specializing in airlines and related businesses, in 1966 with Robert Carney, who had also attended Harvard Business School.
to take over Texas International Airlines
(TIA) as an alternative to bankruptcy.
(TIA) for several months, Lorenzo acquired control of it in 1972 through Jet Capital, which acquired 26% of TIA's equity interest and 59% of the voting power for $1.15 million. Lorenzo became its president in August 1972. The deal was approved by the Civil Aeronautics Board (CAB), which regulated the airline industry in the United States at the time.
When Lorenzo took control of TIA in 1972, it was on the verge of financial collapse, having lost money since 1966. Two years later, Lorenzo's management was able to steer the company to break even due to significant streamlining of operations. Some years later an analyst from Oppenheimer & Company, citing Lorenzo and business-partner Carney’s strategies of substituting obsolete planes with jets, eliminating unprofitable routes in exchange for destinations with higher demand, and instituting half-price “peanut-fares” for the first time in the aviation industry, noted TIA’s ability to compete and win against much larger and financially stronger companies.
In the succeeding five years, Lorenzo's management changed the character of the airline, having revamped the fleet, increased utilization, cut costs and dropped many losing routes and added flights on strong segments. The average trip distance per passenger boarded jumped 25% from 1972 to 1976 In 1977, the company earned $8 million, and in 1978, TIA's reported net income was up to $13.2 million and it was described as an "aggressive, innovative carrier".
For several weeks starting in June 1978, Texas International Air acquired shares of National Airlines
, filing documents with the U.S. Securities and Exchange Commission when its stake reached 9.2%, just short of the 10% that would require prior approval of the Civil Aeronautics Board (CAB). TIA was reported at the time to be studying the "possibility of seeking control" of National. Several weeks later, TIA announced intentions to buy up to 25% of National's stock, and requested approval from the CAB to acquire the stock and direct control of National. TIA's attempted takeover of the much larger National "surprised a lot of people", because National was about six times the size of TIA at the time. Lorenzo's management team viewed National's stock as significantly undervaluing the assets of the company, and the move was financial in addition to being aimed at combining the routes of the two airlines.
A competing offer for control of National was submitted to the CAB by Pan Am
, and National agreed to be acquired by Pan Am; these actions drove up the price of National's stock. The CAB gave TIA and Pan Am each permission to acquire up to 25% of National's shares, and the two companies acquired 45% of the shares in total. The management and directors of National, as a group, owned less than 5% of the outstanding shares. In December, Eastern Airlines also joined the bidding for National. TIA and Pan Am considered the bid a "ploy to block their own chances" of completing the deal, but Eastern chairman Frank Borman
called the offer serious.
In April 1979, the United States Department of Justice
and the United States Department of Transportation
both announced opposition to a merger of Eastern and National on the grounds that the merger would be anti-competitive. In July, the CAB said it "would not stand in the way of airline mergers that appear to benefit the public". National had accepted the Pan Am offer and had not submitted TIA's offer to its shareholders, which rendered the TIA offer "effectively dead". TIA agreed to sell its shares in National to Pan Am, earning TIA a net profit on the merger attempt of almost $45 million.
(TWA), an even bigger target than National. TWA had airline revenues about 14 times those of TIA, and the total revenue of TWA's parent corporation, Trans World Corp.
, was 20 times TIA's.
Analysts wondered why Lorenzo and TIA would try to take over such a large company; some speculated that he and his team would "love to cure TWA", believed it could "work miracles" at TWA, or were interested in other profitable businesses owned by Trans World Corp, including Hilton International
, Canteen Vending, and Spartan Food Systems. Others suggested Lorenzo was trying to create another profit on the sale of stock, which he denied. Still other analysts had a different perspective, pointing to the structural and financial synergies
that a TIA and TWA merger would present. One offered that TIA “would get a route system, equipment and facilities in place.” To other analysts and even airline executives, it was obvious why Lorenzo was interested in TWA: said one executive, “Frank’s a financial man—that’s his game,” and TWA offered Lorenzo a tricky financial situation with an unattractive amount of long term debt ($643 million, a relatively large amount in the industry) offset by a portion of that debt carrying an extremely attractive and low interest rate of 4%.
TWA was opposed to the sale; its board "unanimously affirmed" publicly that TWA was not for sale. After accumulating more than 4% of Trans World's stock, TIA eventually backed out of the proposed deal, selling all of its holdings by January 1980.
called Texas Air Corp, which was controlled by Jet Capital, as TIA had been. Texas Air owned TIA and had cash holdings of about $60 million, which Lorenzo said would be used primarily for investments in the airline industry. Later in 1980, Texas Air formed a new airline, New York Air, with $25 million in capital. Lorenzo was the chairman of the new company, which was to fly shuttle flights between New York and Washington. Plans included expansion to several cities in the Northeast.
New York Air planned to win customers by charging lower fares and providing better service and roomier seats than the dominant carrier between New York and Washington, Eastern Airlines, which responded by offering lower fares. Pan Am, which had announced competing service after New York Air's formation, also lowered its fares.
The formation of New York Air was opposed by the unionized employees of Texas International Airlines, who were upset that non-union employees were being hired and that pay rates were substantially lower than union rates at TIA; in the case of pilots, the rate was about half of the union rate. The unions felt the company was set up specifically to "sidestep longstanding labor contracts with organized employees" and that the jobs should have been offered to TIA employees. The pilots' union planned a $1 million protest campaign and a boycott of companies that did business with Texas Air, the parent company, but the campaign was called off because of the 1981 air traffic controllers' strike.
. It had already purchased almost 10% of Continental's shares, and offered to buy enough to bring its stake to 35% to 48%. Continental already had an agreement to merge with Western Airlines
, and Texas Air announced that it would seek to vote its shares against the merger. As with previous attempts, TIA's takeover target was a much larger company than itself.
There was opposition to TIA's planned takeover. In particular, employees feared that Lorenzo would lay off
workers and that he was anti-union
, demonstrated by formation of New York Air as a non-unionized company, charges which Lorenzo denied by making clear the employees had the right to select union representation should they have so desired. While TIA acquired 49% of Continental's shares, an employee group attempted to stop the plan through legal maneuvers designed to give them control of the company rather than sell to TIA. Continental's chairman, Alvin L. Feldman, objected to the purchase, telling Lorenzo that he thought the combined company would be "very weak"; as the takeover battle continued, Feldman was described as being "bitterly opposed" to the plan.
The financing for the employee group's planned purchase fell through, and as Continental was preparing a public announcement, Feldman committed suicide in his Los Angeles
office. TIA received approval for its purchase from the CAB, and President Ronald Reagan
did not block the deal. The legal battles between the two companies ended in November, with Lorenzo and two associates elected to the board of directors of Continental.
