Texas Air Chairman Frank Lorenzo’s entire Byzantine corporate empire may have been put at risk by the machinists’ strike against Texas Air subsidiary Eastern Airlines.
Now, only Eastern is in Chapter 11 bankruptcy court proceedings, a move he may have planned when he bought the company in 1986. Lorenzo may be trying only to find enough strikebreakers to fly a few planes until he can finish demolishing that once-proud company, selling off its remaining parts and eliminating its 31,000 jobs.
It may not end there, however. The unions’ strategy is to entangle all of Lorenzo’s empire in the bankruptcy case.
For now, though, Lorenzo’s plan appears to be to persuade Federal Bankruptcy Judge Burton Lifland that he wants to gradually restore Eastern, not break it up.
That won’t be easy. For one thing, he isn’t likely to attract enough temporary workers to help him crush the strikers and their sympathizers, because both pilots and mechanics are in very short supply everywhere in the industry.
Without the strikebreakers he needs, it is quite possible for the determined Eastern workers and their allies to upset Lorenzo’s strategy because lawyers and financial advisers for the unions believe that the bankruptcy judge would like to see Eastern survive as a viable airline.
Lifland has frequently sided with debtors in bankruptcy cases when they appear to have a good chance of making a comeback. It shouldn’t be hard to persuade him that making a comeback will be almost impossible for Eastern as long as Lorenzo is in charge.
The unions will try to be named members of the Eastern creditors’ committee this week and get enough support from that committee to persuade Lifland to name a trustee to run the company instead of Lorenzo.
Eastern management has 180 days to file its reorganization plan, but the plan may not be sufficient to persuade Lifland or the long list of creditors that Lorenzo can pay off the company’s enormous debts without selling off all of its parts.
The unions have their own reorganization plan ready to offer the judge. It includes a proposal that workers take pay cuts of 25% and accept cost-cutting work rules in return for 25% of the company’s stock and seats on its board.
A somewhat similar plan was tried when Eastern’s top executive was former astronaut Frank Borman. That failed because, among other things, Borman reneged on a promise to restore wage cuts and he was not willing to really share managerial authority with some of the belligerent employee representatives on the board.
But now, bludgeoned by Lorenzo into unprecedented unity, the once-feuding pilots, machinists, flight attendants and other Eastern workers could make the wise power-sharing plan succeed.
It will be easier if the unions get the help they’re seeking from some potential buyers who may be tempted by the willingness of the workers to take more wage and benefits cuts after already having given up $1.5 billion in contract concessions over the past decade.
Lorenzo has tried desperately to put all the blame for Eastern’s troubles on its labor costs, but that’s hard to swallow.
He is trying to prove that Eastern workers joined in an economic suicide pact when machinists struck the company, and pilots and almost all of the other employees honored the picket lines. He argues that the strike could wipe out the company and the workers’ jobs.
Lorenzo used the Chapter 11 bankruptcy maneuver in 1983 to get rid of unions and slash wages by 50% at his Continental Airlines. Now Continental has the lowest wage rates in the airline industry and is still losing money while competitors such as American and Delta pay their workers more and are thriving.
There is a chance that Lorenzo will lose Continental and other parts of his vast airline empire, largest in the non-communist world.
That could happen if the bankruptcy court is persuaded that the ostensibly separate parts of Lorenzo’s heavily indebted, complex corporate structure are actually so inextricably intertwined that they are all responsible for Eastern’s debts.
Difficult to Prove
He owns half of Jet Capital Corp., which owns part of Texas Air, which in turn owns Eastern and Continental and other less well-known appendages of Lorenzo’s troubled domain. It may be difficult legally to prove they are all parts of the same whole, but surely it is possible in hearings before an astute, experienced bankruptcy judge such as Lifland.
If so, the whole company could become part of the bankruptcy proceedings, putting at risk more than just Lorenzo’s majordomo role at Eastern, and his embittered workers there might yet win their struggle against one of America’s most ruthless corporate executives.
But Lorenzo isn’t giving up the fight, and he has friends in high places who may have helped persuade President Bush to side with management so far in its showdown battle with his Eastern workers.
Bush rejected the National Mediation Board recommendation for a 60-day cooling-off period that would have at least delayed the strike, as the machinists wanted. Perhaps the President didn’t need convincing, but Lorenzo wasn’t hurt by having allies in and out of the White House when he argued against the cooling-off period.
Friends in High Places
There is Frederick McClure, a former Texas Air vice president, who is President Bush’s assistant for legislative affairs. Former Transportation Secretary James H. Burnley IV is now a partner in a Washington law firm handling some of Eastern’s problems.
He ruled in favor of Eastern last year after denouncing the pilots’ union for complaining about Eastern’s fitness as a carrier.
There also is Glover Roberts, the former bankruptcy judge who ruled in Lorenzo’s favor in the earlier Continental Airline bankruptcy case. He is now a partner in a law firm that is also working with Lorenzo.
And then there is Elliot Seiden, former chief airline antitrust lawyer with the Justice Department who has joined Texas Air’s legal staff.
The battle continues, and while the strikers obviously are being hurt, Lorenzo’s empire may suffer heavy losses even though he likely will remain a multimillionaire flying through life first class.