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CHAPTER 10
WHO ARE THESE GUYS?
Frank Lorenzo and His Kind

In the Hollywood classic Butch Cassidy and the Sundance Kid, the two train robbing protagonists, played by Robert Redford and Paul Newman, find themselves pursued relentlessly by a new and mysterious group of lawmen they can only glimpse in the distance. The two outlaws try every trick in their considerable bag to throw these shadowy, deliberate trackers off their trail. As they flee, “Butch” and “Sundance” mutter repeatedly to themselves: “Who are those guys?”

In the modern era, airline pilots would find themselves in similar straits. But instead of a shadowy posse wearing straw boaters, airline pilots would find themselves pursued by a new band of corporate executives, intent upon making fundamental changes in pilot pay and working conditions. These new-breed airline managers were something different in the history of the industry. In the old days, managers tended to be, first and foremost, real airline people, as imbued with the mystique of aviation as any airline pilot. Indeed, many of them were pilots. Even some of the legendary old curmudgeons of management who were not originally airline men (like W.A. “Pat” Patterson of United, a Wells Fargo banker from San Francisco) eventually became real airline men.

The new corporate wheeler-dealers who began entering the airline business in the 1970s were quite different. Their natural milieu was the boardroom, not airline operations. Their pride was manipulating paper profits, not building something real out of muscle, sweat, and dreams. Their interest in aviation was nil—airplanes were just another “tangible asset” to them, something to manipulate, not admire. As for the working people who actually made the labor-intensive airline industry function, this new breed of corporate whiz kids seemed interested in them only as targets. For these “modern” airline executives, only the “bottom line” mattered.

Nothing was intrinsically wrong with managers who made profit and efficiency their watchwords. Historically, if management had not paid attention to these fundamental concerns, no airline pilot would have been secure in the profession. But the old breed of managers had established their bonafides, paid their dues, and earned the confidence (or grudging respect) of the men and women who worked for them. Owing to the prolabor political climate that marked most of these years, the old managerial elite also (with a few exceptions) generally played by the rules and honored the concept of equitable give-and-take when dealing with their employees.

The new breed held these old standards in contempt. Their attitude toward unionized employees was not something the Old Guys who built ALPA hadn’t experienced in their time. Pioneer airline managers were often mean “bottom liners,” too, but pilots never had any doubts about those managers’ ability to run an airline. What worried pilots most about this new breed of managers was their basic incompetence. Who were these guys, and where did they came from?

As the era of deregulation dawned, this new managerial breed was positioned to assume a dominant role in the airline industry. Many of them were only in their 30s, often recently graduated from prestigious Master of Business Administration (MBA) degree programs and without practical experience in the airline industry. As they began percolating into top airline management in the 1970s, these new “whiz kids” often seemed to believe that the airline industry began with them and that the lessons of the past and its accumulated wisdom had no relevance.

By the early 1980s, as the country slipped into recession and large numbers of airline pilots found themselves either furloughed or in danger of losing their jobs through bankruptcy, this managerial trend became an issue for ALPA. It was so worrisome that it repeatedly surfaced in formal meetings as a topic of discussion. At the May 1982 Executive Board meeting in Washington, D.C., J.J. O’Donnell stated the problem clearly: “Unlike most American unions, airline pilots have historically participated in traditional management areas. We cannot afford to bury our heads and later cry ‘poor management,’” O’Donnell told the delegates.

Following up on O’Donnell’s remarks, ALPA Secretary Tom Ashwood declared: “It stretches credibility that management makes decisions that place the very existence of our airlines in jeopardy. They act like wildcat oil drillers, either boom or bust, with expensive idiocies and ‘brilliant innovations’ from which they seldom suffer. We have to stop them from doing foolish things. Our industry and our careers are far too important to leave solely in the hands of management.”

Even worse, these new managers were awfully sure of themselves, full of the kind of cocky self-confidence that showed in the series of changes, both financial and operational, that they instituted and that left many grizzled old veterans (both in management and in cockpits) uneasy. Arrogance and ignorance, volatile and dangerous when mixed, marked many of their decisions, particularly in the ruinous price wars and fare-cutting that marked the immediate postderegulation period. But for pilots actually flying the line, the worst thing about the new breed of airline managers was that whenever they could conveniently break the long-established rules of labor/management relations, they did so—gleefully!

As these new “go-go” corporate manipulators began to dominate airline boardrooms, questions would arise about their intentions, abilities, and background. Many of them came out of nowhere, with absolutely no experience in airline operations. The old idea that corporate executives should work their way up in an industry, “learning the ropes,” seemed to disappear, as airline chiefs suddenly began to emerge from obscure backgrounds, schools of “hotel management,” shadowy Wall Street “consulting firms,” and increasingly, from the graduate schools of business administration.

One thing the Icahns, Lorenzos, and Ferrises all shared in common, however, was the conviction that airline pilots were “overpaid and underworked.” The same went for ground support personnel and flight attendants.

Phil Nash, who went to work for Continental in 1966 after serving in the U.S. Air Force, and later became an ALPA EVP in 1980–82, will never forget his first encounter with Frank Lorenzo. Above all others, Lorenzo typified this new managerial breed. At a special meeting in Denver, Nash asked Lorenzo (who was in the process of taking over Continental at the time) why he was so intent on reducing the pay of flight attendants. Didn’t he know, Phil Nash asked, that many of them were single parents who couldn’t afford to own homes at the pay rates he was proposing? Lorenzo looked at Nash as if he were crazy.

