It was all perfectly true, but Lorenzo’s voice lacked conviction. His tone lacked sincerity. He was speaking in clipped sentences. Good Lord, Bakes thought, the veins were popping out in his forehead!
Lorenzo stuck with the script and pressed ahead, reminding the pilots of how vigorously he had fought deregulation. But that was history. “Today,” Lorenzo said,
I philosophically believe in deregulation. Although it is tough on all of us and on the company we work for—and Continental could perish because of it—I much prefer over the long term to be subject to the rule of the marketplace, rather than the bureaucrat.…
The People Expresses, the Southwests … are drastically altering Continental’s marketplace. Unless we change with the marketplace, we will perish.
Lorenzo’s message was plain enough: You, veteran pilots, are not worth what you are paid.
I am sure that this will be the most difficult decision of your professional life. I suspect some may propose that we call it quits and not attempt to go forward. But I ask each of you to step back, emotionally and intellectually, from that precipice. If the pilots cannot do what is necessary, thousands of jobs may be lost, perhaps forever. Even pensions could be in jeopardy.… I say this not to be mean, not to be confrontational; not to appeal to your emotions; and certainly not to bluff. I and the company do not like to take on the unions or risk brutalizing our workforce. Rather, the economic imperative of survival at this company is to reduce our costs dramatically. Nothing can change that fact.
The pilots who had been with Continental since before the Lorenzo takeover—the majority of those present that evening—heard an awkward speech by a frightened-looking man with an unconvincing bluff. The much smaller group of pilots who had come to the company from Texas International saw something different. Lorenzo, they knew, meant every word. Their spokesman was Dennis Higgins, who had stood up on the floor at the Brown Palace Hotel in Denver two years earlier to tell the shareholders of Continental Airlines that Lorenzo did not care “one whit” for his employees.
“Frank’s going to press the test here, fellows,” Higgins now told the Continental pilots.
“What do you mean?” he was asked.
“You’ve got a bad man you’re dealing with. You’re going to wake up one morning and feel like a truck drove through your living room.”
“Aw, you’re making too much out of this.” The Continental pilots had fended well for themselves under the blustery Bob Six and the cost-minded Al Feldman. The head of the union group at Continental, Larry Baxter, fancied himself a master strategist. “We can take care of Frank,” he told Higgins.
Though the president of Continental—Lorenzo’s number two executive, at least on paper—Stephen Wolf did not like all the head banging. It was not his style, and if there was anything Wolf had, it was style.
When he abandoned his aloof manner, Wolf could hold an audience rapt. He was such a big man, towering in those suspenders, with tremendous hands, like those of a basketball forward. His perfectly modulated voice, his entire manner, was earnest, particularly through a microphone. His voice sounded intimate, almost whispering, although at the right moment he could display flashes of intensity as well. Some of the pilots thought his style was all a put-on, but many others were convinced that Wolf was sincere. Those who worked closely with him suspected that Wolf put so much faith in his powers of persuasion because he didn’t have the stomach for direct confrontation.
Wolf set out on his own to try to win the concessions from the pilots peaceably. More time, Wolf pleaded. Lorenzo was watching his beloved cash balances shrink by the minute. More time, Wolf pleaded. “I’m trying to do it in a cooperative situation,” Wolf would recall years later, “and Frank is bashing them.” Bakes, for his part, began to think that Wolf was downright naive to think he could reason with a bunch of pilots.
Continental, in Lorenzo’s judgment, finally passed the point where Wolf could have more time. The issue was almost academic. The finances had grown so desperate that in only a matter of days practically no amount of concessions from the pilots would be sufficient to save the company.
At seven o’clock on a Tuesday night in September 1983, after another day of crisis and with the bankers asking why there were still no concessions, Lorenzo sat Wolf down.
“I want to be more involved in the basic direction of the company,” Lorenzo said. “I just don’t think it’s going to work.”
Wolf had never heard such words from a boss. Lorenzo was giving Wolf a severance check.