1981 was a financially difficult year for Texas International, New York Air, and Continental. Lorenzo claimed, and some analysts agreed, that Continental's problems were worse than they had appeared before his purchase of the airline. Continental's losses for 1981 were over $100 million, and an economic recession
further hurt Continental's finances. It attempted to renegotiate contracts with several unions.
A series of steps to combine TIA and Continental followed. Lorenzo consolidated the historic TIA Dallas hub to Houston as part of a plan to combine the routes of TIA and Continental in a hub and spoke
system. Continental moved its annual meeting from May to March 1982; at that meeting, Lorenzo was named chairman of Continental. In July, Continental and Texas Air approved a "financial merger" of the companies, although operations were still to remain separate. In September, the employees of both Texas International and Continental were informed that there would be "operational and management integration of the two companies effective Oct. 31 [1982]". Although Texas Air remained the parent company, the combined companies operated under the Continental name and colors.
protection from creditors several weeks later, laying off 65% of its employees. Following the bankruptcy filing, the pilots' union went on strike to protest lower wages being offered by the company. The bankruptcy filing allowed Continental to void union contracts. It returned to operating profitability in 1984, but remained under bankruptcy protection until 1986, after working out plans with creditors to repay most of its debt over a period of 10 years.
During the bankruptcy, Continental claimed that its labor costs were too high and would force the company out of business completely if left unchanged. The unions claimed the bankruptcy was simply a legal maneuver intended to void contracts. The company trimmed operations and expenses during the reorganization, firing one-third of its employees, voiding contracts, and cutting two-thirds of its routes. The average salary of Continental's pilots after the bankruptcy filing was 30% to 50% lower than before the filing.
In June 1984, Continental received a favorable ruling from Bankruptcy Judge R.F. Wheless Jr. who ruled that “Continental was justified in rejecting its [pilots’ union] contract it described as burdensome” and that it “had no choice but to file for reorganization.” Continental's Lorenzo and his team had successfully argued that labor “costs would force the airline to liquidate.”
In the second quarter of 1984, led by Lorenzo's team, Continental’s restructuring showed more promise. The company reported a net profit of $10.4 million, which was a $36.9 million improvement from the $26.5 million loss during the same time period in 1983.
Further signs that the Lorenzo management team's new low-fare, high-frequency business model was working began to show. With all fares initially set at $49, the airline was able to compete with legacy carriers. It also put in place a stock ownership plan with a grant of 1 million shares, profit sharing and other new forms of compensation, including options to buy new stock to reward employees’ loyalty during and after the union strikes. Pioneering innovations in the industry, such as the self service ticketing Flying Machines and Continental’s partnership with Federal Express to provide overnight ticket delivery nationwide to customers, proved effective.
By September 1984, Lorenzo's team had led the airline to surpass the number of seat miles flown prior to bankruptcy with 25% fewer employees. Though the airline was price competitive with new entry carriers, it still offered full services such as hot meals, checked baggage, a frequent flier program and co-sharing with partner airlines. Record profits of $30.3 million were reported for the third quarter in 1984. Continental had successfully transitioned from “a high-cost airline losing its proverbial shirt to being a low-cost carrier making good profits.” In September 1986, the “New Continental” successfully emerged from bankruptcy as a lean, sustainable and profitable airline. Notably, Lorenzo's management team had reached agreements with all of its creditors to repay them at 100 cents-on-the-dollar with no equity compensation, a rarity in previous bankruptcies.
became president and CEO of Eastern Air Lines
. It was ailing financially, and Borman negotiated concessions from its employees, but he also ordered expensive new airplanes. He also clashed frequently with the head of the machinists' union, Charles Bryan. The atmosphere at Eastern was such that "[l]abor brawls struck Eastern with the regularity of tropical storms in Florida". (The company was later described as having been "anemic for most of the past 20 years" and as having "lurched from one financial crisis to another".)
In December 1986, Texas Air also finalized a deal to acquire Peoplexpress Airlines
, a low-cost airline that had been formed by eight executives who had left Texas Air in 1980. The deal included the assets of the bankrupt Frontier Airlines
, which Peoplexpress had purchased in 1985. In February 1987, PeoplExpress and New York Air were merged into Continental. The combination of the airline companies controlled by Lorenzo through Texas Air accounted for 20% of the airline industry in the United States, and some estimates described it as the largest airline in the Western world
, and second only to Aeroflot
worldwide.
for $250 million.
In October 1988, Donald Trump
bought Eastern's shuttle service for $365 million, rebranding it as Trump Shuttle
. In December 1989, American Airlines
agreed to purchase routes to Latin America
for $471 million.
In March 1987, Senators Frank Lautenberg
and Lowell Weicker
sent a letter to Lorenzo questioning the decreased level of service, including delays, overbooking, cancellations, and bad communication. After outlining several problems their Senate
committee had found, they asserted that Texas Air was not meeting its "obligation to provide a reasonable level of service to its passengers" and requested that Texas Air work toward that goal and provide a "prompt response".
The FAA learned that Eastern had said it would pay any fines from the FAA for the practice of flying in excess of regulations. The machinists, pilots, and flight attendants were all subjected to increasingly stringent absenteeism rules which would allow Eastern to fire them after fewer infractions than before. Eastern also fired increasing numbers of employees under allegations of drug abuse and phony medical claims and insubordination. A study by Virginia Tech in 1987 showed that only 2% of Eastern pilots described their jobs as "very rewarding", while 85% at the others surveyed felt that way. By September 1987, Eastern's employment rolls had been reduced by 4,000 to 39,000 people. Both Eastern and the machinists' union prepared for a strike to occur.
Lorenzo instituted cost-cutting measures at Eastern by outsourcing some maintenance work, requiring pilots to fly longer hours, and delaying repairs. In one instance, a pilot refused to fly with only one functioning air-conditioning unit on a cross-country flight. The FAA investigated in the summer of 1987 and found that Eastern had the worst repair record of 11 airlines, and had an average of 55 items unrepaired per day, compared to an average of 29 in the industry. In October 1987, at a Congressional
hearing, pilots told of being forced to fly unsafe planes.
In April 1988, the United States Department of Transportation
began an inquiry into the financial fitness and safety of Texas Air and Eastern; the inquiry was announced at the same time as a fine of $823,000 levied by the FAA for safety violations. The inquiry deemed Texas Air to have passed its tests and added that labor disputes "could endanger safety at Eastern".
Amid the negative publicity that followed, Barbara Walters
dubbed Lorenzo "probably the most hated man in America" in a 1989 interview, which he denied, blaming the unions for the bad press.
, and although an agreement was reached, the details were not able to be worked out and the sale did not happen. Other potential buyers included Jay Pritzker
and Peter Ueberroth
, but those deals did not work out either.
