Hard Landing (22 page)

Lorenzo went out of his way to assure Bakes he had changed. He said he knew that some people needed more freedom than others; he seemed to be saying that he hadn’t given Burr enough room. That wouldn’t happen again, Lorenzo assured Bakes. This was music to the ears of Phil Bakes. He told Lorenzo he was willing to go to work as a lawyer, a Washington lawyer, no less, so long as he could be sure that doing so was a step toward one day really running something. Lorenzo assured him it was.

Before long, as Bakes served out his final days in the doomed Kennedy candidacy, he and his wife, Priscilla, had dinner with Lorenzo and his wife, Sharon. It was a wonderful evening, full of mirth and camaraderie. Later that night Priscilla turned to Phil. Lorenzo, she said, was
looking not only for a partner but for a brother.

Whatever the emotional component, the commercial virtue of hiring Bakes was readily apparent. Bakes knew the Deregulation Act better than anyone else on the planet. Rules had been established supposedly assuring that “new entrants” would not be denied the chance to compete simply because the incumbent airlines already had the slots tied up. The law provided no assurance, however, that a “new entrant” could instantly establish itself as one of the biggest airlines in one of the world’s largest aviation markets, as Lorenzo envisioned New York Air. To offer an hourly schedule of service to Boston and Washington, Lorenzo needed dozens of slots at LaGuardia (as well as some in D.C.). Each and every one had to be gotten from somewhere—mostly from the incumbent airlines.

To Bakes, the assignment to cajole the landing slots was another campaign, no different from the campaign for deregulation, or the Kennedy-for-President campaign, or, for that matter, his campaign
to avenge his expulsion from Brother Rice High School. He used his insider’s knowledge of the law and the regulatory infrastructure to work every angle possible at the Transportation Department. He
got his old boss Ted Kennedy to insert a speech into the
Congressional Record
endorsing New York Air’s efforts. He got his friend Stephen Breyer to use some of his influence on the Hill as well.

A short time later Bakes and Lorenzo were sitting in an ad agency office in New York and watching some
fashion models display the freshly designed uniforms for New York Air’s flight attendants. This, Bakes told himself, is why I am in this job. In the midst of the display, Bakes was called away to the phone. The slots matter, he was informed, had been settled.

“Shit!” Bakes cried, rejoining Lorenzo.

What was wrong? Lorenzo wanted to know.

When Bakes explained that the government was granting New York Air two fewer slots than it had requested, Lorenzo was gleeful. New York Air had been given virtually everything it had asked for. And suddenly Phil Bakes was saying yeah, it was great news. Bakes thought that New York Air might become to him and Lorenzo what Love Field was to Herb Kelleher and Southwest Airlines: a cash cow, a larder from which all manner of expansion could be financed. Texas Air was on a roll.

Don Burr was also on a roll. On his 39th birthday a venture capital affiliate of Citibank agreed to invest $200,000 in People Express. Burr purposely
kept the sum small so that no single investor would be able to exercise much control. Burr wanted to retain control to assure that nothing, no one, stood in the way of the great experiment he was planning—an airline built around Maslow’s hierarchy of needs, in which employees would not receive much money but would enjoy more love and trust than they had ever experienced on the job.

The only way to avoid giving control to any one investor was to go public. Ever since Lindbergh’s time, in periods of economic contraction as well as expansion, investors were willing to put money into airplanes. “Maybe it’s
sex appeal,” Alfred Kahn once quipped, “but there’s something about an airplane that drives investors crazy.” But it had been seven years since Burr had worked on Wall Street. When Burr was at Texas International, Lorenzo and Carney had handled all the finance. Where should Burr turn?

It occurred to him that starting an airline had such novelty value—like gene splicing, say, or personal computers—that the investment bankers of the high-technology world might have an interest. Burr landed a luncheon date at the University Club in New York with
William Hambrecht, whose Hambrecht & Quist in San Francisco had become one of the leading financiers in the newly emerging industrial hotbed known as Silicon Valley. For about 45 minutes they made small talk. Then Hambrecht began to excuse himself to catch a plane to Martha’s Vineyard.

