Grueling, 4-Way Talks Over Weekend Led to Sale of Eastern

Frank Borman, weary and beaten, was not there for the final vote. He had excused himself from the room, saying that this was best done without him.

The other board members watched him walk off, and some wished they could follow right along. John T. Fallon, chairman of Eastern Airlines’ executive committee, asked them to bow their heads and say a silent prayer.

The roll call followed, and the tally was 15 to 4. “I think we did the right thing,” Fallon said weakly. They sent for Borman to tell him the inevitable.

Rejoining the others, the company chairman looked grim. In a gesture of respect, most of the directors stood up and applauded. Borman nodded slightly, though a smile never came. Finally, as some recall, he blinked tears from his eyes. With that, Eastern Airlines was sold for about $600 million.

That scene at 3 a.m. Monday capped a grueling weekend of deadlines and stalemates, a four-way, high-finance game of chicken involving the airline’s board of directors, its unions, its lenders and a lone suitor--Frank Lorenzo of Texas Air Corp., who had an offer on the table and cash in his hand.

According to several directors who recounted the details Tuesday, words grew bitter as the hours passed. Messengers shuttled in and out. The investment bankers huddled, and the lawyers rewrote the fine print. Then came the deal, a sale no one at the table seemed to want.

“Sometimes when you’re exhausted--and if you’ve won--it’s almost exhilarating,” said one director, who, like others, spoke on the condition of anonymity. “This was a great defeat, and all it left you was feeling sick.”

In a way, the financial crises of Eastern, the nation’s third-largest air carrier, had become more dependable than its timetables.

Each year, management and the unions confronted each other, snarling and threatening. And each year, the board found itself approving brittle pacts that seemed to start crumbling even as both sides were grudgingly shaking hands.

Management said the unions had to give more, more and more again in the way of pay cuts, benefits and work-rule changes if Eastern was to become competitive in the deregulated skies.

At one point, a director said, “we were losing $2 million a day.” From labor’s standpoint, good money was chasing bad. Pay cuts were hard enough to swallow. But the workers and their leaders also had lost confidence in the bosses.

“It’s hard to understand where Borman was heading--except bankruptcy,” said Charles Bryan, the pugnacious leader of Eastern’s local of the machinists union who, as part of a union-management agreement, had joined the company’s board.

Borman, the man at the top, was also the man in the middle.

On his television commercials, the rugged ex-astronaut told America that Eastern was a happy family, that its service was superb because its employees owned part of the company.

But, off the air, he told anyone who would listen that the workers had better accept trims in their paychecks once more because troubled Eastern either had to “fix it, sell it or Chapter 11 it.”

Of those solutions, all involved were praying for option No. 1, fixing it, but seemed instead to be moving rapidly toward No. 3, a form of bankruptcy.

Eastern owes its lenders $2.5 billion, and the bankers wanted the airline’s management to extract more concessions from the employees. Borman asked for 20% in pay cuts across the board.

Both the pilots and flight attendants were at the end of their contracts. Their talks with management were deadlocked. Both had scheduled strike dates.

So the company’s directors were surprised Friday and Saturday when they were summoned to Miami because of the possibility of option No. 2. Someone had offered to buy the airline. An emergency meeting was set for Sunday at 2 p.m.

“For seven months, they had been looking for a buyer,” one director said. “They talked to all the other airlines, people like Texaco, the other oil companies. Just go down a list of Standard & Poor’s. . . . One prospective buyer said buying Eastern would be like buying cancer. They were afraid the labor troubles would spread.”

But now a buyer had surfaced--Lorenzo, chairman of Texas Air and a man with a reputation as a union buster.

Lorenzo’s Deadline

Lorenzo had once declared bankruptcy at Continental Airlines, then reorganized with non-union workers. His company, which owned Continental and New York Air, was now flush with profits.

“Lorenzo is so smart it’s uncanny,” one of Eastern’s directors said. “He really knew we were down to the wire. He stepped right in.”

And he had his own deadline. Cut the deal by midnight Sunday--or forget it, he said. He did not care to be a stalking horse for Eastern’s management, its wedge against the unions. He wanted an answer fast.

Friday night, Borman called the leaders of Eastern’s three largest unions into his ninth-floor office at the company’s Miami headquarters. One by one, he told them that the airline had a buyer, though he mentioned no names.