“Quite frankly, I don’t believe flight attendants ought to make enough money so they can own houses,” Lorenzo told a flabbergasted Nash. “Maybe they should find another job that pays better.”

When Frank Lorenzo captured Continental in 1982, he clearly saw pilots as the most tempting target for establishing the “cost advantage” he worshipped like a religion. Lorenzo was by no means alone in this new faith. At American Airlines (no longer part of ALPA), pilots in the Allied Pilots Association had already submitted to a humiliating “B-Scale” forced upon them by Robert Crandall. The United pilots, under pressure from Dick Ferris, had acquiesced in the infamous “Blue Skies” contract of 1981 (which we will deal with later). Small wonder that professional airline pilots began looking back over their shoulders at people like Ferris and Lorenzo, wondering, as had Butch and Sundance: “Who are these guys?”

The question was more than an idle one, for as deregulation became a reality after 1978, the future of the profession rested in the hands of this new managerial class. Did the United pilots really deserve to have their fate decided by somebody like Dick Ferris? “Who was this guy?”

After graduating from high school in the 1950s, Dick Ferris joined the Army. Today, contemporary advertisements urging young people to “Be All You Can Be” usually stress the challenges, both physical and moral, that result from exposure to combat arms. To think that Dick Ferris spent time in the military learning to function in this most rigorous school of human experience—commanding (and being commanded) in an arena where life and death literally hang in the balance—would be nice.

But Dick Ferris didn’t command an armored personnel carrier or maintain complicated electronic gear aboard a ship. Ferris didn’t ramrod a heavy weapons squad or master the intricacies of military aviation. Dick Ferris ran an enlisted servicemen’s club! After mustering out of the Army in 1962, Ferris entered Cornell University, one of the most prestigious institutions in the nation. But Cornell serves a curious role as a “quasi-governmental” university. In addition to the traditional colleges in the university, whose academic rigor leaves no doubt about their graduates’ ability, Cornell also contains certain “contract” schools operated under special auspices. To report that Dick Ferris earned a degree in engineering, business, or one of the traditional liberal arts at Cornell would be nice. But he didn’t. Dick Ferris studied in the school of “hotel management.” In addition, his early biographical PR sheets indicate that he merely “attended,” which is a coded way of saying he never earned a formal degree.

By 1966, when Ferris was 29, he had become the manager of a hotel in Chicago. Again to report that Ferris’s rise in the hotel business was the result of his own drive, ambition, energy and talent would be nice. Perhaps he had all these qualities, but the truth is that his rapid rise owed more to his “close friendship” with Edward Carlson, then CEO of the Western Hotels chain (later renamed Westin Hotels). The downside of the “Horatio Alger” myth—that any young person can rise from rags to riches—is that insider connections (marrying the boss’s daughter, as it were) often have been an easier and more certain path to success. Maybe Dick Ferris was the most competent 29-year-old hotel desk clerk in the world. Then again, maybe he was just good at “sucking up.”

When United bought the Westin Hotels in 1970, the vagaries of boardroom politics brought Carlson to the top of United itself. Dick Ferris trailed in his wake, at first managing the airline’s food service operations. He must have been good at it. Within four years, he was president of the airline! In 1976, Ferris replaced Carlson and became CEO of the whole of United. It was quite a rise. In barely six years, Ferris had gone from supervising in-flight meals to running the entire corporation!

But Dick Ferris’s rapid rise (and as we shall see, equally rapid demise) was by no means unique. The 1980s saw the emergence of any number of young hotshots whose qualifications were minimal. The one thing they had in common was that they were all excellent “talkers” who could, as the saying goes, “sell refrigerators to Eskimos.” Dick Ferris, for one, certainly sold the United pilots the equivalent of an Eskimo’s refrigerator when he persuaded them to buy “Blue Skies” in 1981, as we shall see.

But the man who defined this new class of managers, the one whose verbal abilities outstripped all the others and earned him the nickname “Frankie Smooth Talk,” was Francisco A. “Frank” Lorenzo.

Who was Frank Lorenzo? The Texas International pilots would be the first to find out—rather like Czechoslovakia found out about Hitler.

Texas International Airlines began life as Trans-Texas Airways (TTA) in October 1947, flying DC-3s over the Houston–San Antonio–Dallas triangle, with stops at intermediate cities. TTA also had route extensions to several smaller Texas cities feeding Braniff, but Braniff, which feared all competition in its home Texas market, bitterly objected to its birth. TTA was thus one of the original batch of “second level” airlines that the Civil Aeronautics Board had permitted to develop with a dual purpose—they provided limited competition for the “trunks,” while also being “feeders” for them.

But TTA promised to become more than a mere “feeder.” It had a coherent route structure within the only state to contain 3 of the ten largest U.S. cities (Dallas–Ft. Worth, Houston, and San Antonio), each separated by enough distance to make airline operations feasible. The other post-World War II “regionals” were, for the most part, heavily dependent upon “flow through” traffic destined for the trunk carriers—rather like modern “code sharing” airlines.

