How Deal Fell Apart : Ueberroth’s Strikeout at Eastern

It was 8:55 a.m. on April 10, and Peter Ueberroth hadn’t slept all night. But as he arrived at National Airport, he wore a smile because he thought he had just pulled off one of the most dramatic business deals in U.S. history.

He bought a ticket on the Pan Am shuttle to New York’s LaGuardia Airport. He had only a raincoat over his shoulder, a small, blue canvas tote bag and the clothes on his back, including his lucky red and gray tie.

“Where are you going after New York--back to Washington or out to California?” Ueberroth was asked as he rode up an escalator to the boarding gate.

Confident Reply

“No,” he said confidently. “I’ll be going to Miami.”

Miami is the headquarters of bankrupt, strikebound Eastern Airlines, and Ueberroth had just spent the night hammering out arrangements to become its new owner. He planned to fly down that afternoon and celebrate with its hard-pressed employees.

But as soon as the former baseball commissioner got to New York, someone threw him a curve ball--one that not even he could hit.

In the end, the profound distrust that had built up over the years between Eastern’s managers and its workers proved impossible to overcome, even with a bankruptcy judge swinging a club and a bona fide hero of the 1980s rushing to the rescue. And Ueberroth’s private doubts about the airline ultimately blocked a last-ditch compromise.

Array of the Elite

More than just another corporate buyout, the Eastern-Ueberroth drama was an especially rich tale whose cast of characters came to include a remarkable array of America’s political, corporate, and sports elite.

And its collapse had implications that went well beyond the pocketbooks of the airline’s shareholders. At the least, it meant that the vast majority of Eastern’s fleet of airplanes would remain grounded for weeks to come as one of the most important strikes of the decade dragged on.

The deal’s demise also dashed the hopes of thousands of striking, picketing or laid-off employees that they would soon be back to work as part owners of Eastern. And it increased the risk that the venerable airline would vanish altogether, its pieces sold off one by one.

Ueberroth’s plan to buy Eastern was a captivating one. It would have joined the highly successful engineer of the 1984 Los Angeles Olympics, a man who went on to restore power and direction to the office of baseball commissioner, with a history-laden airline mired in one of the nation’s most bitter labor-management disputes since World War II.

A cartoon in the newspaper USA Today depicted Ueberroth as Superman swooping in to carry the beleaguered airline to safety.

So what happened?

Little of the episode took place in public, but several of the key participants agreed to tell the story, in many cases on the condition that they not be identified.

The story had its roots in a previous era at Eastern that ended in early 1986, when the airline’s unions ousted Frank Borman, the former astronaut who was Eastern’s chairman, enabling Frank Lorenzo’s Texas Air Corp. to buy Eastern.

March 4 Walkout

Since then, Lorenzo and Eastern’s unions have been perpetually at war. The battles culminated in a March 4 walkout by the machinists that has been honored by the pilots and flight attendants, grounding 90% of Eastern’s flights.

Likewise, Ueberroth’s flirtation with Eastern goes back a couple of years to the day when, Lorenzo says, he tried to hire Ueberroth to run the airline. But apparently, Ueberroth had bigger things in mind. As his baseball job wound down, Ueberroth met several of Eastern’s union leaders at his office in November. Nothing came directly of the meeting except that Ueberroth handed out some autographed World Series baseballs.

But during the first week in March, at baseball meetings in Ft. Lauderdale, he discussed Eastern with Carl Pohlad, the owner of the Minnesota Twins baseball club and a member of Texas Air’s board. Pohlad had been prodding Lorenzo to sell Eastern and was a fan of Ueberroth.

On March 14, Ueberroth called his good friend and golfing partner, J. Thomas Talbot, who lives in Newport Beach. Talbot, 53, and Ueberroth, 51, had been friends for a decade and both men had plenty of travel industry experience.

“Come to New York,” implored Ueberroth, who had only 17 more days as the czar of major league baseball. Talbot was on the next plane.

Cast of Specialists

Ueberroth also lined up a cast of specialists that included attorney Robert J. Rosenberg, an expert on bringing companies out of bankruptcy, and ex-pilot and Pan Am vice-chairman Martin Shugrue, who had the twin virtues of being a pilots union member and having once been fired by Lorenzo.

The next morning, Ueberroth--still baseball commissioner--and Talbot went to Texas Air Corp.’s Rockefeller Center offices for the first of several days of meetings in which Ueberroth shuttled between Texas Air and the baseball commissioner’s office five blocks away in mid-town Manhattan.

