Read Hard Landing Online

Authors: Thomas Petzinger Jr.

Tags: #Business & Money, #Biography & History, #Company Profiles, #Economics, #Macroeconomics, #Engineering & Transportation, #Transportation, #Aviation, #Company Histories, #Professional & Technical

Hard Landing (9 page)

BOOK: Hard Landing
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“Are you Don Burr?” Carney asked.

“Yes,” Burr answered heartily, feeling every bit the celebrity.

“Frank Lorenzo would like to meet you,” Carney intoned.

Like I’m supposed to know who that is
, Burr thought. “Who’s Frank Lorenzo?” he asked.

Carney, acting very much the consigliere, motioned across the room, where Burr observed a dark, elegant fellow working the crowd—someone, Burr thought, making an effort to appear important. Burr made his way across the room, where he was introduced to Frank Lorenzo.

Their liking for each other was instantaneous. They were both up-and-comers on Wall Street, specialists in aviation finance. Born precisely a year apart, Lorenzo in May 1940, Burr in May 1941, they were both under 30, much younger than the crusty airline veterans who surrounded them. And they quickly discovered they had something even deeper in common: a passion—a lust, really—for aviation.

As a boy growing up near Hartford, Burr became giddy with excitement
when his parents took him to the airport to see planes conducting their final approach over a dike in the Connecticut River. Often the plane was a silvery Lockheed Constellation, blowing a peacock tail of flame and sparks from each of its four piston engines—great fire machines, through Burr’s eyes, appearing almost out of control, ready to crash. Years later, while in college at Stanford, he joined the campus flying club and resolved to
fly over Mount Whitney, all 13,000 feet of her. (Burr’s mother was a Whitney.) Burr did not trifle himself with the fact that the club’s airplane was rated to fly no higher than 10,000 feet. As he climbed toward the peak, the air grew thin. Burr was seized with hypoxia, acute oxygen deprivation. But instead of losing consciousness he began to laugh out loud at the mountain, convinced that he could do anything, even reach out and touch the peak. The plane stalled and stalled again, and each time Burr ground the engine harder and resumed his climb until finally he had coaxed the craft over the top. Having nearly drained the fuel tank, he followed his conquest by an emergency landing at Paso Robles.

Newly infatuated, Lorenzo and Burr soon ditched the local-service operators’ convention and headed into the bayous of South Louisiana, driving their rental car from one Cajun bar to another in search of oysters and booze, marveling at all the boats blown ashore and blocking the parish streets in the aftermath of Hurricane Camille. Not long after, when Lorenzo and his business partner, Bob Carney, won a consulting contract from British West Indian Airways, they took Burr along on a
gin-and-cigar junket to Trinidad and Tobago. In the worst way Lorenzo wanted Burr to join their consulting business, but Burr declined, determined to become president of the mutual fund company where he worked. After that, he said, perhaps he would go into business with Lorenzo.

Before long Lorenzo and Carney had accumulated enough in fees to afford a prestigious business address, in a small office on one of the top floors of the Pan Am Building. In February 1969 they had incorporated a new outfit, called Jet Capital Corporation, and made plans to sell stock in a public offering. The stock sale went forward in January 1970, landing $1.5 million, just before the great bull market of the 1960s began crashing to its end.

shares of Jet Capital had been sold to the public at $10 each. But before the sale, Lorenzo and Carney had sold shares to a few of their friends at just $3.50 each. Before
, Lorenzo and Carney had sold shares to themselves at 12¢ each—and not just a few shares. The total of $44,700 that Lorenzo and Carney had personally invested put about three quarters of the stock of Jet Capital in the hands of Lorenzo and Carney. Members of the public, having invested $1.5 million, wound up with one quarter of the shares. On the strength of a well-written prospectus, Lorenzo and Carney controlled most of that $1.5 million, having spent less than $45,000 to get it. It seemed like magic.

Lorenzo and Carney had planned to use this money, in turn, as equity as
flash money to borrow more money, with which they would buy jets, which, in turn, they would lease to the airlines at a profit. The leasing market, however, collapsed at about the same time as the stock market, dashing their plans—but leaving $1.5 million at their disposal, waiting for a new purpose to present itself.

Then one day, while packing for a European vacation, Lorenzo grabbed a pile of annual reports on small airlines—pleasure reading. Paging through them after his arrival in Spain, he decided that he and Carney could do a lot more than simply render advice to financially troubled airlines. They could use the money from the Jet Capital offering to participate in whatever financial turnaround they prescribed for their client. They could position themselves as financial advisors and the advice could be, Sell to us.