“I’ve never been … let go,” Wolf said. “Can’t we work something out?”
The answer was no. Wolf had to go.
The following morning Wolf approached Larry Baxter of ALPA with a warning about Lorenzo. “You need to take him very seriously,” Wolf intoned. Wolf then telephoned each of his fellow Continental officers to thank them and bid them adieu, thus taking his leave on a warm note.
Wolf then departed Houston for Dallas to see his longtime girlfriend, Delores E. Wallace, a former flight attendant instructor who was on the fast track at American. Instead of hopping a plane, Wolf folded himself into his BMW sedan and made the 250-mile trip alone, as committed as ever to his career, wondering where he would land next.
• • •
On a Saturday morning three days after Wolf’s departure Phil Bakes sat behind the desk that Wolf had occupied and felt as if he were walking on somebody’s grave. The hastily cleaned-out office now belonged to Bakes; the title of president, he hoped, would follow before long.
Lorenzo and other officers joined Bakes to review the latest cash report. There was about $35 million in the till, not enough to cover Continental’s obligations past the following week. The next payroll was approaching. More ominously, Continental’s bankers were coming to Houston in a few days—on the same day that the huge debt payment was due.
Texas Air, as Continental’s parent company, could easily have floated another underwriting to keep Continental aloft. Lorenzo, however, refused. “We’re not running a welfare agency,” he explained at one point. He was tired of dickering with the unions. The coup de grâce occurred when the flight attendants, on the same morning that Lorenzo and Bakes were studying the cash report, refused to show up for a meeting in which the company intended to make one final appeal for concessions.
Lorenzo gave the nod to Harvey Miller, the bankruptcy specialist from Weil, Gotshal. It was time to file for Chapter 11 protection. The date was September 24, 1983, a Saturday. The press was notified that Continental would have a major statement later that day.
This was no Braniff-style liquidation, however. Lorenzo and Bakes now had the chance to create a brand-new company, except that they didn’t have to round up airplanes and terminals, as Don Burr had in establishing People Express. They didn’t have to fight a legal battle for an operating certificate, as Herb Kelleher had at Southwest Airlines. They didn’t have to beg and plead for slots, as their own formation of New York Air had required. Continental now had the right to tell everyone to go home, to not bother coming in for their last paychecks: Don’t call us, we’ll call you. And it could invite people back—as few or as many as it cared to—on whatever terms it wished.
What wages should be paid? Bakes’s aides quickly produced a copy of the pay scales being established by a new group of owners and managers trying to build a new airline from the ashes of what had been Braniff. The wages at the new Braniff—Braniff II, people would call it—were on average just about half of what Continental had been paying.
That was it. The Braniff II rates would be applied at the resurrected Continental. Cockpit captains, previously paid close to $90,000—men who may have entered into alimony settlements or investment partnerships based on the expectation that a contract was a contract—would be invited back to work at $43,000 a year, if they happened to be among the lucky. Flight attendants making $35,700—women who had entered into mortgages and who had car payments and who had enrolled their children in p
arochial schools, perhaps, on the same expectation—would have to adjust to $15,000. Top mechanics, their fate already handed to them when they walked off the job the previous month, would, if invited back to work, receive $20,800 instead of $33,280. Bakes was marshaling the arguments he would present to the bankruptcy court: if this didn’t seem fair, it was because years of government regulation had coddled these employees and punished the consumers of the nation. Bankruptcy, Bakes would tell the court, was the only way to redress this imbalance in accordance with the wishes of Congress and the forces of the marketplace.
As the press conference grew closer, Bakes and Lorenzo feverishly contemplated their other rebuilding moves. Where would Continental, once reborn, fly? It obviously could not resume its full schedule of service to 78 cities. But maybe, just maybe, it could get back in the air quickly with service to two dozen or so of its most important destinations.
