Hard Landing (21 page)

Leasing a small office in northwest Houston, they put out word
that they were available for hire as a management team, ready to right any listing airline, but they also harbored the fantasy of starting their own airline. Burr knew from competing against Southwest that it was possible to start an airline from scratch and succeed against the established competitors, so long as the service was priced at the level necessary to tap the latent demand for air travel. Best of all, by starting from nothing Burr would have the best chance to create the kind of culture he had so eagerly wanted and failed to instill at Texas International.

Starting an airline from nothing—how did one do it? The first and most important thing, Burr decided, was to maintain absolute secrecy from Lorenzo. “We figured
Frank would do whatever he could to kill us,” Burr later explained. “We’d judged him to be vindictive and pissed off.”

They
needed to raise money, but to do so they first needed equity. Burr sold a car; a house; two ski condos in Park City, Utah; and his Texas International stock. He wiped out his savings, raising a total of $350,000. Gitner scraped together $175,000. Dawsey chipped in $20,000.

But they also needed something to sell—an idea, a concept. What kind of airline should it be?

During one of Texas International’s management retreats in the late 1970s Gerry Gitner had talked up the idea of trying to transplant the Southwest-style low-cost, high-frequency operation to an altogether different part of the country—the Northeast, say. It was a bold notion, invading an area where the major airlines had for so long held dominion. But lately, with the economy plunging and the price of jet fuel soaring, the major airlines had been cutting back in the region. The Northeast had become the Rust Belt, deemed unworthy of the teeming airline service it had once enjoyed. High energy costs were killing off the old mills. Workers were moving to the oil-enriched job meccas of Texas and Colorado. With their newly endowed freedoms under the Deregulation Act, American Airlines and United Airlines, in particular, were pulling planes out of the Northeast and either grounding them or dispatching them to stronger markets—the West, to be sure, and transcontinental service. The airlines remaining behind in the Northeast region were vulnerable. USAir, one of the leading short-haul airlines there, had breathtakingly high costs.

Burr and his partners recognized that they would have some special advantages that no incumbent airline could overcome. First, a new airline would have no unions, at least not to begin with—not ever, if Burr had anything to say about it. Second, with an all-new workforce, no one would have any seniority, meaning that everyone would be starting at rock-bottom pay. Third, their new airline could serve the Northeast from an inexpensive and largely ignored terminal at Newark Airport, away from the congestion and high costs of Kennedy and LaGuardia.

Burr was happy to hear that Newark’s North Terminal was wide open—though horrified at what he found on his first visit. Owned by the Port Authority of New York and New Jersey, the terminal had been built to handle a couple of DC-3S a day. After the Newark riots of late 1960s, New Yorkers got in the habit of using LaGuardia and JFK instead, even though for many Newark remained by far the most convenient airport. The North Terminal, long abandoned, was a disaster area,
strewn with garbage, teeming with rats, and reeking of urine. The ceiling was all but falling down. The windows were opaque with grime.

The idea of putting down an airline in the North Terminal had occurred to other people since the signing of the Deregulation Act, but each previous tenant had quickly come and gone. “
No one has ever made it here,” one of the Port Authority people told Burr. “Why would you want to move in?” One aspiring airline founder had even moved some furniture into one of the terminal’s office suites; in his haste to depart ahead of his creditors, he had never moved the furniture out. It would become the first office furniture at Burr’s airline.

Burr knew the place would clean up and that there were some
wide-open markets to hit from Newark. American had cut back service to Buffalo and had gate space available there. Columbus was wide open; American had pulled back there as well. United had retrenched at Norfolk. It was true that none of those cities was booming like the oil towns that Southwest was serving in Texas, but they all three had healthy economies. And new passengers, first-time passengers, might flock to a new airline, assuming that the fares were low enough—below the cost of driving or taking Greyhound.

Burr and his cohorts traveled to Boston to meet with a venture capitalist. They arrived early to prepare in advance over an ice-cold
weekend in February of 1980. One of Burr’s friends gave them the use of his office, but with the oil crisis raging, the heat was turned off for the weekend. Dawsey sat at a typewriter and Burr and Gitner stood over her shoulders, all three of them in their overcoats, as she typed a final draft of their business plan.

