Hard Landing (43 page)

There was no telling for sure whether such a deal could go through. The legal questions were mind-boggling. The flying authorities and the landing rights—were they corporate assets, like factories or mines, that Pan Am was free to trade away? Or were they licenses that the respective governments conferred? Pan Am had never actually paid to acquire those operating rights; did it now have the right to sell them? If so, how could anyone begin to determine the price? Ferris was eager to find out.

The Forbes party, in fact, was not the first time that Ferris had broached the matter; three years earlier he had secretly met Acker at an off-brand motel near JFK to propose buying the Pacific routes. Acker had politely brushed him off. This time things were different. Pan Am, like United, was headed for a cataclysmic union showdown, but unlike United, Pan Am had no financial wherewithal.

“I’ll think about it,” Acker finally answered.

Neither man realized that at that moment an executive in the Forbes organization was leaning over the ship’s deck above with a camera. He snapped a shot of the two men deep in conversation; he later sent a copy to each. Referring to an oily spot on the pier beneath them, the photographer added the caption: “That’s Crandall down there, wondering what you’re talking about.”

• • •

Marty Shugrue of Pan Am, like Dick Ferris of United, was a pilot, but unlike Ferris he still had strong rapport with the pilots’ union. With minutes to spare before a strike, Shugrue reached a settlement with the Pan Am pilots that provided for a phased restoration of their lost wages, a kind of partial snapback.

After the pilots came the Transport Workers Union, representing mechanics. A settlement appeared hopeless, but
that was okay, Pan Am’s management reasoned, because Pan Am could fly through a mechanics’ strike. Pan Am could stay in business so long as it had pilots, and the pilots had signed.

The mechanics walked off the job at midnight on February 28, 1985. But to the astonishment of everyone else connected with the situation, the Pan Am pilots honored their picket line. Acker and Shugrue had completely miscalculated. Pan Am was all but shut down. Once again the sins of Frank Lorenzo were being visited on another airline. “
The Continental situation, more than anything else, taught the pilots’ union some religion,” a union official was quoted as saying. “The pilots’ union decided it was better to start honoring other unions’ picket lines, at least for a while, or the unions weren’t going to get anywhere.”

Acker recognized that Pan Am was a victim of Lorenzo fallout, but it was cold comfort. Like any executive who had put in more than a few years in the airline business, he had a thing about maintaining a cushion of cash. In his mind Pan Am
required a cushion of at least $300 million. Pan Am was practically down to that already, with no place to turn for more. The banks had cut Pan Am off. The entire fleet was already mortgaged to the wing slats. The landmark headquarters building in midtown Manhattan had long since been sold. Ditto the Intercontinental Hotel chain. Only the routes, the circulatory system of Trippe’s great beast, were left to sell.

Among the company’s routes those over the Pacific, despite their high fares and storybook history, were the only logical ones to sell. Among the achievements for which they received insufficient credit, Acker and his aides had reoriented the U.S. route system to feed Europe-bound passengers into New York and Latin-bound passengers into Miami, but there was far less feed to the West Coast for Asia. It would take $3 billion worth of new planes and new routes to
make that happen. The 747s Pan Am used from the West Coast to the Orient were also in need of replacement; in the easterly headwinds of the winter the planes often required fuel stops or had to fly with reduced loads, unlike the later-model 747s that other airlines were buying.

The rest of the airline industry, meanwhile, was eating Pan Am’s lunch in the Pacific. Northwest, unlike Pan Am, had extensive routes running from the interior of the United States to the West Coast and thence to Asia, enabling it to collect transpacific passengers that Pan Am relied on other carriers to bring to it. Pan Am was also inundated with new competition from Asia itself. In addition to Japan Air Lines there were a number of national carriers from the booming Pacific Rim—Korean Air, Singapore Airlines, Cathay Pacific, and Thai Airways—that offered sumptuous onboard service with flight attendants paid a small fraction of what Pan Am paid.

With the kind of money they could get by selling the Pacific, Acker and Gitner could not only pare down Pan Am’s oppressive debt burden but also build additional routes to the surviving Pan Am gateways of New York and Miami. Finally there was, in the case of the Pacific, a ready buyer in the person of Richard Ferris.