A Ueberroth confidant likened the talks to a scene from a “Sesame Street” story where one of the characters, Bert, is trying to get his friend Ernie to take a bath:

“Ernie keeps asking for more things to be put in the tub before he’ll take a bath . . . a duck, a boat. . . . He’d say he was ready, then it would be one more thing. . . . It was the same with Lorenzo. It was always one more thing. Peter was angry and frustrated in this period.” Lorenzo declined to discuss the negotiations.

At one point, Ueberroth got some unsolicited advice on the deal from an old friend, Beverly Hills junk bond king Michael Milken.

Keep Talks Alive

Several times, baseball owner Pohlad had to intervene to keep talks alive. One such occasion was when Ueberroth’s $464-million offer was exceeded by Chicago hotel magnate Jay A. Pritzker, said a Ueberroth associate.

“We’re history,” said a disgusted Ueberroth, declaring the deal was kaput. He spent his last day as baseball commissioner on March 31 and returned with Talbot to Newport Beach to play golf.

Pohlad tracked them down and persuaded them to return to New York for more talks by telling them the Pritzker offer was soft.

The deal headed toward the ditch again on April 5, leading Pohlad to initiate a 90-minute one-on-one meeting of Lorenzo and Ueberroth at the Boardroom, a private lunch club on Park Avenue. This time they got the deal buttoned up.

At a hastily called press conference at the Summit Hotel April 6, it was announced to the world that Ueberroth would pay $463.9 million for the ailing carrier and the employes would own one-third of his new company.

$1 Billion in Concessions

But the deal was subject to Ueberroth’s ability to bring back by midnight on April 11 an agreement with Eastern’s three unions that was satisfactory to him and to Lorenzo--namely, about $1 billion in wage and benefit concessions over five years.

The talks moved to Washington, where Ueberroth and Talbot had an informal get-together with the key union leaders and their aides at Gary’s, a favorite restaurant of a machinists leader. Several unionists came away from the gathering with the feeling that they knew considerably more about Eastern than Ueberroth and Talbot did. They were right.

The Californians had a recent cram course on the carrier, while the unionists had been living and breathing Eastern’s books and operations for years. In fact, the unions had been attempting to find a buyer for Eastern for some time and tried to entice Carl C. Icahn, TWA’s chairman, to buy it. The company had lost more than $500 million in two years.

The unions’ search for a buyer showed not only how much they despised Lorenzo, but how the unions had redefined their roles in recent years.

These were not the heavy-handed men of movie newsreels of the 1930s. Many of them wore gray suits. And the pilots and machinists employed sophisticated financial advisers.

Ran Chrysler Bailout

They included Farrell Kuper-smith, an impeccably dressed managing partner at Touche Ross, the big accounting firm; Brian Freeman, a fast-talking Harvard-educated lawyer who ran President Jimmy Carter’s Chrysler bailout program, and Randy Barber, Dartmouth-educated, cowboy-booted co-author of a 1978 book about how unions could increase their power through more adroit use of their pension funds.

But in addition to expert partisans in the Lorenzo, Ueberroth and union camps, there was an indirect but powerful third party to the talks: federal Judge Burton R. Lifland, who has handled the Chapter 11 bankruptcy case Eastern filed five days after the strike started.

A bombastic sort in the courtroom who had handled such major bankruptcies as Manville Corp. and LTV Corp., Lifland had declared Eastern Airlines a “national asset” that needed to be saved. To that end, he named 60-year-old David I. Shapiro as a special examiner in the case.

On Friday, April 7, the day after Ueberroth’s deal was announced in New York, many of the key players convened in the offices of the machinists union on Connecticut Avenue in Washington. Shapiro took control.

“Shapiro was in a way like Patton,” said one union source.

A Brooklyn native, Shapiro had started practicing law 40 years ago in a small office above a delicatessen on New York’s Upper West Side. His early clients included prostitutes, union members and hundreds of citizens accused of disloyalty during the McCarthy era. Today, he is a senior partner in a high-powered Washington law firm whose other partners include Leonard Garment, counsel to former President Richard M. Nixon and one-time National Security Adviser Robert C. McFarlane.

Judge Lifland said he wanted a “head banger” to get Eastern flying again, and the brawny Shapiro filled the bill. He gave the unions 2 1/2 days to reach an agreement with Ueberroth, touching off a round-the-clock bargaining session among several dozen negotiators from the three unions, the bankruptcy court and the Ueberroth camp.

Though Ueberroth was promising something the unions had wanted for years--part-ownership of Eastern--the union leaders had their doubts about the smooth-talking former travel agent.

Primarily, they weren’t sure if Ueberroth’s plan was economically viable. They were concerned that it would burden Eastern with too much debt and that he was giving away too many valuable assets to Texas Air.