Sitting in Utica, New York, lay their first target, Mohawk Airlines, a local-service operator launched, like so many others, on the back of the DC-3. Mohawk linked Buffalo, Albany, and Syracuse, among other upstate towns, with New York City.
Mohawk had management with vision. It was the first airline in the world to dedicate a newfangled device called a computer to the onerous task of managing reservations. It had also become, in 1957, the first airline in America to hire a black stewardess. It was the first of the little regional airlines to enter the jet age, but it had gone overboard. Mohawk by the early 1970s was suffocating under a pile of debt.

Lorenzo met with Robert Peach, Mohawk’s leader, a tempestuous and flamboyant former World War II aviator. Before long, with a contract to provide consulting advice to Mohawk, Lorenzo began
putting in place a restructuring plan by which he would emerge in control. But Mohawk’s board grew apprehensive about the young, smartly dressed 30-year-old from Wall Street. With the company’s fortunes sinking fast, the directors arranged instead for Mohawk to be taken over by Allegheny Airlines, another local-service airline operating in the East. The purchase would help catapult Allegheny into becoming US Air, but Lorenzo and Carney left with $1.5 million still burning a hole in their pockets.

Bob Peach, for his part, had lunch with Frank Lorenzo shortly after the company had slipped from his grasp. Afterward Peach went home to prepare to present a speech to the Rotary Club. He walked into his closet to get dressed, grabbed a gun, and
killed himself.

As Lorenzo was trying to acquire an operating airline, Don Burr was still managing mutual fund investments. One of the many holdings that the fund maintained was a package of securities in a little airline hardly anyone in New York had ever heard of. The company was Trans-Texas Airways.

For years the family owners of Trans-Texas had made a comfortable living by flying oil prospectors, rig salesmen, and cattle traders among the small towns of the Southwest. Still operating a fleet of unpressurized, 1930s-era DC-3S, the company in the 1960s made a small killing in the
Vietnam troop buildup, collecting draftees from across Texas and delivering them to an induction center in Louisiana. Later, as South Texas became a kind of poor man’s Florida for retirees from the Midwest, Trans-Texas also did a lucrative trade shipping the remains of winter “snowbirds” in caskets back to their hometowns for burial. Among U.S. airlines, it ranked about 20th in size.

It was in 1969 that Trans-Texas, also variously known as Tree-Top or Tinker Toy Airlines, changed its name to Texas International Airlines, an aggrandizement it justified by its service to a few sunbaked destinations on the southern side of the Rio Grande. But the company had problems that no name change could cure. Like Mohawk, Texas International had overwhelmed itself with debt in the transition from propeller planes to jets, and creditors were beginning to close in. Perhaps worst of all, after years of coexisting with Braniff Airways in a cozy oligopoly over the air routes of Texas and neighboring
states, Texas International had unsuccessfully assisted Braniff in its legal assault on the encroaching Southwest Airlines. Its courthouse remedies exhausted, Texas International was left to adopt the unfamiliar practice of competing to defend its routes.

Burr had an idea that his friend Frank Lorenzo could come in as a consultant and develop a plan to help save Texas International. With his standing as a mutual fund investor in the airline, Burr convinced Texas International to pay Lorenzo and Carney $15,000 a month to evaluate the company and recommend a regimen for recovery. The
prescription ultimately urged by Lorenzo and Carney was to sell the company to Lorenzo and Carney.

They looked on the plan as the failed Mohawk bid redux. Lorenzo told the Texas International directors that he would convince the company’s creditors to refinance the airline’s mountain of debt on new, easier terms. And he, Lorenzo, would persuade them of the company’s worthy prospects by raising $5 million in needed new equity—including most of that $1.5 million still accumulating T-bill interest in the accounts of Jet Capital. Don Burr took the vital step of arranging for his fund to inject some of the fresh equity as well.

The board of Texas International, like
the board of Mohawk a short time earlier, looked warily upon Lorenzo. As the directors debated, Herb Kelleher caught wind of the Lorenzo plan and immediately swung into action in behalf of Southwest Airlines. Kelleher had been sure that Texas International was doomed; now, even if Lorenzo’s refinancing plan ultimately flopped, it would indefinitely prolong Texas International’s death throes. That would hardly be in Southwest’s interests.

