Part Two: Frank Lorenzo: The Man Who Ruined Air Travel

ourselves at all times, I don't know that. I feel like diet coke's not going to be many people's primary risk factor.

It's also not like the word of the airlines. They're just kind of like right in the middle, yeah, right right in the middle. You know, they're not as nice as like a smaller airline like Alaska, but I will take them over I don't know, fucking American Airlines or whatever, certainly over like Spirit. But I'm never like psyched to get on a fucking United flight either. But people were psyched to fly Continental back back in the day. Continental was like one of the airlines as shit. You know,

the Reagan eras kicking off. You know, you've kind of got like the it's like the end of the late Carter era, early Reagan era is when sort of Continental is kind of starting to starting to look its age. You know, even after deregulation, they've kept their high fees and they've kept their passenger perks, so like, passengers consistently rate it as like one of the best airlines in the world, but it's not making a lot of money, whereas TI, the airline Lorenzo runs, is basically the opposite.

It's a shitty budget airline that cannot make or that like makes a profit, but because it's it's shitty enough for people to afford. In nineteen seventy nine, Continental lost more than thirteen million dollars, and the bleeding accelerated. In nineteen eighty, the company gets a new CEO at this time, a guy named Alvin Feldman, and Alvin is generally remembered that should be a spoiler as a nice guy and

a diligent businessman of the old style. And he's like he's trying to stop the bleeding, but he doesn't want it to like change its character. He tries to like emerges it with this other company. He's hoping that like he can keep it, you know, special and somehow make it profitable. But Continental, in addition to like dealing with changes in the market, is also feuding with their workers

over new contracts. And because they're not as big as like American or TWA, you know, they've got a pretty small market cap, which means that you can actually purchase a controlling interest in their stock for surprisingly little money. And Lorenzo, to Lorenzo, this is like a shark smelling blood in the water, right, So it's total market values like one hundred and fifty million, and because again the stock market's nonsense, the company is worth way more than

one hundred fifty million. If you just like add up all of their planes, they're worth a lot more than that.

But because the business isn't doing as well as it used to be, like, their market cap is shit, and so he's able to Lorenzo's able to basically like buy up a bunch of big investors who have like interests in it and like work out a buy like he's he just basically starts eating up more and more and more of like getting closer to a controlling interest in Continental, because if he's able to get it, he'll wind up with way more value in like assets he can strip

that he's actually spending on this thing. So this process starts for him in February of nineteen eighty one, and Feldman when he realizes, oh my god, this guy who is like the corporate raidar of the airline industry is buying up my beloved airline. He tries to go to war with him, right, but Lorenzo is a lot fast, he's a lot smarter, uh in dirty huh and fights dirty or uh he fights dirty. Feltman's like a nice guy. He's going to try the high minded way of fighting

back and it's not going to work for him. But like so he as Continental. He goes to court to try to get the CAAB to rule in favor of like, you know, basically saying that, like, hey, for Lorenzo to buy up Continental because he already owns these other airlines is anti competitive. But the CAAB rules in Lorenzo's favor

because it's the Reagan era. Texas Monthly writes quote. While the fifty three year old Feldman remained at Continental's Los Angeles headquarters, Lorenzo was everywhere, flying around the country, lobbying legislatures, institutional investors, and even the media. Lorenzo made many promises. He wrote California officials that he had no plans to move Continental headquarters or any of its operations out of Los Angeles. He said he had no intention of firing employees.

He said he wouldn't sell planes to raise money. Within two years he had done them.

seems like a pretty good idea on paper. It's it's what's called an employee stock ownership plan or ESOP, And basically the idea that these unions work out with Feldman is that workers are going to buy control of the company. This could work out for them because federal law gave ESOPs really nice tax breaks and they're able to kind of work with some banks to get like there's like one hundred and eighty five million they need to get

in financing for this. So Feldman's on board the unions start like making a national campaign basically telling people, hey, you know you have all these nice fond memories of Continental, you know, where this like prestigious airline, and you know, we want to stop these ghoulish, soulless Reaganites from taking

over our beautiful airline and it'll be worker owned. And it's like it shows you how different the world is that, like the Texas legislature passes a resolution like cheering on the effort, right, actually opposing a Texas based company trying to take over the airline.