What fare would it charge? It had to be low, Bakes believed, a “blow-your-mind number.” It had to be lower than Southwest’s fares and it certainly had to be lower than People Express’s. Whether the fare was profitable by any conventional method of accounting didn’t remotely matter at this point: Continental no longer owed anyone a dime. The fare had to be low enough to get blood back in the arteries of Continental. The decision was $49, to anywhere.
When would they resume flying? How about Tuesday? Launching an airline on that schedule was a ridiculous goal, this being Saturday. But it was part of the imperative for momentum—to get off the ground fast. Tuesday it was.
Bakes reviewed a draft copy of the news release that would be distributed to the press already assembling a short distance away. Before each appearance of the name “Continental” Bakes inserted “The New,” as in “The New Continental.” It was hokey, he realized, but he was already launched on another campaign, another attempt at the near-impossible, partly for the sake of seeing whether it could be done. If Continental had a chance to make it in the marketplace, it had to position itself as something radical and new. Bakes did not want people looking on Continental as the “Proud Bird” of yore, struggling to regain a fraction of its former glory. He wanted people to look on it as a small airline expanding from a small base, an airline with a great future, not simply a great past.
Before long Lorenzo and Bakes made the short drive along Buffalo Bayou to the Allen Park Inn, a glorified roadside motel, where they released to the world the news of the New Continental, and to Continental employees the news of what had just happened to them and to their jobs. When they returned to their offices, Lorenzo was deeply depressed. It dawned on him that no matter how ingenious a business strategy, the bankruptcy filing was an admission of failure—the failure to persuade employees and lenders to come to terms voluntarily. Even for someone of Lorenzo’s commitment to the means that justified the ends, it was not a happy feeling. Lorenzo suddenly struck Bakes as burned-out and dejected.
The following day, Continental’s top officers would be summoned to headquarters for the grim task of deciding which operations and which people would be eliminated. “It’s your baby,” Lorenzo told Bakes.
Lorenzo did not, as critics came to believe, slash and burn with relish. What he did was, if anything, even lower. He walked away and let someone else do it for him.
The officers of Continental Airlines assembled in the boardroom, capable journeymen, for the most part, with decades in aviation behind them. Bakes—37 years old, a lawyer with three years’ experience in the airline industry was awed by the experience arrayed before him. There were men like Dick Murray, who went all the way back to Mohawk Airlines in upstate New York, where he had helped refine the first computer reservation system in the airline industry, earlier even than American’s Sabre; who had helped to build Bob Crandall’s Sabre into one of the world’s most sophisticated marketing tools; and who had come to work for Lorenzo to begin accomplishing the same for him. As Bakes looked at the long faces of Murray and the others, he wondered for a moment whether he could really do this: order each of them to eliminate two thirds of his operation, two thirds of his budget, two thirds of his people or more. Bakes realized he couldn’t trust himself to negotiate the nitty-gritty of it. This exercise, he suddenly realized, was painful enough without having to hear about individual cases of hardship or need and to arbitrate the close calls. So he assumed the bearing of a dictator. Just cut, he told the assembled managers. “You do it or I’ll do it for you.”
The older and wiser men shook their heads.
“We’ve been through a merger,” Bakes reminded them. “We’ve been through a strike. You got us through it. You can do this too.”
The men left, soon to begin returning one at a time, with their lists. Hour by hour, department by department, the red lines went through the payroll lists. About 8 P.M. Dick Murray came in, protesting the arbitrariness of Bakes’s order. Murray carried a ream of computer printouts showing that his people, the reservation people, added revenue to the company rather than draining it. Bakes refused to listen.
“Give me your roster!” Bakes bellowed. And through one name after another he indiscriminately draw lines, then shoved the list back to Murray. “Here,” Bakes said. “Here’s your plan!”
“If that’s the way you want it,” Murray said, walking out. And Bakes had no idea whether he would ever see Lorenzo’s computer man again.