By the mid-1950s, when regional airlines had became known officially as “local service carriers” (LSCs), the United States had 13 of them. The LSCs joined the 11 “trunks” as the stable basis for the old integrated system of government-regulated airlines. TTA, along with Mohawk (which would eventually serve all four major New York population centers), came closest among LSCs to being able to survive without the CAB subsidy. But none of them was really self-sustaining economically, nor were they intended to be. The LSCs operated as regulated public utilities, serving mostly smaller cities.

Although LSC pilots began as second-class citizens in the airline industry, they were caught in the great post-World War II job crunch and thus were grateful for any flying job. Initially, ALPA acquiesced in substandard pay for them to establish their right to collectively bargain in the future. But ALPA explicitly promised to bring them up to “industry standards” once the lean years were over and their airlines became successful. By the late 1960s ALPA had fulfilled this pledge.

Life for LSC pilots was thus good, and many “trunk” pilots who signed on temporarily during a furlough chose to remain with them, rather than trade a copilot’s job for a return to the “plumber” slot upon recall. Because ALPA had cooperated with the LSCs to get union representation established, pay parity with the “trunks,” generally speaking, became a reality by the late 1960s. LSC pilots still made less money, on average, than “trunk” pilots, but only because they flew lower-paying equipment. Economically, they were doing fine, with their pay scales and working conditions benefiting from ALPA’s ancient policy (supported by government regulators) that all pilot pay, regardless of the airline, should be roughly the same for flying comparable aircraft. Since the days of Dave Behncke, the golden spike that held together the cherished concept of unity across company lines was ALPA’s determination that all airlines, regardless of size or equipment, should consider pilot pay as the one fixed expense shared in common.

As LSCs acquired turbojet equipment, something very curious happened. The CAB, under increasing pressure because of federal budget deficits caused by the Vietnam War, adopted a policy of weaning LSCs from the subsidy. The original purpose of LSCs was to serve markets which were, by their nature, unable to sustain airline operations profitably. To make them self-sustaining, the CAB had no alternative but to grant LSCs “route authority” to serve “city pair” markets that had heretofore been reserved for the trunks. LSCs would thus become “profitable” by tapping into the trunks’ market share. In the late 1960s, the CAB began allowing LSCs to serve selected city-pair markets; the CAB would deduct their profits from the subsidy paid to support their old unprofitable routes.

In November 1967, Frontier Airlines reduced the LSC concept to ultimate absurdity when it applied for a trans-continental route! TTA went Frontier one better in 1968, winning the right to serve a route into Mexico. TTA thus became Texas International (TXI). By 1970, the distinction between “locals” and “trunks” had vanished. The old LSCs would henceforth be known, colloquially, as “regional” airlines, but in fact they were simply smaller versions of the “trunks.”

Along with their new status, regional airlines like TXI also faced new problems. The old TTA pilots, men like Floyd Carpenter, a World War II B-17 pilot who had grown up with the airline, saw their group’s numbers increase to more than 400 as DC-9s came on the line in the late 1960s. Their route structure expanded accordingly. Carpenter and his fellow “Old Guys” had organized TTA for ALPA in 1949 and, despite occasional problems with the owner of the airline, a classic Texas-type “good ole’ boy” named R.E. McKaughan, had lived in reasonable harmony with him. The TTA pilots had never had a strike; but on one memorable Christmas Eve in 1959, when contract negotiations were going badly, they came close. McKaughan sent every pilot a termination notice! Then he hired them all back on Christmas Day.

“Some people in senior management were extremely close to the pilots and smoothed that mess over,” remembers Dennis Higgins, who went to work for TXI in 1966 and would later become MEC chairman. “They spent time in pilots’ homes, went to kids’ graduations. It was very much a family atmosphere.”

But into this Texas version of a labor-relations Eden, a snake crawled. The CAB’s new policy of turning the former LSCs loose to live or die in competition with the big boys caused trouble. Frankly, old man McKaughan and his family were not equal to the challenge. As airline entrepreneurs, they were like bugs in amber—fixed in the past, incapable of changing their ways of doing business. By late 1969, TXI was in deep trouble, teetering on the edge of insolvency.

“The airline started out as a little family operation, and the McKaughans had reached the top of their ability to run it,” Dennis Higgins believes. “They just couldn’t transition into the jet age. I once heard old man McKaughan say, ‘You know, when they start charging more than $25,000 for an airplane, the airline business doesn’t make sense anymore.’”

The McKaughans sold out in 1969 to a consortium of investors called Minnesota Enterprises, among whom was Carl Pohlad, later famous as the owner of the Minnesota Twins baseball team. The investment quickly went sour. Pohlad and his associates paid $25 per share. Within a year, TXI stock was trading for less than $2 per share. Minnesota Enterprises needed help! They went through a series of managerial gyrations while frantically beating the bushes trying to find someone who could run an airline.

Enter Frank Lorenzo.

In 1971, at the behest of Chase Manhattan Bank, which had money of its own tied up in TXI, 31-year-old Frank Lorenzo and his partner, Robert J. Carney, both recently graduated from Harvard University’s MBA program, were sent down from New York as “consultants” to advise Minnesota Enterprises on how to right this listing ship called TXI. Previously. Lorenzo had worked as a financial analyst for both TWA and Eastern, which seemed innocuous enough. The chickens, in short, had no way of knowing that they had just invited the fox into their coop.

