Hard Landing
Page 33
Acker knew that the transaction would be emotionally wrenching for the Pan Am board, many of whom had served alongside Juan Trippe. Acker answered to some of the most distinguished directors in corporate America: Donald M. Kendall, the chairman of Pepsico; Sol Linowitz, the former general counsel and chairman of Xerox Corporation, who had negotiated in behalf of President Carter in the Middle East and the Canal Zone; Akio Morita, the chairman of Sony Corporation; and other notables. Many of the directors had long delighted in hearing Lindbergh’s tales of the early days.
But nobody played the relationship game better than Acker, and this was a situation that called on all of his skills. Acker needed to recruit a board member to join him in championing the deal. One way to lock up such loyalty, he thought, was to give a director a financial incentive in the outcome.
Acker turned to William T. Coleman, Jr., a noted civil rights attorney and power broker who had played a leading role in the landmark desegregation case Brown v. Board of Education. Coleman later stood out among civil right advocates for his Republican leanings, and had been transportation secretary in the administration of Gerald Ford. In that capacity he was among the Ford administration officials who gave momentum to the deregulation campaign that was completed during the Carter administration. Coleman’s law firm, O’Melveny & Myers, was not Pan Am’s usual counsel, but for this transaction Acker asked whether Coleman would have his firm do the legal work, which would be massive. There’s no evidence that Coleman wouldn’t have supported the sale in any case, but years later the great lawyer acknowledged the appearance of a conflict of interest. “One could always argue that when you have someone on a board whose firm did legal work, that affects you,” Coleman explained years later. “I hope it didn’t.”
Approving the Pacific sale was, as Acker had expected, difficult for the board. But with Coleman in his corner and with $750 million in cash hanging in the balance, Acker won the board’s approval.
In Dallas Bob Crandall was jealous and outraged to learn that United was buying the Pacific division of Pan Am—and that he had never been given the opportunity to bid on it. Crandall could not imagine why he had been entirely cut out.
In fact Acker and Gitner had considered shopping the routes to Crandall, whose interest in establishing foreign routes was well known. But Pan Am had previously conducted a major airplane swap with American, and they had found Crandall prickly and impossible to satisfy. The Pacific sale was an emergency transaction. A strike had been raging and cash dwindling. There was no time for dealing with a difficult personality. No one ever told Crandall that he was denied the chance to make the airline deal of the decade because he was just too tough.
Despite his jubilation, Ferris knew the timing could not have been more dreadful. He was writing one of the biggest checks in corporate history at the very moment he was telling the United pilots that he required b-scales to survive against American. Three days after the Pacific announcement, at United’s 1985 annual meeting of shareholders, protesting pilots rained on Ferris’s parade, inundating him with hours of questions and conducting picket duty outside the hotel. The pilots also fixed their strike date: May 17, 1985, less than a month away.
United’s management went into high gear. The company drew down half of a $1.5 billion line of credit to bolster its cash position. Under heavy security it established an operating center, with dim lighting and Ferris’s would-be flight schedules projected against the wall. Ferris continued to lobby individual pilots, hanging around dispatch rooms on weekends in his casual slacks and golf shirt. He also scheduled a major road show in a campaign to win them over with his salesmanship and charisma, talents that had proved so useful in his pilot dealings of the past. But at location after location attendance was virtually nil. The pilots were boycotting his meetings. Union people, he learned, were photographing any who dared to attend.
Ferris was furious. They are intimidating my pilots! he thought.
The union’s massive unity campaign reached its peak on Sunday, May 5, 1985, in a satellite production involving dozens of technicians and weeks of planning—a rally broadcast live to pilot domiciles in Los Angeles, Denver, San Francisco, Seattle, Cleveland, Miami, New York, and Washington from Odeum Expo Center in Chicago. Strike chairman Rick Dubinsky, his gargantuan image projected on a huge screen over the podium, was like an oracle announcing the end of the earth. “We’re now just 271 hours and 52 minutes away from the time when every United pilot must face the most difficult test of his life,” he solemnly declared.