On 3 March 1989, President George H. W. Bush
issued a statement outlining his decision not to act on a National Mediation Board
recommendation to appoint a presidential emergency board to attempt to reach a labor agreement, and the machinists, flight attendants, and pilot unions went on strike at midnight. Thousands of flights were canceled, and thousands of nonunion employees were laid off.
and Marvin Davis
. Both Pritzker and Ueberroth made offers to Texas Air, but when Ueberroth was asked to pay more to come closer to Pritzker's deal, he withdrew his offer, and Pritzker then withdrew his because he didn't like the negotiating tactics that Lorenzo had used. Ueberroth was convinced to re-enter negotiations, and a tentative deal was reached, but a final deal could not be worked out.
Almost three months after the strike had started, Lorenzo was interviewed and responded to the suggestion that he was "one of the nation's toughest bosses" by saying: "I'm not paid to be a candy ass. I'm paid to go and get a job done."
The law had been changed since Continental's bankruptcy six years earlier, and it was more difficult to void union contracts in a bankruptcy. Eastern continued to operate a reduced schedule, hiring non-union pilots and using pilots who crossed picket lines. By November, it claimed it was back on the road toward profitability and asked for more time to submit a reorganization plan to the bankruptcy court.
After Bush declined to appoint an emergency board to mediate the labor dispute, Congress passed a compromise bill designed to establish a bi-partisan commission specifically to "investigate the labor dispute" at Eastern, but it was vetoed by Bush on 21 November 1989. The following day, the pilots' union voted to end its strike, after about 800 of its members had crossed picket lines, and many others had taken early retirement or gone to work for other airlines. The flight attendants ended their strike the following day, but the machinists continued to strike.
Bush's veto was sustained by the House of Representatives
on 7 March 1990. Although Eastern was still operating, it was still losing money and proposed plans to its unsecured creditors that called for payment of 50% of the debt, and as conditions worsened, only 25% of the debt. The creditors at first called for liquidation of the company, but changed their request to only ask for Lorenzo to be removed and a trustee to be appointed to "enhance the value of the estate". The bankruptcy court agreed to the request and named a trustee to run Eastern in April 1990, with the goal of continuing to operate the company and find a buyer. The move was described by experts as "rare" in a bankruptcy case.
Eastern ceased operations on 18 January 1991 and its assets were liquidated.
Lorenzo is frequently described as "anti-union", particularly after the bankruptcy at Continental, which voided the union contracts in the successful effort to save the airline from liquidation and permanent job losses. At Texas International Air, he demanded wage concessions in 1974 to return the company to profitability, and one union went on strike; when he began hiring replacement workers, other unions at the company joined the strike. After four months, the unions returned to work and TIA went on to reach profitability in 1976. Before his takeover of Eastern was completed, his efforts to build a sustainable, profitable airline model were criticized, with opponents saying his companies' profits were earned "on the backs of broken labor contracts, extremely low wages and harsh work rules."
, an institution with a free-entrance museum of art. The museum is located in New York City, and houses the largest collection of Spanish art outside Spain, with major paintings by Velázquez
, Goya, Zurbarán, El Greco
, and Sorolla. He is additionally a trustee of the Woodrow Wilson National Fellowship Foundation located in Princeton, New Jersey. Lorenzo is involved as a director, donor, or advisor to several other arts and charitable organizations, including the International Advisory Board of Catalonia, Spain.
In 1986, Lorenzo established the Olegario Lorenzo Memorial Scholarship Fund at Columbia College.
Murray) in 1972, and has four children.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
businessman and philanthropist
Philanthropy
Philanthropy etymologically means "the love of humanity"—love in the sense of caring for, nourishing, developing, or enhancing; humanity in the sense of "what it is to be human," or "human potential." In modern practical terms, it is "private initiatives for public good, focusing on quality of...
. He is most famous for his leadership of Texas International Airlines
Texas International Airlines
Texas International Airlines was a United States airline, known from 1944 until 1947 as Aviation Enterprises, until 1969 as Trans-Texas Airways, and as Texas International Airlines until 1982, when it merged with Continental Airlines. It was headquartered near William P...
and its successor holding company Texas Air Corporation between 1972 and 1990, through which he formed or acquired a number of major U.S. airline
Airline
An airline provides air transport services for traveling passengers and freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit...
s including Continental Airlines
Continental Airlines
Continental Airlines was a major American airline now merged with United Airlines. On May 3, 2010, Continental Airlines, Inc. and UAL, Inc. announced a merger via a stock swap, and on October 1, 2010, the merger closed and UAL changed its name to United Continental Holdings, Inc...
, Eastern Air Lines
Eastern Air Lines
Eastern Air Lines was a major United States airline that existed from 1926 to 1991. Before its dissolution it was headquartered at Miami International Airport in unincorporated Miami-Dade County, Florida.-History:...
, Frontier Airlines
Frontier Airlines
Frontier Airlines, Inc., is an American airline headquartered in Indianapolis, Indiana, United States. The carrier, which is a subsidiary and operating brand of Republic Airways Holdings, operates flights to 83 destinations throughout the United States, Mexico, and Costa Rica and maintains hubs at...
, New York Air
New York Air
New York Air was a 1980s startup airline owned by Texas Air Corporation and based at LaGuardia Airport in Flushing, Queens, New York City.-History:...
and Peoplexpress Airlines
Peoplexpress Airlines
People Express Airlines, stylized as PEOPLExpress, also known as People Express Travel, was a U.S. no-frills airline that operated from 1981 to 1987, when it merged into Continental Airlines...
.
As an airline manager, he gained a reputation of union busting
Union busting
Union busting is a wide range of activities undertaken by employers, their proxies, and governments, which attempt to prevent the formation or expansion of trade unions...
, stemming from his leadership during the 1983 bankruptcy of Continental Airlines
Continental Airlines
Continental Airlines was a major American airline now merged with United Airlines. On May 3, 2010, Continental Airlines, Inc. and UAL, Inc. announced a merger via a stock swap, and on October 1, 2010, the merger closed and UAL changed its name to United Continental Holdings, Inc...
that enabled the company to void its union contracts, and during the strike and bankruptcy of Eastern Airlines that eventually led to its permanent shutdown in 1991. Lorenzo’s history is contentious, both “despised by unions and admired by airline strategists.” In 1990, after Lorenzo liquidated his holdings after 18 years in the airline industry, Alfred E. Kahn
Alfred E. Kahn
Alfred Edward Kahn was an American professor, an expert in regulation and deregulation, and an important influence in the deregulation of the airline and energy industries...
, the “main architect of airline deregulation,” offered this perspective on Lorenzo’s leadership: “I don’t think there is any question that he saved Continental, but his tactics obviously didn’t work when he took over Eastern.”
Since 1990, Lorenzo has been chairman of Savoy Capital, Inc., professionally devoted to asset management, private investments and venture capital, as well as a number of philanthropic activities.
