- 6 months ago
Robert Kuttner looks at the management and labor struggles plaguing Eastern Air Lines.
Category
📺
TVTranscript
00:00Funding for Frontline is provided by this station and other public television stations nationwide,
00:07and by the Corporation for Public Broadcasting.
00:13Over the last decade, Eastern Airlines has been at war with itself.
00:18I live and breathe fighting management and Eastern Airlines.
00:24For a brief period, management and the unions made peace.
00:26Everyone was working together.
00:30But the truce was broken, and Eastern was taken over by Frank Lorenzo, who is now dismantling the airline.
00:36The sale today is not our preferred course.
00:41Tonight on Frontline, the battle for Eastern Airlines.
00:52From the network of public television stations,
00:55A presentation of KCTS Seattle, WNET New York, WPBT Miami, WTBS Detroit, and WGBH Boston.
01:06This is Frontline, with Judy Woodruff.
01:10Good evening.
01:15Last fall, when Eastern Airlines owner Frank Lorenzo sold the Eastern Shuttle to Donald Trump,
01:22it struck many as the death knell of the company.
01:25The sale of Eastern's most profitable asset was only the latest move in Lorenzo's strategy to keep the airline flying.
01:33But one Wall Street analyst observed recently that Eastern may have already reached the point of no return.
01:41Tonight, Frontline examines the long descent of America's third largest airline
01:47and the bitter struggle for control of its future.
01:51Our program was produced by Alex Gibney.
01:54The correspondent is Robert Kuttner.
01:56For more than 10 years, a battle has been raging at Eastern Airlines between workers and managers.
02:14On one level, the battle has engaged three men,
02:17an astronaut, a corporate raider, and a union leader,
02:20each with a different vision of how to save the company.
02:23One believed in technology, one in the power of finance, and one in the power of labor.
02:30In companies all over the country, this same battle of conflicting visions is shaping our economic future.
02:36But today at Eastern, rapidly losing passengers and money, it is a battle for survival.
02:42It is a bitter irony that only four years ago, labor and management at Eastern built America's most far-reaching model of workplace cooperation.
02:58The promise and the failure of that partnership at Eastern tells a story of America's economic dilemma.
03:03In the face of increasing international competition, can American workers and managers find new ways to escape their old adversarial traditions?
03:13That question has haunted Eastern Airlines, where, in the worst of times, those conflicts were known as the wars.
03:21I live and breathe fighting management at Eastern Airlines.
03:27I remember terminating four people in a day. That was how callous we were.
03:31It was in the sense that equipment would have a tendency to take off by itself.
03:38Engines would blow up because they didn't have no oil in it.
03:40We always thought they needed to be terminated.
03:43We felt that it was, you know, enforcing the rules, and rules made this corporation run properly.
03:48We sat around and looked at the engine for eight hours.
03:52If I did an hour's work in 1981, I guess I was pushing it.
03:57Constantly we were at each other's throats, whether it was over a table in arbitration, whether it was over a table in a grievance, whether it was down on the floor.
04:03You know, you had to look at the culture of this corporation to know that the only success you as a person were going to find was by being the meanest, nastiest, toughest guy on the block.
04:12And being successful in terms of your win-loss record and what you did.
04:18Eastern Airlines was born in 1926 to carry mail between New York and Atlanta for $3 a pound.
04:29The World War I flying ace, Eddie Rickenbacker, bought Eastern in 1938 and ran it until 1963.
04:37Labor relations were not his strong suit.
04:40Rickenbacker was known as the captain.
04:42He referred to his workers as privates.
04:44To Rickenbacker, Eastern was a corporate army, waging war on its competitors.
04:54But at Eastern, the biggest battles were waged inside the company.
04:59From 1935 to the mid-60s, Eastern endured scores of strikes and slowdowns.
05:04The company survived because of airline regulation.
05:10Until 1978, the government's Civil Aeronautics Board told airlines what routes to fly and how much they could charge.
05:17These regulated fares guaranteed management enough income to give workers regular wage increases.
05:23If management capitulated to labor, allowed labor costs to increase, those costs would just be reflected in higher prices, regulated prices.
05:36All the airlines would have higher regulated prices.
05:40The cost would simply be passed on to consumers.
05:43And hence, an underlying labor management conflict was kept under the wraps, at least for a time.
06:00In 1968, the world knew Frank Borman as the man who led the Apollo 8 mission around the moon.
06:06Back on Earth, in 1975, Eastern Airlines Board of Directors judged Borman to have the right stuff to lead Eastern out of the darkness.
06:30Personal authority was always important to Borman.
06:33When he assumed command of the airline, Borman's nickname, earned at NASA, was the Colonel.
06:39At Eastern, he was like a field commander.
06:41No, I don't see any 182s. There's 192.
06:45He abolished executive perks, drove to work in a second-hand Chevy.
06:50He even helped his troops unload baggage.
06:54Borman was trained to believe in a military chain of command.
06:58Educated at West Point and the Harvard Business School,
07:01Borman was willing to share sacrifice, but not authority.
07:05It was a simple matter of a few people at the top making all the orders,
07:10taking all the initiative,
07:11and most people at the bottom simply following directions.
07:16Ladies and gentlemen, the arrival of flight one.
07:20As a military man,
07:22Borman believed he could handle his troops.
07:24As a NASA man,
07:27he was convinced that faith in the machine would lead to Eastern salvation.
07:43Borman's solution was bigger and better planes.
07:46He bought 25 A300s and 27 Boeing 757s,
07:53the largest block purchase in the history of the industry.
07:57Buying the fuel-efficient planes was a gamble based on rising fuel costs,
08:01but the gamble backfired on Borman when fuel prices dropped.
08:06Soon, Eastern's debt had soared to $2.5 billion,
08:10the same price as the Apollo 8 mission to the moon.
08:14I want as far away from the smoking as I can get.
08:18In a regulated environment,
08:20Eastern could have passed these costs on to the consumer.
08:23But when economic conditions changed,
08:26Eastern had to lower ticket prices,
08:28even while its debt kept rising.
08:30In 1978, deregulation came to the airline industry.
08:39Over 100 new non-union carriers like People Express
08:43flew into the marketplace with low labor costs and cut-rate tickets.
08:48Older airlines, tied to high-priced union contracts,
08:52often had to fly at a loss in order to compete.
08:55We were faced with People's Express whose labor costs were about 40% of ours,
09:04Continental, whose labor costs were about 50% of ours.
09:07Our strategy was clear.
09:09We wanted to fix it, and that meant lowering labor costs.
09:12Fire! Fire! Fire! Fire!
09:15When Eastern tried to compete by cutting wages,
09:18a bitter war broke out between Eastern and its three unions,
09:21the pilots, the flight attendants, and the machinists.
09:24By the early 1980s, labor and management faced the destruction of the company
09:29and the jobs of its 40,000 employees.
09:32But the response of both sides was to dig in and fight harder.
09:41In the trenches of the Miami machine shops,
09:44worker slowdowns ate away at the company's efficiency.
09:47In response, Eastern hired reinforcements,
09:51supervisors whose only job was to watch and discipline the machinists.