Burr was hit with panic.
This fucking guy is not going to give me my shot! he told himself. Burr began blurting his spiel: low costs, low fares, regular service from Newark, fast turnaround … As Hambrecht finally got up to go, he assured Burr that he had already researched Burr’s plan. Hambrecht had only wanted to see what Burr was like. Hambrecht & Quist, he said, would act as underwriters for the initial public offering of People Express. As Hambrecht dashed away, Burr gripped his chair to keep from falling.

Burr then had to find the airplanes with which to launch People Express. Lufthansa, it turned out, was getting rid of the 737s in its fleet and agreed to refurbish them in the colors and logo of People Express. The tail of each plane would be emblazoned with two squiggly lines representing two faces in profile. The design reminded Burr of two
human forms making love.

A week before the People Express stock offering was scheduled for market, Burr noticed that the Lufthansa people were not returning his calls. The deal had been negotiated, but the closing hadn’t occurred. Burr began snooping around. Boeing, it appeared, was offering Lufthansa top dollar to buy back the same planes, which it intended to turn over to American Airlines as
loaners against a major purchase of new aircraft.

Burr, still working out of the little office he had set up in Houston, boarded the next flight to the West Coast, where he confronted a Boeing executive. “What’s going on with these Lufthansa planes?” Burr demanded.

The Boeing man demurred and stonewalled.

“You’re a bunch of
whores and bastards!” Burr screamed. “I didn’t think Boeing could operate this way. This is outrageous! If you won’t tell us what’s going on, we’ll buy D
C-9s
[from McDonnell Douglas] and never buy a Boeing product again!” Burr stalked away.

With the stock offering a few days away, People Express still had no airplanes to its name. Burr heard that Ansett Airlines of Australia, controlled by financier Rupert Murdoch, might have some planes available. He flew to New York and begged his way into an
appointment with Murdoch, owner of the
New York Post
. Burr was shown into an office so expansive he could barely tell that the man at the other end was Murdoch himself. It seemed to take Murdoch half the afternoon to walk across the office to greet him. This being election day in 1980, all that Murdoch could talk about was the apparent landslide victory in the making for Ronald Reagan over Jimmy Carter—the last thing in the world Burr cared about or wanted to discuss at the moment.

Those planes … what about those planes?

Murdoch, it turned out, had no idea whether he had planes on the market or not. “Come to Australia next month,” he cheerfully instructed him.

Burr arrived back in Houston, dejected. Walking into the office, however, he noticed a message from Lufthansa. Boeing had backed down. The 737s would be painted with People Express faces on their tails after all.

People Express went to market a few days later at $8.50 a share. Burr had purchased
710,000 founder’s shares six months earlier at 500 each; they had just increased in value 1,700 percent. Frank Lorenzo, it appeared, wasn’t the only one who could engineer a killing on a stock sale.

On New Year’s Eve in 1980 Burr and his fellow People Express executives held their last meeting in Houston before moving their office and their families to Newark. They met at their principal conference location, a Tex-Mex place called Ninfa’s on the edge of the city’s exclusive River Oaks neighborhood. Within a few days they were in Newark for good. Burr wound up in a corner room on the top floor of the Howard Johnson Motor Lodge across the highway from the airport, where he had a clear view of the runways. Burr would enjoy watching the planes taking off and landing from the
privacy of his bedroom. Soon he would be watching his own planes.

Lorenzo and Bakes were thrilled to announce that Alfred Kahn would become a member of the New York Air board of directors.
Kahn, however misleadingly identified as the father of deregulation, was nonetheless good copy and a bona fide media darling. He enthusiastically backed New York Air, itself the very embodiment of deregulation. Plus Kahn was a New Yorker. Bakes liked that: a
brash New Yorker for a brash new airline. To further strengthen the New York marketing theme, one of the planes, with great fanfare, was rechristened
The Little Flower
, the nickname of the great former mayor, Fiorello La Guardia.

But among the union pilots of America, New York Air overnight transformed Frank Lorenzo into public enemy number one. “
Runaway shop!” the pilots’ union cried. “Rotten to the core,” said
Air Line Pilot
magazine. The pilots’ outrage was understandable: here were a half-dozen airplanes, with many more to arrive in the months ahead, representing dozens of opportunities for copilots at Texas International to step up to the captain’s seat, to earn a fourth stripe on their sleeves, to get a significant raise in pay—all being switched to a subsidiary where their wage rates, work rules, and seniority provisions did not apply.