The rally was moderated by Paul Anthony, the studio announcer for the PBS show Washington Week in Review. The radio commentator Daniel Schorr reviewed the status of the issues in the talks. Retired anchorman Howard K. Smith spoke on the history of labor-management relations.
A tape was shown of Dubinsky interviewing a pilot who shamefacedly told the story of how he had crossed the picket lines at Continental—of how it had nearly ruined his life, making him a marked man, causing his copilots to refuse to engage in any conversation with him deeper than a cockpit checklist, a situation with potentially disastrous safety consequences. A pilot called in from Cleveland via satellite asking whether the union would have any way of knowing how many pilots were scabbing. “You, the pilots,” Dubinsky said, “will not only know how many, but who.”
The high point of the conference came near the end as the podium was taken by the trial lawyer F. Lee Bailey. Bailey had been a marine fighter pilot who never quit flying; he averaged 40 hours a month at the controls of his Learjet. As it happened, he was engaged to a United flight attendant.
If any of the pilots felt misgivings about the strike—if any felt demeaned, or guilty, or low-class, or obstreperous at the idea of walking a picket line—Bailey went a long way toward salving their anxieties and endowing their intentions with legitimacy. Nothing, Bailey said gravely, would eradicate pilot professionalism faster than a two-tier wage system in the cockpit. Although everyone in the audience would remain in the a-scale, in future years a swelling crowd of b-scalers would be after their jobs, eyeing the veterans for slipups, making discreet comments to their supervisors in hopes of knocking them out of their captains’ seats. “Won’t that be great for teamwork?” he asked sarcastically. “Has technology made flying so much less difficult that we can put half-valued people up there?”
With the rain pounding the metal roof of the Expo Center, Bailey went on in the grandiloquent style of a lawyer giving a jury speech. Ferris, he said, had a debt to the rest of the industry—a debt incurred when he joined with the forces of deregulation.
This is a giant risk. Mr. Ferris has to take it, you understand, if there’s any chance of success. You are the test case. There will never be another day like this. If United goes, TWA, Delta, Eastern, Northwest, Pan Am are gone. “Two-tier,” or something equally as corrupt, will be in, and that will be history. And you will have the misfortune to live through the transition, which will be horrendous.… Mr. Ferris put them in the deregulation bucket and it is his job to cure their problems if he can, and he is the spearhead by designation.… And if they succeed, we will have pilots like the boy from Air Florida—and I mean “boy”—who … did not know what ice was and committed suicide with a bunch of passengers in a takeoff that I wouldn’t have expected an astute student to even attempt.…
What you must do is simplicity itself. Look in the mirror and ask yourself, “Am I worth what I’m being paid? Or have I, for 20 years, conned the American public into thinking that there were demands in this job that really don’t exist?”
It all came down to honoring the picket line, Bailey said. If none of the pilots crossed, he said, Ferris would have to crumble.
During the hours of speech making no one mentioned that the pilots’ negotiators had already, in fact, agreed to b-scales, though only of a few years’ duration, until the American pilots could be emboldened to shake loose the two-tier system. Ferris, however, was not content with the pilots’ concession. An airplane
lives for 20 years or longer; he wanted b-scale for a generation, not just a few years. Dick Ferris wanted what Bob Crandall had.
Ferris was aware that he could not count on all or even most of his pilots to stick by him. The cornerstone of his strategy to fly through a strike involved a corps of strikebreaking pilots, some 570 strong, who were now in Denver being trained in United’s operations, aircraft, and procedure. They would keep the airline aloft at a level sufficient to keep the cash flowing. In the beginning United would fly at 50 percent of capacity, Ferris estimated. Then, if the pilots refused to relent, United could creep back to its full schedule of 1,550 flights a day over several months by hiring and training new pilots. By that time, if the strike had gone on that long, Ferris would have destroyed the union that had betrayed him.