By 1972, after a year on the property as shadowy figures unknown to most of the pilots, Lorenzo and Carney completed their “consultancy” at TXI (they were paid $15,000 per month) and delivered their recommendations. Minnesota Enterprises should, Lorenzo and his Harvard business school chum Carney said, let them buy the airline. Since TXI was sliding into financial ruin anyway, Pohlad and his associates agreed to a deal that allowed Jet Capital (a company Lorenzo had put together in 1969 with a total capitalization of $50,000) to use money borrowed from the owners to acquire the airline. Frank Lorenzo was off and running in the airline game, playing it with other people’s money. But he had a plan to pay the money back, a plan of such brilliant simplicity that Lorenzo was amazed nobody had thought of it before. The unionized employees of TXI would pay off the debt!

“From beginning to end, Lorenzo knew only one way to produce profits,” Dennis Higgins declares. “That was by manipulating the employees’ pay downward and their productivity upward.”

Lorenzo, for all his faults, made no secret of his plans, but he deviously led various employee groups to believe that he was after concessions only from other unions. At the time of his takeover, Lorenzo hosted a cocktail reception for TXI’s pilots at Houston’s Intercontinental Hotel. Lorenzo flatly declared that except for pilots, he intended to take the airline back to the employment levels of 1967.

”‘There are profits to be made here,’” Dennis Higgins recalls Lorenzo saying. ‘We are going to continue operating the same number of trips, but we are going to get rid of some ground folks.’”

Since TXI’s “ground folks” were unionized, this strategy meant that the airline was in for a long bout of old-fashioned labor strife. Lorenzo seemed eager to take on his unions. He proposed turning many of TXI’s baggage handlers and ticket agents into “temporary” employees—the bane of organized labor. He argued that many of TXI’s outlying cities, which often had only one or two flights per day, had no need of full-time employees. He intended to hire part-timers, college students and the like, to work only during those times when a flight was arriving and departing. Lorenzo straightforwardly told the pilots that TXI could not survive if the profits earned by their labors continued being siphoned off by employees who spent most of their time sitting around doing nothing. He was persuasive. Not for nothing was Lorenzo known, as far back as his Harvard MBA days, as “Frankie Smooth Talk.”

Some pilots at the Intercontinental Hotel meeting argued, rather feebly, that Lorenzo ought to try offering a better product instead of changing the character of TXI’s workforce. He was having none of that.

“Lorenzo was openly against the better-product concept,” Dennis Higgins recalls. “He said, ‘The traveling public looks for the dollar sign. What they are interested in is a cheap seat. The ones who don’t like our service can go pay higher prices on another carrier.’ He was very cynical about the public.”

TXI’s pilots, fully committed to their airline’s success, wanted to be as supportive of Lorenzo as possible. They understood that his approach would stir resistance among ground employees, but they really were in no position to challenge Lorenzo until the ground unions, his first target, tested his strength.

TXI’s ground personnel were represented by the Air Line Employees Association (ALEA). Dave Behncke had helped create ALEA in the early 1940s, when he was trying to put together an “umbrella of airline unions” (as he put it) with himself at the head. ALEA was a relatively quiet union with a peaceful reputation. Lorenzo, confident that ALEA was the weakest link in the union chain at TXI, at first focused his demands on only one category of ALEA workers—the ticket agents.

Lorenzo’s labor-relations style and bargaining technique were honed in the ALEA strike of 1974–75. Basically, his plan was to divide and conquer, to negotiate endlessly, but to never agree to anything concrete. These tactics, which would become familiar, served to keep the ALEA-represented agents in a state of constant nervous turmoil and emotional distress. TXI’s pilots could only watch with anxiety, grateful that ALPA wasn’t under assault.

But Lorenzo’s war on his ticket agents put TXI’s pilot group under pressure nevertheless. Some pilots actually supported Lorenzo’s demand for massive part-time working provisions from the agents, which would, of course, reduce TXI’s expenses and make the airline more profitable, largely by eliminating such things as retirement and health benefits.

“If you looked at it strictly from a management point-of-view, it was not a bad idea,” Dennis Higgins concedes.

In December 1974, ALEA, pressed beyond limits, went on strike. ALPA and the International Association of Machinists (IAM), the other two major unionized groups on TXI, did nothing at first. Five days into the strike, Lorenzo ratcheted up the pressure when he began hiring “permanent replacements” for the striking ALEA members. Although badly divided about what to do, TXI’s pilots decided that Lorenzo’s decision to hire scabs permanently was a direct threat to all unionized workers at TXI. After an intense debate, TXI’s pilots joined the IAM and other unionized workers in announcing they would honor ALEA’s picket lines. Lorenzo promptly sued ALPA for $3 million, while simultaneously asking the court for an injunction forcing pilots to cross ALEA’s picket lines.

Lorenzo would lose the legal battle, but win the war. In the 1970s, the legacy of previous liberal Democratic presidential appointments to the federal bench meant that the courts were at least neutral, if not slightly prolabor, ideologically. On Feb. 12, 1975, a federal judge in Dallas ruled that ALPA could legally honor ALEA’s picket lines without violating its contract with TXI. Lorenzo, who had already announced that TXI would resume operations on Feb. 13, 1975, had to hastily cancel. Had he won the injunction, he was fully prepared to begin hiring permanent replacements for pilots who refused to return to work.1 Lorenzo’s actions would undoubtedly have triggered the kind of “crossover” crisis among TXI’s pilots in 1975 that the combined TXI–Continental pilots would later experience in 1983.

