Hard Landing (47 page)

Bakes was proud of himself. He had not blinked. And now he was on the verge of fostering a whole new round of changes at Continental, on many levels. He envisioned a radical series of
marketing innovations making air travel even more affordable to more people. He assembled a full-time team of staffers into a study group he assigned to designing “the
airport of the future”: a paperless airline operation without tickets—an unheard-of concept in 1985. He imagined passengers boarding airplanes and paying for their seats by swiping credit cards through an electronic reader. They would use their credit cards even to get baggage tags and self-check their luggage. Lorenzo, however, did not appreciate Bakes’s studies. “What are we
wasting money on this shit for?” he asked at one point, almost as if he were slamming down Don Burr’s “people plan” of six years earlier. Bakes kept the airport-of-the-future project alive anyway.

Bakes had not, however, become the media hero of Continental’s recovery, or at least not the main hero. Just as the press had misleadingly identified Lorenzo alone as the bogeyman in the bankruptcy filing, so did it focus on him, not Bakes, as the ace of the comeback. With a self-satisfied smile on his face—he could look so handsome when he smiled—Lorenzo was
pictured in
Business Week
under the headline “Continental Is Soaring Out of Chapter 11.” Lorenzo took pains to foster the rehabilitation of his public image, even turning out for Continental Airlines Night at a Houston Astros game. “You get
a real high with the employees,” he told a reporter present for the game. “They are so happy.”

Bakes, though he did not broadcast the fact, knew that if there was any such change in the attitude of Continental’s employees, it was principally the result of his efforts, his plans, his programs. He was spending fully
30 percent of his time on the line, meeting with employees. He had installed a profit sharing program, and not only were there profits, but they were shared. He had launched a “gain sharing” program that rewarded employees—pilots who burned up
less fuel, for instance—with cash payments. He began planning training programs for middle management intended to infuse the company with a new “participatory culture,” as he liked to call it, and this stuff was selling.

On September 5, 1985, two years to the month after the proceedings had begun, Bakes and Lorenzo announced that Continental Airlines was emerging from Chapter 11. They proudly declared that creditors would get 100 cents on the dollar, which was literally true, except that in some cases the creditors would have to wait years to receive full payment. In other cases involving benefits for certain employees who went on strike, the payoff was zero cents on the dollar. In the
same budget hotel from which they had shocked the world with their original announcement, Lorenzo and Bakes now proudly basked in the media floodlights. Bakes hailed “one of the most successful reorganizations of a billion-dollar company in the history of American industry.” Lorenzo boasted that “Continental has come back from the brink in fighting form.”

Few knew it at the time, but Lorenzo was also closing in on another computer reservation system—a system controlled by an executive who needed Lorenzo every bit as much as Lorenzo needed him.

Frank Borman was beside himself with anguish and frustration. He had spent his adult life operating within a chain of command, much of it with himself at or near the top. But the command structure of Eastern Air Lines had suddenly been inverted. Now the workers were in control, like “monkeys
running the zoo,” he thought.

The Colonel’s misfortunes were rooted in the 32 percent settlement he had awarded the machinists to keep Charlie Bryan from leading a strike. Eastern’s bankers, perceiving no irony in the situation, were so outraged at Borman’s capitulation that they
moved to restrict his credit lines even further, even though it was their refusal to release cash under those same credit lines that caused Borman to cave in the first place. The combination of swelling costs and tightening credit threw Eastern into a genuine cash flow crisis.

Borman was in the midst of this drama on the day that Frank Lorenzo put Continental into Chapter 11.
Within hours Borman was in a video studio at company headquarters in Miami, peering into a lens and grimly demanding immediate pay cuts of 15 percent.
Without them, he warned, Eastern might very well file for bankruptcy, “
à la Continental,” or liquidate altogether, “à la Braniff.” Eastern executives
fanned out through the system, distributing Borman’s videotaped bankruptcy threat.