Others noted that Lorenzo had once tried to hire Ueberroth and that he was the only potential purchaser Lorenzo had been willing to deal with, while stiff-arming Icahn. To some, Ueberroth was Lorenzo’s “designated hitter” and that made them nervous. However, as time went on the unions increasingly trusted Ueberroth.

And as soon as the meetings started Friday in Washington, Shapiro made it clear there was “a deal out there and we had to accept it,” one union source said. “He also said we had to forget about Icahn.” Shapiro also warned the unions about tinkering with the Ueberroth-Lorenzo deal because that might prompt Lorenzo “to walk away from the deal.”

On Saturday, Ueberroth flew off to Beverly Hills to speak at Drexel Burnham’s elaborate annual “junk bond” conference while the bargainers met at machinists headquarters in Washington. Ueberroth returned that night in time to pick up the dinner tab at Gary’s.

On Sunday morning, Shapiro locked them all in his warren-like law offices until 6 a.m. Monday. To avoid leaks, he banned phone calls unless a secretary listened in. Deli food was brought in for lunch, Chinese for dinner.

While an accord was being hammered out on hundreds of complex matters, a simpler--but more emotional and ultimately pivotal--issue could only be resolved by Judge Lifland. That was the question of who would run Eastern between the time a deal was struck and the transaction was finally closed, which could take months.

Lorenzo Ouster Demanded

The union leaders demanded that Lorenzo be ousted immediately--a move that the court could accomplish by naming a trustee to temporarily run the airline.

Looking back at the long weekend in Washington, the unionists say Shapiro gave them the impression that they would not have to go back to work under Lorenzo. That was critical. In fact, they called this a no-compromise “deal point.”

Indeed, Harry Jones, the top New York bankruptcy court official, was at the sessions and drafted the paper work for the appointment of a trustee to run Eastern.

Shapiro himself that weekend phoned George P. Shultz, the former secretary of state, to ask if he would act as the trustee. Shultz begged off. He not only didn’t want to leave California but is a director of Boeing Co., one of Eastern’s creditors.

Then Shapiro called Frank C. Carlucci, the former secretary of defense, and he accepted.

‘Poison Pill’ Scheme

The unions showed their distrust of Lorenzo by devising a “poison pill” scheme in which they agreed to about $16.6 million a month in wage concessions earmarked for an escrow account--savings that Eastern could only keep if the airline were sold.

By 6 a.m. Monday, Ueberroth had the deal with Lorenzo and his deal with the unions.

Exhausted but elated, the 30 weary warriors left Shapiro’s office to shower and head off to the Pan Am shuttle for the flight to New York and a hearing before Judge Lifland.

As Ueberroth left the building, he discovered that a tow-truck operator was about to haul away the illegally parked car of machinists adviser Randy Barber.

“If I promise to bring major league baseball back to Washington, will you let the guy’s car go?” Ueberroth asked. The trucker recognized him, smiled, took Barber’s car off the towing jack and drove away.

Positive Feelings

It was this sort of gesture, and the positive feelings that the public seemed to have about Ueberroth, that made the unions think the partnership could work.

When Ueberroth arrived at the check-in counter for the Pan Am shuttle, the ticket agent recognized him and asked: “Why are you leaving baseball?”

“I have 26,000 airline employees to put back to work,” responded a smiling Ueberroth.

He wore the same lucky red and gray tie he had on a few months ago when major league baseball signed its rich television contract with CBS.

The plane was jammed with sleepy bargainers. Ueberroth was cramped between machinists leader Charlie Bryan and pilots leader Jack Bavis. Sitting in the back row were Shapiro and Carlucci, who was going to be named the trustee.

Or was he?

‘Script’ in Works

One union source said there was “a script” for what was to happen in court, including testimony by Bavis, Bryan and flight attendants leader Mary Jane Barry that they would not return to work for Lorenzo.

Early that morning, Harvey R. Miller, Eastern’s chief bankruptcy attorney, got a phone call from Joel Zweibel, lead lawyer for Eastern’s 15-member creditors committee. Zweibel had just learned about the plan to name a trustee and passed the information on to Miller.

Miller hit the roof.

A senior partner at New York’s Weil, Gotshal & Manges, Miller, 56, is on everyone’s list of the nation’s top bankruptcy lawyers. He handled the biggest one to date--Texaco’s. He is considered so good that if any big company were even contemplating bankruptcy they would retain him just to make sure he doesn’t represent the other side.

And Miller was having no part of a trustee. Indeed, it is quite unusual for a trustee to be appointed in a Chapter 11 case. It would amount to wresting control of a company away from the owner before it is even sold. There has to be a showing of gross mismanagement, fraud or conflict of interest.