Meanwhile, with his plan to fly through the ALEA strike stymied by the courts and with his airline shut down, Lorenzo coolly took advantage of the airline industry’s Mutual Aid Pact (MAP) to keep TXI’s coffers full. The MAP was actually the key to Lorenzo’s strategy and eventual victory. Created in October 1958 by six “trunk” airlines (others would join later), the MAP was the airline industry’s direct response to a series of successful strikes by ALPA and other unions in the 1950s. Under terms of the original MAP, a struck carrier would refer its customers to one of the other pact members and then receive back from those carriers, through the MAP, payment equal to the increase in their revenues. The CAB later forced technical, cosmetic changes in the original MAP plan, but basically it functioned like a “capital strike” slush fund.

During the MAP’s 20-year history (it would be a casualty of airline deregulation in 1978 and an intensive ALPA lobbying campaign), this antistrike profit-sharing arrangement was at best a mixed blessing for the airline industry. Responsible managers who negotiated fairly with their employees avoided strikes, paid vast sums into the MAP “contingency fund,” and got nothing back from it. But irresponsible managers could goad their employees into strikes and then take MAP money out, thus earning profits while not flying. The MAP system was therefore vulnerable to abuse. But until Lorenzo’s emergence, no airline except Northwest had really misused the MAP. Lorenzo’s actions during the ALEA strike of 1974–75, some careful observers of the airline industry believed, might have eventually caused the MAP to fall of its own weight.

To pilots who ask the age-old question, “What has ALPA done for me lately?” no better historical answer exists than the 1975–78 lobbying campaign against the MAP. Every airline pilot everywhere, whether represented by an ALPA contract or not, stood to suffer from the MAP. If each of these pilot groups, standing alone, had sent its MEC chairman down to Washington to lobby against the MAP as unaffiliated, local union leaders, the effort would in all probability have gotten nowhere. Every pilot flying the line today should always remember old Dave Behncke’s ancient argument, first advanced in 1931 during his struggle to persuade his fellow pilots, that unionization was the only way to get their voice heard.

“If we go down to Washington as a weak, unaffiliated organization,” Behncke told his fellow pilots, “about all we would get is, ‘It’s a nice day. How does it seem to fly?’”

During the 1960s, ALPA’s professional lobbying staff had suffered from Charley Ruby’s disdain for politicians and consequent neglect. J.J. O’Donnell, in his first term, had begun to rebuild ALPA’s lobbying capability by hiring a new Legislative Affairs director, a former member of Congress named Robert Gartland, whom everybody referred to as “the Judge.” Gartland, a colorful southerner who reminded many pilots of an alcoholic character out of a Faulkner novel, was supposed to use his extensive personal contacts with politicians in Congress to open doors for O’Donnell, who intended to do most of the lobbying himself. In 1975, largely because Gartland had proven inept at running the anti-MAP campaign following the Northwest strike of 1972, O’Donnell eased him out in favor of a Bob Bonitati. Bonitati, a former Republican presidential aide who had a professional’s healthy disdain for what he called “amateur pilot lobbyists,” had worked as a congressional liaison for the Office of Management and Budget in the Nixon and Ford Administrations. He moved quickly, under no illusions that if he did not show results in the war on the MAP, he would suffer the same fate as “Judge” Gartland.

As ALPA’s Legislative Affairs director, Bonitati began his anti-MAP strategy by establishing close contacts with several Democratic congressmen and senators who chaired key committees. It was a slow process, requiring a good deal of personal attention by O’Donnell—fund-raising dinners, helpful letters during political campaigns, and so on. O’Donnell was good at ingratiating himself with politicians, as even his strongest critics conceded. But lobbying was a skill that could not, by the very nature of politics, spring to maturity at once. In politics, nothing happens overnight.

Northwest’s heavy use of the MAP in the bitter three-month strike of 1972 (June 30–October 2) had alerted O’Donnell and ALPA’s national officers to the dangers of the MAP. At the time of the Northwest strike however, ALPA’s lobbying capability, which O’Donnell had made a priority of his first term, was still not fully developed. When Lorenzo plunged TXI’s pilots into crisis in 1975, it was obvious that the MAP (far more so than during the previous Northwest strike) was potentially very dangerous to ALPA.

“ALPA has always confronted the industry in the form of a particular carrier acting as the cutting edge for the entire industry,” argues ALPA General Counsel Henry Weiss. “Once the Mutual Aid Pact was created, this was particularly true. Certain carriers would take provocative actions, then go happily to the bank at the expense of their fellow carriers, including those who had good labor relations. I personally had discussions with the top people of at least two such carriers. I asked, ‘Why on earth do you want to subsidize a carrier that creates havoc in the industry?’ They said,‘It’s an insurance policy for us.’”

Until Frank Lorenzo came on the scene, the MAP “insurance policy” was probably worth its premiums. But Lorenzo’s blatant exploitation of it to defeat his employees in a situation from which other carriers not only would not profit, but which would do them actual competitive harm, caused many airline managers to rethink the value of this “insurance policy.”