Once reported by the press, the bankruptcy threat did less to
intimidate Eastern’s employees than to frighten its customers. The Continental Chapter 11 filing had burned thousands of passengers, travel agents, and tour operators, just as the Braniff bankruptcy had. Nobody was eager to be the third cigarette on the match. Practically overnight Eastern passengers redeemed some $2 million worth of individual tickets. Miami-based cruise lines that provided airline tickets to their customers abandoned Eastern. By threatening bankruptcy Borman had only worsened the cash flow crisis. At Eastern’s hub in Atlanta, the machinists hired a skywriter who filled the air with the message “Frank
Borman, Resign Now”—not as arresting as “Surrender Dorothy,” perhaps, but a startling message just the same.

In this round of BOHICA—“Bend over, here it comes again”—the unions were in a better position than ever to demand something in exchange for their concessions. Randy Barber, who had once joined with a band of French unionists that had seized control of a watch factory, helped to structure an extraordinary range of ownership concessions by the company. Eastern employees received shares in Eastern Air Lines equivalent to 25 percent of the company’s equity. Their unions won complete access to the company’s internal financial reports any time they wished to examine them. Budgets, spending authorizations, fleet planning—the blizzard of confidential paperwork that drifted through any major corporation—all now passed through the hands of Charlie Bryan, his colleagues in the other unions, and all of their aides, minions, advisors, and hangers-on.

On top of all that the unions had been awarded three seats on the Eastern Air Lines board of directors, the fulfillment of a dream for Charlie Bryan. Joining him on the board was Robert V. Callaghan, president of the flight attendants’ union at Eastern, and an outside lawyer representing the pilots.

Borman consented to these extraordinary concessions with the enthusiasm of an inmate on his way to the electric chair; he relented not just under the pressure from the unions but on the advice of
some of his own aides. Something had to be done, they counseled him, to break the cycle of mistrust and confrontation that had become the way of life at Eastern Air Lines. There had been too many close calls, too many bluffs, too many brushes with bankruptcy. Some board members also viewed the company’s concessions as an opportunity to
teach some reason to Charlie Bryan, to impress him with the gravity of Eastern’s problems and the awesome responsibility of managing the company’s delicate affairs. Peter O.
Crisp, who represented the Rockefeller interests on the board, made a point of cozying up to Bryan. John T. “Jack” Fallon, a Boston real estate maven, would take Bryan to football games or share stories about his good friends, the Kennedys, whom Bryan so admired.
Bryan would later admit to delighting in the attention.

In the new participatory atmosphere, a program was established for employees to identify cost-saving ideas. Individual workers were appointed to operating committees. Time cards were ripped up. Employees began going the extra mile—delivering errant luggage to passengers on their way home, for instance. And suddenly Eastern Air Lines, that crucible of labor-management hatred, was a cause célèbre. Consultants, journalists, and academics descended on the company.
Washington Monthly
magazine called it “the
largest experiment in labor-management cooperation in American history.” One of Eastern’s consultants told
The New York Times
that “Eastern has the most
extensive employee participation system of any American corporation today.” A study team from Harvard won a Department of Transportation contract to determine how Eastern could serve as a model for other companies. And Charlie Bryan was no longer just a labor leader. He was now a statesman, a shining example of union-management cooperation. He went on tour, giving speeches about codetermination.

Eastern tried to extract some small marketing advantage for its newly forged “partnership” with organized labor. Borman renewed his appearances in Eastern’s television advertising, surrounded by mechanics, flight attendants, and pilots. “Who can serve you better than the owners?” he asked. Eastern extolled itself as the first employee-owned airline in America (causing Herb Kelleher of Southwest Airlines to write Borman a chiding letter. “You’re
off by 10 years,” Kelleher said.)

But while Borman was outwardly proclaiming that “the
war is over,” he was
dying inside. The warm-and-fuzzy act was a brave face, intended purely for public consumption. Privately he considered all the union involvement to be
so much “crap.” Borman cringed with each new accolade in the press. Where the newly born team spirit existed, it was confined largely to a single location—Kansas City, a newly established hub through which Borman was again struggling to break into the transcontinental market. It was true that an impressive harmony had taken hold there, but it was far from typical. Kansas City was a brand-new operation with many freshly hired employees. It was not crowded with embittered middle managers and die-hard unionists.