The pilots would launch a $1-million publicity campaign to vilify Lorenzo. They
rented a billboard near the Blue Barn at Hobby Airport showing a Texas International jet transforming itself into the colors of New York Air, with a devilish caricature of Lorenzo in a cowboy hat tearing a union contract in half. Union leaders threatened a boycott of Pepsi products because a Pepsi bottler happened to sit on the Texas Air board. They persuaded the
widow of Fiorello La Guardia to boycott the festivities commemorating the first flight; the late mayor, it turned out, had been a
champion of the pilots’ union, once marching at the head of the New York State Labor Day parade alongside Air Line Pilots Association founder Dave Behncke at a time, in the early 1930s, when the union was battling a hated nonunion operator.

The pilots’ union would litigate and threaten and cajole, and none of it would hurt New York Air in the slightest. Lorenzo had vanquished them. If anything, the more loudly the
pilots’ union railed against New York Air, the more successful the airline became. The public was increasingly fed up with labor unions and was drifting to the right, a fact most evident at this moment in the Reagan landslide. ALPA’s boisterous campaign only made people take notice that there
was a new airline in New York that offered halfway decent service at a low price. It was free publicity, just like the pooping baby elephant in Kansas City. Even in an old-line union town like New York, people couldn’t have cared less about the whinings of a few union pilots down in Texas—particularly when New York Air was offering Gotham one of the best bargains in air travel it had ever seen.

Service to Washington was inaugurated at $49 ($29 on weekends), compared with Eastern’s $60, plus a passenger got a free drink on New York Air, and, for a time, a free bottle of champagne, borrowing from the Southwest Airline liquor giveaway of seven years earlier. Texas Air drove home its message in newspaper ads showing people drowning themselves in champagne. “Celebrate, New York!” they said. “You’ll never have to fly the Eastern shuttle again.”

Eastern fought back valiantly, handing out 50-percent-off coupons to anyone flying the shuttle; Lorenzo responded by offering $15 to anyone who turned in one of the Eastern coupons to New York Air. (A rash of counterfeit coupons came into circulation.) Before long New York Air was flying close to 100,000 people a month. Practically overnight New York Air had
captured one quarter of the market held by Eastern’s shuttle in one of the world’s busiest and most important airline markets. New York Air was the most successful airline start-up in history.

Don Burr had at last secured four planes from Lufthansa, with at least a dozen scheduled to come in. Hiring the people to staff People Express turned out to be much easier than finding the airplanes.

A hard recession was still on, with 8 million Americans unemployed and new college graduates among the hardest hit.
An ad for flight personnel in Buffalo drew 12,000 eager applicants. The pay was meager—about $17,000 to start, except for pilots, who received twice that—and everyone had to buy stock, even if doing so required borrowing money from the company. Anyone who came into People Express, Burr decreed, would have to invest a substantial portion of his or her net worth in the company. That way if the company failed,
they would all go down with it.

Candidates were administered a variety of tests to assure they were compatible with the culture Burr had in mind. The employment rolls swelled, mostly with people from marginal colleges; in profiling
recruits, some of the company’s executives considered an IQ of 105 to be ideal. Certainly Burr had his standards—very specific ones. His employees had to be friendly, and passionate about serving the customer. In the interest of low fares People Express passengers would be asked to carry their bags on board or pay three dollars. Anyone who wanted coffee would pay fifty cents. Burr was linking the ticket price to the lowest common denominator of service demanded by the customer—pure transportation. The ticket price had to be lower than the cost of driving, or forget it. (“There’s
no potholes up here,” one of the company’s early ads would observe.) But even if the company could not provide extensive service, Burr thought, it could offer warm service. Southwest Airlines had proved the everlasting value of that. Warm service cost nothing to provide, but it made a deep impression on the customer. So what if People Express was a no-frills airline? The friendly attitudes of his employees, Burr decided, would be the
ultimate frill.