“We did not turn a wheel for four months, and Frank Lorenzo made $10 million in pure profit from MAP payments!” Dennis Higgins asserts angrily. “I think his misuse of their money was the linchpin in his fellow owners’ decision to get rid of the Mutual Aid Pact. They just couldn’t afford this guy!”

ALPA certainly helped Lorenzo’s fellow owners to arrive at this decision. All during the ALEA strike, J.J. O’Donnell lobbied furiously in Congress against the MAP. While the strike was in progress, O’Donnell persuaded 58 members of Congress to cosponsor Minnesota Rep. Joseph Karth’s bill to outlaw the MAP. Rep. Glenn Anderson of California, chairman of the key Aviation Subcommittee of the House Public Works and Transportation Committee, signed on, as did Sen. Mike Gravel of Alaska, who agreed to enter the MAP abolition bill in his chamber. All of these lawmakers were Democrats.

Inasmuch as most airline pilots were probably Republicans, O’Donnell ironically had to struggle mightily to find at least a few Republicans who would sign on as cosponsors of ALPA’s anti-MAP bill. Eventually he persuaded two Republican Senators, Clifford Case of New Jersey and Richard Schweiker of Pennsylvania, to join six liberal Democrats (among whom was former World War II bomber pilot George McGovern) to cosponsor ALPA’s anti-MAP bill. Lining up two Republican Senate sponsors was no mean feat for O’Donnell, for as we shall see, the evolution of their party into an intensely antilabor posture was almost complete by the mid-1970s. In 1989, proof of the Republicans’ antilabor position became clear. When both houses of Congress passed legislation requiring a Presidential Emergency Board (PEB) to resolve Frank Lorenzo’s last antilabor spasm at Eastern, George Bush vetoed it. His fellow Republicans in Congress sustained the veto, thus dooming Eastern’s pilots.2

“The Mutual Aid Pact was absolutely the complete answer to any attempt by a pilot group to strike or get its demands satisfied,” says Henry Weiss angrily. “ALPA had to put up a tremendous battle to get rid of the MAP.”

Whether Frank Lorenzo actually helped destroy the MAP by providing a textbook case of how to abuse it remains unclear. Certainly he used it to his own advantage during the four-month ALEA strike in 1974–75. After winning the strike, he would, owing to the cash reserves he had on hand from MAP, be in a position to undercut his competition. Lorenzo began offering “Peanut Fares,” which were unprofitable even with a full planeload of passengers, but which nevertheless forced other airlines into a series of ruinous price wars that would spread with devastating effect throughout the industry during the early 1980s. This destructive chain of fare-cutting provided the rationale under which management pressured pilots and other unionized employees into contract “givebacks.”

So the widening ripples in the airline industry’s troubled pond began with Frank Lorenzo’s war against ALEA in 1974–75. Had the MAP not existed, Lorenzo could not have caused such turmoil. Consequently, when airline deregulation finally killed the MAP in 1978 (as the result of congressional compromise made during its passage), few responsible airline managers shed tears for it.

The 1974–75 ALEA strike was ALPA’s first exposure to Lorenzo’s multifaceted approach to breaking a strike. It would not be the last. It left TXI’s pilots angry, shell-shocked, and wary.

“Lorenzo got us out in the street, and he wasn’t going to let us back on the property unless it was on his terms,” Dennis Higgins remembers bitterly. “He got his part-time provisions from the ground personnel by beating up on all of us. He divided and conquered, and he won, absolutely whipped us, and we were afraid of him. The worst thing about the guy, though, was that while he was a corporate manipulator without peer, he didn’t know anything about running an airline.”

But regardless of whether he knew what he was doing, Lorenzo was on his way. In the late 1970s, Pan American, that magnificent cripple, during one of its recurrent crises inadvertently gave Lorenzo a boost. Pan Am needed regional domestic partner airlines to funnel passengers into its international route system. But before deregulation, the only way for Pan Am to get into the domestic market was to buy its way in. Not realizing the ruthlessness of the man they were dealing with, Pan Am’s president, former U.S. Air Force General William T. Seawell, made a minor “hub and spoke” agreement with Lorenzo to feed his Latin American routes out of Houston. Meanwhile Seawell was trying to buy National Airlines.

George T. “Ted” Baker had built National from one inconsequential little airmail route linking St. Petersburg and Daytona Beach into a “trunk” carrier. Following the airmail crisis of 1934, Eastern’s Eddie Rickenbacker had failed to bid on the route. Baker grabbed it, expanded National to Miami later, and eventually provided stiff competition for Eastern all up and down the Eastern seaboard. In 1962, Baker sold National to Lewis B. “Bud” Maytag, who had formerly owned Frontier. Maytag proved an inept manager, and National went through a series of revolving door managements into the 1970s, as rumors about its demise through merger swirled. The most-often mentioned merger partner was Pan Am.

Because of Lorenzo’s working relationship with Pan Am, he observed this mating dance with great interest. In 1978, he quietly launched a program to purchase National stock, which, as Pan Am’s merger with National approached, helped drive the price up. In 1979, Lorenzo cleared $40 million from this market operation, which was really little more than corporate “greenmail.”

