Credibility in the Balance : Lorenzo Buckles His Belt for Texas Air Bumpy Ride

The reporter’s question pierced the air last week at a packed press conference otherwise filled with talk of profits, regulations and safety investigations: Wasn’t the current siege of Texas Air Corp. really a product of the giant airline firm’s “corporate arrogance?”

Frank Lorenzo bristled as he stood his lean 6-foot frame up on the podium. “Listen, young man,” the Texas Air chairman retorted, his notoriously cool-as-ice composure cracked, “you’re dealing here with one of the least arrogant guys in this business.”

Didn’t the combative reporter--from a paper in Houston, Texas Air’s home base--realize that he was talking to the son of Spanish immigrants and a one-time Teamsters Union Coca-Cola truck driver? Lorenzo asked incredulously. “We’ve come up the hard way. I’ve not arrived . . . in a chauffeured limousine.”

Indeed, Lorenzo has come a long way from the beauty parlor that his parents operated in Manhattan and the nearby Macy’s department store where, as a college student, he worked selling ties.

Born 48 years ago as Francisco Anthony Lorenzo under the landing pattern of New York’s La Guardia Airport, Lorenzo heads a company whose airliners now fly one of every five passengers in the country. His $8-billion aviation empire includes both Eastern Airlines and Continental Airlines and ranks second in size only to Aeroflot, the Soviet state carrier. Its bargain-basement fares have set the pace for the furious airline competition that is raging in a deregulated market.

But today, his success story is in jeopardy of being rewritten. His aviation empire is under attack--by the strange bedfellows of organized labor and the Reagan Administration, as well as by Congress and the traveling public. Even some presidential candidates have found it good politics to bash Lorenzo as the federal government has launched intensive investigations into the safety record and financial management of Texas Air and its subsidiaries.

Lorenzo has a reputation as a fierce--some say ruthless--negotiator who rarely backs down, but his strategy of confrontation may finally have backfired on him. He has succeeded in antagonizing both labor and Administration officials--not an easy task.

But regardless of the outcome of this latest battle, Lorenzo will have left his legacy in the annals of the U.S. aviation industry. Under the freedom permitted by the 1978 deregulation of U.S. airlines, Lorenzo used a tiny regional airline in Texas as his launching pad and pieced together a diverse tapestry of industry giants and hodgepodge smaller operations to build his aerial empire.

‘Courageous Gladiator’

“He has proven to be a courageous gladiator in battle--willing and able to challenge all the fundamental tenets of labor, financing, marketing. He takes nothing as a given,” said Prof. Jeffrey Sonnenfeld of Harvard University’s Graduate School of Business Administration, where Lorenzo earned an MBA in 1963. “He enjoys being a trouble shooter, but he’s consumed a good deal of good will in the process. Sometimes in this game you have to be a team player.”

A top official at the Federal Aviation Administration, where Texas Air’s current troubles are “the topic of the moment,” added that Lorenzo “was the guy that really showed everybody else how to make deregulation pay.”

Charges and countercharges are now swirling around Texas Air, but firm conclusions about the safety record of the company’s airlines and about its financial fitness are not likely to be drawn until federal transportation officials complete their recently announced investigations of the operations next month.

In the meantime, Lorenzo’s credibility hangs in the balance.

In an interview in the modest office he uses when he is in New York, Lorenzo vehemently disputed the public’s perception that he is the villain of the airline industry--”Darth Vader,” some have called him--and the perception has been fueled by the recent events.

The current controversy, he maintained, is nothing but the result of a well-orchestrated campaign of “misinformation” by organized labor to smear the reputation of Eastern, Continental and their owner. Lorenzo asserted that union leaders at Eastern, disguising their tactics behind concern over safety, are actually trying to avoid the wage concessions that he said are needed to keep the company afloat. And, he added, they want to make Eastern vulnerable to a workers’ takeover.

But his critics argue that Texas Air’s management--not labor strife--is the problem. They maintain that the entrepreneur has sacrificed proper maintenance and safety for the sake of low fares, has run his company into dire financial straits by accumulating a $5-billion debt and has tried to break the unions. They charge that only the courts have thwarted his attempt to dismantle Eastern by milking it of some of its important assets, such as the Boston-New York-Washington air shuttle, a big money maker.