which is enough to block like anything from happening. Continental goes to the New York Stock Exchange and the California Corporation Commissioner's office to try and like force through the ESOP plan without a vote, but they get denied, and on August seventh, because it's not working out, the banks who'd offer to help finance it withdraw their financial commitments, and like you know, it falls apart. So this doesn't work tragically, like the the employees are not going to

be able to buy their own airlines. And so two days after the banks pull their financing, while Lorenzo continues his full court press to take over Continental, the CEO Feldman issues a press release telling all of his workers that the esop plan is no longer possible, he tells them sadly. He's like, and this is like a pretty emotional letter for him. He's like, you know, we can't get financing. You know, this has kind of sunk our chances.

I'm so sorry that this failed. And then after sending this out, he leaves his office at LAX in the middle of the day, goes on a little shopping trip, and he returns soon after with a package. Frank works the rest of the day winding down his control of Continental, preparing to hand it off to Lorenzo, and then at a little after seven pm Pacific standard time, he calls the security desk and he asks them to turn off

the lights in his office. Then he gets on the couch and he shoots himself through the head.

nothing matters but short term stockholder value. Yeah, because and it's like, yeah, Feldman is like from there of like you provide people a service and they give you money, and you want it to be fair and you give them some kind of value back, and this guy's like a fuck all that all that shit, let's sell your fucking planes, dude, get the fuck out of my face. Loser, like Feldman just can't exist in the era of Frank Lorenzo.

to bring up the Coen Brothers. We've gotten a lot of like movies about like you know, those the corporate gul or the capitalist goruls of like the train industry, right, like stuff like that, right, and a lot of more modern stuff. I've never actually seen this period depicted. But it's pretty like we're going to go over some of this, like what's happening this like battle between like the unions and the airlines and like this old attitude that's less

competitive of like how airlines should be in the new one. Obviously, like none of these people are. You know, when we talk about the old way of things, it is worth noting part of why it falls apart is that it can't make money because it was never that was never the primary purpose. So you know, it is it is complex. It's certainly more complicated than a lot of this stuff

we talk about. But yeah, Frank Lorenzo is like reached to by the New York Times and he issues a statement being like, oh, you know, mister Feldman was a was a great guy. You know, I'm so sorry to his family, Like.

on the table to buy. The airline industry is in a very new place, and it's kind of reeling from alt from deregulation, from all these sudden changes at the end of the Carter era and then at the start of the Reagan era in August of nineteen eighty one, you have the air traffic controllers strike, right, and this is basically air traffic controllers.

the overall impact to the country isn't massive. Whereas if all the air traffic controllers go on strike, like good, you can shut like yeah, and you know, obviously that's not something a guy like Ronald Reagan is going to think should be acceptable. He is fundamentally against the idea that any union should have as much power as the air traffic controllers do. So he calls their strike apparel to national security, and he orders them back to work

at the risk of losing their jobs. And there's still elements of this in like air unions. I think we all remember when like the stewardesses union put an end to that, like the fucking budget, like the government shut down basically by being like, well, what if planes can't go in the air, how would you fuckers feel that you know, right, right right? And this is yeah, so uh there's a yeah. Basically, Reagan's like, yeah, if you guys don't go to work, I'm going to fire everybody.

And the union calls Reagan's bluff, and Reagan does, in fact fire everyone, and he bans all of these air traffic controllers who had struck from federal service for life. Uh. This is very celebrated by conservatives, but it is a fucking disaster for a while because like suddenly all the guys who make air travel possible are gone, right, so they have to fill vacancies. They bring in the military,

you know, flight controllers and shit from the military. There's controllers who like, for whatever reason, had worked outside the union and like different, like weird, little kind of niche parts of the industry they bring in, like like retirees and stuff. They bring in like people who had refused to go with the union on the strike. But it takes ten years before FAA controllers staffing returns to normal.

The benefit of this for Republicans is that as much of a fuck up as it is for the industry and for flyers and for obviously these controllers, it does.