“I was in the CAB hearing room when they subpoenaed Lorenzo to testify on the Pan Am-National merger,” former TXI MEC Chairman Dennis Higgins says. “The president of Pan Am, Bill Seawell, was there, and he told this little story. He said that during a luncheon meeting in New York he told Lorenzo that he was going to buy National, but that he might want Frank to serve spokes to feed his other hubs. About a month later, Seawell invited Lorenzo to London for a big party to celebrate the inaugural of Pan Am’s service out of Houston. When Frank and his wife get over there, they go up to Seawell’s hospitality suite, and Frank tells him, ‘By the way, I recently purchased 17 percent of National’s stock.’ Seawell was so mad he nearly threw Frank off the top floor of the hotel.”

According to Seawell’s official CAB testimony, Lorenzo used “inside information” to profit from the Pan Am-National merger. Seawell claimed to be “seething mad” about it.

“I myself heard Frank say, ‘I bought National stock for $17, and I’ll sell it for $50.’ I asked Frank who would pay that, and he said, ‘Pan Am will—to get it back.’ We didn’t know where he was taking us,” Dennis Higgins admits.

The airline industry and ALPA were about to find out. Lorenzo, because of his successful stock manipulations during the Pan Am-National merger (finally completed in October 1980), now had the money to put some really ambitious expansion plans into operation. These financial resources, plus his aggressive antiunionism, won the respect of some important Wall Street operators and brought more investment capital his way. By the late 1970s, Lorenzo had attracted the attention of Michael Milken, the “junk bond” and “leveraged buyout” (LBO), manipulator. Milken, a financial felon whose depredations would later earn him a 10-year federal prison sentence (minus his toupee), saw Lorenzo as an ideal investment vehicle. To finance Lorenzo’s expansion plans, Milken would ultimately make available to Lorenzo more than $1 billion!

But these expansion plans did not include TXI’s ALPA pilots. On Dec. 19, 1980, operating through Texas Air Corporation, the holding company that also owned TXI, Lorenzo launched New York Air, a wholly nonunion subsidiary, which would enter direct competition with Eastern’s dominant East Coast shuttle service. He literally took TXI DC-9s off the line, repainted them with an apple logo on the tail (New York City was, of course, the “Big Apple”), and began operating them with nonunion crews he had trained at TXI’s school in Houston. The little man from New York City, by way of the Harvard Business School and TXI, now stood a good chance of becoming deregulation’s first nonunion major player—at the expense of both Eastern and ALPA.

New York Air, Lorenzo’s nonunion “alter ego airline” operation, really got ALPA’s attention! It illustrated clearly what everyone on TXI who lived through the bitter 1974–75 strike and its aftermath in the late 1970s already knew—that Lorenzo was a “one-trick pony.” He knew nothing about the airline business, and he really didn’t care about it. His only strategy was to squeeze labor hard, exploit his employees’ vulnerabilities, and thus generate the cash flow necessary to pay off the crushing burden of debt that he had accumulated in acquiring his properties. Lorenzo was smart, tough, ruthless, and extremely ambitious. His victory over his employees at TXI only whetted his appetite and motivated him to get rid of his unions totally. To ALPA, New York Air (which used the ATC call sign “Apple”) was rotten to the core.

Before deregulation, Lorenzo had to hold the full scope of his antiunion plans in check. The CAB, although it was approaching “sunset” in the dying days of the Carter Administration, still had some residual powers, particularly over “international” carriers like TXI. But with the election of Ronald Reagan in November 1980, Lorenzo expected no hindrance from ALPA’s traditional government allies. It was no accident that Lorenzo set his start-up date for New York Air one month after Reagan’s election. Politically, ALPA was now on its own.

Following the ALEA strike of 1974–75, TXI’s pilots signed a contract that guaranteed labor peace until after the onset of deregulation. Once deregulation became a reality, Lorenzo began pressuring his pilots for a series of structural changes in their contract. At first, the TXI pilots had no inkling of what Lorenzo had in store for them. When they entered contract negotiations in 1979, Lorenzo’s intentions were still unclear, but they realized immediately that Lorenzo was stonewalling them.

Negotiations began with the pilots extremely wary of Lorenzo because working conditions on TXI had deteriorated. Just as he had with the ticket agents represented by ALEA, Lorenzo would negotiate, but he would never agree to anything. Skirting the edge of the law in an effort to get a contract negotiated, the TXI pilots had tried a program that the United pilots would later call WOE—Withdrawal of Enthusiasm. This tactic involved working “to the book,” availing themselves of every reason to take sick leave, and generally doing what they could, short of getting themselves fired, to express their displeasure with Lorenzo. The last thing TXI’s pilots wanted, however, was another strike.

“We knew by then that this guy breaks the rules!” Dennis Higgins says. “We knew we had to be very, very careful with him because if he ever got us out of our cockpits again, we knew he wouldn’t let us back in. He wanted all kinds of changes in our contract, the kinds of things that would force any pilot group to strike. The best legal advice we were getting was that he could not ‘permanently’ replace us, but we knew that he would try some cute trick and do it anyway.”

