Frank Lorenzo
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This article discusses the airline executive. Frank Lorenzo was also the name of a neighbor on the television sitcom All in the Family.
Francisco A. Lorenzo (b. 1940) is a former airline executive and corporate raider in the United States. His controversial and confrontational tactics, especially with labor unions, for a time made his Texas Air airline holding company the largest in the world, but also threw chaos into the travel industry and won him the moniker "the most hated man in America."
Lorenzo was born May 19, 1940 to Spanish immigrants in Queens, New York. After attending public schools, he graduated from Columbia University in 1961 and Harvard Business School in 1963, and went to work in the finance divisions of Trans World Airlines and Eastern Airlines.
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Rise and fall of Texas Air
Pre-deregulation
In 1969 he and Robert J. Carney established an aircraft leasing company called Jet Capital Corporation. In 1972 Jet Capital acquired Texas International Airlines (TI), a struggling intrastate carrier based at William P. Hobby Airport in Houston, Texas previously known as Trans-Texas Airways. Donald C. Burr, the later founder of People Express, was made vice-president.
While Burr pushed for lower fares to attract more customers, Lorenzo turned his attention to drastic reduction in costs, especially labor. The combination of approaches eventually returned TI to profitability and in 1977, Lorenzo was awarded the Aviation Week and Space Technology Laureates Award by the Smithsonian Institution's National Air and Space Museum. Lorenzo and Burr continued to disagree philosophically, however, and Burr left shortly after the passage of the Airline Deregulation Act of 1978.
Lorenzo saw opportunities in the newly deregulated national market. He had competed with other carriers successfully in the unregulated intrastate market, whereas the major airlines were exposed to competition for the first time in an environment of high fuel prices and high interest rates. By reducing costs (especially at the expense of labor unions) and using junk bond financing, he had the tools to create an empire from distressed carriers. Indeed, the weakness of the giants was revealed in 1979 when Lorenzo forced the iconic Pan American World Airways into a bidding war for National Airlines. Pan Am, keen to enter the U.S. domestic market, won the takeover battle but at a price of $400 million; the merger proved disastrous for Pan Am (see related article) but TI profited handsomely.
New York Air
On June 11, 1980 Lorenzo created a new Jet Capital-controlled holding company for TI called Texas Air Corporation, which he used to dismantle TXI and to acquire other airlines. Shortly after forming the company, he transferred gates, airport slots, aircraft, and funds from TI into a new venture called New York Air. Based at LaGuardia Airport in New York City, New York Air would compete against the Eastern Shuttle, but it gained far more attention as a completely non-union carrier. In addition to sharply reducing labor costs there, he used the threat of transferring operations away from TXI to New York Air to win concessions from TXI's pilots union, whose contract had expired. An aggressive campaign conducted by the pilots against Lorenzo, including a boycott against New York Air, brought considerable negative publicity.
Continental Airlines
Texas Air continued to acquire stakes in airlines. TI was merged into Denver, Colorado-based Continental Airlines in June 1982. TI ceased to exist and the new Continental moved its base to Houston Intercontinental Airport. Lorenzo scored a coup when Texas Air gained majority control Continental on October 31, 1982. Lorenzo ruthlessly took Continental into Chapter 11 bankruptcy. Not only were striking workers forced to return, but the law stipulated immediate cessation of union contracts. A new agreement was then imposed which furloughed a significant proportion of employees, cut the wages of retained employees nearly in half, and added stricter work rules and longer hours.
A Supreme Court ruling in an unrelated case, National Labor Relations Board v. Bildisco & Bildisco 465 U.S. 513 (1984) (http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=us&vol=465&invol=513) upheld the Lorenzo tactic. Prompted by high profile cases such as Bildisco & Bildisco and Continental, the United States Congress passed the Bankruptcy Amendments and Federal Judgeship Act of 1984. The law was too late to affect Continental and the drastic cuts helped rescue it from liquidation, but labor relations afterwards were caustic, and employee morale and customer service suffered.
In 1985, Texas Air attempted a takeover of Trans World Airlines. Although TWA's management favored Lorenzo over his rival Carl Icahn, TWA's unions feared Lorenzo so much that they negotiated special concessions with him, and the Board accepted Icahn's lower offer.