The pilots’ union too recognized that those 570 pilots controlled everything. Shutting down only half of United was insufficient. If hundreds of scabs reported to work, the will of the strikers would erode almost instantly. Each of those intended scabs had to be convinced not to perform the job for which he had been hired.
United was lodging the strikebreakers at two hotels near the company’s training center in Denver, where they had plenty of time on their hands. An ALPA leader named Jamie Lindsay (once described by ALPA’s international president as “a nuclear reactor without enough water”) led the countertraining effort. He ran union hospitality suites in the company’s hotels, right under Ferris’s nose. He arranged for carry-out pizza by the dozens and beer by the case for fraternal meetings with the intended scabs. Little was spared in the way of moral suasion and professional pressure.
There was another element, more discreet, in the campaign to keep the newly hired pilots from crossing. Some of the pilots who had been hired to train the strikebreakers were themselves on strike—at Continental Airlines. From the outside it appeared a case of union hypocrisy, strikers training strikebreakers. But Continental strikers were acting as double agents, a kind of fifth column within United. Some, when they weren’t conducting sessions on flap settings and engine speeds, were making small talk—about what Lorenzo had done to the pilots at Continental, about the ideology of the confrontation at United, about the importance of refusing to fly the very equipment that the recruits were being trained to operate.
Ferris’s advisors told him that everything was ready, the troops were at hand, United could break the strike. Ferris in turn gave the same report to his board of directors. In a vote of confidence they came squarely behind Ferris, with one exception. Wally Haas, the former chairman of Levi Strauss, expressed reservations about taking the strike; it would obviously create hard feelings, and hard feelings were the last thing management needed in a service business. Before long Haas would quietly leave the United board of directors.
Ferris was still at corporate headquarters at 11 P.M., the hour the strike had been scheduled to begin. At 11:01 he was told the pilots were walking. For only the second time in history and for the first time since 1951, the United pilots were on strike.
The dimly lit operations center had been geared up to operate the company at 50 percent of capacity. But as midnight passed, then the wee hours, the horror began to spread and then took hold.
Where were the replacement pilots? Five hundred and seventy had been trained. Six showed up.
The flight attendants also failed to show up for work.
Even about 30 management pilots refused to cross the picket lines.
United struggled to get what little in the air it could. Fifteen percent of the operation was all it could muster. Ferris was stunned and so were thousands of airline passengers. The world’s finest air transport system was suddenly in one of its worst snarls ever. On a typical day United boarded about 130,000 passengers, more than one out of every six people flying in America. Its flights linked 157 cities in all 50 states. Hawaii might as well have been a wholly owned subsidiary of United. Now passengers who had been assured that United would be operating its most important flights found themselves high and dry.
American—the reason that Ferris was taking this strike—was the greatest beneficiary in dollar terms. Every American flight was departing O’Hare crammed from stem to stern. A day into the strike American carried a record 152,000 people, on a Sunday. The strike was a godsend to Bob Crandall’s efforts to make American a powerhouse number two against United at O’Hare. To get long-lasting benefits from the United strike, American even set up folding tables at the airport to recruit United passengers as members of the American frequent-flier program.
Crandall’s people were certain, in any case, that the strike would go on for some time. Crandall’s analysts had sent the computers into overtime, running pro forma estimates of the financial effects of the strike not only on American but on United. The cost incurred by United in the first five minutes of the strike, Crandall’s people determined, was so great that Ferris would have to hold out until he got what he wanted.
The emotionalism of the strike preparations did not let up once the pilots were picketing and the planes were grounded. Twenty-four-hour security went up around the Ferris home in the northern Chicago suburb of Northbrook. The strikebreaking pilots—what few there were—were horribly harassed. Some of their wives received threatening calls. Some of the working pilots found feces in their flight bags.
Some of the striking pilots would later claim that at various points Ferris went off the deep end himself. A pilot named John Vick testified that he ran into Ferris in Denver and was bowled over to hear Ferris explain, “I am the chairman. I have all the chips. I am a 1,300-pound gorilla!” Union leader Jamie Lindsay claimed that when he too came across Ferris in Denver, Ferris said, “Why don’t you travel back to the Dumpster you live in?” (The comment caused ALPA to distribute lapel buttons picturing trash receptacles.) Ferris would later deny ever making such comments, but there was plenty of bravado in Ferris’s stance. “ALPA can’t win,” the Chicago Tribune quoted him as saying. “There’s no sympathy out there for the pilots.”
