Hard Landing (68 page)

It was the
perfect moment, Wolf decided, to get out. Such profits would never last. Republic would soon have to borrow tremendous sums to update its fleet. The labor agreements would also be expiring, and as Pan Am and others had discovered, the second round of labor-cost concessions could be even more traumatic than the first. Even with 17 million passengers a year, he considered Republic too small to survive in an industry in which the giants were still getting bigger.

It went without saying, of course, that selling Republic would give the stock price one last kick upward, and few shareholders would
benefit from that kick more than Stephen M. Wolf, whose number of options had grown to nearly 163,000 shares. To the extent that anyone cared, which was not much at this point, Wolf would also look better cashing out along with all the shareholders of the company, including the employees for whom he had arranged grants of stock.

The potential buyer to whom Wolf turned was an obvious choice: the crosstown rival, Northwest Airlines, which competed head-to-head with Republic.

Northwest, long the industry’s most conservatively managed and financially successful company, was then headed by a 38-year-old bodybuilder and Vietnam veteran named Steven G. Rothmeier. Rothmeier was no more famous for personal warmth than Wolf; running a couple of the largest airlines in America from the same city, the two men had never met. One evening they agreed to talk over dinner at a
family steak house in St. Paul.

Wolf was so intent on selling Republic that he met with junk-bond impresario Michael Milken to plan a hostile takeover of Northwest, should it prove necessary to provoke Northwest into making a defensive acquisition. But Rothmeier, it turned out, was actively searching for a way to secure more passenger feed within the United States for Northwest’s vital routes over the Pacific, where United had lately become a powerful new competitor. Republic, Rothmeier recognized, was the perfect acquisition candidate. A meeting of the minds had occurred before the two men had ordered their steaks.

Northwest paid nearly $1 billion for Republic. The price per share was $17, for a stock that Wolf had options to buy for as little as $3.75. In the end the boy who started his transportation career on the loading docks of Oakland walked away from Republic with
$2 million in option profits and $1 million in severance.

The other Steve, Steve Rothmeier, was
not so fortunate. Once Wolf had departed the scene, Rothmeier was left to put together 14 union groups, two incompatible fleets, and two vastly different cultures. Republic’s flight attendants, accustomed to the freer spirit of a smaller airline, bristled at a dress code requiring high heels and “acceptable” earrings only. Some protested by wearing their lapel wings upside down. Republic employees came into the merger already having made deep wage concessions for Wolf; even though they had been paid in stock for these concessions, they resented making less
than their counterparts from Northwest. The former Republic pilots launched a work slowdown, posting signs that said, “Zero pay increase, zero airspeed.” Northwest’s in-house
Sperry computer system gave the cold shoulder to Republic’s IBM system.

Northwest’s operations began to break down. “The results of the discontent are pushing us
dangerously close to self-destruction,” a middle manager wrote in a memo.

Shortly after Republic was gone, Wolf found himself eating a lunch of
organically grown tomatoes at a health ranch in Arizona with Saul Steinberg, a wealthy (and portly) New York investor and takeover maven. Steinberg controlled Tiger International, which owned the Flying Tiger Line, an
all-cargo airline famous in its day for introducing the nation to year-round fruits from California and for transporting Roy Rogers’s Trigger and other famous animals. Its slogan was “Anything, Anytime, Anywhere.” In 1977, a year before adoption of the Deregulation Act, Phil Bakes and his associates conducted a kind of legislative dress rehearsal by pushing through a bill that deregulated air cargo only. This move opened the way for Federal Express, UPS, and other freight forwarders to buy their own airplanes, which proved disastrous for Tiger’s business. Compounding its financial problems, Tiger had an unusually generous pilot contract. Steinberg’s investment in the company was withering. Would Wolf, he asked, try his magic hand?

Wolf anguished over the consequences of attempting a turnaround and failing, balanced against the triumph of pulling off a long shot. Ultimately he accepted an offer from Steinberg, once again with a massive award of stock options.

His reputation with labor still very much intact, Wolf entered his first meeting with the Tiger pilot leadership and was surprised to see the men stand and remove their jackets: they were all dressed in red suspenders, the Wolf sartorial trademark. The real moment of truth came after midnight a few months later, in November 1986, when Wolf met with union leaders in a hotel near LAX and warned them that unless the pilots renounced 30 percent of their wages, the company would simply be liquidated. In the wee hours, after caucusing, the pilots declined.