Early life
Born to SpanishSpain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
immigrants
Immigration
Immigration is the act of foreigners passing or coming into a country for the purpose of permanent residence...
Olegario (d. 1980) and Ana (née
Married and maiden names
A married name is the family name adopted by a person upon marriage. When a person assumes the family name of her spouse, the new name replaces the maiden name....
Mateos), Lorenzo grew up in Queens
Queens
Queens is the easternmost of the five boroughs of New York City. The largest borough in area and the second-largest in population, it is coextensive with Queens County, an administrative division of New York state, in the United States....
, New York. His father was a private investor and long-time salon proprietor in Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
.
Lorenzo attended Forest Hills High School
Forest Hills High School
Forest Hills High School , dedicated in 1937, is a public secondary school in Queens, New York City. It educates students in grades 9–12 and is operated by the New York City Department of Education.- Location :...
and then worked his way through Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...
, working several jobs, including at Macy's
Macy's
Macy's is a U.S. chain of mid-to-high range department stores. In addition to its flagship Herald Square location in New York City, the company operates over 800 stores in the United States...
. He graduated in 1961 with a B. A.
Bachelor of Arts
A Bachelor of Arts , from the Latin artium baccalaureus, is a bachelor's degree awarded for an undergraduate course or program in either the liberal arts, the sciences, or both...
degree in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, followed by an MBA
Master of Business Administration
The Master of Business Administration is a :master's degree in business administration, which attracts people from a wide range of academic disciplines. The MBA designation originated in the United States, emerging from the late 19th century as the country industrialized and companies sought out...
from Harvard Business School
Harvard Business School
Harvard Business School is the graduate business school of Harvard University in Boston, Massachusetts, United States and is widely recognized as one of the top business schools in the world. The school offers the world's largest full-time MBA program, doctoral programs, and many executive...
in 1963. He spent a short time in the army
United States Army
The United States Army is the main branch of the United States Armed Forces responsible for land-based military operations. It is the largest and oldest established branch of the U.S. military, and is one of seven U.S. uniformed services...
that year, and then returned to New York.
Early airline career
Lorenzo's first professional jobs were at Eastern Airlines and Trans World AirlinesTrans World Airlines
Trans World Airlines was an American airline that existed from 1925 until it was bought out by and merged with American Airlines in 2001. It was a major domestic airline in the United States and the main U.S.-based competitor of Pan American World Airways on intercontinental routes from 1946...
, working in financial analysis, from 1963—1966. He then formed Lorenzo & Carney, Inc., a financial advisory firm specializing in airlines and related businesses, in 1966 with Robert Carney, who had also attended Harvard Business School.
Jet Capital
Lorenzo and Carney later formed Jet Capital Corporation, an airline advisory company, in 1969. The firm's first two advisory clients were Mohawk Airlines and Texas International Airlines in 1971. Jet Capital raised over $1 million in a public stock offering, and was later asked by Chase Manhattan BankChase Manhattan Bank
JPMorgan Chase Bank, N.A., doing business as Chase, is a national bank that constitutes the consumer and commercial banking subsidiary of financial services firm JPMorgan Chase. The bank was known as Chase Manhattan Bank until it merged with J.P. Morgan & Co. in 2000...
to take over Texas International Airlines
Texas International Airlines
Texas International Airlines was a United States airline, known from 1944 until 1947 as Aviation Enterprises, until 1969 as Trans-Texas Airways, and as Texas International Airlines until 1982, when it merged with Continental Airlines. It was headquartered near William P...
(TIA) as an alternative to bankruptcy.
Texas International Airlines
After consulting to Texas International AirlinesTexas International Airlines
Texas International Airlines was a United States airline, known from 1944 until 1947 as Aviation Enterprises, until 1969 as Trans-Texas Airways, and as Texas International Airlines until 1982, when it merged with Continental Airlines. It was headquartered near William P...
(TIA) for several months, Lorenzo acquired control of it in 1972 through Jet Capital, which acquired 26% of TIA's equity interest and 59% of the voting power for $1.15 million. Lorenzo became its president in August 1972. The deal was approved by the Civil Aeronautics Board (CAB), which regulated the airline industry in the United States at the time.
When Lorenzo took control of TIA in 1972, it was on the verge of financial collapse, having lost money since 1966. Two years later, Lorenzo's management was able to steer the company to break even due to significant streamlining of operations. Some years later an analyst from Oppenheimer & Company, citing Lorenzo and business-partner Carney’s strategies of substituting obsolete planes with jets, eliminating unprofitable routes in exchange for destinations with higher demand, and instituting half-price “peanut-fares” for the first time in the aviation industry, noted TIA’s ability to compete and win against much larger and financially stronger companies.
In the succeeding five years, Lorenzo's management changed the character of the airline, having revamped the fleet, increased utilization, cut costs and dropped many losing routes and added flights on strong segments. The average trip distance per passenger boarded jumped 25% from 1972 to 1976 In 1977, the company earned $8 million, and in 1978, TIA's reported net income was up to $13.2 million and it was described as an "aggressive, innovative carrier".
National Airlines
National Airlines (NA)
National Airlines was an airline founded in 1934 and was headquartered on the grounds of Miami International Airport in unincorporated Miami-Dade County, Florida, United States near Miami.- History :...
, filing documents with the U.S. Securities and Exchange Commission when its stake reached 9.2%, just short of the 10% that would require prior approval of the Civil Aeronautics Board (CAB). TIA was reported at the time to be studying the "possibility of seeking control" of National. Several weeks later, TIA announced intentions to buy up to 25% of National's stock, and requested approval from the CAB to acquire the stock and direct control of National. TIA's attempted takeover of the much larger National "surprised a lot of people", because National was about six times the size of TIA at the time. Lorenzo's management team viewed National's stock as significantly undervaluing the assets of the company, and the move was financial in addition to being aimed at combining the routes of the two airlines.
A competing offer for control of National was submitted to the CAB by Pan Am
Pan American World Airways
Pan American World Airways, commonly known as Pan Am, was the principal and largest international air carrier in the United States from 1927 until its collapse on December 4, 1991...
, and National agreed to be acquired by Pan Am; these actions drove up the price of National's stock. The CAB gave TIA and Pan Am each permission to acquire up to 25% of National's shares, and the two companies acquired 45% of the shares in total. The management and directors of National, as a group, owned less than 5% of the outstanding shares. In December, Eastern Airlines also joined the bidding for National. TIA and Pan Am considered the bid a "ploy to block their own chances" of completing the deal, but Eastern chairman Frank Borman
Frank Borman
Frank Frederick Borman, II is a retired NASA astronaut and engineer, best remembered as the Commander of Apollo 8, the first mission to fly around the Moon, making him, along with fellow crew mates Jim Lovell and Bill Anders, the first of only 24 humans to do so...
called the offer serious.