09:56They hid behind two-way mirrors.
10:00They huddled inside jet engine cowlings,
10:03spying on workers with binoculars.
10:06Some mechanics struck back by sabotaging machines they were supposed to repair.
10:10When managers tried to boost output by enforcing the rules,
10:15workers fought back in the most destructive way possible.
10:18They followed the rules to the letter.
10:20Okay, Hank, take your in forward to south.
10:22We started at 7.30.
10:24This engine is basically done as soon as the electrician gets done, right?
10:27Hour and a half.
10:28I can go in there and pull the maintenance manual out,
10:31and there's a manual in there that thick to change this engine, right?
10:33I can take two days to change this engine, right?
10:36So basically, that's what we were doing.
10:38I was one of the people that was more, say, we say, aggressive at it, right?
10:43Because I was protecting...
10:44In other words, I was like an old groundhog digging in his hole.
10:46I was protecting my hole.
10:48All the planes were going out late.
10:50There was no engines coming out of the engine shop.
10:52It was a constant state of war.
10:54I really thought that that was going to be the end of Eastern Airlines.
10:58Eastern was a house divided against itself.
11:02While labor and management were busy fighting each other,
11:06competitors zeroed in on the troubled company.
11:09In 1981, Eastern lost $65 million.
11:13In 1982, $75 million.
11:15By 1983, the company's losses soared to $183 million.
11:20Only a year before, Braniff's sudden bankruptcy showed where Eastern might be headed.
11:27It's a shock to them, I know.
11:29There is no payroll.
11:31They were taken off the payroll as of last night.
11:34The payroll, the checks that are out there now, will not go through.
11:38There is no case to support them.
11:39Then, in September 1983, Continental Airlines, led by its tough chief executive, Frank Lorenzo, declared bankruptcy, citing high labor costs.
11:51Our action today is to reorganize these assets in order to create a low-cost, competitive carrier.
11:57Continental infuriated labor groups around the country when it used Chapter 11 of the Bankruptcy Code to void its high-priced union contracts.
12:11Lorenzo fired 8,000 workers and cut the wages of his remaining employees in half.
12:17Two days later, it was Eastern's turn.
12:20Hello, I'm Frank Borman, and I'm recording this on Sunday evening.
12:26It's, oh, a little bit past 8.30 now, almost 25, 26 hours since Continental ceased operation.
12:35In a videotape broadcast to Eastern employees, Frank Borman presented some grim alternatives for the troubled airline.
12:42The first was to shut the company down like Braniff.
12:45Second course of action is to file for protection under Chapter 11 of the Bankruptcy Act, a la Continental.
12:55See if we could continue to operate.
12:57It would certainly have to be under vastly different circumstances, as Continental employees are finding out.
13:06Borman's third alternative was 20% pay cuts for all of Eastern's employees.
13:11Borman's got to go.
13:12But after a history of angry battles over wage concessions, all three unions refused.
13:19What happens if Borman's telling the truth and next week you're out of a job?
13:22Borman is creating the situation.
13:25Anybody can drive a company down a tube.
13:28And I want you to understand with all of the honesty that I can muster in your eyes,
13:36that in my estimation, you will be voting on your jobs.
13:41Thank you very much, and God bless you all.
13:44It's like your children.
13:46You can have a genuine concern for your children and you want the best for them,
13:50but sometimes you have to ask them to do things that they really don't want to do.
13:54You can't have that extra ice cream cone or you're going to have to go to bed one time.
13:57It's very difficult to make those kind of decisions with a group who may not understand directly the rationale for those decisions,
14:08as you can tell a child.
14:10But your decisions in this case are filtered through an individual, i.e. a labor leader,
14:15who is more interested in keeping the children happy than he is in their health.
14:18That labor leader was Charlie Bryan.
14:22In 1968, while Frank Borman was orbiting the moon,
14:26Charlie Bryan was tuning jet engines on the ground as an Eastern Line mechanic.
14:31I want to come over and look over the operation here.
14:34Bryan rose to power by working his way up the Union hierarchy.
14:38He was elected president of the Machinist Union at Eastern in 1980
14:42on a platform to end the wage concessions that had been going on at Eastern since 1975.
14:47All right. Appreciate everything everybody's doing out here.
14:51We got the actual number of hours.
14:52By late in 1983, Borman's call for wage cuts put Bryan in a bind.
14:58As a union leader, his job was to get more for his members, not less.
15:01But without wage cuts, Bryan knew the company would go under.
15:06That repeats itself.
15:09He searched for a new solution, something he could demand in exchange for concessions.
15:13The government yesterday presented our numbers.
15:15All of my life, I have had a feeling that employees of companies
15:20are truly owners of the company that they work for.
15:23In the course of their labor and working for that company,
15:26they're investing their life, their intellect, and their muscle and their ability.
15:31And in exchange for that, I've always felt that there should be an ownership
15:33that goes beyond just having the job.
15:36There should be a true ownership.
15:37The company started asking the employees to voluntarily reduce wages
15:42and take pay freezes and so forth.
15:43It began in 1975.
15:46In 1980, immediately after becoming president of the union,
15:49I went to a stockholders meeting and pointed out that the employees
15:52had donated enough wages to have bought every single share of voting stock at Eastern Airlines.
15:59They could have purchased the entire corporation and completely owned 100% of their own company.
16:03And yet they had not received one single share of stock for all that investment of wages.
16:09And it was the old scenario of taxation without representation as far as we were concerned.
16:14Late in the fall of 1983, the machinists proposed a bold new plan.
16:18Wage cuts in exchange for a financial stake in Eastern and a say in the management of the company.
16:25The plan would put the unions in a most unusual position of responsibility.
16:31We come up with a very, very innovative, progressive plan
16:35for sharing, co-determination, governance of the airline, and board positions and so forth.
16:42We presented that to Borman.
16:43It included 25% ownership of all the voting stock.
16:46His reaction to that was, I'm not going to have the monkeys running the zoo.
16:50He did not like the idea, and he rejected it.
16:53But toward the end of the year, Borman faced the prospect of default on Eastern's loans.
16:58The airline's banks, who held the company's $2.5 billion debt,
17:03pressured Borman to accept Brian's radical new proposal.
17:06So did Eastern's labor negotiator, former Labor Secretary William Ussery.
17:12Facing the prospect of a strike,
17:14the growing loss of consumer confidence and possible bankruptcy or liquidation,
17:19Borman caved in.
17:21On December 13, 1983, Ussery, flanked by Brian and Borman,
17:27announced Eastern's revolutionary labor pact.
17:31The deal was a trade.
17:33Wage cuts for a stake and a say in the management of the airline.
17:37Eastern got pay cuts worth $292 million,
17:40increased productivity worth $75 million,
17:43and changes in archaic union work rules.
17:47The employees got 25% of Eastern's common stock,
17:50four seats on the board of directors, including one for Brian,
17:54access to the company books,
17:56and the right to determine the way work is done.
17:59The machinists later won the opportunity to buy back their wage cuts
18:03by finding ways to save the company money.
18:05The radical worker ownership plan inspired a new marketing campaign.