One of Lorenzo’s most bitter detractors, Rep. Norman Y. Mineta (D-San Jose), chairman of the House Public Works and Transportation subcommittee on aviation, is leading the push in Congress to censure Texas Air. He said Lorenzo’s problems at Texas Air have hurt the reputation of the entire airline industry.

“Instead of blaming its problems on the unions,” Mineta said, “Texas Air should look within itself, within its own management, for the causes and solutions to its operating difficulties.”

As concern over Lorenzo’s operation has escalated in the last two weeks, the price of Texas Air’s stock has dropped, some nervous passengers are staying away and executives concede that they have lost some sales. And although the International Assn. of Machinists and Aerospace Workers, which represents Eastern’s mechanics and some other workers, is stepping up its campaign for a purchase of the airline by its employees, Lorenzo insists: “Eastern Airlines is not for sale. Period.”

Union leaders complain that Lorenzo has consistently snubbed them, never having met either Capt. John J. Bavis, head of the Eastern pilots’ union, or Charles E. Bryan, president of the airline’s machinists’ union.

“It is bizarre, he has an obsession that he will not come in contact with me,” Bryan said. “He has scrupulously avoided any direct contact.”

Lorenzo responds by saying that he has left labor dealings to subordinates, staying out of the fray himself for fear of undermining their authority. When top management and labor do sit down, Lorenzo said, “union leaders misuse and distort the process.” The unions, he said, want him destroyed as an airline executive--”rubbed out,” as he put it.

Pouring salt on Texas Air’s wounds, the company’s competitors would only be too happy to see Lorenzo forced out of the business and are “stirring forces to try to knock Texas Air out,” Lorenzo said in an interview. “The industry has never liked Texas Air. They’ve never liked Frank Lorenzo.”

Indeed, Lorenzo has made his share of enemies in 16 years in the industry. Associates describe the three faces of Frank Lorenzo: the smooth-talking, confident man who represents the corporation in public; the one-on-one businessman who brings a relaxed, friendly air to his revolutionary insights on profiting in the age of deregulation, and the cutthroat, unyielding executive who runs his company with an iron hand and does not hesitate to cut down to size and embarrass his lieutenants to keep them in line.

One former Continental executive recalls a tongue-lashing Lorenzo once gave at a staff meeting to an aide who had failed to follow up on a proposed new business venture. “The dressing-down which took place was almost embarrassing--the anger and ire that was focused on one person in front of his peers. . . . (Lorenzo) is a very impatient manager, very demanding.”

But Lorenzo says such descriptions of his lambasting employees publicly are untrue. “That’s the last thing I would do, to undermine the authority of a guy. . . . When I have a problem, I go and talk to him privately.”

Competitors and associates alike are affected by the legend of the unbending Lorenzo at the bargaining table--and Lorenzo is well aware of that. “He uses his public reputation (as a tough negotiator) to his advantage,” the former Continental executive said. “He will do everything he can to augment that perception because it helps him in his negotiations, even if it’s not totally correct.”

Bankruptcy Court

Lorenzo has put his hard-line approach to full use at the helm of Texas Air, taking Continental Airlines to bankruptcy court several years ago to force out its unionized workers and now engaging in a protracted and bitter battle with Eastern’s unions to try to drive down labor costs at a company that is deeply in the red.

But as many battles as the contentious Lorenzo has been through, he may now face his greatest managerial test, as Texas Air finds itself threatened on many fronts.

In what is potentially the most damaging blow to date, the FAA is conducting an unprecedented plane-by-plane safety inspection of the Eastern and Continental fleets--more than 600 aircraft altogether. The FAA has also levied an $823,000 fine against Eastern, which is still reeling from a $9.5-million penalty imposed two years ago for safety infractions that took place before Texas Air bought Eastern. Then, Secretary of Transportation James H. Burnley IV said the other day that Continental had also accumulated more than $1 million worth of safety infractions.

In addition, the Department of Transportation is conducting a massive investigation--the largest ever of its kind--into Texas Air’s financial and managerial fitness to run airline companies.