In April 1979, the United States Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
and the United States Department of Transportation
United States Department of Transportation
The United States Department of Transportation is a federal Cabinet department of the United States government concerned with transportation. It was established by an act of Congress on October 15, 1966, and began operation on April 1, 1967...
both announced opposition to a merger of Eastern and National on the grounds that the merger would be anti-competitive. In July, the CAB said it "would not stand in the way of airline mergers that appear to benefit the public". National had accepted the Pan Am offer and had not submitted TIA's offer to its shareholders, which rendered the TIA offer "effectively dead". TIA agreed to sell its shares in National to Pan Am, earning TIA a net profit on the merger attempt of almost $45 million.
TWA
With a large amount of cash on hand, observers said that TIA was likely to begin another acquisition attempt quickly, to preclude becoming a takeover target itself. TIA did exactly that, accumulating shares of Trans World AirlinesTrans World Airlines
Trans World Airlines was an American airline that existed from 1925 until it was bought out by and merged with American Airlines in 2001. It was a major domestic airline in the United States and the main U.S.-based competitor of Pan American World Airways on intercontinental routes from 1946...
(TWA), an even bigger target than National. TWA had airline revenues about 14 times those of TIA, and the total revenue of TWA's parent corporation, Trans World Corp.
Trans World Corporation
Trans World Corporation was the original name of the holding company set up to own Trans World Airlines.In 1967 , when the airline sought to diversify into other areas of business, a key investment was Hilton International Hotels, the non-American interests of the Hilton Hotels chain...
, was 20 times TIA's.
Analysts wondered why Lorenzo and TIA would try to take over such a large company; some speculated that he and his team would "love to cure TWA", believed it could "work miracles" at TWA, or were interested in other profitable businesses owned by Trans World Corp, including Hilton International
Hilton Hotels Corporation
Hilton Worldwide is a global hospitality company. It is owned by the Blackstone Group, a private equity firm. As of July 2011 Hilton brands encompass 3,750 hotels with over 600,000 rooms in 84 countries...
, Canteen Vending, and Spartan Food Systems. Others suggested Lorenzo was trying to create another profit on the sale of stock, which he denied. Still other analysts had a different perspective, pointing to the structural and financial synergies
Synergy
Synergy may be defined as two or more things functioning together to produce a result not independently obtainable.The term synergy comes from the Greek word from , , meaning "working together".-Definitions and usages:...
that a TIA and TWA merger would present. One offered that TIA “would get a route system, equipment and facilities in place.” To other analysts and even airline executives, it was obvious why Lorenzo was interested in TWA: said one executive, “Frank’s a financial man—that’s his game,” and TWA offered Lorenzo a tricky financial situation with an unattractive amount of long term debt ($643 million, a relatively large amount in the industry) offset by a portion of that debt carrying an extremely attractive and low interest rate of 4%.
TWA was opposed to the sale; its board "unanimously affirmed" publicly that TWA was not for sale. After accumulating more than 4% of Trans World's stock, TIA eventually backed out of the proposed deal, selling all of its holdings by January 1980.
Formation of Texas Air and New York Air
Lorenzo restructured TIA in 1980, forming a holding companyHolding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
called Texas Air Corp, which was controlled by Jet Capital, as TIA had been. Texas Air owned TIA and had cash holdings of about $60 million, which Lorenzo said would be used primarily for investments in the airline industry. Later in 1980, Texas Air formed a new airline, New York Air, with $25 million in capital. Lorenzo was the chairman of the new company, which was to fly shuttle flights between New York and Washington. Plans included expansion to several cities in the Northeast.
New York Air planned to win customers by charging lower fares and providing better service and roomier seats than the dominant carrier between New York and Washington, Eastern Airlines, which responded by offering lower fares. Pan Am, which had announced competing service after New York Air's formation, also lowered its fares.
The formation of New York Air was opposed by the unionized employees of Texas International Airlines, who were upset that non-union employees were being hired and that pay rates were substantially lower than union rates at TIA; in the case of pilots, the rate was about half of the union rate. The unions felt the company was set up specifically to "sidestep longstanding labor contracts with organized employees" and that the jobs should have been offered to TIA employees. The pilots' union planned a $1 million protest campaign and a boycott of companies that did business with Texas Air, the parent company, but the campaign was called off because of the 1981 air traffic controllers' strike.
Purchase
In January 1981, Texas International Airlines announced an offer to buy Continental AirlinesContinental Airlines
Continental Airlines was a major American airline now merged with United Airlines. On May 3, 2010, Continental Airlines, Inc. and UAL, Inc. announced a merger via a stock swap, and on October 1, 2010, the merger closed and UAL changed its name to United Continental Holdings, Inc...
. It had already purchased almost 10% of Continental's shares, and offered to buy enough to bring its stake to 35% to 48%. Continental already had an agreement to merge with Western Airlines
Western Airlines
Western Airlines was a large airline based in California, with operations throughout the Western United States, and hubs at Los Angeles International Airport, Salt Lake City International Airport, and the former Stapleton International Airport in Denver...
, and Texas Air announced that it would seek to vote its shares against the merger. As with previous attempts, TIA's takeover target was a much larger company than itself.
There was opposition to TIA's planned takeover. In particular, employees feared that Lorenzo would lay off
Layoff
Layoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
workers and that he was anti-union
Union busting
Union busting is a wide range of activities undertaken by employers, their proxies, and governments, which attempt to prevent the formation or expansion of trade unions...
, demonstrated by formation of New York Air as a non-unionized company, charges which Lorenzo denied by making clear the employees had the right to select union representation should they have so desired. While TIA acquired 49% of Continental's shares, an employee group attempted to stop the plan through legal maneuvers designed to give them control of the company rather than sell to TIA. Continental's chairman, Alvin L. Feldman, objected to the purchase, telling Lorenzo that he thought the combined company would be "very weak"; as the takeover battle continued, Feldman was described as being "bitterly opposed" to the plan.
The financing for the employee group's planned purchase fell through, and as Continental was preparing a public announcement, Feldman committed suicide in his Los Angeles
Los Ángeles
Los Ángeles is the capital of the province of Biobío, in the commune of the same name, in Region VIII , in the center-south of Chile. It is located between the Laja and Biobío rivers. The population is 123,445 inhabitants...
office. TIA received approval for its purchase from the CAB, and President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
did not block the deal. The legal battles between the two companies ended in November, with Lorenzo and two associates elected to the board of directors of Continental.
1981 was a financially difficult year for Texas International, New York Air, and Continental. Lorenzo claimed, and some analysts agreed, that Continental's problems were worse than they had appeared before his purchase of the airline. Continental's losses for 1981 were over $100 million, and an economic recession
Early 1980s recession
The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited recession relatively early, but high unemployment would continue to affect other OECD nations through at least 1985...
further hurt Continental's finances. It attempted to renegotiate contracts with several unions.