18:11You're looking at the new owners of Eastern Airlines.
18:1337,000 employees of Eastern are now stockholders,
18:17each with a personal investment in how Eastern performs.
18:20So we'll be working even harder.
18:22Moving even faster.
18:24Going even farther.
18:25To serve you even better.
18:26And we've got what it takes to do it.
18:28Earning our wings every day.
18:30That's not just a slogan.
18:31It's a commitment from the owners.
18:33At Eastern, we earn our wings every day.
18:41Eastern represented an historic first.
18:44That Eastern deal brought labor and management together
18:47as partners in enterprise.
18:49Labor and management working together to run the enterprise,
18:52not just to share the profits,
18:54but also to decide how best to make that airline work.
18:59Many of the other business executives that I've talked to
19:03have told me flat out that they would rather have shut the company down
19:06than make the commendation with the unions that we've made.
19:10And many of the traditional business leaders in the U.S.
19:13find this mode of management very threatening to them.
19:16I can understand why.
19:17You, in essence, surrender some of the authority to the group.
19:22Eastern's new agreement was a complete turnabout
19:31from the company's old military tradition.
19:34At Boston's Logan Airport,
19:35Eastern eliminated all of its low-level ramp supervisors
19:39and let the workers run the field themselves.
19:42In 1982 and some of 83,
19:47we had no say, we had no decisions to make.
19:51We weren't allowed to use our God-given brain.
19:55And it's a lot different now.
19:58People like to come to work.
19:59They like making decisions.
20:01And take, for example, today.
20:03We have no managers on today.
20:05We have no station manager.
20:07We have no shift managers.
20:08Easton today in Boston on a day shift
20:12is run totally by the leads.
20:14We have no supervision.
20:17And apparently there's no need for it.
20:24Time cards were abolished in Boston
20:26and on-time attendance improved.
20:29The machinists relaxed old work rules.
20:31Ramp crews pitched in to do whatever was necessary
20:34to get the planes in and out and the baggage moved.
20:37During the wars,
20:38such commitment from workers would have been unthinkable.
20:43We had five management people
20:44watching three Union troops unload an airplane.
20:48And it was aggravating.
20:49We felt that they didn't think we could do our job.
20:52They're always overseeing us like little kids.
20:55We run the show now and we're doing a better job
20:57and the company's making more money.
20:59After the reduction in supervision,
21:03Chief Steward, Leo Romano, and the Union
21:05assumed many management responsibilities.
21:08They helped prepare bids for charter flights,
21:11organized the shift schedules and vacations,
21:14supervised overtime,
21:16and assigned personnel to meet the flights.
21:18Just in case.
21:19Three years ago, I was ready to quit.
21:27I was only 39 years old at the time.
21:29I got four kids at home.
21:30And every day I'd come in here,
21:31I'd listen to the money problems of Eastern Airlines.
21:35They want a piece of our check and all that, you know.
21:37And the paychecks were starting to get smaller.
21:39So I talked it over with my wife
21:41and I was actually ready to quit Eastern Airlines
21:43until these meetings with the Union started taking place
21:46and Charlie Bryan negotiated a contract
21:49where we became part of the airline itself.
21:52Instead of just a number anymore,
21:54it's my airline.
21:55I feel like anybody that almost goes to work
21:57in their own shop and stuff, it's mine.
22:00Eastern Airlines is mine.
22:01The more I do for Eastern Airlines,
22:02the better off it is for me.
22:04The new agreement fostered a system
22:07of shop floor entrepreneurship.
22:10Machinists could buy back their wage cuts
22:12by inventing ways to improve productivity
22:14and by ferreting out waste throughout the company.
22:18The agreement also empowered the machinists
22:20to bring any work done by outside contractors
22:23back in-house, provided they could do it more cheaply.
22:26That saved money and jobs.
22:29But to show you one way that we were being ripped off
22:31was this little filter right here
22:34goes on an aircraft.
22:36We were paying $24 for that filter.
22:39We found that we could buy it for two and a half cents.
22:43The company had ideas of how to run this department
22:46and they didn't use their best attribute,
22:50which is the mechanic.
22:52Well, now if we can show them how we save money,
22:54it was $158 a man-hour to build the CF-6 engine.
22:59We're down to $78 now.
23:00And as we find new ways to do things,
23:03we can implement them automatically.
23:05In my opinion, I've never seen the company
23:08humming like it was.
23:10I mean, the fellows were eager to work.
23:12They got 50 phone calls a day on,
23:16come over here and help me do this or figure this
23:18or show me out what you want done.
23:20For two years, Eastern's program of labor management cooperation
23:29was a success story.
23:31Newly motivated mechanics, executives, pilots,
23:35and flight attendants invented ways to save the company
23:39over $100 million.
23:41For the first two quarters of 1985,
23:48Eastern soared to the biggest profits in the company's history.
23:52By September, the airline was flying
23:55towards $73 million in the black.
24:00I would like to sit here and say that the reason we have
24:03probably the most advanced employee involvement program
24:06in the airline, or maybe in American industry,
24:09is because both the management and union
24:12were enlightened enough to perceive this
24:14as the wave of the future.
24:16I think we have it because we were faced
24:18with the prospects of financial disaster,
24:21and this looked like a way out.
24:24But in the fall of 1985,
24:26a new financial crisis sent Eastern into a tailspin.
24:30New fair wars forced Eastern to cut ticket prices below costs.
24:35A fourth quarter loss of $67 million
24:38all but wiped out the profits from the rest of the year.
24:43Cooperation proved as fragile as the company's bottom line.
24:47Eastern's high debt and low-cost competition
24:49denied labor and management the time
24:52to revise their old roles.
24:54In American industry,
24:56there is a deep cultural resistance to power sharing,
24:59not only on the part of management,
25:01but also on the part of labor.
25:04Management is used to being in control.
25:05Labor is used to taking direction.
25:10It's a little bit threatening
25:11for management to lose complete control.
25:13It's a little bit threatening for labor
25:15to have that much responsibility.
25:17These are not the roles they've inherited.
25:21When the financial crunch came to Eastern,
25:24both sides reverted to type.
25:26Labor blamed the airline's problems on bad management.
25:30Management blamed everything on high wages.
25:32They were obsessed with this idea
25:35of reducing the rate of pay.
25:37They would not listen to what I kept trying to say.
25:39We want to reduce labor costs
25:41and do it through productivity and efficiencies.
25:44And we proved it.
25:44We could do it.
25:45They even validated it.
25:46A lot of labor ideas were that they would come in
25:52and be involved in making the major decisions on equipment
25:55and how you schedule the airline,
25:57how you market the airline, and so on.
25:59And, of course, our idea was,
26:00well, you know, we want their cooperation,
26:02and how do you do your job better?
26:04How do we cut the costs in the workplace?
26:06We have to have an understanding in a corporation
26:09that management has to manage.
26:10And we may have gone too far as a management
26:13and our enthusiasm to elicit the cooperation.
26:19We may have paid too high a price for it.
26:22By early in 1986,
26:24a management consultant recommended
26:26that Eastern declare Chapter 11 bankruptcy
26:28to void its union contracts.