Kelleher showed up at a Texas International board meeting offering to reorganize the company on the same terms that Lorenzo was proposing. But when Kelleher walked into the boardroom, he noticed that Lorenzo was seated with the Texas International directors, awaiting Southwest’s presentation. Lorenzo had one of the company’s major investors, Don Burr, already in his corner. Kelleher was too late.

As it turned out, a third would-be buyer of Texas International had also made the scene: none other than Howard Hughes. A decade earlier Hughes had been ousted from TWA by the company’s lenders. He now appeared intent on recreating the kind of vast,
coast-to-coast route network that he had once controlled at TWA. The great recluse had recently grabbed control of a company called Air West. Integrating Texas International and Air West would, essentially, put Hughes two thirds of the way toward creating another transcontinental airline.

Howard Hughes’s aides marched to the CAB and demanded disapproval of the Lorenzo deal. They argued that Lorenzo had
hog-tied Texas International with conflicts of interest—conflicts mostly involving Frank Lorenzo and Bob Carney. Lorenzo fought back, arguing that his plan represented the last best hope of saving the airline. In the end, at a point when the creditors were preparing to pull the plug, the Texas International board decided to back the Lorenzo plan. The CAB, too, ultimately approved.

It was
a proud moment: with a big boost from his friend Don Burr, Lorenzo had vanquished both Herb Kelleher of Southwest and Howard Hughes himself. His personal holding company, Jet Capital, soon owned 24 percent of Texas International’s stock, using money raised from other investors. And having acted as the airline’s financial advisor, Lorenzo had structured the transaction so that his one-quarter ownership gave him 58 percent voting control.

In an industry rife with overachievers, Frank Lorenzo, 32 years old, had just become the
youngest president in the history of commercial aviation since Juan Trippe had entered the industry more than 40 years earlier. Now he needed help in running his new airline.

From boyhood Donald
Burr had passion—passion and glibness, the attributes of an evangelist. As a grammar school pupil he became a proselytizer for his church, chauffeured from town to town to recruit other youngsters into an organization called Pilgrim Youth Fellowship. He seemed destined for a career in the ministry until, as a sophomore in high school, he was thrown into a
ferocious statewide election contest for the leadership of the fellowship. The adults took over the campaigning, and the electioneering grew ugly and dirty. Burr broke with religion in disgust, never again to set foot in a church except for the occasional ceremony.

Growing up in blue-blood Connecticut, in a house with Revolution-era bullet holes in the shutters, Burr was one of those maddening kids who seem perfect in all ways. He played piano and
saxophone; sang professionally; was a class officer, championship soccer player, and one of the leading scorers on the Ellsworth High School basketball team. His grades, however, were excruciatingly average.

He fell in love with a cheerleader named Bridget. One day, after making his way across country to attend Stanford University, Burr decided that he just
to see her, he
to see her, he couldn’t wait
day, so he got on a motorcycle and drove all the way back to Connecticut, the last two days without sleep, his face wind-burned and splattered with bugs and mud, until he got home, took a shower, set out in search of Bridget, and found her. Approximately forty weeks later he
became a father. Along the way, they married.

Burr had wanted to become an English professor—anything but a businessman. His father, who was sclerotic and infirm even in his 30S, was an engineer whose career never really got off the ground.
Business is dirty and bad
, his parents had told him.
You’ll certainly not be a businessman
. But after a while in college, Burr decided that the anguish of writing was too great for him to consider a career in literature, and he had a family to think of besides. At Stanford he met David Packard, who was catapulting Hewlett-Packard into the ranks of big business. Judging Packard to be of impeccable integrity, Burr decided it was okay after all to become a businessman, and he switched into the business curriculum, ultimately arriving in the M.B.A. program at Harvard about the time Frank Lorenzo was leaving.

Burr ultimately succeeded in his quest to become president of National Aviation, the mutual fund operator. His office at 111 Broadway looked down on the Trinity Church graveyard, where one of the soot-blackened headstones belonged to Alexander Hamilton, killed in a duel by one of Donald Burr’s distant forebears, Aaron Burr. But after becoming president, Donald Burr began to fight with the conservative men who served on his board. Tired of buying a little United Airlines stock here and selling a little Boeing there, Burr wanted to run something, the way his friend Frank Lorenzo, with Burr’s help, had firmly taken charge at Texas International. Burr grew passionate, arguing with his board so strenuously that
his arms flailed.

BOOK: Hard Landing
6.53Mb size Format: txt, pdf, ePub

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