A series of steps to combine TIA and Continental followed. Lorenzo consolidated the historic TIA Dallas hub to Houston as part of a plan to combine the routes of TIA and Continental in a hub and spoke
Spoke-hub distribution paradigm
The hub-and-spoke distribution paradigm is a system of connections arranged like a chariot wheel, in which all traffic moves along spokes connected to the hub at the center...
system. Continental moved its annual meeting from May to March 1982; at that meeting, Lorenzo was named chairman of Continental. In July, Continental and Texas Air approved a "financial merger" of the companies, although operations were still to remain separate. In September, the employees of both Texas International and Continental were informed that there would be "operational and management integration of the two companies effective Oct. 31 [1982]". Although Texas Air remained the parent company, the combined companies operated under the Continental name and colors.
Strike and bankruptcy
After 19 months of negotiations, Continental and its mechanics' union failed to reach a labor agreement, and the mechanics went on strike in August 1983. Continental continued to operate, partially by hiring replacement mechanics, but largely due to the TIA mechanics valid and current contract. but filed for Chapter 11 bankruptcyBankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
protection from creditors several weeks later, laying off 65% of its employees. Following the bankruptcy filing, the pilots' union went on strike to protest lower wages being offered by the company. The bankruptcy filing allowed Continental to void union contracts. It returned to operating profitability in 1984, but remained under bankruptcy protection until 1986, after working out plans with creditors to repay most of its debt over a period of 10 years.
During the bankruptcy, Continental claimed that its labor costs were too high and would force the company out of business completely if left unchanged. The unions claimed the bankruptcy was simply a legal maneuver intended to void contracts. The company trimmed operations and expenses during the reorganization, firing one-third of its employees, voiding contracts, and cutting two-thirds of its routes. The average salary of Continental's pilots after the bankruptcy filing was 30% to 50% lower than before the filing.
Expansion and Emergence from Bankruptcy
The “New Continental” began emerging while in bankruptcy. With its cost structure in line with any post deregulation upstart carrier, the airline began competing effectively with legacy carriers. By May 1984, Continental was operating 83 of its 105 aircraft, which had been mostly grounded upon filing for bankruptcy. Though operating near capacity, it was doing so with nearly half the 12,000 employees, on half the wages, than prior to bankruptcy. By the summer of 1984, the Lorenzo team had filled many of the positions downsized during the strike, and employment had reached 9,000 with a route system served 67 destinations. Planes were averaging a 67% load factor, amongst the highest in the industry. New Continental’s low-cost carrier strategy was beginning to bear fruit.In June 1984, Continental received a favorable ruling from Bankruptcy Judge R.F. Wheless Jr. who ruled that “Continental was justified in rejecting its [pilots’ union] contract it described as burdensome” and that it “had no choice but to file for reorganization.” Continental's Lorenzo and his team had successfully argued that labor “costs would force the airline to liquidate.”
In the second quarter of 1984, led by Lorenzo's team, Continental’s restructuring showed more promise. The company reported a net profit of $10.4 million, which was a $36.9 million improvement from the $26.5 million loss during the same time period in 1983.
Further signs that the Lorenzo management team's new low-fare, high-frequency business model was working began to show. With all fares initially set at $49, the airline was able to compete with legacy carriers. It also put in place a stock ownership plan with a grant of 1 million shares, profit sharing and other new forms of compensation, including options to buy new stock to reward employees’ loyalty during and after the union strikes. Pioneering innovations in the industry, such as the self service ticketing Flying Machines and Continental’s partnership with Federal Express to provide overnight ticket delivery nationwide to customers, proved effective.
By September 1984, Lorenzo's team had led the airline to surpass the number of seat miles flown prior to bankruptcy with 25% fewer employees. Though the airline was price competitive with new entry carriers, it still offered full services such as hot meals, checked baggage, a frequent flier program and co-sharing with partner airlines. Record profits of $30.3 million were reported for the third quarter in 1984. Continental had successfully transitioned from “a high-cost airline losing its proverbial shirt to being a low-cost carrier making good profits.” In September 1986, the “New Continental” successfully emerged from bankruptcy as a lean, sustainable and profitable airline. Notably, Lorenzo's management team had reached agreements with all of its creditors to repay them at 100 cents-on-the-dollar with no equity compensation, a rarity in previous bankruptcies.
Exit From Continental
By 1989, Continental served 133 airports around the world, carried approximately 9% of US commercial air traffic and offered more than 1,250 daily departures. Lorenzo agreed to sell his controlling stake in Continental Airlines’ holding company to Scandinavian Airlines Systems (SAS) on August 10, 1990. Lorenzo agreed to remain on the company’s Board of Directors for two years.Background
In 1975, Frank BormanFrank Borman
Frank Frederick Borman, II is a retired NASA astronaut and engineer, best remembered as the Commander of Apollo 8, the first mission to fly around the Moon, making him, along with fellow crew mates Jim Lovell and Bill Anders, the first of only 24 humans to do so...
became president and CEO of Eastern Air Lines
Eastern Air Lines
Eastern Air Lines was a major United States airline that existed from 1926 to 1991. Before its dissolution it was headquartered at Miami International Airport in unincorporated Miami-Dade County, Florida.-History:...
. It was ailing financially, and Borman negotiated concessions from its employees, but he also ordered expensive new airplanes. He also clashed frequently with the head of the machinists' union, Charles Bryan. The atmosphere at Eastern was such that "[l]abor brawls struck Eastern with the regularity of tropical storms in Florida". (The company was later described as having been "anemic for most of the past 20 years" and as having "lurched from one financial crisis to another".)
Takeover
In January 1986, Eastern faced another financial crisis and sought more concessions from its unions. Eastern was described as needing to "either get long term economic relief from its labor unions or enter bankruptcy and impose that relief, just as now-thriving Continental did under Frank Lorenzo in September 1983". Eastern's machinists' union refused to renegotiate its contract; after Texas Air made an offer to buy Eastern, despite the unions' generally negative opinion of Lorenzo's tactics, union leader Bryan said, "it might be surprising the relationship that could develop between Lorenzo and our organization". Eastern established a deadline with its three major unions to grant concessions or have the company sold to Texas Air; when the deadline passed without the concessions, the Eastern deal was pursued. Although there were more legal maneuvers that attempted to stop the deal, it was approved by shareholders in November 1986.In December 1986, Texas Air also finalized a deal to acquire Peoplexpress Airlines
Peoplexpress Airlines
People Express Airlines, stylized as PEOPLExpress, also known as People Express Travel, was a U.S. no-frills airline that operated from 1981 to 1987, when it merged into Continental Airlines...