26:31Meanwhile, Eastern's banks,
26:33which held the airline's $2.5 billion debt,
26:36threatened to throw the company into default
26:38unless all employees agreed to 20% wage cuts
26:42by February 24th.
26:44As the deadline approached,
26:46a new player entered the game.
26:50Toward the end of February, about the 20th,
26:52there was a board meeting,
26:53and they said they were going to look for someone
26:56to buy Eastern if they couldn't fix it
26:58through reducing and cutting wage rates and so forth.
27:01The following day, they called the labor groups together,
27:04that was on Saturday,
27:05and said that they had found a buyer
27:07an interested buyer,
27:09and the deadline was midnight Sunday,
27:12the 23rd.
27:13We all knew that it was Lorenzo,
27:15but they had not said who it was.
27:18Since declaring Chapter 11 at Continental,
27:21Frank Lorenzo had expanded his empire.
27:24His holding company, Texas Air,
27:26now owned both the resurgent Continental
27:29and New York Air.
27:32Eastern's management had approached Lorenzo
27:34in part because the unions feared his hardball tactics.
27:38The idea, said one board member,
27:40was a pincer play
27:41to make Eastern's unions choose
27:43between wage cuts and Frank Lorenzo.
27:46The unions call you a union buster.
27:47Do you plan to reopen all their contracts
27:50when you take over?
27:51We're airline builders and not union busters.
27:54On the weekend of February 21st, 1986,
27:57Eastern's board of directors met
27:59to decide the fate of the airline.
28:02On Sunday night,
28:03Eastern reached tentative accords
28:05with the pilots and the flight attendants.
28:08That left Charlie Bryan and the machinists.
28:11At about 11.30,
28:12Warman turned to me
28:13and said,
28:14well, what are you going to do?
28:16And I said,
28:17I've made my position clear.
28:18I have told you
28:20we will save this company money,
28:21but we're not going to
28:22keep reducing our wage rates
28:24to subsidize what's going on
28:25in this corporation.
28:27He said,
28:27you're going to be the one
28:29that causes the sale
28:29of Eastern Airlines.
28:30I'm going to tell the world
28:31that you caused the sale
28:32of Eastern Airlines.
28:33And I said,
28:34well, I'm going to tell them
28:35you did it,
28:35so what does that prove?
28:38The meeting went on
28:39until about one o'clock
28:40in the morning
28:41and a motion was on the floor
28:42to sell Eastern Airlines
28:43to Texas Air Corporation.
28:46That was totally unacceptable
28:48as far as I was concerned.
28:49This whole culture
28:50we had worked so hard to create
28:51was being destroyed.
28:53I went out
28:53and talked to two lawyers
28:56that we had available
28:56on the scene there
28:57to advise us
28:58and told them
28:59that number one,
29:01I would not open our contract,
29:03but I would consider
29:04a reduction
29:05in the rates of pay
29:07by 15 more percent
29:09if we had the right
29:10to have a new chairman
29:12of the company
29:13which was acceptable
29:14to all the workforce,
29:15all the employees.
29:16Well, I offered to resign.
29:18As you know,
29:19one of the machinist unions'
29:21conditions were
29:22that if they would give
29:23a 15 percent pay cut
29:25if indeed I would resign.
29:27Obviously,
29:28I offered to do that
29:29and the board rejected it.
29:32They protected their chairman
29:34and they went ahead
29:35with the sale.
29:36Four people representing
29:38the employees
29:38voted against it.
29:39All the other board members
29:40voted for the sale
29:41of Eastern Airlines
29:42to Texas Air Corporation.
29:43It was about 2.45
29:44on Monday morning,
29:46February the 24th.
29:47The deal forced the sale
29:52of all of Eastern's
29:53common stock
29:54to Frank Lorenzo.
29:55The workers received
29:57$10 a share,
29:58but without stock,
29:59they lost their stake
30:00and their say
30:01in the airline.
30:03The era of cooperation
30:04was over.
30:05I sent a very warm telegram
30:10to Frank Lorenzo
30:11the next day
30:12suggesting that he and I
30:14meet and continue
30:16working together
30:16to produce the best product
30:18and the best service
30:19and run the company
30:20the way we knew
30:20it could be run.
30:22And he never answered
30:23that telegram.
30:24That was sent to him
30:25on the morning
30:26after the sale.
30:27He never responded.
30:29Only a few months
30:30after the sale,
30:32Lorenzo's new management team
30:33laid off 2,000 employees
30:35and threatened
30:3650% pay cuts.
30:38Brian was stripped
30:39of his position
30:40on the board of directors
30:41and banned
30:42from Eastern property.
30:43In a union bulletin,
30:44he told his membership,
30:46we're back in the midst
30:47of an all-out war.
30:49I think management now
30:51can make a rational
30:52approach to labor,
30:53one that makes sense
30:54from the standpoint
30:55of the company.
30:56If it's not successful,
30:57they still have an arsenal.
30:58They can take a strike
30:59and they can win a strike.
31:00Look at TWA.
31:02Look at the incredible
31:03stupidity
31:04of the flight attendants
31:05on TWA.
31:06The world has changed.
31:08The marketplace rules.
31:10And the American
31:11labor movement
31:11refuses to accept that.
31:13And they're going to pay
31:14a terrible price for it.
31:18Two days after this interview,
31:20Frank Borman resigned
31:21from Eastern Airlines.
31:23Frank Lorenzo gave Borman
31:24a million dollars
31:25to serve on the board
31:26of Texas Air.
31:28Borman then retreated
31:29to Las Cruces, New Mexico
31:30to be near his son
31:31and write a book
31:32about his life.
31:38Borman's departure
31:39did not end
31:40the labor wars
31:41at Eastern,
31:41but his leaving
31:42symbolized a new trend
31:44in American business.
31:45Managers like Borman,
31:47who believed
31:47in the power of technology,
31:49were being supplanted
31:50by men who believed
31:51in the power of money.
31:53In the 1980s,
31:54there was a dramatic rise
31:56in corporate takeovers
31:57led by men
31:58called raiders,
31:59using high-interest loans
32:00called junk bonds.
32:02They bought troubled companies
32:03and then cut wages
32:04or sold off pieces
32:05to pay back their debts.
32:07This new era of finance
32:09sparked the success
32:10of a man who was to remake
32:11the airline industry.
32:13If I were you,
32:15I wouldn't believe
32:16a word I'm about to say.
32:19Instead,
32:20let the facts,
32:22not just my words,
32:24speak for themselves.
32:25The facts are
32:27that Lorenzo's company,
32:29Texas Air,
32:30is the biggest airline
32:31in the Western world.
32:32It is an $8.5 billion empire
32:35with 600 planes
32:36and control of 20%
32:38of the U.S. market.
32:40Lorenzo built Texas Air
32:42by understanding
32:43the challenges
32:44of deregulation.
32:45Under deregulation,
32:46airlines were thrown
32:47into the marketplace
32:48and where now
32:50you had a fight.
32:50You had a fight
32:51for airplanes.
32:52You had a fight
32:53for routes.
32:54You had a fight
32:55for the market,
32:56but you had a fight
32:56for passengers.