At that moment Wolf stunned everyone in the room by pushing
himself away from the table, leaping to his feet, and shouting, “
It’s over!”

He turned to the company’s general counsel, Lawrence M. Nagin. “Larry,” he said, “we’re going. It’s over, it’s over, it’s
over.”
And they walked out the door—so far as the pilots could tell, in order to commence the liquidation of Tiger International. The next day another union chieftain called to entreat Wolf into further bargaining. “It’s over,” Wolf responded, “it’s over, it’s
over.”
When the union’s international leaders called from Washington, they got the same message.

Days later the pilots signed a contract on Wolf’s terms. They too received some stock in exchange for their concessions.

Wolf gave the Tiger fleet a fresh new design and decided that it was time to sell this company as well. Federal Express came in as the buyer. But before he even had the opportunity to cash in his options, Wolf found himself under pressure to decide on another job offer, this one from United Airlines.

It might have dismayed Wolf to know that he was the third person contacted for the United job and, above all, that he had been approached behind his old boss, Bob Crandall. But Wolf had the enthusiastic backing of Neil Armstrong, the search committee chairman. Wolf would have to walk away from a fabulous fortune in Tiger options to accept the position with United, but Armstrong resolved the matter by awarding Wolf options on 250,000 United shares. That meant that every $4 price increase would put another $1 million in Stephen Wolf’s pockets, and, with the stock having traded at more than $100 a share, such a price change was not uncommon.

For a boy who grew up poor, Wolf acclimated himself easily to the badges of fortune. He purchased a sprawling apartment on the 63rd floor of a skyscraper towering over Chicago’s North Michigan Avenue, just as Wolf himself towered over all who stood near him. He outfitted the residence with antiques juxtaposed with ultramodern decorator touches: stark white walls, a cantilevered staircase, and window blinds that could be raised and lowered at the touch of a button. But the dominant feature was the view, through windows some 20 feet high: Lake Michigan to the east, the Sears Tower to the south. Wolf could watch air shows along the shore of Lake Michigan by glancing downward at the aerial acrobatics.

The move to Chicago also occasioned a change in Wolf’s marital status. He and his girlfriend, Delores Wallace, had maintained their relationship after Wolf had left American Airlines seven years earlier, in 1981. Wallace had remained at American, where she had risen from flight attendant instructor to membership in Crandall’s inner circle as the vice president of personnel resources. Crandall, for all his ruthlessness as a taskmaster, was perhaps the best boss in the airline industry for female executives; a number had attained top positions in Crandall’s organization. If Crandall harbored any of the sexist bias so prevalent in the airline industry, it was snuffed out by his obsession with performance. Crandall had tolerated Wallace’s romance when Wolf was at Republic and Tiger, but United was a different story. “If Stephen ends up at United,” Crandall warned her, “we’ve got a problem here.”

So once Wolf had accepted the United offer, Delores Wallace quit American, quit Bob Crandall, and walked away from one of the highest positions ever attained by a woman in commercial aviation. She married Wolf and threw herself into
studying French. She and Wolf loved France and everything about it. They
visited regularly. Wolf loved French cooking and wines,
especially Burgundies.

United, unfortunately, did not fly to Paris, nor anywhere near Europe. United’s new code-sharing deal with British Airways would feed transatlantic passengers into United’s domestic flights, but that was a poor substitute for United’s flying to Europe itself.

Wolf saw four
compelling business reasons for United to alter its strategy. The U.S. market, as most carriers realized, was reaching maturity. Second, Europe was a place where labor costs made U.S. carriers competitive: United was paying coolie wages compared with Lufthansa and Air France and other state-subsidized European carriers. Third, adding another continent to United’s portfolio diversified its geographic risk. (Latin America, another continent outside the United route map, looked attractive to Wolf for the same reason. In fact Wolf had recently paid a courtesy call on President Carlos Salinas de Gortari in Mexico City.)

Finally, Wolf could see that the long-standing U.S. carriers to Europe—Pan Am and TWA—were on the ropes. Either could fail. As unthinkable as it might seem,
both
could fail, and if so, Bob Crandall would undoubtedly push American Airlines into the vacuum.