Lorenzo insists he will ride out the storm, just as he has others in his bumpy flight to the top of the industry. But referring to the public-image problem he now faces, Lorenzo mused: “I’m going to go into public relations if they run me out of the aviation business.”

He was joking, of course, but some people who have worked closely with him maintain that he is actually bored with the airline business. He originally chose it, a former colleague said, because “it’s an industry with a lot of deals. It’s definitely one of the more exciting of American industries. He is principally attracted to the cash flow that airlines generate and the flexibility that these cash flows breed . . . in terms of financing and operating.”

Lorenzo himself said this is the “silliest” thing he has ever heard.

“I have always had a tremendous interest in aviation,” he said, recalling that his fascination began when he was a teen-ager. “Being a part of an industry that has gone through so many changes is enormously challenging. I wouldn’t want to be in any other industry today.”

‘Romance’ of Aviation

Carl Pohlad, a Minneapolis financier who has worked in business with his friend Lorenzo for two decades, currently as a director of Texas Air, said in an interview: “(Aviation) has gotten in Frank’s blood. Its romance . . . does something to you and that’s what has fascinated Frank.”

Whatever the attraction, he has always linked his business interests with the skies. (Lorenzo used to fly himself but has not renewed his license for 14 years.)

When he was 15, he flew to a vacation in Europe on Trans World Airlines. He was so impressed with the experience that he returned home and bought stock in TWA, a carrier for which he subsequently worked in a low-level financial job. Years later, he twice tried unsuccessfully to take over TWA.

An entrepreneur even in his junior high school days, Lorenzo ran a betting pool on the World Series. At Columbia University, he acquired the nickname of “Frankie Smooth Talk” for his ability to talk his way out of sticky situations. He helped pay his college expenses by working at Macy’s, waiting on tables and working in the university public relations department. He would later be known as a union buster, but at Columbia he was a card-carrying union member.

When he entered the prestigious Harvard Business School, he became vice president of the school’s Finance Club, which is best known for operating a stock-picking contest. He maintained his own stock portfolio while a student and also ran a profitable cafeteria newsstand that was the only private business on the business school’s campus.

Returns to Harvard

Today, he frequently returns to Harvard and gives talks on such subjects as the lessons in human resources and management to be learned from Eastern and the now-defunct People Express, which he merged into Continental after the low-cost carrier’s bankruptcy.

In 1965, after two years at TWA, Lorenzo joined Eastern Airlines, where he remained about two years. Then, he and a Harvard classmate, Robert J. Carney, each put up $1,000 to start an airline consulting firm. The two later created a Houston-based holding company called Jet Capital, now a major owner of Texas Air.

Today’s giant Texas Air conglomerate has its roots in a tiny, ailing Texas regional airline called Texas International--scoffingly referred to by local people as “Tinker Toy” or “Tree Top” airlines. Lorenzo and Carney picked up the airline at a bargain price in the early 1970s, seeing room for growth.

Because carriers’ intrastate fares were not regulated by the federal government, the partners faced no restrictions in setting ticket prices. Lorenzo instituted what he referred to as “peanut fares,” offering discounts of as much as 50% on sparsely traveled routes. Texas International’s fortunes took off.

Seeking to expand their base, Lorenzo and Carney began accumulating capital in the 1970s and eyeing bigger prey for possible takeovers. They failed in bids to take over TWA and National Airlines (since merged into Pan American World Airways), but in 1982 they scored a coup by winning a long financial and legal struggle to take over Continental.

Eastern was Lorenzo’s next target. And while he insists that the acquisition was a wise one, he concedes that running the once-proud but now-troubled airline has been “no picnic,” what with labor strife, questionable maintenance and safety practices and a flood of complaints about service and delays.

Still, Lorenzo retains a calm outer composure. An avid jogger, he said he has avoided ulcers by not letting work rule his life. He said he shuns 14-hour work days, preferring 8- to 10-hour daily stints. Photos that he has taken of his four young children line his New York office. “My family comes first,” he said.

“It is a difficult period,” he said, “but that too shall pass.”