32:57The passenger now
32:58was king.
33:00Well, you can forget
33:01about all that now.
33:02To serve the passenger,
33:03Lorenzo built his airlines
33:04around a simple
33:05marketing strategy,
33:07low fares.
33:08But to supply low fares
33:09to travelers,
33:10Lorenzo demanded
33:11low wages for workers.
33:13This would lead
33:13to inevitable conflicts
33:15with airline labor unions.
33:19Lorenzo assembled
33:20his empire
33:21by making savvy deals
33:23for troubled companies
33:24deep in debt.
33:25In 1971,
33:27he bought tiny
33:28Texas International
33:29whose shoddy service
33:30had earned it
33:30the nickname
33:31Teeter-Totter Airlines.
33:33To make it profitable,
33:35Lorenzo moved
33:36to cut labor costs
33:37and the unions
33:38went on strike.
33:39The strike is going
33:40to cost us
33:40millions of dollars.
33:42Lorenzo grounded
33:43the airline
33:44for four months
33:45to break the strike
33:46and he got
33:47his low labor costs.
33:50In 1981,
33:52it worked again.
33:53In a bitter
33:53takeover battle,
33:55Little Texas International
33:56borrowed enough money
33:57to buy the much
33:58larger Continental.
34:00To pay back debts
34:01and make the company
34:02profitable,
34:03Lorenzo sold planes
34:05and asked for wage cuts.
34:06When the unions
34:07refused to give them,
34:09Lorenzo declared
34:10Chapter 11.
34:11It was either fix it,
34:12sell it,
34:13or merge it.
34:14Since we couldn't fix it,
34:15we merged it
34:15and we're very pleased
34:16with it.
34:16With Eastern,
34:18Lorenzo got his
34:19biggest bargain.
34:20The price was
34:20$620 million,
34:22a steal for an
34:23airline Eastern size.
34:25The payment plan
34:25was even better.
34:27$340 million
34:28to be paid
34:28by Eastern's
34:29future revenues.
34:31Lorenzo persuaded
34:32Eastern to borrow
34:33more than half
34:34the money
34:34to finance
34:35its own sale.
34:36It was a terrific deal.
34:39All of that
34:39put the unions
34:41ultimately
34:42in the crosshairs,
34:44if you will,
34:44of the Texas Air guns
34:45because
34:47the Eastern
34:49airlines
34:50that Frank Lorenzo
34:51acquired
34:51was highly leveraged.
34:53Leverage
34:54means debt.
34:55More debt
34:56for Eastern
34:56meant greater pressure
34:57to cut costs.
34:59Eastern has more debt
35:01than some of its competitors,
35:02so therefore
35:03the labor area
35:03is the only area
35:04where Eastern
35:05really has an opportunity
35:06for reasonable relief
35:08in order to try
35:09to level the playing field.
35:12Eastern's labor costs
35:13are below
35:14the industry average,
35:15but its debt
35:15is so high
35:16the airline needs
35:17dramatically lower wages.
35:19In fact,
35:20by 1988,
35:21if every machinist
35:22took 50% pay cuts,
35:24the company
35:24would still run
35:25in the red.
35:27He wants us
35:28to foot the bill
35:28on the debt.
35:30I've got over
35:3025 years there,
35:32and he wants us
35:33to take a 50%
35:34cut and pay,
35:35so that would be
35:35down to about
35:36$8 an hour,
35:37and I have children
35:38that, teenagers now,
35:40working for almost that,
35:41that still live at home
35:43and they have no bills
35:44and stuff like that
35:45compared to what I have
35:46with four children
35:47and, you know,
35:48a mortgage.
35:49I just couldn't afford it.
35:51And I'll never be satisfied.
35:53It's just the reverse
35:55of what unions
35:55used to be identified
35:56with 50 to 75 years ago
35:59in the old famous saying
36:00about the unions
36:01want more.
36:02It's the reverse
36:03so that now the management
36:04wants more
36:04and there is no end to it.
36:06There's never enough.
36:07What we have been
36:08steadily confronted with
36:10are some union leaders
36:12who are anti-company,
36:13and it's very obvious
36:14that they've been
36:15anti-company.
36:16Their goal has been
36:18to try to bring down
36:19Texas Air
36:20because Texas Air
36:21is one of the last forces
36:22of competition
36:23in the marketplace.
36:25They would like
36:25to keep having
36:26this nice, cozy environment
36:27without anybody
36:28that ruffles up
36:30the waters here
36:30and puts any pressure
36:31on wage rates
36:33and in term fares
36:35over time
36:35in this industry.
36:36We're perceived
36:37as a threat.
36:40Today,
36:41with chronic pressure
36:42for wage cuts,
36:43cooperation at Eastern
36:44is impossible.
36:46The conflict
36:46between the company
36:47and the IAM
36:48is especially bitter.
36:50No TV cameras
36:51are allowed
36:52into machinist areas
36:53except the surveillance
36:54units installed
36:55by the company
36:56to watch the workers.
36:59In Miami,
37:00the last vestige
37:01of the days
37:01of cooperation,
37:02the machinist's
37:03cost-saving team,
37:05has been kicked off
37:06Eastern property.
37:07Now,
37:07in the Union Hall
37:08across the street,
37:09the team clings
37:10to its contractual right
37:12to prove that Eastern
37:13can cut costs
37:14rather than wages.
37:15That's 200.
37:16They're showing 195 here.
37:18That's the group
37:18to get your...
37:20Yeah,
37:21that's your group
37:21one through...
37:22Each section
37:23of the engine
37:23is a group.
37:25Since Frank Lorenzo
37:26bought the airline
37:26in early 86,
37:28the company's
37:28completely ignored us.
37:30We've got over
37:31probably $7 million
37:32in cost-saving benefits
37:33and reports
37:35sitting on the
37:35division controller's desk.
37:36They completely ignored.
37:38I sent them letter
37:38after letter
37:39after letter to them
37:40and they won't
37:41acknowledge my letters.
37:43I find it frustrating
37:44because they're asking
37:45for 20% to 40%
37:46cuts from us right now.
37:47They need the money
37:48but they won't even
37:48implement or even
37:49evaluate the cost savings
37:50that we've given them
37:51so far.
37:52In 1985,
37:54Buddy Sugg
37:55was a key member
37:56of the cost-savings team.
37:58Now he does nothing
37:59but process grievances
38:00against the company.
38:03In 1985,
38:04it was kind of
38:05kiss and get along
38:06and we were trying
38:08to restore the wages.
38:09They fired 36 people
38:11in 1985,
38:12total year.
38:14In 1986,
38:15which Mr. Lorenzo
38:16took over in February
38:17of 1986.
38:19From February
38:20to December 31st,
38:221986,
38:23they fired 363 people.
38:26So, you know,
38:28that's quite a jump.
38:301987,
38:31they fired 295.
38:33So far this year,
38:34which is November of 1988,
38:37they fired 194.
38:39The policies themselves
38:40were designed
38:41to do just what they did
38:42which was to put
38:43membership of unions
38:44on the street,
38:45to put the fear of God
38:47into employees
38:48and to basically
38:50destabilize the company.