Through it all management was blind to the monster it was creating: an employee group, and a union leader in particular, hailed as exemplars of employee participation when in fact there was really no employee participation at all. All the unions had really received was access to Eastern’s confidential internal documents and three out of sixteen votes on a board of directors, which might as well have been three in a million. Those concessions had established a detente in the cold war at Eastern, but no peace. And both sides remained sufficiently armed to fulfill the Cold War concept of mutually assured destruction.

If there was any doubt about the fragility of the peace, it was erased in April of 1985, when the machinists’ contract once again came up for renewal. The Colonel wanted yet another BOHICA deal, preserving some of the concessions already in place. And amazingly Charlie Bryan, now playing the role of union statesman, urged his members to assent. They did not. Over the advice of their beloved leader, the aircraft mechanics and baggage handlers and fuel loaders who made up the IAM voted down the proposed new contract in a ratification vote. After few minor changes Charlie Bryan got the deal approved, but the incident
had shaken him and his aides. It was apparent that however wild-eyed and radical Charlie Bryan might seem, he was actually a moderate next to the majority of his membership.

Borman, perhaps worst of all for him, had lost much of his standing with his pilots, a group for whom he had once walked on water. He appealed for their understanding on professional grounds. “To
the best of my knowledge,” he told their leadership during a meeting at the Miami Airport Ramada, “I am
the only pilot running a major airline.” He pleaded urgently for the pilots to adopt b-scales in their next contract. “I am not standing here like Ferris did and saying, Take this or nothing.’ Maybe I made the [mistake of thinking] that we could act like adults and look at the numbers together and reach a conclusion.” While waiting for b-scales Borman hit the brakes on hiring new pilots, but he soon found himself without enough pilots to fly his own schedule. In the last week of October 1985 alone he was forced to
cancel more than 500 flights from crew shortages, only worsening Eastern’s financial problems.

It was a testament to the
Colonel’s long-range vision that despite the intense, minute-to-minute financial pressures, he never wavered from his commitment to building up Eastern’s computer reservation system. It had grown into the third largest system in the industry, with 17 percent of the travel agency market, significantly exceeding the TWA and Delta systems and beginning to close in on United’s Apollo. Eastern’s network, called System One Direct Access, was noted among travel agents for a number of outstanding features, in some respects exceeding even Sabre and Apollo. The growth of System One and the accompanying halo effect on Eastern’s bookings was one of the things keeping Eastern alive.

But then it hit. The Big One—the one killer fare war that was capable at last of putting Eastern over the edge.

Ed Acker started it just as the winter tourist season was kicking off in the fall of 1985. Pan Am wanted cash. Acker wanted full airplanes. Still infatuated with $99 fares, he slashed prices to that level from New York to Florida. Eastern, of course, would have to match.

Don Burr would not be undersold on principle, and he needed cash besides. Before long People Express announced a $69 fare to Florida. Eastern, of course, would have to match.

The following day Lorenzo weighed in. New York Air, gravely damaged in the Northeast by the controllers’ strike but alive and kicking and causing trouble elsewhere, would fly to Florida for $39. Eastern, of course, would have to match.

In the midst of the Florida pricing war, in rolled the massive machine of American Airlines, staking a huge new hub in San Juan, in the heart of Eastern’s most profitable operation.
Crandall’s coterie
could see that Eastern was wounded and reeling. American had adopted, as an explicit internal goal, the “domination of
Caribbean marketing.”

Only one thing could save Eastern. Yes, it was back to the well for more concessions, but it really,
really
, counted this time. Anybody could see that. Thirty-nine-dollar fares to Florida! The sky was falling, really and truly.

Borman wrote a letter to employees saying that all those concessions in the past, all those “temporary programs,” were no longer sufficient. “We must look
beyond Band-Aids.” This time Borman wanted a straight 20 percent off the top. And this time there was no “God bless you” at the end.