, a low-cost airline that had been formed by eight executives who had left Texas Air in 1980. The deal included the assets of the bankrupt Frontier Airlines
Frontier Airlines (1950-1986)
Frontier Airlines was formed from a merger of Arizona Airways, Challenger Airlines, and Monarch Airlines on June 1, 1950. They established their headquarters at Stapleton Airport in Denver. However, the airline dated itself to November 27, 1946, when Monarch Airlines began service in Colorado,...
, which Peoplexpress had purchased in 1985. In February 1987, PeoplExpress and New York Air were merged into Continental. The combination of the airline companies controlled by Lorenzo through Texas Air accounted for 20% of the airline industry in the United States, and some estimates described it as the largest airline in the Western world
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...
, and second only to Aeroflot
Aeroflot
OJSC AeroflotRussian Airlines , commonly known as Aeroflot , is the flag carrier and largest airline of the Russian Federation, based on passengers carried per year...
worldwide.
Asset divestiture
In February 1987, Texas Air moved six airplanes from Eastern to Continental, a move that was seen as an anti-union move because Continental no longer had union workers. In March, Texas Air purchased Eastern's reservation system in a new subsidiary, SystemOne, for $100 million, substantially below its estimated value of $200 million to $400 million. Eastern then paid fees to lease back the system. The system was combined with other computer system assets and had 5,100 travel agent customers. Texas Air later sold half of its interest in the system to Electronic Data SystemsElectronic Data Systems
HP Enterprise Services is the global business and technology services division of Hewlett Packard's HP Enterprise Business strategic business unit. It was formed by the combination of HP's legacy services consulting and outsourcing business and the integration of acquired Electronic Data Systems,...
for $250 million.
In October 1988, Donald Trump
Donald Trump
Donald John Trump, Sr. is an American business magnate, television personality and author. He is the chairman and president of The Trump Organization and the founder of Trump Entertainment Resorts. Trump's extravagant lifestyle, outspoken manner and role on the NBC reality show The Apprentice have...
bought Eastern's shuttle service for $365 million, rebranding it as Trump Shuttle
Trump Shuttle
Trump Shuttle, Inc., doing business as Trump Airlines, was an airline owned by Donald Trump from 1989 to 1992. The landing rights and some of the physical assets necessary to operate the shuttle flights were originally part of Eastern Air Lines and known as the Eastern Air Shuttle...
. In December 1989, American Airlines
American Airlines
American Airlines, Inc. is the world's fourth-largest airline in passenger miles transported and operating revenues. American Airlines is a subsidiary of the AMR Corporation and is headquartered in Fort Worth, Texas adjacent to its largest hub at Dallas/Fort Worth International Airport...
agreed to purchase routes to Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
for $471 million.
Labor Strife and Resulting Decline in Service
Due to management and the unions' ongoing battle over labor contracts, service at the airline declined resulting in a series of increasingly contentious and politically charged events.In March 1987, Senators Frank Lautenberg
Frank Lautenberg
Frank Raleigh Lautenberg is the senior United States Senator from New Jersey and a member of the Democratic Party. Previously, he was the Chairman and Chief Executive Officer of Automatic Data Processing, Inc.-Early life, career, and family:...
and Lowell Weicker
Lowell P. Weicker, Jr.
Lowell Palmer Weicker, Jr. is an American politician who served as a U.S. Representative, U.S. Senator, and the 85th Governor of Connecticut, and unsuccessfully sought the Republican nomination for President in 1980...
sent a letter to Lorenzo questioning the decreased level of service, including delays, overbooking, cancellations, and bad communication. After outlining several problems their Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
committee had found, they asserted that Texas Air was not meeting its "obligation to provide a reasonable level of service to its passengers" and requested that Texas Air work toward that goal and provide a "prompt response".
The FAA learned that Eastern had said it would pay any fines from the FAA for the practice of flying in excess of regulations. The machinists, pilots, and flight attendants were all subjected to increasingly stringent absenteeism rules which would allow Eastern to fire them after fewer infractions than before. Eastern also fired increasing numbers of employees under allegations of drug abuse and phony medical claims and insubordination. A study by Virginia Tech in 1987 showed that only 2% of Eastern pilots described their jobs as "very rewarding", while 85% at the others surveyed felt that way. By September 1987, Eastern's employment rolls had been reduced by 4,000 to 39,000 people. Both Eastern and the machinists' union prepared for a strike to occur.
Lorenzo instituted cost-cutting measures at Eastern by outsourcing some maintenance work, requiring pilots to fly longer hours, and delaying repairs. In one instance, a pilot refused to fly with only one functioning air-conditioning unit on a cross-country flight. The FAA investigated in the summer of 1987 and found that Eastern had the worst repair record of 11 airlines, and had an average of 55 items unrepaired per day, compared to an average of 29 in the industry. In October 1987, at a Congressional
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
hearing, pilots told of being forced to fly unsafe planes.
In April 1988, the United States Department of Transportation
United States Department of Transportation
The United States Department of Transportation is a federal Cabinet department of the United States government concerned with transportation. It was established by an act of Congress on October 15, 1966, and began operation on April 1, 1967...
began an inquiry into the financial fitness and safety of Texas Air and Eastern; the inquiry was announced at the same time as a fine of $823,000 levied by the FAA for safety violations. The inquiry deemed Texas Air to have passed its tests and added that labor disputes "could endanger safety at Eastern".
Amid the negative publicity that followed, Barbara Walters
Barbara Walters
Barbara Jill Walters is an American broadcast journalist, author, and television personality. She has hosted morning television shows , the television newsmagazine , former co-anchor of the ABC Evening News, and current contributor to ABC News.Walters was first known as a popular TV morning news...
dubbed Lorenzo "probably the most hated man in America" in a 1989 interview, which he denied, blaming the unions for the bad press.
Strike
After negotiations with the three unions failed to produce any labor agreements, a mandated 30-day cooling off period began on 1 February 1989. If an agreement could not be reached, strikes would begin on 4 March 1989. During this period, Lorenzo met with potential buyers of Eastern, including Carl IcahnCarl Icahn
Carl Celian Icahn is an American business magnate and investor.-Biography:Icahn was raised in Far Rockaway, Queens, New York City, where he attended Far Rockaway High School. His father was a cantor, his mother was a schoolteacher...
, and although an agreement was reached, the details were not able to be worked out and the sale did not happen. Other potential buyers included Jay Pritzker
Jay Pritzker
Jay Arthur Pritzker was an American entrepreneur and conglomerate organizer.-Biography:Pritzker was born in Chicago, Illinois, the son of Fanny and A. N. Pritzker. His brother was Robert Pritzker...
and Peter Ueberroth
Peter Ueberroth
Peter Victor Ueberroth is an American executive. He served as the sixth Commissioner of Major League Baseball from 1984 to 1989. He was recently the chairman of the United States Olympic Committee; he was replaced by Larry Probst in October 2008....