In Newark news of Continental’s Chapter 11 reached Donald Burr, who, instantly joyous, scheduled a party to celebrate. Lorenzo’s tumble into the abyss of bankruptcy tingled the Calvinist core of Donald Calvin Burr. Burr had long told people that “what Frank sows he will reap.” Now Burr said, “He’s gotten what he deserved!”
On top of the thrill of seeing justice done, Burr felt he could claim much of the credit for the victory. Those ultralow fares on the Continental bread-and-butter route from Houston to New York—they had pushed Frank over the edge. “We took credit,” Burr later said.
Burr, more expansion-minded than ever, began recruiting pilots among the victims of Continental’s Chapter 11, emphasizing that by taking a job with People Express, they could cast their lot with the forces of good—and go to war against Frank Lorenzo.
The great plan for the New Continental quickly encountered an unlikely obstacle. As Bakes cried in a meeting, “What if we don’t have enough fucking pilots?”
Just before the intended relaunching, Bakes began picking up rumblings that the pilots might actually strike. A strike against a bankrupt airline—nobody had even thought to worry about it, it seemed such a non sequitur. But the pilots and the flight attendants were preparing for one just the same. And although union pilots regularly crossed the picket lines of other airline unions, their own picket lines were sacrosanct. A scab pilot—there had been very few in the history of the Air Line Pilots Association—marked himself as a professional pariah. “The vilest enemy of the morale of aeronautics,” David Behncke, the founder of ALPA, had declared, “is a scab.”
Fortunately for Bakes a surfeit of pilots was on the market, the result of route cutbacks by the major airlines in the recessionary years following deregulation. Bakes established a phone bank to begin recruiting replacement pilots, one by one. It was not an easy task. When a recruiter found a willing pilot, a cheer went up in the room.
By Tuesday morning, just three days after the bankruptcy filing, Continental had just barely enough pilots to get aloft on Bakes’s schedule. Anyone who thought that people would never fly a bankrupt airline got an instant lesson in consumer elasticity: passengers were lining up 50 deep in Houston for Continental’s $49 fares. But the unwillingness of Continental’s pilots to accept positions with the New Continental quickly began to crimp Bakes’s rebuilding plan. The press began a deathwatch. “The threat of a strike,” said The Wall Street Journal, “might be enough to doom the airline’s attempts to reorganize and survive.”
Bakes refused to give the press any ammunition with which to speculate. He instructed the company’s principal spokesman
, Bruce Hicks, to attribute canceled flights to mechanical delays rather than to the lack of pilots. “Tell them anything,” Bakes barked. Regardless of what the truth was, Bakes said, “we’re not cutting our schedule.”
The days passed with a few more flights here and there but still too few pilots. Two of Continental’s operating executives approached Bakes with a reduced schedule. “We’re out of pilots,” one of the schedulers glumly reported.
Bakes’s jaw went tight. “We’re not going to announce any cutbacks!” he shouted at the schedulers. One by one more pilots were drawn in, although in a number of cases they were put to work before they had received the requisite training in Continental’s aircraft. Anonymous callers harassed the strikebreakers at home and on the road, particularly at night, when they were trying to sleep between flights. Bakes instructed scabs to register in hotel rooms under fictitious corporate names, and each night Bakes and his aides, and finally Lorenzo himself, telephoned the pilots to offer encouragement.
The inchoate Continental wasn’t a pretty sight, but it worked. After weeks of fits and starts, it was aloft, apparently for good. And Phil Bakes, at long last, was made Continental’s president.
A few weeks into Chapter 11 hundreds of Continental and former Texas International pilots crowded into a hotel meeting room near Intercontinental Airport in Houston. Larry Baxter, the head of the union at Continental, took the podium.
Baxter struck many as a somewhat peculiar individual. He had a habit of darting from subject to subject in midsentence—“kind of like wind shear,” another ALPA leader would later comment. Baxter often seemed to look past the person he was talking to. In the maelstrom of the Continental bankruptcy his eccentricity was in full bloom.
Hard Landing Page 30