Francisco Anthony Lorenzo is a Harvard business school graduate who served as the head of several domestic airlines including Eastern, Continental, New York Air, Frontier and People Express during the ’80s and ’90s. During his career, Lorenzo became known as a kind of white collar thug, infamous for union busting and heavy-handed treatment of employees. He remains banned from holding any position in the airline industry to this day. But how did this man become arguably one of the most despised figures in aviation?
Win Some, Lose Some, or Literally Die Trying
Frank Lorenzo’s career had a shining start. After graduation, he wound up as the head of Texas International Airlines in 1972. Lorenzo turned TIA around by getting rid of unprofitable routes, revamping the fleet of planes and for the first time ever in airline history, introducing half-price airfares. TIA was restored to profitability and Lorenzo was lauded as a huge success.
His winning streak continued at the helm of Continental Airlines, although other people often paid a heavy price for his success. TIA put forth an offer to buy Continental in 1981. Continental workers strongly opposed the acquisition, citing Lorenzo’s history of cost-cutting and layoffs. Employees ventured to form a group that would allow them to take control of the airline. Continental’s then-Chairman, Alvin L. Feldman, also did his best to prevent Lorenzo from getting his hands-on Continental and was very public about his bitter opposition to the TIA takeover.
But hostile corporate takeovers were the name of the game during the Reagan-Bush era and in the 11th hour, the financing for the employee group fell through. Continental was then handed to Lorenzo on a silver platter while President Reagan did nothing to oppose the deal. Upon hearing the news, Alvin L. Feldman committed suicide in his office in Los Angeles. Lorenzo was elected to the Board of Directors in November of that year. The combined companies resumed operations under the Continental brand.
Declaring Bankruptcy, a Legal Way of Busting Unions
Lorenzo continued his campaign of drastically cutting wages and benefits for employees at Continental, who at that point were earning only a fraction of their past salaries. The mechanics’ union went on strike and after 19 months on the picket lines, no agreement had been reached. Under Lorenzo, the carrier then declared bankruptcy.
The pilots’ union also went on strike after the bankruptcy filing. But under bankruptcy laws, the unions’ contracts were deemed to be null and void. Lorenzo claimed the company would go belly-up if wages were not contained. Unions accused Lorenzo of using bankruptcy as a legal trick to void contracts and bust up unions.
Continental wound up laying off 65% of its employees during this period. The airline emerged from bankruptcy in 1986 and worked out a plan to pay off debt over a decade-long period. But the average salary earned by Continental’s pilots was as much as 50% lower than before Lorenzo first filed for bankruptcy.
The Death of Eastern Airlines
Like a pirate taking over a ship on the ocean, some industry observers say Frank Lorenzo took over Eastern Airlines and then pillaged it for his own profit before burning it to the ground.
Frank Lorenzo was entrusted with the position of CEO of Eastern Airlines in 1986. At the time Eastern, then the third largest airline in the country, was in serious decline. Labor unions were constantly disrupting the business while costs were at an all-time high.
Based on his successful past, it was initially thought that Lorenzo would be the carrier’s savior. After all, he had grown the once-small, barely significant Texas Air Corporation into a real player in the industry and was credited for ‘saving’ Continental. He was seen as a ruthless businessman with a proven formula for success.
Lorenzo’s credo was simple: offer low fares and cut costs. The aggressive CEO was credited by many in the business community for being an uncompromising leader that was willing to bust up unions to create a lean company.
Accusations of Drug Use and Theft
But Lorenzo was so heavy-handed with subordinates at Eastern that, in the end, the airline’s 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’ managers who were ‘company men’ and enforced what some call abusive policies against employees.
Workers were required to adhere to very strict rules and were written up for lying about nonexistent 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, 262 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 garbage collector? They were fired on the spot for insubordination.
More and more employees were laid off and those who remained on the job were forced to work longer hours with less time off. Pilot exhaustion became a real threat to passenger safety. Disgruntled flight crews’ discontent was glaringly obvious to passengers and customer satisfaction scores hit rock bottom.
But all the while, Frank Lorenzo had a seemingly unquenchable thirst for acquisition and constantly attempted to take over other airlines. Indeed, Lorenzo later became responsible for the largest airline in the country when Eastern was combined with Continental, People Express, and Frontier. This combination gave him control over 1/5 of the air traffic in the U.S. As the businessman made questionable deal after questionable deal, operational problems were ignored. Routes were nonsensical, planes were in disrepair, crews were overworked, and the airline was in a state of organizational chaos.
Union Employees Removed at Gun Point
Frank Lorenzo’s relentless crusade may have been a thinly veiled effort to terrorize union employees until they went on strike so he could create an impasse and bring in non-union workers at lower cost. It took almost two years of mistreatment but early on March 3, 1989, the Eastern Airlines machinist union went on strike. That day, President George H. W. Bush declined to create a presidential emergency board that would have acted as mediator. Later that day in an illegal lockout, EAL pilot James L. Caufman witnessed private security forces removing machinists from their jobs at gunpoint at Miami’s airport.
Lorenzo had apparently expected several things to happen that fateful day, including federal intervention. He probably also expected the pilots’ union to cross the picket line and keep operations going whilst the crafty CEO could bring in cheaper labor. Too bad for Lorenzo, none of that happened.
Bye-Bye Blue Sky, Lorenzo Gets Banned
To be sure, Frank Lorenzo did not expect what came next. After years of abuse, the pilots’ and flight attendants’ unions went on a sympathy strike alongside the machinist union and basically grounded Eastern Airlines for good. With no one to work, the carrier went bankrupt. Saddled with mounting debt, Eastern went through the legal process and officially ceased operations on January 18, 1991. Lorenzo got away with as much as $750 million in assets as the chief operator. Sayonara suckers!
Following the breakup, a Scandinavian airline acquired Continental on the condition that Lorenzo be banned from the airline industry for seven years. That did not stop him from trying to start up another airline in Baltimore in 1993 though. Lorenzo wanted to call it Friendship Airlines (chuckle). Given his past record and loud protests from unions however the Department of Transportation declined the bid, saying Lorenzo was not fit to fly “in accord with the public interest.”
In 1994, Continental got a new Chief Operating Officer in Gordon Bethune, who turned operations around and rescued the airline from obscurity. Read more here:
Corporate Raiders and Leveraged Buyouts
Lorenzo’s philosophies were no doubt formed by the corporate raider mentality of the late ’80s (probably something he learned at Harvard). In the end, the real problem was he was so entrenched in union busting that he failed to do anything about the real day-to-day problems at the airlines he ran.
To play devil’s advocate for a moment, cutting labor costs could have helped reduce debt and other problems could have ostensibly been resolved with a common-sense merger with another airline. But when Frank Lorenzo arrived on the scene, airline employees were already turning hostile and blaming management for deregulation. He made managers and workers adversaries and the way he treated employees had the effect of adding jet fuel to an already raging fire. Depending on whether you agree or disagree with his style of management, Frank Lorenzo is remembered for his tough-guy approach or regarded as the most heinous villain aviation has ever seen.