It seemed he did not need to. By Saturday, the name Lorenzo was on every newscast. To union members, it was as though a stink bomb had exploded just when they sat down to play some real poker with Eastern.

“Borman or Lorenzo--I suppose to some union people that was like saying: ‘Here’s your choice, cancer or AIDS,’ ” one director said.

By the next afternoon, the rumors became facts. The board, which includes four union representatives, was told that Texas Air had made the offer.

The directors heard an outline of the deal. They were told that the full agreement was being photocopied. After 75 minutes, they recessed until 7 p.m.

“Most board members had always wanted to either fix it or sell it,” one director said. “So, if we couldn’t settle with the unions, we’d deal with Lorenzo.

“But we were worried about what kind of outs Lorenzo had. . . . Suppose we signed an agreement with Lorenzo and then the pilots decided to strike. Could he pull out? If so, that’d be a disaster.”

When they reconvened in the auditorium of Eastern’s headquarters, copies of the full deal were on the table. So were some ham sandwiches. That was Sunday dinner.

Eastern’s lawyers described the agreement. The men who listened were experts in finance, most of them chairmen and presidents of their own companies. Two listened long-distance, over a speaker phone. There were questions.

“The major concerns were to be as certain as possible that the stockholders got their $10 a share,” one director said.

Lorenzo was in Houston. Lawyers for both Eastern and Texas Air were together in Atlanta. Phone calls went back and forth.

In the lobby stood a cluster of investment bankers. Representatives from Merrill Lynch advised the board that the deal was sound, several directors said. But bankers from Salomon Bros. insisted that they had not had enough time to review the paper work.

“You don’t just sell an airline in five minutes,” one director admitted.

But the midnight deadline ticked closer.

In the meantime, Eastern’s top executives, including Borman and company President Joseph Leonard, scurried between the board meeting and bargaining sessions that were going on nearby with the pilots and the flight attendants.

The key man, however, was sitting at the conference table.

“If there was a man everyone looked to, it had to be Bryan,” one director said.

Charlie Bryan, a 52-year-old mechanic--known to some of his colleagues as Chairman Charlie or Little Napoleon--had sat through the sessions with eyes wide open and his mouth closed tight. When he talked, it was to whisper to two union lawyers sitting behind him.

Deal With Machinists

Toward midnight, word had reached the board that the pilots had agreed to the concessions; a pact with the flight attendants was close.

But some deal was still necessary with Bryan and his Local 100 of the International Assn. of Machinists. Their contract still had 19 months to go, and Bryan had vowed there would be no changes.

“I’d just as soon take my chances with Lorenzo,” Bryan had told reporters during the day.

That frightened Eastern officials. Earlier Sunday, both Borman and the company’s labor relations consultant, William J. Usery, had called William Winpisinger, the IAM’s president in Washington. They asked him to bring Bryan in line.

But Winpisinger replied, “It’s not Bryan,” according to John Peterpaul, vice president of the machinists. “(The concessions are) unacceptable to our union. Our members wouldn’t approve.”

So Bryan would have to be convinced at the conference table. And more than time was short. There was little good will left between Bryan and Borman, hardened adversaries of many years.

“I’m going to tell the world you destroyed this airline,” Borman told Bryan angrily as the discussions grew tense.

“I’m going to tell them you did,” Bryan shot back.

Sunday ticked into Monday. There seemed little to do but stall.

The board asked Lorenzo for an extension. He said they could have a few more hours--just a few.

“At one point, Borman went out in the lobby and told us we could send for him,” one director recalled. “He thought his persona was inhibiting conversation.”

Demand for Borman to Resign

Bryan had finally offered a deal of sorts. As he recalled it, he said the machinists would take a 15% cut, not 20%. There was also a non-negotiable condition: Borman had to resign.

“He (Bryan) made the offer outside the meeting, out with some of the (labor) negotiators,” Karl Eller, one of the directors, recalled. “We never really saw it.”

Another director called Bryan’s offer “flaky.”

“From the point of view of the board, you can’t allow the demand for the chairman’s resignation to become part of a labor negotiation,” he said. “You do that and you lose control of the company.”

So, at 3 a.m., the directors of Eastern Airlines decided that they could not find a way to pursue option No. 1: fix it. And they no longer had to consider option No. 3: bankruptcy.

Fifteen directors voted to sell. Only the four union representatives voted no.

“Go tell Frank Borman,” someone said.

He was waiting in the hall.