The venture capitalist committed no money, but he did pose a critical question. “What are you going to call this company?”

Burr was sure that some brilliant name would naturally suggest itself. “The name will flow from the design,” he answered smugly.

The venture capitalist admonished them to think hard about a name, to come up with something that as closely as possible described the kind of business they intended. “Name it for what it’s going to be,” he said.

A day or two later it hit Burr. We’re a people company, he thought. We’re people with a people program, working to move people. That was it: the company would be called People Express.

In deciding on New York for his operating base, Burr had an additional reason to choose Newark: there was no room left at either LaGuardia or Kennedy Airport. The problem was too many airplanes.

Just as it took man millions of years to learn that there was a limit to how much soot and smoke he could pump into the atmosphere, so too did it take a while to grasp that the sky could accommodate only so many planes at once. “
The plain truth,” a congressman from Delaware warned, “is that near collisions in mid-air, of disastrous proportions, are being narrowly averted every day only by the emergency action of skilled pilots—or by Providence.” The year was 1956.

Technology (radar and computers) and public works (more airports and more runways) increased in stages the number of planes that the system could safely accommodate at any time. But from the time of the DC-3 the government consistently and severely underestimated the burden of managing the airspace, with the result that it never caught up. In 1956 public awareness was heightened by the collision of a TWA Constellation with a United DC-7 over the vastness of the Grand Canyon, killing 128 passengers. Then,
with Christmas approaching in 1960, in the midst of the transition to the jet age, a United DC-8 bound for JFK (then Idlewild Airport) smashed at 400
mph into a TWA Constellation conducting an approach to LaGuardia. The collision, over Staten Island, rained wreckage and remains into the streets of Brooklyn.

The limitations of the system were most evident at hours of peak operation or when bad weather restricted takeoffs and landings. The FAA could cope only by stacking up airplanes en route to their destinations. By the late 1960s the practice of circling had reached absurd proportions, particularly on flights to New York, as Jack Lemmon and Sandy Dennis lampooned by endlessly waiting to land in
The Out-of-Towners
. Planes bound for New York were sometimes stuck in holding patterns as
far west as Denver.

At various times from 1968 forward the government would numerically limit takeoffs and landings at many of the nation’s airports, but these restrictions would remain permanent at only four locations: Chicago O’Hare, the world’s busiest airport; Washington National, which shared airspace with the military; and the New York City airports, except Newark. Landing assignments—slots, as they were called—had turned out to be a finite natural resource: Oregon had the redwood forests, Texas had oil, and New York had slots.

By 1980 the vicissitudes of the air traffic control system were of concern to no one more than Frank Lorenzo. Not content merely to run Texas International, Lorenzo, following Don Burr’s lead, resolved to start a new airline of his own, also in New York.

Lorenzo had attended the same management meetings at which Gerry Gitner, before quitting Texas International, had talked up the idea of moving into the East Coast. Lorenzo knew as well as anyone that there were
vacuums forming on the East Coast, an area safely distant from Southwest Airlines. Moreover, even if the major airlines still controlled the slots, they were not actually using all of them. American, in fact, had acres of hangar space sitting empty in New York, Lorenzo learned.

But while his ex-colleague Don Burr planned to apply the low-fare formula at second-tier destinations from New York, Lorenzo was looking to do the same on some of the most heavily traveled routes in the world—in the corridor that linked New York with Boston and Washington, D.C. These were routes long dominated by Eastern’s Air-Shuttle, an operation that Lorenzo came to know from the inside during his brief time as a financial analyst at Eastern. Lorenzo believed
that Eastern had allowed the shuttle markets to
turn cold. Service stank. Performance was spotty at best. The shuttle was a veritable cattle car. The best proof to Lorenzo was the anachronistic success of train service between New York and Washington. Who would have thought that passenger trains could flourish in 1980?