It's almost like a death blow to organized labor, and a lot of ways you could argue that, like you kind of have the labor movement, you know, starting up late eighteen hundreds, early nineteen hundreds, fighting for that eight hour work day, all these other things that we get from organized labor, and labor has a significant degree of power kind of up until Reagan crushes this strike, and it's it's like a it's an epochal change in the way that we conceive of labor in this country.

got us. But yeah, it is, Yeah, it is true, Like you're there's so many huge fundamental shifts happening, whether it's just like the perspective of what even a business is and what it's meant to do, and like who it's supposed to provide value for to who the fuck even deserves to like, you know, demonstrate that they need better wages or working conditions. Yeah, in such a like cynical way.

of today. And while you might expect Frank Lorenzo obviously to be in favor of Reagan breaking the strike, and obviously he like he's a fuck the unions guy, this also has a negative impact on his business because it like he is when he buys Continental, his plan is to basically cut a bunch of like the routes that aren't efficient and launch a bunch of new routes and kind of like uses existing business to make it more effective.

But like he can't actually expand or really wildly change the way his airline works and the way that he needs to if there's this like cap on how much air travel can exist because we're out of fucking controllers, right, people Like this is a problem for him, and he's just burnt a shitload of capital to buy Continental, so he needs to be able to expand and show that

like he can make a profit. In nineteen eighty one, then Continental reports losses of again when he had bought Continental, they were losing a thirteen million year and eighty one, they lose one hundred million dollars. So it's a little bit of like an Elon Musk type thing where it's like, I don't know, man, maybe this wasn't the best plan.

a stockholder's nightmare. And what's actually happening here is that a lot of Frank's success, the perception that he was this like master of rescuing damaged airlines, was not real success, but the result of a rational exuberance. Investors liked how we talked about unions, and the market was good for the kind of airline he ran, but he was making

a ton of bad calls too. After the Continental acquisition, he launched a new major marketing rollout that had flopped disastrously, making Continental in this period the only airline that sees both revenue and passenger load drop for the quarter. So this is kind of revealed that he's not a great airline manager. He was just good at convincing stockholders that like, that's we're on the open.

top three or four and numbers seven. And what we're seeing in this period is kind of the backswing of deregulation. Right Initially there's this huge drop in ticket prices, way more people take to the sky, But the end of the caab's anti competitive regime also leads to an inevitable tightening of the industry. And kind of where that's ended up today. You know, we talked about it. It's not entirely negative. There's a lot of things that are positive

about the deregulation. But the other thing, the thing that it's like, the way it all winds up, is that today four carriers control eighty percent of the domestic airline market. As former American Airlines chairman Robert Crandall told ABC, the consequences of deregulation have been very adverse our airlines. Once world leaders, are now laggards in every category, including fleet age,

service quality, and international reputation. Fewer and fewer flights are on time, Airport congestion has become a staple of late night comedy shows, and even higher percentage of bags are lost or misplaced. Last minute seats are harder and harder to find. Passenger complaints of skyrocketed airline service by any standard had become unacceptable. Now Crandall is a business school too, write and he's like he's kind of moaning the deregulation in part because like he's a guy who had succeeded

at an earlier age of yeah, like pride and exactly. Yeah, but it's one of those things, so like, I don't know, there's a lot of downsides to deregulation. And at first the you know, it doesn't matter to Lorenzo, but like by the time kind of we're in the early eighties, the industry is starting to contract, and he's just kind of it looks initially he's not big enough to like make shit work. He's getting eaten alive by all sides.

So the walls are kind of closing in on the guy at this point, and he defaults to what was basically his only real strategy, cutting perks for passengers and squeezing his employees as hard as possible. Frank didn't just see this as good business. There was a degree to which this is like a thing he enjoys. It's like a pleasure to him, fucking with his workforce. I found a book series called Flying the Line by George Hopkins.

George is a former Navy pilot and an air travel industry historian, and these he writ He's got like this series of books called Flying the Lion, and if you like, if you want a frustrating amount of detail about how air travel used to work, George is your boy, right. He will tell you way more than you ever wanted to know about how fucking airlines worked in the seventies and eighties. He portrays Lorenzo, and again he's got an axe to grind against this guy. He portrays Lorenzo as

almost ghoulishly excited to fuck over stewardesses. In particular, quote Phil Nash who went to work for Continental in nineteen sixty six after serving in the US Air Force and later became ALPA EVP in nineteen eighty to nineteen eighty two. We'll never forget his first encounter with Frank Lorenzo. Above

all others, Lorenzo typified this new managerial breed. At a special meeting in Denver, Nash asked Lorenzo, who was in the process of taking over Continental left the time, why he was so intent on reducing the pay of flight attendants. Didn't he know phil Nash asked that many of them were single parents who couldn't afford to own homes, that the pay rate Z was proposing. Lorenzo looked at Nash

as if he were crazy. Quite frankly, I don't believe flight attendants ought to make enough money so they can own houses, Lorenzo told a flabbergasted Nash. Maybe they should find another job that pays better.

