Frank Lorenzo Dusts Off His Flak Jacketby
He has been out of public view for three years, but Frank Lorenzo's name still conjures up strong reactions. To many people, the man who piloted Eastern and Continental into bankruptcy personifies greed and brutal tactics in the workplace. Captain J. Randolph Babbitt, president of the Air Line Pilots Assn., tags him the "embodiment of evil."
But to other observers, Lorenzo is a businessman worthy of respect. In their view, the 53-year-old former chairman of Texas International Airlines Inc. is a brilliant financial strategist and an independent thinker who simply had the guts to take harsh measures no other executive dared attempt. Lorenzo's real problem, some say, was an unappealing public persona that transformed a tough man into a monster.
Monster or maverick, Francisco A. Lorenzo shook up the industry as no one else in recent history has. Now, Lorenzo is itching to do it all over again. Fighting strong opposition in Washington, he's attempting to form an airline based in Baltimore that would woo East Coast passengers, using the same stratagem that made him successful before: slashing fares. Today's travelers, he says, are "troubled" by soaring ticket prices, particularly in markets such as Baltimore that have been dominated by one carrier. He plans to stick to nonrestricted airports, flying to cities such as Atlanta and Philadelphia.
SMALL FLEET. Lorenzo's plans don't sit well with labor. Although his airline would fly just two or three planes, union opposition has exploded, compelling the Transportation Dept. to turn Lorenzo's application for certification over to a judge for a full-blown review. Unions cite prior maintenance violations, allegations of financial self-dealing, and bankruptcies as reasons for opposition. But as some see it, the motivation is purely personal. The unions seek revenge. "No.1, the unions want to continue the vendetta of the '80s," says Lorenzo. "No.2, they're troubled by the fact that we figured out the equation."
The "equation" is simply cheap fares. They let Lorenzo take a tiny, unprofitable Texas carrier in 1971 and build the free world's biggest airline empire ever, making history--and enemies--every step of the way. Lorenzo's Texas International was the first to offer deep discounts. He was the first person to engineer a hostile takeover of a U.S. airline, Continental Airlines Inc. And he was the first airline manager to use bankruptcy to gut labor pacts.
So this fracas seems like old times. But Lorenzo claims it is "child's play" compared with the death threats and war of words that preceded the demise of Eastern Air Lines Inc., which shut down after a crippling strike. Still, the battle may be more than he bargained for. It has become highly politicized, with 120 members of Congress--many of them on ALPA's campaign contribution list--backing labor's position. And with support for President Clinton shaky, some say the Administration may be inclined to throw the unions an easy sop. "Labor clearly has a sympathetic ear in the White House," says Martin R. Shugrue, trustee of now defunct Eastern. He says he sees no legal barriers to certification. After all, Lorenzo has never been convicted of a crime.
But if labor can drag out the proceedings, the legal bills could drive Lorenzo away. After enduring sarcastic comments over the proposed name "Friendship Air," Lorenzo dropped it without explanation in favor of nondescript ATX. Shugrue now gives Lorenzo a "50-50 chance" of prevailing.
"TOUGHEST BOSS." Why does Lorenzo submit himself to such torture? He doesn't need the money. He is uneasy in a public role and jealously guards his privacy. He says it was painful to have his face plastered on Fortune magazine's cover as "The Toughest Boss in America." The answer, says one who knows him, is "the chance to prove he's right and they're wrong."
For Lorenzo, the answer lies in exploiting the equation. "Just compare what has happened in West Coast and East Coast markets over the last 10 years," he says. In the West--where competition has been kept vibrant by carriers such as Southwest Airlines Co. and America West Airlines Inc.--fares have risen only 5%, while traffic has jumped 75%. But in the East--where competition has been weak following the demise of Eastern, Pan Am, and Midway--fares have doubled, and traffic is down 12%. That situation means opportunity for low-cost startups, says Lorenzo.
Yet in a service business such as commercial airlines, having a plan is never enough. One must cultivate a positive image. And that doesn't come naturally to Lorenzo. Many of the people who profess admiration for his intelligence describe him as moody and complex. Although he knows the other industry titans well--American's Robert Crandall, United's Stephen Wolf, and Air France's Bernard Attali--Lorenzo has never been what one would call a member of the club.
Even in private life, he remains enigmatic. Aside from his wife and children, Lorenzo is wary of everyone, say associates. "People generally aren't trustworthy in Frank's world," says an airline executive who has worked with Lorenzo. "He has a strongly held view that people need to be tested and controlled."
However self-serving the union's rap may be, Lorenzo's record gives critics room to throw dirt. He was never charged with criminal wrongdoing, but he did settle lawsuits brought by creditors who alleged that he defrauded Continental. Two of his airlines had to file for bankruptcy--Eastern, which collapsed, and Continental, which filed for the second time shortly after Lorenzo left. And under his aegis, Eastern did incur safety violations.
Lorenzo is never wanting for a response. He deflects the charges with the controlled patience of one who expects to be misunderstood. Some of his points at least merit debate: The airlines he purchased were all "basket cases," he says. And regarding maintenance fines, he notes they have been levied on plenty of competitors, too. But, he says, "you don't see unions yelling and petitioning to have [rivals'] management ruled on for fitness."
Still, if creditors or investors lost money by gambling on Lorenzo, the flying public came out rather well. The low fares at Continental, People Express, and Eastern helped drive down ticket prices throughout the industry. In testimony submitted to the administrative law judge now reviewing Lorenzo's record, former Civil Aeronautics Board Commissioner Alfred Kahn commended Lorenzo for taking "the kind of initiative that [the board] sought to encourage" when it deregulated the airline industry in 1978. And it's the impact on fliers, argue Kahn and Lorenzo, that counts.
OUGHTA BE A LAW. Former IBM Chairman John F. Akers says that's why he chose to become an investor in Lorenzo's would-be airline. Not unlike the company he just left, the big players in the airline industry "are structured in a way that was good for yesterday's business but not today's," says Akers.
It will be months before U.S. fliers experience Lorenzo's version of today's airline--if they ever do. Representative James L. Oberstar (D-Minn.) says there's "a lot of sentiment around to keep Lorenzo out of the skies," hinting that Congress might seek legislation to do just that.
Even if that happens, don't count Lorenzo out. His Savoy Capital Investments in Houston has holdings in health and food ventures. And Lorenzo says that Savoy has also been "active with [advising] a number of foreign carriers." But he's not content merely to dispense advice. "It would not be out of the question to assist in forming airline ventures overseas," he says. Depending on where you sit, that's either a promise or a threat.
FRANK LORENZO'S TURBULENT FLIGHT 1971 Lorenzo's Jet Capital buys a controlling stake in tiny, unprofitable Texas International Airlines. 1980 Forms holding company Texas Air Corp. Nonunion New York Air is formed as subsidiary. 1981 Texas Air buys Continental Airlines in the first hostile takeover in the U.S. airline industry. 1983 Continental files for protection and then abrogates labor contracts. 1986 Lorenzo buys two ailing carriers, Eastern Air Lines and People Express. 1988 Transportation Dept. conducts unprecedented investigation of Texas Air and finds it fit to fly. 1989 Eastern files for bankruptcy after a strike by machinists. Judge later removes Lorenzo as head of airline. 1990 Lorenzo sells his stake in Continental and airline files for bankruptcy in December, emerging in 1993. 1993 Lorenzo announces intention to return to airline industry, prompting outcry from labor.