Thus, from the moment he was introduced to Sir Colin Marshall, Wolf took pains to point out that United’s code-sharing deal with British Airways was a legacy of the previous management. “I want to
keep our arrangement in place,” Wolf said, “but you specifically need to know that if I can ever find a way for United to fly to London, I will.” Marshall had no problem with that. He was sure that any such service by United would be small. If British Airways ever had to compete directly with United over the Atlantic, he thought, it would be on only
one or two routes.

As Wolf was uprooting himself to Chicago, he flew frequently on a United flight regularly staffed by Bobbie Pilkington, an official of the Association of Flight Attendants. Wolf, she would comment, was as delightful as passengers came, until the briefcase was unsnapped. “It was the most
bizarre thing. Everything about his countenance changes when he gets involved with his work. He gets cold, hard. His color changes. Everything about that man changes. He goes to gunmetal gray steel.” Wolf, thrown as an adolescent into full-time work to support a family, had never learned how
not
to work.

Plainly, though, Wolf’s challenges—and opportunities—provided plenty of motivation. Overtaken in 1988 as the nation’s largest airline, United needed airplanes badly, but it remained a deeply troubled company with disaffected employees and pilot salaries that were out of line with the rest of the industry. “It was,” as he later put it, “unusual,
if not strange.” Reversing those problems could make Wolf not only a fabulously wealthy man but a celebrity besides. He could become, as
The Wall Street Journal
said, the “
Iacocca of the Airways.”

Wolf had walked into United expecting at least the recognition by United’s pilots that he was a bona fide “airline guy,” not a “car guy” as Olson was or a “hotel guy” such as Ferris. But even if he was the kind of chairman they had been clamoring for—indeed,
because
he was that kind of chairman—the leaders of the pilots’ union were fretful over Wolf’s arrival. The pilots’ leadership, still infatuated with the idea of taking over United, were not eager to see their members co-opted by a new CEO with a sterling image. The ALPA leaders in Chicago told the top union brass in Washington that they intended to cast
Wolf as the bad guy. Although some of the headquarters people
were troubled by this, they were powerless under the ALPA constitution to interfere.

The tar and feathers were waiting when Wolf, shortly after assuming the United job, traveled to Hawaii to make a presentation to the United pilot leaders. This time the pilots were not waiting in red suspenders. Wolf stepped to the front of the room and took the microphone. As he began to speak, he found that the
microphone cord seemed to be stuck on something. He looked down. The cord disappeared under a curtain. Wolf tried to jerk it loose, but it remained stuck. The cord, it appeared, had been fastened to the floor! Wolf, all six foot six of him, went through his presentation fussing with the cord and stooping at the waist, humiliated, deprived of the stature that he had always used so effectively in trying to win the support of his adversaries.

Wolf told the United pilots that he wanted to make the airline grow, that he wanted to swell the fleet—but that he first wanted to cut still further United’s costs. This gave the pilot leadership all the ammunition it needed in the character assassination campaign that followed.
Anti-Wolf stickers were passed into cockpits. Because it was not specifically accounted for in their contract, pilots refused to fly two newly delivered Boeing 747s in the 400 series, the newest and best jumbo jet model ever built; the cost to United of leaving the two planes on the ground totaled $200,000 a day. Taking a page from the Max Safety playbook at Eastern Air Lines, the United pilots adopted a strategy they called “
Sweet Sixteen”—delaying one minute past the 15-minute grace period that the government gave the airlines before counting any flight as late. In one month only 62 percent of United’s flights were scored as on time, a shockingly poor showing at a time when passengers were closely comparing the percentages. The pilots also insisted on topping off their fuel tanks, weighing down their vessels so that they consumed more fuel.

Then, a curious thing happened. While publicly pillorying Wolf, the
pilots actually invited him to join them in their effort to mount an employee takeover. His involvement would clearly lend respectability to the marginal prospects for such a monumental takeover. Wolf considered himself something of a pioneer in the whole area of employee ownership in the airline industry (although he, like others, often failed to appreciate that Southwest had initiated
the trend), but he
wanted no part of a buyout. He did not want to load up the balance sheet with debt; he wanted to buy airplanes and make United grow. He wanted to launch United into Europe and Latin America. He wanted to match and beat back the thrusts and parries of Bob Crandall.