in costs for airline management. And this is normally when we talk about like the struggle of like unions against management, we're talking about like, yeah, you got like a bunch of coal miners, right, and maybe the industry changes around them, or like the executives make a bad decision, but the coal miners are like doing their job, they're getting the coal out of the world, and they're just getting like

fucked over by the people who run the company. It's a bit different with pilots unions because, for one thing, up until recently, pilots had kind of run a lot of the airlines. Right, So even if you know you're just a flyer, you're not in management technically, you're the guy who runs your company is probably a pilot, and so are a lot of executives, and maybe you worked with some of these guys. So like when other airline unions get fucked over, the pilots are usually safe, you know,

because they're close with management right right, right right. And it's like, you know, today we're dealing with this thing where like there's a shortage of pilots in part because there's this very unreasonably long period of time in the US where you have to like be trained and have experience to be able to be a commercial pilot that's like much longer than like what the requirements are in Europe. And it's a thing that like the pilot's unions have

fought for because they make more money that way. Not blaming everything on the pilots, but it's not exactly the same as like the stewardess's union, right, because they are closer to running, closer to power, right, So pilots have more baked in benefits. And they also, like a lot of them, are like friends with the guys who are running their companies. So one consequence of this is that when management and the airlines had made cuts, the pilots

had generally been spared. Dennis Higgins, who worked for Texas International, explained, quote, some people in senior management were extremely close to the pilots and smooth that mess over. They spent time in pilot's homes, went to kids graduations. It was very much a family atmosphere. So Lorenzo obviously does not care about

the pilots. He wants to fuck them over, but he understands there's an opportunity here, right because the pilot's unions are already kind of acclimated to the idea that like, well, maybe we can fuck over some of like our coworkers and other unions as and will still be okay. And Lorenzo, he's kind of like the British Empire. Right, He's like, I feel like this is an opportunity I can play these unions off against each other in order to benefit myself.

Hopkins writes. Quote Lorenzo, for all his faults, made no secret of his plans, but he deviously led various employee groups to believe that he was after concessions only from other unions. At the time of his takeover, Lorenzo hosted a cocktail reception for txi's pilots the Houston Intercontinental Hotel. Lorenzo flatly declared that except for pilots, he intended to take the airline back to the employment levels of nineteen

sixty seven. There are profits to be made here. Dennis Higgins recalls the Lorenzo saying, We're going to continue operating the same number of trips, but we are going to get rid of some ground for folks. So because txis ground, folks are unionized, this strategy means that the airline is going to like, there's going to be some labor fighting over this, right, and Lorenzo is eager to fuck with

the union. So he his proposition is like, I'm going to turn all of our baggage handlers and ticket agents into temporary employees, right, I'm just going to replace the unionized guys with temps, which is like a standard tactic today and that's starting to be more common in this period of time. He also argues that, like, well, we've got all these flights to cities that are like outlying, and so we've they're only on like one or two flights coming in a day there, so they don't need

any full time employees. So like for these smaller routes, we'll just hire like college students who need like like shitty part time gigs to be ground employees just when like the flight is departing and arriving. And it's one of those things. Part of how he's able to get by with this initially is he tells the pilot's union, Hey, guys, I want you to keep making money, but like, we can't keep paying you all this money if these worthless ground employees are siphoning all your money away.

interested in is a cheap seat. The ones who don't like our service can go pay higher prices on another carrier. He was very cynical about the public. And this is like you can see, this is how all of air travel works now, right, is like, fuck them. All they want is to see a cheap price, and you know what, we can make him pay more in the long run. If we're Spirit Air, you know, we'll sneak in a

couple one hundred dollars charges that they're not seeing. But all these idiots care about is that they see, you know, what looks like a good price.