38:53Jeff Callahan
38:54used to be
38:56on the management side
38:57of Eastern's labor wars.
38:59Smile.
39:01Today,
39:02he is in private practice
39:04representing many employees
39:05whom he believes
39:06have been unjustly fired
39:08by Eastern.
39:09More.
39:11The way they were
39:11treating the employees,
39:13the things they were doing
39:14to the corporation
39:15were things
39:15that I just could not
39:16agree with.
39:18It's unquestionable
39:19in my mind
39:20that they came in
39:21with the predetermined idea
39:22of putting the IAM
39:24out on strike
39:25or putting the unions
39:26out on strike.
39:27The IAM resisted a strike.
39:30Instead,
39:31they and the other unions
39:32went public
39:32with their grievances
39:33claiming that Eastern
39:34was not properly run
39:36and that the safety
39:37and solvency
39:38of the airline
39:39were threatened.
39:39The big lie technique
39:42centered around
39:43a couple of notions.
39:45One is
39:46we're a bunch of
39:47robber barons
39:47trying to destroy
39:48the company.
39:49Two,
39:50we are anti-employed
39:51and trying to destroy
39:52human lives.
39:54And number three,
39:55the airline is unsafe
39:56and we're running
39:58the company
39:59in a way
39:59that jeopardizes
40:00safety margins.
40:02Now,
40:02those three themes
40:03are themes
40:05that are going
40:05to get attention.
40:07PBS is going
40:08to come
40:08and do stories
40:09on companies
40:10that have those
40:11charges made
40:12against them.
40:13Pressured by
40:14a public outcry,
40:16the Department
40:16of Transportation
40:17investigated safety
40:18and management
40:19practices at Eastern.
40:22The government
40:23found no major
40:24safety problems
40:25but gave the company
40:26a warning.
40:28In a company
40:28so divided,
40:29the risk is increased
40:30that the labor
40:31management discord
40:32will,
40:33at some time,
40:34either through
40:35inattention
40:35or design
40:36have an adverse
40:38impact on the
40:39public's safety.
40:40The bad publicity
40:41scared passengers
40:42away from Eastern
40:43and the other
40:44Texas Air carrier
40:45Continental.
40:46In 1987,
40:47Eastern lost
40:48$181 million.
40:50Continental lost
40:51$258 million.
40:53As both carriers
40:54burned up cash,
40:56management blamed
40:56labor and labor
40:57blamed management,
40:58especially Frank Lorenzo.
41:01There's a document
41:02that we weren't aware
41:04of and discovered
41:05by accident
41:06during the course
41:06of all the litigation
41:07we've been involved
41:08in,
41:09where the unions
41:10had a meeting
41:11and set out
41:12a written plan
41:13to make Frank Lorenzo
41:15the issue,
41:16describe him as
41:17the pillager
41:17of the American dream,
41:19get a lot of
41:20public and media
41:20attention
41:21by personalizing
41:22the issue.
41:24The unions
41:25were joined
41:25by other critics
41:27who discovered
41:27disturbing things
41:29about the makeup
41:29of the Lorenzo Empire.
41:33Farrell Cooper Smith
41:34once testified
41:35on behalf of Lorenzo
41:36when Continental
41:37used Chapter 11
41:39to void its union
41:39contracts.
41:41Today,
41:41he represents
41:42the Pilots Union
41:43at Eastern.
41:44Recognizing that
41:45we have been
41:45on the other side
41:46of the Continental matter,
41:47also recognizing
41:47that my firm,
41:48I would say proudly,
41:49is pro-business.
41:51We represent
41:52corporate America.
41:54I don't think
41:54we switch sides
41:55because I think
41:56we're still on the side
41:57of the system
41:57and I think
41:58it's in the system's
42:00best interest
42:00to not allow
42:01it to be abused
42:02and used as a weapon
42:03which is what we think
42:04is happening
42:04here at Eastern.
42:05It's a very clever
42:07corporate raid
42:08where the unionized
42:09airline is being
42:11dismantled
42:11for the benefit
42:12of the non-union carrier
42:13and for the interest
42:13of the holding company.
42:15Today,
42:16the Texas Air
42:16conglomerate
42:17owes lenders
42:18$5.4 billion.
42:20Most of that debt
42:21belongs to
42:22Eastern and Continental.
42:24Texas Air
42:24also borrows money
42:25on its own.
42:27In theory,
42:27Texas Air
42:28should pay its debts
42:29with the profits
42:30from its airlines.
42:31But there are no profits
42:32at Eastern and Continental,
42:34so Texas Air
42:35looks for other ways
42:36to pull up cash.
42:38Critics call this
42:39upstreaming.
42:41For example,
42:42Texas Air
42:43charges Eastern
42:44$15 million a year
42:45for a management fee.
42:48Eastern used to
42:49buy its own fuel.
42:51Now Texas Air
42:52buys fuel
42:52for Eastern.
42:53For that service,
42:54Eastern pays
42:55Texas Air
42:56a penny per gallon
42:57for a total
42:57of $13 million
42:59a year.
43:00And Eastern
43:01has loaned
43:01Continental
43:02and Texas Air
43:03$220 million
43:04at low interest rates
43:05and then borrowed
43:07$200 million
43:08from banks
43:09at high interest rates.
43:10The problem
43:14is when one
43:14removes money
43:15and valuable
43:17property
43:17from your
43:18operating companies
43:19who aren't able
43:20to pay dividends
43:21because they're already
43:22not successful
43:23and not earning money,
43:24it takes those
43:25weakened operating
43:26companies which
43:27aren't performing
43:28well to start with,
43:29which is the whole
43:29nub of the problem,
43:31and makes them
43:32even more
43:33financially weakened
43:34by virtue of
43:36the fact that
43:36valuable resources
43:38have been removed.
43:39For some reason,
43:40it is very un-American
43:41to get a return
43:43on investment.
43:43It's called,
43:44quote,
43:44upstreaming
43:45by the unions
43:46at Eastern
43:47who don't even
43:48like to admit
43:49the fact that
43:50100% of the shares
43:51of the company
43:52were bought
43:54and a substantial
43:55amount of cash
43:56was paid for
43:57by Texas Air
43:58for which it is yet
43:59to receive
44:00one nickel's worth
44:01of, quote,
44:02return on investment.
44:03You've got to remember,
44:04these people
44:05thought they had
44:06purchased a 25%
44:07equity share
44:08in this corporation.
44:10Come February
44:11of 1986,
44:12they found out
44:13that they didn't
44:13have what they
44:14had paid the money
44:15for,
44:16and they were
44:16very upset
44:17and bitter.
44:18The unions
44:19went to court
44:20to protest
44:20the managing
44:21of the company
44:22that they once
44:23partially owned.
44:24They charged
44:25that when Texas Air
44:26was not able
44:27to bargain
44:27for wage cuts,
44:29the company
44:29began dismantling
44:30Eastern in order
44:31to force
44:32wage concessions.