But ultimately there arose the issue of cash, which can make even the sturdiest CEO weak in the knees. This affliction hit Dick Ferris on about the seventh day of the strike. Watching cash fly out the window at a dizzying pace, he called his senior managers together and said he was going to settle on the terms last agreed to by the union. B-scales would be established, but only for a brief period. Ferris had nowhere near the deal that Bob Crandall had.
Like Frank Borman’s aides at Eastern in the similar circumstances there, Ferris’s people were shocked and dismayed. We’ve come this far, some of them thought. Why not go 60 or 90 days? But Ferris was intent on settling.
In the end, Ferris got the worst of both worlds—a long strike and a lousy settlement. The circumstances of the walkout had created some thorny back-to-work issues, intensified all the more by the emotions running out of control on both sides. In a decision that seemed calculated principally for punishment, United said that those few pilots who had scabbed through the strike would get “super seniority,” jumping ahead of those who had struck. In an equally insulting move the union demanded job protection for the nearly 570 strikebreakers who had snubbed the company that hired them.
For another three weeks the strike raged on, driving more passengers from the company, deepening further, if that was possible, the enmity between Ferris and his most important employee group. A number of board members were upset that after the divisive economic issues had been resolved, Ferris continued to irritate the pilots over back-to-work issues. “That was putting a match in a tank of gasoline,” as senior director Chuck Luce later put it. The National Mediation Board ultimately proposed the Solomon-like solution of letting a court resolve the ancillary issues, but only after weeks’ more hatred had accumulated.
On June 6, 1985, after not quite a month, United was back in business. It was a changed United, certainly from the vantage point of marketing chief John Zeeman. Though devoted to Ferris, Zeeman could see how grave the damage
had been. “That was not a strike we won,” he would say years after leaving United. “It was the worst thing to happen to the company in 50 years. Emotionally, we never came back.… Before the strike we were the greatest airline in the country, maybe the world. Afterward, we weren’t.”
One of the least welcome effects of the strike was its depressing influence on United’s stock. This was the precise midpoint of the 1980s, when the takeover epidemic was intensifying. A low stock price on even the biggest corporations was like a blue light twirling in the ceiling of a dime store, an advertisement to the likes of Carl Icahn or Boone Pickens or Sir James Goldsmith or Ivan Boesky or Donald Trump or for that matter, Frank Lorenzo.
United was an inviting target in another respect. Unlike Pan Am, which had been raiding its pension plans to keep afloat, United had been overfunding its pension accounts—or so Dick Ferris was told by his advisors on Wall Street. Ferris, they thought, would be wise to deplete the retirement funds of excess cash so that a raider did not try to seize the company and use United’s own cash to help pay for the deal.
But what could he do with the money?
Ferris placed a call to Frank A. Olson, the chairman of Hertz. Olson was a salesman’s salesman and sports enthusiast; he had signed O. J. Simpson, in the 1970s, to one of the earliest and most productive sports celebrity endorsement contracts. Ferris too was a longtime acquaintance. Olson knew all the airline bosses because of the frequent marketing tie-ins between their industry and the rental car business. Olson and Eddie Carlson had been close for years, and all three men—Olson, Carlson, and Ferris—shared a passion for golf.
“We’re sitting on a pile of cash,” Ferris told him, cash that had to be spent. “I want to buy Hertz.”
Hertz, however, was not at the moment Olson’s company to sell, having become one of the far-flung subsidiaries in the portfolio of RCA Corporation. Soon Ferris was in contact with Thornton Bradshaw, the chairman of RCA, to make the pitch to him, and Bradshaw bit. For $587 million, Hertz, the world’s leading rental car agency, was United’s.