Flying Far. But Was It Too Far?

See the new issue of Briefings magazine, available at newsstands and online.

His name alone could spark anger at the dinner tables of airline employees across the country. By the thousands, he replaced striking workers with his own temps and was among the first to use bankruptcy court to void union contracts. He was once described by a TV commentator as “probably the most-hated man in America.”

But time has complicated the legacy of Frank Lorenzo, the former head of Texas Air Corporation, the largest airline holding company in the mid-1980s. He argued then, and still would today, that he was trying to keep his airplanes flying. The question now may be how far is too far when corporate leaders seek salvation with Draconian cost-cutting?

With Ivy League credentials and a Queens-born bluntness, Lorenzo came onto the scene during some of the airline industry’s most turbulent days. He built Texas Air into a giant—one that would control, among others, Continental and Eastern Airlines—at the height of airline deregulation, when massive consolidation and startup fever ruled the day.

Lorenzo is credited by some with helping to introduce the airfare structure we see today, where low prices—dubbed “peanut fares” back in the day—are offered for advance bookings and calibrated by demand. He realized early on the importance of dominating markets with more low fares and flight offerings, and using mergers to boost needed resources. At one point, Eastern alone flew to 26 countries on three continents.

But what made him such a lightning rod for controversy was his argument that the labor costs of airlines he bought were just too high to compete with the upstarts. Some CEOs from the so-called legacy carriers took a more gradual approach toward adjusting costs, paying lower wages only to new hires. But Lorenzo pushed for stiffer labor cuts that led to strikes and bitter accusations of union busting.

In 1983, he took the then-rare step of filing for bankruptcy protection for Continental, which led to a voiding of union contracts and the cutting of a third of the airline’s staff. The filing made him public enemy No. 1 among unions, but the airline eventually emerged from Chapter 11. When he tried to win concessions a few years later from Eastern, which was heavily losing money, the carrier’s unions threw down the gauntlet. What began as an effort to keep Lorenzo from selling Eastern’s assets to benefit his other airlines evolved into a bitter fight to the death—literally, for Eastern.

“Nowhere other than Eastern,” reported The New York Times, “did the labor struggle last as long or assume the form of a crusade.” Lorenzo hired non-union pilots, flight attendants and machinists after Eastern went on strike in 1989, and the airline filed for bankruptcy protection the same year. For their part, the unions raised safety questions about Eastern. The dispute, in all its ugliness, sent customers fleeing in droves. In 1990, the bankruptcy court removed Lorenzo from Eastern and appointed a trustee. But within the year Eastern was grounded … forever.

“Eastern was unfixable when he took it over,” says Ted Reed, aviation reporter for The Street and Forbes, who covered Eastern in the 1980s. “But he went to war with his employees, which wasn’t a good way to go.”

Today, the larger question is: What type of response by a CEO would be considered appropriate, now that the concepts of corporate and social responsibility have greater currency? Most companies agree that attending to the concerns of other stakeholders—employees, communities and society at large—is as important as any measure. As for Lorenzo, in a rare interview he said that he doesn’t discount that either, but that it can be a luxury when survival is at stake, as some major carriers that later filed for Chapter 11 in order to stay in business discovered. “We knew if we weren’t responsive to our passengers we were dead,” he said. Otherwise, he said he wished he had been more PR- savvy. “I was a babe in the woods on public relations.”

Though circumstances certainly change, the pressures to perform, deliver and survive are familiar to any corporate head. Now 76, Lorenzo long ago turned his attention to running his own investment- and asset-management company. He never again returned to the not-so-friendly skies.

Authors

  • Peter Zheutlin

    Contributor, Korn Ferry Institute