Acker tracked him down at the 1985 Hawaiian Open, the annual golf tournament that United used to beam images of putting greens and girls in grass skirts across America every winter. Ferris and his marketing chief, John Zeeman, were in a practice round on the 13th hole when Ferris was called to the phone. He caught up with the group on the 16th hole and casually asked Zeeman to join him privately after the round. The two walked to the hotel and closed the door of Ferris’s room behind them.

“You can’t
fucking believe it!” Ferris exclaimed. “They want to do the Pacific deal!”

The following Saturday, on April 20, 1985, Eddie Acker and Gerry Gitner sat down with Dick Ferris and one of his aides in a suite at the Plaza Hotel (then owned by United) and named their price: three quarters of a billion dollars.
Ferris, to their surprise, readily agreed. In one of the biggest commercial transactions in history there was no haggling over money.

Acker knew that the transaction would be
emotionally wrenching for the Pan Am board, many of whom had served alongside Juan
Trippe. Acker answered to some of the most distinguished directors in corporate America: Donald M. Kendall, the chairman of Pepsico; Sol Linowitz, the former general counsel and chairman of Xerox Corporation, who had negotiated in behalf of President Carter in the Middle East and the Canal Zone; Akio Morita, the chairman of Sony Corporation; and other notables. Many of the directors had long delighted in hearing Lindbergh’s tales of the early days.

But nobody played the relationship game better than Acker, and this was a situation that called on all of his skills. Acker needed to recruit a board member to join him in championing the deal. One way to lock up such loyalty, he thought, was to give a director a financial incentive in the outcome.

Acker turned to William T. Coleman, Jr., a noted civil rights attorney and power broker who had played a leading role in the landmark desegregation case
Brown
v.
Board of Education
. Coleman later stood out among civil right advocates for his Republican leanings, and had been transportation secretary in the administration of Gerald Ford. In that capacity he was among the Ford administration officials who gave momentum to the deregulation campaign that was completed during the Carter administration. Coleman’s law firm, O’Melveny & Myers, was not Pan Am’s usual counsel, but for this transaction Acker asked whether Coleman would have his firm do the legal work, which would be massive. There’s no evidence that Coleman wouldn’t have supported the sale in any case, but years later the great lawyer acknowledged the appearance of a conflict of interest. “One
could always argue that when you have someone on a board whose firm did legal work, that affects you,” Coleman explained years later. “I hope it didn’t.”

Approving the Pacific sale was, as Acker had expected, difficult for the board. But with Coleman in his corner and with $750 million in cash hanging in the balance, Acker won the board’s approval.

In Dallas Bob Crandall was jealous and outraged to learn that United was buying the Pacific division of Pan Am—and that he had never been given the opportunity to bid on it. Crandall
could not imagine why he had been entirely cut out.

In fact Acker and Gitner had considered shopping the routes to Crandall, whose interest in establishing foreign routes was well
known. But Pan Am had previously conducted a major airplane swap with American, and they had found Crandall prickly and impossible to satisfy. The Pacific sale was an emergency transaction. A strike had been raging and cash dwindling. There was no time for dealing with a difficult personality. No one ever told Crandall that he was denied the chance to make the airline deal of the decade because he was just too tough.

Despite his jubilation,
Ferris knew the timing could not have been more dreadful. He was writing one of the biggest checks in corporate history at the very moment he was telling the United pilots that he required b-scales to survive against American. Three days after the Pacific announcement, at United’s 1985 annual meeting of shareholders, protesting pilots rained on Ferris’s parade, inundating him with hours of questions and conducting picket duty outside the hotel. The pilots also fixed their strike date: May 17, 1985, less than a month away.

United’s management went into
high gear. The company drew down half of a $1.5 billion line of credit to bolster its cash position. Under heavy security it established an operating center, with dim lighting and Ferris’s would-be flight schedules projected against the wall. Ferris continued to lobby individual pilots, hanging around dispatch rooms on weekends in his
casual slacks and golf shirt. He also scheduled a major road show in a campaign to win them over with his salesmanship and charisma, talents that had proved so useful in his pilot dealings of the past. But at location after location attendance was virtually nil. The pilots were boycotting his meetings. Union people, he learned, were photographing any who dared to attend.