By early 1981, with the emergence of New York Air, ALPA as a national organization focused its attention on the threat Lorenzo’s tactics and style of management presented. Many ALPA pilot groups believed that the TXI pilots hadn’t put up a stiff enough fight against Lorenzo, that they should have struck him immediately for violations of their “scope clause” when he launched New York Air. But the TXI pilots had fought. They had done everything they could short of striking. Leaving their cockpits, the TXI pilots were convinced, would be suicidal. Their resistance to Lorenzo before, during, and after the New York Air alter-ego airline affair eventually landed them in court, following a three-day “sick-in” during February 1980, which was largely over his demand for changes in their scope clause. Lorenzo was adept at filing lawsuits against his enemies, frequently under the RICO (Racketeer-Influenced Corrupt Organizations) statute, which was originally intended to combat the Mafia.

“I’ll never forget the sight of a dozen of our DC-9s parked on the ramp at Houston,” chuckles Dennis Higgins. “I had never seen so many of our airplanes together before. The ‘sick-in’ really was a spontaneous event. Our pilots had to show this guy that they were in support of their elected leadership. It wasn’t a strike. Our pilots were just sick.”

Lorenzo promptly served Higgins with a “cease and desist” order from a friendly Texas judge and sent teams of nurses around to all the sick pilots’ homes to check on their “illness.”

“The nurse would knock on the door and say, ‘We are here to check on your vital signs,’” Higgins laughs. “We told the pilots to just throw them off their property. We also told them, ‘If you are not sick, go to work.’ The pilots felt like they had shown their strength, but Lorenzo sued us and ALPA national in federal court for damages, contending that we ordered the ‘sick-in.’”

When Lorenzo’s lawsuit alleging an illegal “sick-in” finally came to court in 1981, ALPA got lucky. By chance, the federal judge assigned to the case turned out to be a black woman who Jimmy Carter had appointed and who had a labor law background.

“Judge McDonald called me into her chamber,” Dennis Higgins remembers. “She said, ‘I have to find ALPA guilty, but I want you to know I understand your frustration.’ She then gave Lorenzo no legal fees and no damages and said everybody ought to get back to negotiating.”

In the final throes of the 1980 contract negotiations, TXI’s pilots, although legally bloodied, still fought Lorenzo’s demand for changes in their scope clause down to the wire.

“The train never stopped with Lorenzo,” Higgins says. “We would no sooner finish with an agreement than Lorenzo would draw back from it.”

Just as Lorenzo had during the 1974 ALEA negotiations that led to the strike, he played cat-and-mouse with his pilots. Under National Mediation Board (NMB) auspices, the talks had moved to Oklahoma City, a neutral site. Lorenzo’s negotiating team, headed by Don Breeding (whom the Continental pilots would later come to loathe) boarded a TXI DC-9 at Dallas. When he realized who was aboard, the captain (who now flies for another carrier and doesn’t want his name published) refused to take off.

“The captain wanted to kick them off his plane,” Higgins remembers with a twinkle. “When told he couldn’t, he simply grounded the airplane by writing up a magnetic compass gripe—an absolute no-go item. Breeding appealed to me and said, ‘There’s nothing wrong with that magnetic compass.’ I said, ‘Don, if you’ve got a mechanic’s license, you write off the gripe.’ Which of course, he couldn’t do.”

The Oklahoma City negotiations of February 1980 finally produced a contract. Or so everyone thought.

“It was 2:30 in the morning, we called Lorenzo at home, woke him up, and told him we had finished,” recalls Dennis Higgins. “He said, ‘Great,’ checked with his people that they had costed it out, and told them, ‘Put it on the company teletype so all those mad crews out there know they have a contract.’ We went back to Houston for the official signing, and at this official ceremony, they push a new proposal across the table to remove language from our contract that had to do with ‘successors.’”

The TXI pilots absolutely refused to reopen negotiations, but Lorenzo was undeterred. Through legal maneuvers orchestrated by a newly hired consultant, Phil Bakes, who had until recently been an assistant to Professor Alfred Kahn, the guru of deregulation while he was a member of the CAB, Lorenzo moved ahead with his plans to launch New York Air—in clear defiance of the TXI “successor” clause language. Bakes, after leaving the CAB staff in 1977, signed on with the committee, chaired by Senator Edward M. Kennedy, that approved the Airline Deregulation Act of 1978. Bakes knew more about the inner workings of the new law and the possibilities it offered to Lorenzo than any other man alive. Bakes would use this knowledge to midwife New York Air into the world, as he artfully dodged TXI’s “scope” language.

Dennis Higgins, TXI’s MEC chairman, who had acted as a missionary to the rest of ALPA, warning pilots far and wide that Lorenzo was a formidable foe and a danger to all of them, had done about all he could do.

“We warned everybody that they had to stop this guy, that he does what he wants, that he beats you up,” Higgins sighs. “Despite all our legal advice, the lawyers couldn’t feed into it the really unorthodox things Lorenzo would do and the way the courts would react. I mean, we’d say, ‘Nah, he wouldn’t do that—he couldn’t do that!’ But he would, and he did. We were conventional in our thinking, Lorenzo wasn’t. That was the message we took to the Continental pilots at the time of our merger.”

The TXI pilots had played Czechoslovakia to Lorenzo’s Hitler. The pilots of Continental were about to play.

NOTES
1 A development we will cover later, see “Pilots and PACs, Republicans and Labor,” Ch. 12.
2 See “Pilots and PACs, Republicans and Labor,” Ch. 12.

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