Frontier and People Express
In October of the same year Lorenzo made an offer for a second Denver carrier, Frontier Airlines, opening up a bidding war with People Express, headed by his former associate Don Burr. As with TWA, the unions pushed hard to avoid Lorenzo, and as with Pan Am, People Express won only a Pyrrhic victory. It paid a substantial premium for Frontier's high cost operation, funded by debt, and Lorenzo-controlled Continental undercut them sharply. On August 24, 1986 People Express filed for bankruptcy, and on September 15 People Express and Frontier were added to Texas Air's stable.
On February 1, 1987, People Express, New York Air, and several commuter carriers were merged into Continental Airlines and ceased to operate under their own names.
Eastern Airlines
Meanwhile Lorenzo had also been pushing negotiations with another troubled carrier, Eastern Airlines. In an attempt to gain leverage over the unions, Eastern's chairman, Frank Borman, threatened to sell the airline to Texas Air. The ploy doubly backfired, however; the unions declared a strike, and Lorenzo was able to acquire Eastern for $615 million, a substantial discount, on February 24, 1986. Lorenzo gained a computer reservation system, an extensive new network, and one of the signature names in American aviation, and at the end of 1986 controlled the largest airline company in the world outside the Soviet Union.
Lorenzo repeated many of his signature tactics. He transferred many of Eastern's assets to Texas Air, including its reservation system and several aircraft, and reorganized the company into divisions that could be sold off, including its Northeastern air shuttle. He placed Continental planes— and their non-union pilots— onto Eastern's routes. He failed to gain leverage over the employees, however, and tensions remained high.
When the International Association of Machinists struck in March 1989, and were joined by both the flight attendants and pilots, Lorenzo pushed Eastern into bankruptcy. However, he accomplished far less than he had with Continental due to the 1984 reforms. Besides the militancy of Eastern's unions, especially the IAM and its head Charles Bryan, Lorenzo's personal image was low not only among airline workers, but in the general public. President George H. W. Bush did not act on a National Mediation Board recommendation to appoint a presidential emergency board to attempt to settle the strike.
Ultimately, Judge Burton Lifland, overseeing the bankruptcy case, ruled Lorenzo "unfit" to run the airline and named Martin Shugrue as its trustee. In 1990 Lorenzo sold his personal investments to Scandinavian Airlines System and also resigned as CEO of Continental, shortly before that airline filed for its second bankruptcy inside of a decade. Having sold off its shuttle to Donald Trump (refitted and redubbed the Trump Shuttle) as well as routes, gates, and aircraft, Eastern was ignominiously liquidated in 1991. Texas Air was renamed Continental Airlines Holdings, Inc. to reflect its primary remaining subsidiary.
In the same year, ABC News anchor Barbara Walters called Lorenzo "the most hated man in America."
In 1993 Lorenzo tried to found a new airline, but the United States Department of Transportation did not allow him to do so.
See also
References
- Bernstein, Aaron. Grounded: Frank Lorenzo and the Destruction of Eastern Airlines ([ISBN 067169538X]): Simon & Schuster, 1990
- Buckley, William F. Jr. "Frank Lorenzo & the free market (http://www.findarticles.com/p/articles/mi_m1282/is_n18_v42/ai_8859948)" in National Review, September 17, 1990
- Delaney, Kevin J. Strategic Bankruptcy: How Corporations and Creditors Use Chapter 11 to Their Advantage ([ISBN 0520073592]): University of California Press, 1999.
- Mengus, Alain. "PEOPLEExpress" at [1] (http://airtransportbiz.free.fr/Airlines/PEOPLExpress.html), July 2002
- Parker, Mike. Remarks on Eastern Airines (http://thomas.loc.gov/cgi-bin/query/z?r101:E15MR0-368:) to the United States House of Representatives, March 15, 1990
- The Handbook of Texas: Texas Air (http://www.tsha.utexas.edu/handbook/online/articles/view/TT/ept1.html)
External links
- PBS Chasing the Sun: Frank Lorenzo (http://www.pbs.org/kcet/chasingthesun/innovators/florenzo.html)
- U.S. Centennial of Flight Commission: Frank Lorenzo (http://www.centennialofflight.gov/essay/Dictionary/lorenzo/DI131.htm)de:Frank Lorenzo