Ferris was furious. They are
intimidating my pilots! he thought.

The union’s massive unity campaign reached its peak on Sunday, May 5, 1985, in a
satellite production involving dozens of technicians and weeks of planning—a rally broadcast live to pilot domiciles in Los Angeles, Denver, San Francisco, Seattle, Cleveland, Miami, New York, and Washington from Odeum Expo Center in Chicago. Strike chairman Rick Dubinsky, his gargantuan image projected on a huge screen over the podium, was like an oracle announcing
the end of the earth. “We’re now just 271 hours and 52 minutes away from the time when every United pilot must face the most difficult test of his life,” he solemnly declared.

The rally was moderated by Paul Anthony, the studio announcer for the PBS show
Washington Week in Review
. The radio commentator Daniel Schorr reviewed the status of the issues in the talks. Retired anchorman Howard K. Smith spoke on the history of labor-management relations.

A tape was shown of Dubinsky interviewing a pilot who shamefacedly told the story of how he had crossed the picket lines at Continental—of how it had nearly ruined his life, making him a marked man, causing his copilots to refuse to engage in any conversation with him deeper than a cockpit checklist, a situation with potentially disastrous safety consequences. A pilot called in from Cleveland via satellite asking whether the union would have any way of knowing how many pilots were scabbing. “You, the pilots,” Dubinsky said, “will not only know how many, but
who.”

The high point of the conference came near the end as the podium was taken by the trial lawyer F. Lee Bailey. Bailey had been a marine fighter pilot who never quit flying; he averaged 40 hours a month at the controls of his Learjet. As it happened, he was engaged to a United flight attendant.

If any of the pilots felt misgivings about the strike—if any felt demeaned, or guilty, or low-class, or obstreperous at the idea of walking a picket line—Bailey went a long way toward salving their anxieties and endowing their intentions with legitimacy. Nothing, Bailey said gravely, would eradicate pilot professionalism faster than a two-tier wage system in the cockpit. Although everyone in the audience would remain in the a-scale, in future years a swelling crowd of b-scalers would be after their jobs, eyeing the veterans for slipups, making discreet comments to their supervisors in hopes of knocking them out of their captains’ seats. “Won’t that be great for teamwork?” he asked sarcastically. “Has technology made flying so much less difficult that we can put
half-valued
people up there?”

With the rain pounding the metal roof of the Expo Center, Bailey went on in the grandiloquent style of a lawyer giving a jury speech. Ferris, he said, had a debt to the rest of the industry—a debt incurred when he joined with the forces of deregulation.

This is a giant risk. Mr. Ferris has to take it, you understand, if there’s any chance of success. You are
the
test case. There will never be another day like this. If United goes, TWA, Delta, Eastern, Northwest, Pan Am are gone. “Two-tier,” or something equally as corrupt, will be in, and that will be history. And you will have the misfortune to live through the transition, which will be horrendous.… Mr. Ferris put them in the deregulation bucket and it is his job to cure their problems if he can, and he is the spearhead by designation.… And if they succeed, we will have pilots like the boy from Air Florida—and I mean “boy”—who … did not know what ice was and committed suicide with a bunch of passengers in a takeoff that I wouldn’t have expected an astute
student
to even attempt.…

What you must do is simplicity itself. Look in the mirror and ask yourself, “Am I worth what I’m being paid? Or have I, for 20 years, conned the American public into thinking that there were demands in this job that really don’t exist?”

It all came down to honoring the picket line, Bailey said. If none of the pilots crossed, he said, Ferris would have to crumble.

During the hours of speech making no one mentioned that the pilots’ negotiators had already, in fact,
agreed to b-scales, though only of a few years’ duration, until the American pilots could be emboldened to shake loose the two-tier system. Ferris, however, was not content with the pilots’ concession. An airplane lives for 20 years or longer; he wanted b-scale for a generation, not just a few years. Dick Ferris wanted what Bob Crandall had.