What led to Frank Lorenzo's demise?

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The U.S. aggression in the Middle East has sent the stock markets into a tailspin around the world. Among the hardest hit stocks are those of the major airlines. As the U.S. economy slides into a recession, the first cutback for corporations is business travel. Leisure travel also drops.

Moreover, since July 31 jet fuel has gone up over 60 percent from about 57 cents a gallon to 94 cents a gallon. After labor costs, this is the highest expense for the carriers. Every one cent-a-gallon increase adds $160 million to the industry's annual expenses. The airlines have responded by raising their average domestic fares by 9.5 percent and international fares by 7-10 percent.

U.S. Air and Pan Am have announced major layoffs. Other carriers have announced plans to freeze hiring and/or trim their workforces by the year's end.

Lorenzo's demise

Talk of recession and the price of jet fuel has helped push the main airline news of 1989-1990 out of the picture—the strike at Eastern Airlines that began in March 1989. Eastern under its court-appointed trustee, Martin Shugrue, continues to fly despite major losses. In addition to higher fuel costs, it faces the added burden of a boycott campaign organized by the machinists' union (International Association of Machinists, IAM).

The IAM is demanding that Shugrue settle the strike or sell the airline to other capitalists ("white knights"), such as the owners of Northwest Airlines, a union carrier. Of course, the strikers will go with the purchase. That's the hope.

Whatever happens, however, it is clear the old Eastern Airlines will never exist again. The "new" Easter is half its former size due to the liquidation of major assets.

And on Aug. 9, union-buster Frank Lorenzo announced a $30.5 million deal to sell his interest in the former Texas Air Corporation, now Continental Airlines Holding Inc., to Scandinavian Airlines System (SAS). The deal includes Lorenzo's agreement to stay out of the airline business as an owner for seven years. He will remain on Continental Airlines Board of Directors.

Lorenzo's departure from the industry scene was hailed by both labor unions and the big busines media.

Lorenzo had turned a $25,000 investment in Texas International Airlines in 1971 into an empire with a market value of $2.1 billion at its 1987 peak. After deregulation of the airlines in the late 1970s, Lorenzo became a central figure in the industry.

After creating Texas Air in 1980, Lorenzo quickly took center stage in labor-management conflicts. He destroyed the unions at Continental after provoking a strike through the use of bankruptcy laws in 1983. He became the most hated employer in the airline industry during the current Eastern Airlines strike, with buttons and signs with a red slash across his name symbolizing opposition to union-busting.

Lorenzo's arrogant refusal to talk to leaders of the International Association of Machinists at Eastern (because he doesn't talk to unions) became widely known.

Lorenzo's high antilabor visibility was fine with the other employers throughout the 1980s as long as the rank and file were cowed and unable to put up much resistance. Lorenzo was put on the front page of business magazines and invited to speak at business schools nationwide. His union-bashing made it easier for other airline executives to impose two-tier contracts on their union and nonunion employees.

In 1986 Lorenzo took over debtridden Eastern Airlines and Frontier Airlines, as well as the nonunion People's Express. His goal was build the largest low-cost airline the world.

But this meant a head-on confrontation with the Eastern unions. Systematically Lorenzo stripped Eastern of its most valuable assets—giving them to Continental for a song. The ultimate objective was to break the unions and roll Eastern into Continental.

Unfortunately for Lorenzo, the situation in 1989—when Eastern workers were forced on strike-and the one in 1983 were quite different.

In 1983 the labor movement was still reeling from Reagan's 1981 destruction of the air-traffic controllers' union. Rank-and-file workers willingly voted for takeback contracts to "save" their jobs.

When Lorenzo took on the unions at Continental he pitted the machinists against the pilots-and then destroyed both. Labor solidarity was lacking. Most labor unions stood on the sidelines watching. The AFL-CIO top brass gave lip-service to the fight but did little.

Enter 1989. Lorenzo prepared for a repeat of 1983. He wooed the pilots and told the machinists they were through. But the unions had experienced 10 years of takeback contracts. They didn't trust Lorenzo and united for the first eight months of the strike, an unprecedented and unanticipated development.

The rank and file were fed up with concessions and were now ready to strike and fight, even if the prospect for victory was slim. As Eastern strikers have already shown, it is better to fight, lose your job but keep your self-respect, and have the company go under, than to die a slow death while the owners walk away scot free.

While Lorenzo walks away a rich

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By Talik Miah