44:34Federal court
44:35transcripts
44:35in the pending
44:36case reveal
44:37an internal
44:38Eastern document
44:39called the
44:39Chunks Memo
44:40discussing the
44:41psychological impact
44:42of selling
44:43chunks of the
44:44airline.
44:45One excerpt
44:46cited in the
44:47federal court
44:47record notes
44:48that selling
44:49the Eastern
44:50Shuttle
44:50would have
44:51maximum impact
44:52on the IAM.
44:55The unions
44:56also charged
44:57that Texas Air
44:57was trying
44:58to shift
44:58jobs and assets
45:00away from
45:01high-wage
45:01Eastern
45:02to low-wage
45:03Continental.
45:06Eastern Airlines
45:07Reservations,
45:08Claudia Russo.
45:10There are
45:10five major
45:11computer reservation
45:12systems in the
45:13United States.
45:14System 1
45:15was Eastern's
45:15and it was
45:16vital to the
45:17airline's success.
45:18It generated
45:19cash from
45:19booking fees
45:20and travel agents
45:21who leased
45:22the system
45:22favored Eastern
45:23when they
45:24sold tickets.
45:27In 1987,
45:29Eastern sold
45:29System 1
45:30to Texas Air
45:31and now
45:32Eastern pays
45:33for the system
45:34it used to
45:35own.
45:36Management has
45:36said that
45:37companies that
45:37lose money
45:38must sell
45:38assets to
45:39generate
45:39liquidity.
45:40The computer
45:41reservation
45:41system was
45:42sold in
45:42April of
45:431987.
45:44Eastern received
45:45a note with
45:45a final maturity
45:46in the year
45:472012.
45:48Not a penny
45:48of cash was
45:49paid to
45:50Eastern.
45:50Market estimates
45:51of the value
45:52of System 1
45:52were $250 to
45:54$350 million.
45:56Texas Air paid
45:57Eastern $100 million.
45:58System 1 is
46:00not in itself
46:01a very profitable
46:02company.
46:03It's not
46:03profitable in
46:04the year 1988
46:05which also
46:07surprises people.
46:09What is
46:09important for
46:10Eastern Airlines
46:10is that it
46:11gets the benefit
46:12of the
46:12computerization
46:13and what
46:14Texas Air was
46:14able to do
46:15is substantially
46:16increase the
46:17computer penetration
46:18through travel
46:19agents.
46:20In fact,
46:21at the time
46:21of the acquisition
46:22the penetration
46:23was about 12%
46:24and Texas Air
46:25has taken
46:26that up to
46:26over 18%
46:27which of course
46:28is very
46:29beneficial to
46:30Eastern.
46:31Today,
46:33more travel
46:33agents use
46:34System 1
46:34but they now
46:36favor both
46:36Eastern and
46:37Continental.
46:39Eastern's unions
46:39charge that
46:40sharing the
46:41system benefits
46:42Texas Air and
46:43Continental at
46:44Eastern's expense.
46:46Someone once
46:47asked Willie
46:48Sutton why he
46:48robbed banks
46:49and he said
46:51that's where the
46:51money is.
46:52And I believe
46:53that reality
46:55largely underscores
46:57what's happening
46:58between the
46:59relationship of
46:59the holding
46:59company and
47:00the airlines,
47:01particularly the
47:02unionized airline.
47:04It has become
47:05the equivalent
47:06of the clunker
47:07you might keep
47:07in your backyard
47:08that's being
47:09used for spare
47:10parts for your
47:11car that you
47:12want to park
47:13in your garage
47:13that all your
47:14neighbors can see
47:14out on your
47:15driveway.
47:16The car in
47:17the driveway
47:17for all your
47:18neighbors to see
47:19is Continental
47:20Airlines.
47:20That is the
47:21flagship of Texas
47:22Air.
47:22That's the way
47:22this has been
47:23designed.
47:24And Eastern
47:24has been relegated
47:25to being that
47:26of a clunker
47:26from which
47:27spare parts
47:27can be derived
47:28and value
47:28can be stripped
47:29and removed.
47:32Critics have
47:33pointed to a
47:33pattern in some
47:34key markets.
47:35Eastern would
47:36cut back on
47:37flights and
47:37Continental would
47:38move in to
47:39fill the void.
47:40For example,
47:40in September
47:411985, before
47:42the Texas Air
47:43takeover,
47:44Eastern flew
47:4528 flights a
47:45week on the
47:46profitable route
47:47between New
47:47Orleans and
47:48Washington, D.C.
47:50Continental did
47:51not fly the route.
47:52Three years
47:53later, Continental
47:54was flying 35
47:55flights a week
47:56between New
47:56Orleans and
47:57Washington, and
47:58Eastern had
47:58quit the route.
48:00From 1986 to
48:011989, Continental's
48:03annual revenues
48:04have doubled to
48:05$4.6 billion,
48:06and Easterns have
48:07been reduced by
48:08nearly $1 billion
48:09a year.
48:10If Eastern
48:11continually has
48:12losses, then
48:14there's very
48:15little incentive
48:15for investors
48:16to keep
48:17investment capital
48:17at Eastern
48:18and an incentive
48:19to move capital
48:20out and to
48:22liquefy the
48:23assets, that's
48:24for sure.
48:26The Evergreen
48:28Air Center in
48:29Arizona.
48:30It is a
48:30graveyard for
48:31Eastern jets
48:32awaiting resale
48:33or strip for
48:34salvage.
48:35As of today,
48:3640 planes have
48:37been grounded,
48:38sold, or leased.
48:40Eastern has
48:40retreated from
48:4114 cities.
48:4214,000 jobs
48:44have been lost.
48:45As 1988
48:46losses approached
48:47$400 million,
48:48Eastern continued
48:49to sell bits and
48:50pieces of the
48:51airline to make
48:52debt payments.
48:55We are, in a
48:57way, burning up
48:57the furniture to
48:58heat the house,
48:59but the house is
49:00about 20 degrees
49:01below zero, and
49:03if we don't heat
49:03the house, the
49:05furniture will be
49:05there with a lot
49:06of other inanimate
49:07objects, and this
49:08will be called
49:08all the people
49:09of Eastern
49:09Airlines and
49:10the customers
49:10of Eastern
49:10Airlines, because
49:11there won't be
49:12Eastern around
49:12to run it.
49:14If companies are
49:15run on the
49:16principle of
49:17financial management,
49:19reducing wages,
49:21going deeply
49:22into debt, moving
49:23pieces of the
49:24company around like
49:25they were pieces
49:26of a monopoly
49:27game, workers are
49:29not going to feel
49:29loyal.
49:30They're going to
49:31say to themselves,
49:31who are we
49:32working for?
49:33Why are we
49:33working for that
49:35company?
49:35If this company
49:36is nothing but a
49:37collection of
49:37financial assets,
49:39then I don't owe
49:40this company any
49:41more loyalty than
49:42a stockholder does,
49:44who moves in and
49:45out of large issues
49:45at the speed of
49:47an electronic
49:47impulse.
49:49All three unions
49:50have joined forces
49:51to try to find
49:52another buyer for
49:53Eastern.
49:54They were willing
49:55to consider wage
49:56cuts, provided the
49:57deal included a
49:58reconstruction of the
49:59old power-sharing
50:01accord.