, but those deals did not work out either.
On 3 March 1989, President George H. W. Bush
George H. W. Bush
George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...
issued a statement outlining his decision not to act on a National Mediation Board
National Mediation Board
The National Mediation Board is an independent agency of the United States government that coordinates labor-management relations within the U.S...
recommendation to appoint a presidential emergency board to attempt to reach a labor agreement, and the machinists, flight attendants, and pilot unions went on strike at midnight. Thousands of flights were canceled, and thousands of nonunion employees were laid off.
Bankruptcy and shutdown
Eastern filed for bankruptcy protection on 9 March 1989. After the bankruptcy filing, additional potential buyers were contacted, including Kirk KerkorianKirk Kerkorian
Kerkor "Kirk" Kerkorian is an American businessman who is the president/CEO of Tracinda Corporation, his private holding company based in Beverly Hills, California. Kerkorian is known as one of the important figures in shaping Las Vegas and, with architect Martin Stern, Jr...
and Marvin Davis
Marvin Davis
Marvin H. Davis was an American industrialist and philanthropist...
. Both Pritzker and Ueberroth made offers to Texas Air, but when Ueberroth was asked to pay more to come closer to Pritzker's deal, he withdrew his offer, and Pritzker then withdrew his because he didn't like the negotiating tactics that Lorenzo had used. Ueberroth was convinced to re-enter negotiations, and a tentative deal was reached, but a final deal could not be worked out.
Almost three months after the strike had started, Lorenzo was interviewed and responded to the suggestion that he was "one of the nation's toughest bosses" by saying: "I'm not paid to be a candy ass. I'm paid to go and get a job done."
The law had been changed since Continental's bankruptcy six years earlier, and it was more difficult to void union contracts in a bankruptcy. Eastern continued to operate a reduced schedule, hiring non-union pilots and using pilots who crossed picket lines. By November, it claimed it was back on the road toward profitability and asked for more time to submit a reorganization plan to the bankruptcy court.
After Bush declined to appoint an emergency board to mediate the labor dispute, Congress passed a compromise bill designed to establish a bi-partisan commission specifically to "investigate the labor dispute" at Eastern, but it was vetoed by Bush on 21 November 1989. The following day, the pilots' union voted to end its strike, after about 800 of its members had crossed picket lines, and many others had taken early retirement or gone to work for other airlines. The flight attendants ended their strike the following day, but the machinists continued to strike.
Bush's veto was sustained by the House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
on 7 March 1990. Although Eastern was still operating, it was still losing money and proposed plans to its unsecured creditors that called for payment of 50% of the debt, and as conditions worsened, only 25% of the debt. The creditors at first called for liquidation of the company, but changed their request to only ask for Lorenzo to be removed and a trustee to be appointed to "enhance the value of the estate". The bankruptcy court agreed to the request and named a trustee to run Eastern in April 1990, with the goal of continuing to operate the company and find a buyer. The move was described by experts as "rare" in a bankruptcy case.
Eastern ceased operations on 18 January 1991 and its assets were liquidated.
Airline legacy
"Frank Lorenzo has etched an indelible mark on the U.S. airline business. Whether he is a union buster, an opportunist, or a keen businessman depends on one's perspective, but his mark has been deep and may be lasting," wrote James Ott on Lorenzo's departure from Continental.Lorenzo is frequently described as "anti-union", particularly after the bankruptcy at Continental, which voided the union contracts in the successful effort to save the airline from liquidation and permanent job losses. At Texas International Air, he demanded wage concessions in 1974 to return the company to profitability, and one union went on strike; when he began hiring replacement workers, other unions at the company joined the strike. After four months, the unions returned to work and TIA went on to reach profitability in 1976. Before his takeover of Eastern was completed, his efforts to build a sustainable, profitable airline model were criticized, with opponents saying his companies' profits were earned "on the backs of broken labor contracts, extremely low wages and harsh work rules."
Savoy Capital
In 1990, after having been CEO for Continental and Texas International for 18 years, Lorenzo sold his controlling interest in Continental Airlines to Scandinavian Airlines System (SAS), and stepped down from his CEO role to pursue other entrepreneurial and investment ventures. Lorenzo’s departure from Continental was a basic part of the deal, required by both Lorenzo and SAS, although he remained a director of Continental for two years afterwards as part of the arrangements. During his eighteen year tenure, the airline grew from 15 jet aircraft and revenues of $73 million, to 350 jet aircraft and revenues of over $5 billion. After the sale of his interest in Continental, Lorenzo founded Savoy Capital, Inc. in 1990 in Houston, TX. Savoy is a private investment firm largely investing for its own account, but which also invests on behalf of accredited outside investors.ATX, Inc.
In 1994, a company in which Lorenzo was a significant shareholder, ATX Inc., attempted to start a low-cost airline serving the east coast of the United States. A regulatory application by ATX was rejected by the U.S. Department of Transportation; the agency said that under Lorenzo's supervision, Eastern Airlines and Texas Air had "experienced operational, maintenance and labor-related problems that were among the most serious in the history of U.S. aviation." Lorenzo had reduced his stake in the company to 24 percent and said that he would only serve on its board.Philanthropy
Lorenzo is a trustee of The Hispanic Society of AmericaThe Hispanic Society of America
The Hispanic Society of America is a museum of Spanish, Portuguese, and Latin American art and artifacts, as well as a rare books and manuscripts research library. Founded in 1904 by Archer M...
, an institution with a free-entrance museum of art. The museum is located in New York City, and houses the largest collection of Spanish art outside Spain, with major paintings by Velázquez
Diego Velázquez
Diego Rodríguez de Silva y Velázquez was a Spanish painter who was the leading artist in the court of King Philip IV. He was an individualistic artist of the contemporary Baroque period, important as a portrait artist...
, Goya, Zurbarán, El Greco
El Greco
El Greco was a painter, sculptor and architect of the Spanish Renaissance. "El Greco" was a nickname, a reference to his ethnic Greek origin, and the artist normally signed his paintings with his full birth name in Greek letters, Δομήνικος Θεοτοκόπουλος .El Greco was born on Crete, which was at...
, and Sorolla. He is additionally a trustee of the Woodrow Wilson National Fellowship Foundation located in Princeton, New Jersey. Lorenzo is involved as a director, donor, or advisor to several other arts and charitable organizations, including the International Advisory Board of Catalonia, Spain.
In 1986, Lorenzo established the Olegario Lorenzo Memorial Scholarship Fund at Columbia College.
Personal
Lorenzo married Sharon Neill (néeMarried and maiden names
A married name is the family name adopted by a person upon marriage. When a person assumes the family name of her spouse, the new name replaces the maiden name....
Murray) in 1972, and has four children.