So while he's doing all this getting each union to agree to a few cuts under the promise that they'll be spared and someone else will get fired, he starts selling Continental aircraft as fast as he can. This puts like twenty one million dollars in the bank right away, and he gets another big, like thirty million dollar loan

from Chase Manhattan. He does this public stock offering to raise more money, and over the course of eighty three he builds up this big war chest, right so suddenly Continental has like a weird amount of cash on hand, even though they lose like eighty something million dollars that year. And everyone assumes he's doing this he's saving up money because he's gonna buy another fucking airline, because that's what Frank always does. But he actually has a different, cunning,

more fucked up plan. He's going to break the unions once and for all, and he's going to do it by declaring bankruptcy. Yeah, yeah, he is.

on workers' salaries, right, like I failed. What I failed in doing is I just couldn't get salaries low enough. You know, we're paying too much on workers and that's why it's impossible to make a profit with this airline, he claimed in his speech at Harvard. Quote, what we tried to do was shift the story from it being a bankruptcy to a labor problem as fast as possible.

And this works really well, right, so's he's Basically, as this is going on, as he's prepping to go into chapter eleven, he's renegotiating his contracts with these unions, and instead of working anything out with him, he just keeps at the last moment when they'll think they're about ready to sign a contract, they'd be like, ah, nope, you know what, I actually I can't do this or I can't do that. We have to go back to the

drawing board. So the unions eventually decide to go on strike, and as soon as they go on strike, he furloughs all of the non striking employees or the striking employees, he brings in scabs and he declares chapter eleven right, So he goes into bankruptcy, and he says, well, now that I'm doing bankruptcy, I want the government to let me revoke all of my union contracts. So yeah, that's that's the plot. That's what he's trying to do here.

And this right up from Texas Monthly describes what happens next. The airline immediately shut down operations and laid off all but four thousand of its twelve thousand employees. Continental executives said the line would resume flights three days later to selected cities at the low price of forty nine dollars one way. Returning workers would face pay cuts, increased productivity requirements,

and the elimination of all pensions. The salary of flight attendants would drop from twenty nine thousand to fifteen thousand. Pilots making eighty nine thousand would be paid forty three thousand, the same salary Lorenzo said he would take in place of his normal two hundred and fifty seven thousand dollars. At press conferences, he glossed over Continental's fifty million dollars in cash reserves. The airline faced running out of money in a few days, he insisted. Meanwhile, union leaders and

even some business executives denounced him. Wall Street analysts questioned the company's future, and competitors rejoice. So Frank's plan here, there's like an element of desperation to this, because no one's ever done this before. He's just pretty sure it's going to work. On September twenty seventh, when he reopens the airline and starts offering these cut rate flares, basically

the whole Continental fleet remains on the ground. There were only a handful of flights he was able to actually pull out, but since the airline had technically resumed operations, he was able to ask the bankruptcy court to rescind the union contracts. Gradually, Continental starts opening up more and more flights, bringing in scabs to do all the work, but the real financial health of the company is unclear. He declares at a press conference that like, we're doing great.

The same day he asks the government to release ten million in their funds to keep the airline from collapsing. The unions fight back, They go on strike. They refuse to go back to work for reduced pay, but they can't stop the scabs from a flooding in, and Frank is able to bring in enough workers to keep this minimal schedule operational. Now, the union with the most clout

and thus the most power or are the pilots. And because pilots made bank they had enough money that they were able to like draw funding from other pilots unions to fund their part of the strike. So they start using some of this money to carry out a media campaign where they're basically trying to be like, all this non union labor has made flying more dangerous. You might die in the air because of what, you know, what

Lorenzo's doing. This may have been true because Continental gets fined like four hundred grand because the FAA sees that they're not like they're breaking a bunch of rules basically. But no planes crash from Continental in this period, so it's kind of hard to like, you know, yeah, really point the finger would have helped them if some people had died, is what I'd say.

gets a ruling from the Supreme Court. They declare that companies in chapter eleven have the right to cancel burdensome union contracts. Now, Congress like seals this up. They passed legislation so that like CEOs can't do what Frank did. But he wins, right, he gets to actually like do this shit.