Yet some unionists say they heard Lifland tell Shapiro on the telephone over the weekend that he would agree to name the trustee.

“You don’t bring Frank Carlucci to New York on spec,” said a source close to Ueberroth. “You bring him because there’s a job for him to do.”

The source added: “Either Shapiro overestimated Lifland or he underestimated Harvey Miller.” Another key source says Shapiro was “misled by the court, betrayed by the court.” Neither Shapiro or Lifland would comment.

In any case, Miller made clear to Lifland that if he put a trustee in charge of Eastern he would face a lengthy court battle, further delaying Eastern’s return to the skies.

In a move that shocked the unions and Ueberroth, the judge declined to appoint a trustee.

Carlucci, who had expected to be a key player in reviving Eastern, spent the day kibitzing with strangers in a courthouse library before being sent home to Washington when it became clear that his services would not be needed.

The scramble for a compromise consumed the next 24 hours. Ueberroth was willing to drop the trustee idea if he were appointed co-chairman of Eastern in the interim, but that didn’t satisfy the unions because Lorenzo would retain power.

“We will not go back to work for Frank Lorenzo under any circumstances,” proclaimed Bavis, chairman of Eastern’s pilots union.

While the unions have been criticized for being intractable on the point, they were willing to back off on appointment of a trustee if the deal was closed in 10 days, much quicker than normal. As a practical matter, this would mean that Lorenzo would be out before they returned to work.

But Ueberroth wouldn’t agree to this proposal, fearing he might discover--after closing the deal in haste--that Eastern was in worse shape than he knew at the time.

Tempers grew short as the outlook darkened. Lifland attempted to lighten the mood by making some popcorn in a machine in his chambers and passing it out to the bargainers.

Disclosure to Press

It was at this unpromising moment that Ueberroth disclosed to the press his agreement with the unions of the night before, triggering some unwarranted glee among Eastern’s work force. In fact, the deal was in perilous condition.

Nonetheless, negotiations resumed the following morning at the Vista International Hotel, near the courthouse. At one point Miller suggested to Rosenberg, one of Ueberroth’s lawyers, that the sale price would be lowered $90 million if Ueberroth agreed to a quick closing.

By the time Rosenberg came back with a “no” from his client, Miller discovered that others had become aware of the offer. Infuriated, he grabbed the much smaller Rosenberg by the knot of his necktie, loudly called him a “twerp,” and told him to never quote him again.

The situation didn’t improve once the two sides returned to the courthouse. The judge shouted at Miller behind closed doors: “Dammit, Harvey, if you want the planes in the air, all you have to do is sign the paper!”

Moments later, as Shapiro tried to get Miller’s attention in a courtroom hallway, Miller glared at him and declared: “Shove it, David!”

Stalked Out of Chambers

Early in the evening, Lorenzo arrived for a final session with Ueberroth and the judge. But at 9:20 p.m., the normally unflappable Ueberroth stalked out of the judge’s chambers and refused a plea to return. Lorenzo left separately. An arbitrary midnight deadline set by the Lorenzo and Ueberroth camps passed.

A few minutes after midnight, one of Ueberroth’s associates, reached by phone, told The Times, “The deal is dead.”

The next morning, fruitless talks had resumed at the courthouse when one Willy Censor appeared on the 6th floor. A self-described 62-year-old diamond merchant with a flowing beard and three children in tow, Censor announced that he wanted to buy Eastern and had access to $250 million in cash.

Asked why he would want to buy such a troubled company, he retorted, “Why don’t you ask Ueberroth that?”

Meanwhile, the real participants couldn’t even agree on whether to hold a news conference announcing the collapse of the deal. The judge tried to head it off, still hopeful that the sale could be salvaged. Ueberroth said he wouldn’t participate if Eastern attacked the unions again. The terms were agreed on and it took place at the Dorset Hotel on 54th Street. Lorenzo was elsewhere.

Gained ‘Greatest Respect’

Ueberroth and Phil Bakes, Eastern’s president, said nice things about one another. Ueberroth said he had gained “the greatest respect” for the union leaders. Meanwhile, Eastern security guards had kept union leaders out of the press conference and threatened to arrest Barry, the flight attendants leader, after she managed to get in.

Afterward, Ueberroth slowly made his way out of the hotel, shaking hands with several union leaders and walking past diamond merchant Censor who was hanging around. Outside on the street, strangers shouted greetings at him: “How ya doin’, Pete?” “Go get ‘em Peter!” But as Ueberroth crossed 5th Avenue and headed east past a Gucci shop, he knew that unless a miracle occurred he would have to find another challenge. Eastern would not be his.

Related Story: Business, Page 2