But why should Lorenzo, controlling the 17th largest airline in the United States, choose to start an altogether new airline? Why not simply expand his existing airline under its own colors, on a route-by-route basis?

For one thing, Texas International, though profitable, had a reputation as a difficult debtor, thanks partly to Lorenzo’s unremitting renegotiation of repayment terms. Starting a new airline would allow Lorenzo to tap the airline spigot on Wall Street unencumbered by Texas International’s balance sheet. In addition, Lorenzo knew that expanding Texas International’s existing base of operations would only throw more planes in the
path of Southwest, with its ultrahigh productivity and low fares, and in front of American, with a massive fleet in Dallas and a growing computer reservation system with which to direct passengers.

Finally there was the
matter of the unions. Every new arc added to the Texas International route map would be governed by the same onerous union contracts. Any newly hired pilots would have to be paid union wages and scheduled according to the work rules of the Air Line Pilots Association (ALPA). This reality was anathema to Lorenzo; how could he hope to take business from the entrenched Eastern shuttle unless he could undercut its price, and how could he do that unless his costs were much lower? Establishing a new airline would solve all these problems.

Lorenzo chartered a new entity called Texas Air Corporation. Texas Air, in turn, created an operating subsidiary, which began hiring pilots at $30,000 a year, two thirds the average union rate of $45,000 at Texas International. Used DC-9S purchased from Swissair—
airplanes, ironically, that Don Burr had ordered for Texas International shortly before quitting—were assigned to the new subsidiary. The planes were painted fire-truck red, with a giant apple design adorning the tail. The name given the new airline was New York Air.

The $35 million in cash left from the abortive National Airlines
takeover was “
upstreamed” from Texas International to Texas Air, giving it all the money it could ever spend in starting up an airline. But Lorenzo decided to use the occasion of New York Air’s formation to raise more cash anyway, scheduling a $40 million stock offering by Texas Air. Although Texas Air had no track record whatsoever, not so much as an earnings statement, the stock analysts on Wall Street greeted the offering enthusiastically; New York Air, they explained, was bound to succeed because it was so closely
patterned after Southwest Airlines.

But if New York Air was to be a New York airline, it needed landing slots—and quite a few, if it was to compete with the hourly service of the Eastern shuttle. To wangle the necessary slots from the FAA, Lorenzo needed a Washington-wise insider on the Texas Air team. Having spent time in Washington lobbying against deregulation, he knew just whom to call.

When President Carter signed the Deregulation Act, Phil Bakes felt his mission was complete. He had intended to leave Washington immediately to accept an attractive job offer from Cummins Engine Company, an Indiana manufacturer noted for its progressive management policies, but Kennedy beseeched him to serve as deputy manager of his campaign to become president in 1980. It was a depressing affair, particularly following the infamous interview in which anchorman Roger Mudd asked the candidate why he wanted to be president; Kennedy was unable to put together a coherent answer.

Shortly before the Democratic National Convention the call came from Frank Lorenzo. Bakes agreed to meet him for
breakfast in the Jockey Club at the Fairfax Hotel (later to become the Ritz-Carlton), one block west of Dupont Circle.

Bakes was fearful that Lorenzo was looking for a lawyer or a Washington lobbyist, or someone who acted as both, and Bakes was determined to act as neither. He had been trying to avoid the ennui of law ever since he had fled Chicago to join the Watergate prosecution. He was convinced he had a calling to manage people, and he fervently wanted to run something.

Lorenzo explained that he needed someone to get the slots on which to launch New York Air—a lawyer’s role, just as Bakes had
feared. But Bakes’s anxiety began to melt. Lorenzo related, at great length and in detail that surprised Bakes, the story of his failed relationship with Don Burr. Lorenzo said he had been devastated by Burr’s departure from Texas International, that he had not slept well in the four or five months since Burr had quit. Lorenzo’s old Harvard pal, Bob Carney, was still around, but Lorenzo said Carney was not the soul mate that Burr had been. Lorenzo confessed to Bakes that he sometimes felt insecure around strong personalities, and there was no doubting that Burr was one of those.