we're all hurting here. This is a lie. Yeah, So basically he's like I'm going to drop my salary from like two hundred and sixty thousand to forty three grand. But he he's that's not like the whole story, because

like he's getting bonuses. Obviously, he's like making hundreds of thousands of dollars in bonuses, but he's also he's set shit up so that like there's this weird he's basically putting his money into this weird stock transaction that he's like running through an automated subsidiary, which is like doing the he's basically like doing like an automated stock trick where he's like buying shares and then like reselling them once they get Anyway, the way this all works out

is that he's able to buy two hundred thousand shares of his company stock at fifty cents a share for one hundred thousand dollars, but he only has to pay five thousand dollars because he has Texas Air loan him the rest of the money, and then he resells it two years later when it's worth more money and effectively makes like an extra one and a half million dollars for paying five grand, where he basically like has the

company subsidize his investments. So yeah, it's he's making He's doing just fine, right.

will be partners in the airline business. Once it gets back on the black, but Lorenzo doesn't sign anything with Hook, like it's a handshake deal. And so as soon as the airline's making money again, Hook is like, well, yeah, now we're running this together. And Lorenzo's like, what do you mean what do you mean you thought you know, you.

a bunch of roots for Continental. And it comes out after the fact that like he had basically bribed the governor, the ceremonial governor of which is a thing that exists with free flights, in order to help him negotiate to get these roots. And then it came out with the judge the US the federal judge who'd ruled on their Chapter eleven case before it hit the Supreme Court. Right after, like the case goes Lorenzo's way, he quits being a judge and gets a job at the law firm that

represented Lorenzo's companies. So like, yeah, this is all fine.

is the number three airline in the country. So he is like, I send them like twenty percent or whatever, like one, yeah, one fifth of all air traffic in the United States is under Frank's personal control at this point. But also Eastern is like bleeding money, and all of his companies kind of are because after he's able to get these kind of like short term investments and shit, it becomes clear that like, well, he's just made his airlines a lot shittier like and nobody actually likes flying

on them. So this again, it's the same thing that had happened like a couple of years earlier. Like he starts hemorrhaging money. And I'm going to quote from a write up on avgeehery dot com, Lorenzo was so heavy handed with subordinates at Eastern that in the end, the airlines employees basically put their own jobs on the line. To get rid of him when he first arrived. He tried to turn the company around by incessantly hammering the

unions to make concessions. He enlisted the help of Eastern Airlines as managers who were company men, and enforced what some called abusive policies against employees. Workers were required to adhere to very strict rules, and we're up for lying about non existent medical conditions if they called in sick to work. So many machinists were accused of theft and or drug use that in one year alone, two hundred

and sixty two unionized machinists lost their jobs. Psychological warfare was even waged on flight attendants who were forced to collect garbage on flights, a violation of their contract. What if a flight attendant refused to act as a garbage collector,

they were fired on the spot for insubordination. So Eastern gets combined with Continental Frontier and People Express, and you know, it's one of those things where like his constant cost cutting, like he's looking great on paper for a while, but everything starts to fall out, fall apart after this, and Frank, you know, is squeezing these people too so much that like Eventually, the Eastern Airlines Machinist Union goes on strike.

And up to this point, like nineteen eighty nine, every time the union employees had gone on strike against him, Frank had wound up just like beating the piss out of them. So he's pretty confident. George H. W. Bush's in the White House now, He's like, I got this stuff. Yeah, yeah, hold my beer. But Bush doesn't hold his beer. He refuse to. He refuses to create a mediation board. He basically says, no, the federal government's not getting in on this, Like,

you're going to handle this alone. And this is when Frank thinks back to Andrew Carnegie. So he hires mercenaries in order to like escort his employees off the airfields when they try to lock down the airfields at gunpoint. Like he kind of goes like hard on this shit, but again without the government backing him, his heavy handed tactics fail. The pilots and the flight attendancy unions are so like horrified by what he is doing that they

go on a sympathy strike. He hadn't thought this was possible. He thought he'd broken them enough that this wouldn't happen, but they ground his entire Like Eastern Airlines, the third largest airline in the US, is grounded right after he buys it, and this just causes a cascading like series of losses that sends him like bankrupts his companies right right. Obviously, Lorenz gets away rich, but he is his empire gets broken up and sold off, and like he gets forced

out of aviation forever. Part of why is that, Like the Scandinavians buy Continental airlines, but they only do so, Like if the US government will agree to ban Frank from working in the airline industry for a decade, they're like, we'll pull your fat out of the fire, but you can't let this guy near an airline again.