50:01The whole range of
50:03things that would
50:04make Eastern culture
50:06back what it once
50:07was in that
50:08Camelot period when
50:09we actually had a
50:10four people on the
50:12board of directors,
50:12we were very
50:13profitable, the
50:14company was very
50:15successful.
50:16Give it a good
50:17grip there.
50:18This thing at
50:19Eastern we had
50:19created was so,
50:21such a perfect model
50:22everyone believed in
50:24and recognized its
50:25value so much that
50:27now moving up to
50:28Lorenzo, wanting to
50:29make a deal with
50:31the employees
50:32involved, there's no
50:33trust.
50:34They don't trust the
50:35process, they don't
50:36trust corporate
50:36America, they don't
50:38trust anybody to ever
50:39live up to the
50:41commitment and to
50:41have the commitment
50:42to the quality of
50:44life for workers and
50:45quality of life for
50:46employees, which is
50:47what our economy
50:47should be all about.
50:48Charlie Bryan goes
50:50too far in that he
50:51crosses the line
50:52between what the
50:52role of the
50:54management of the
50:55company is and
50:55indeed what the role
50:56of the shareholders and
50:57the owners and the
50:58investors of the
50:59capital are as
50:59opposed to
51:00employees.
51:03And, you know, it
51:05perhaps is the case
51:06here that Charlie
51:08Bryan has had a
51:09taste, having been on
51:10the board, he's had a
51:12taste of the power
51:14structure and indeed
51:14he's had a taste of
51:16the nice perquisites
51:17that go along with
51:18it, including his
51:20gold Eastern annual
51:21pass, which I
51:22understand he doesn't
51:23have anymore.
51:24By the end of
51:251988, Frank Lorenzo
51:27still controlled
51:27Eastern Airlines, but
51:29his freedom to
51:29maneuver was limited.
51:31The National
51:31Mediation Board
51:32refused to release
51:33Eastern and its
51:34unions from mediated
51:35wage negotiations.
51:37Legally, this meant
51:38Lorenzo couldn't cut
51:39wages or hire
51:40non-union workers.
51:42Without a release,
51:43Lorenzo felt that he
51:44had no choice but to
51:45step up the sale of
51:46Eastern's assets.
51:47when a patient has
51:50cancer and you apply
51:51chemotherapy, you don't
51:52like the look of some
51:53of the symptoms.
51:54And unfortunately, while
51:57I'm not thrilled with
51:58that analogy, the fact
51:59is there's a lot there
52:00to be learned from.
52:02Lorenzo can't solve
52:04Eastern Airlines'
52:05problems.
52:06I don't think he could
52:07from the beginning and I
52:07don't think he can now.
52:09The airline business is
52:11essentially a service
52:11business.
52:13In the end, everybody
52:14can buy the same
52:14airplanes.
52:15The real difference
52:16airline to airline is
52:17the people.
52:18It's how they deal with
52:19their management, with
52:20each other, and most
52:22importantly in the end
52:23with the flying public.
52:26You can't run a service
52:27business with the
52:29management and the
52:30workforce in a state of
52:31perpetual warfare.
52:33On October 13, 1988,
52:36Texas Air made a deal to
52:38sell the Eastern Shuttle
52:39to real estate magnate
52:41Donald Trump.
52:41The sale today is not
52:45our preferred course.
52:48However, we have been
52:50deprived of an environment
52:52to negotiate the contracts
52:56at Eastern, specifically
52:58with the IAM.
53:03The valuable shuttle
53:04accounted for half of the
53:05company's operating profits.
53:07Its sale demoralized the
53:09unions.
53:09It demonstrated that
53:11Lorenzo would keep
53:12selling pieces of the
53:13airline unless the
53:15unions gave in.
53:17Selling off good parts
53:19of Eastern to hold on to
53:21the bad parts of Eastern
53:22is exactly what people do
53:25when they're in trouble.
53:27People who are in trouble
53:28always end up selling off
53:29the good part of the
53:30business and holding the
53:31bad.
53:32So looking at least that
53:33part of the Texas Air
53:35Empire, one would say that
53:37it doesn't order well for
53:38the future.
53:39If the fuel markets turn
53:41and we have an economic
53:43slowdown and Texas Air
53:44doesn't make it, we're
53:46going to have a fiasco in
53:47this country because 20%
53:48of the capacity in this
53:49country has been allowed to
53:50come under the control of a
53:52highly leveraged company
53:53which is embarked in a
53:54confrontation between labor
53:56and interest cost.
53:59It's not labor and
54:00management.
54:00It's labor and interest
54:01cost.
54:02When the dust settles, when
54:05the sun sets, there is one
54:08big question with which we
54:10are left.
54:12What, after all, is the
54:14meaning and purpose of the
54:16American corporation?
54:17Is it just a bundle of
54:19financial assets to be moved
54:22around to their highest and
54:23best use?
54:24Or is a corporation a network
54:27of mutual obligations, mutual
54:29responsibilities, a compact
54:31between people to produce
54:33wealth in the future?
54:36Can we have it both ways?
54:37The Eastern story suggests no.
54:44Back in 85, I really thought
54:46we were going to make it.
54:47I mean, we were doing great.
54:48We saved millions and millions
54:50of dollars and we had
54:52everybody humming.
54:53It was like a fine clock.
54:55And now the morale out there
54:56is pitiful.
54:58People hate to come to work
55:00here.
55:02They're just, they're waiting
55:03for the other shoe to drop.
55:05I would just personally like
55:08to see it over with one way
55:09or the other so I can know
55:11what to do with my life.
55:12You know, I can, I'll go get
55:13another job or I'll do what I
55:15have to do.
55:16But I hate to go like this
55:18way.
55:20But I'm not going to let them
55:21wear me down either.
55:22I'll be here when they lock
55:23the doors.
55:28After 15 months of
55:30negotiation, Eastern Airlines
55:32and its machinist union have
55:34failed to agree on a new
55:35contract.
55:37Federal mediators insist the
55:39parties keep talking.
55:41Reportedly, the mediators are
55:43not convinced Eastern is
55:45bargaining in good faith with
55:47the union.
55:48Thank you for joining us.
55:50I'm Judy Woodruff.
55:51Good night.
55:54The big surprise of the 1988
55:56presidential race was the
55:58phenomenal campaign of Jesse
55:59Jackson.
56:00We're the people.
56:01Can win.
56:02Inside the campaign, it was
56:03hope and hype driving the
56:05Jackson caravan.
56:07But in the end, Jesse lost.
56:09Or did he?
56:11I was amazed that America did
56:13as well to understand Jesse as
56:15they did.
56:16Running with Jesse, next time on
56:18the front line.
56:19Frontline.
56:50Frontline is produced for the Documentary Consortium by WGBH Boston, which is solely responsible for its content.
57:05Funding for Frontline is provided by this station and other public television stations nationwide, and by the Corporation for Public Broadcasting.
57:14For video cassette information about this program, please write to this address.
57:22For a transcript of this program, please send $5 to Frontline, Box 322, Boston, Massachusetts, 02134.
Comments