Book Read Free

Hard Landing

Page 52

by Thomas Petzinger, Jr.


  And on so many fronts, there was a war to fight with Bob Crandall.

  Almost from the minute Wolf had walked into the executive suite at United, the people around him, and around Bob Crandall at American, began to look on the competition of the companies as a battle of two chief executives, a battle on the order of Godzilla versus the Thing. Both men would forever deny any personal motivations in their corporate warfare, yet both would consistently take actions and make comments in the presence of others that betrayed an intense personal rivalry. Although the competition lacked the emotional intensity of the Lorenzo-Burr dispute, it was tinged with personal history. Wolf’s career had hit dead calm at American, so he quit, and his career had thereafter blossomed. Crandall privately expressed annoyance and a touch of jealousy at the wealth Wolf was in line to accumulate at United. Although Crandall had shaken loose a bonus worth at least $12 million after turning down United’s job offer, Wolf, having accepted that offer, was now in a position to profit by that much in a good week—assuming another graceful opportunity presented itself for him to begin cashing in his options. Wolf, moreover, was not the only American Airlines exile working at United headquarters; Jack Pope, long Crandall’s top finance man, had also recently quit American to go to work for United.

  “Need I remind you,” Crandall told a group of his managers at one point,

  there are several former AA employees sitting up there in Elk Grove Village, Illinois, making a lot of noise? Just last week the big guy up there was quoted as saying, “Quality comes first. Growth will follow.” Now, where do you suppose he got that? He was reading the inscription on our trophy! Our job is to make sure that’s as close as he ever gets.

  The fight raged on many fronts, from 1989 through 1991. United laid out $72 million to buy Air Wisconsin, a large feeder airline at O’Hare, principally as a way of scooping up more landing slots in the market-share battle with American. It was a perfectly straightforward transaction; United simply happened to beat American to the prize. But Crandall sought to reverse the deal in the federal courts, mounting every imaginative antitrust claim he could muster. United finally agreed to part with a dozen of the Air Wisconsin slots, although in the bargaining Crandall agreed to pay nearly $3 million for each. It was all part of a pattern of singling out United for harsh treatment, Wolf believed. “Very unusual corporate behavior,” he would call it.

  Wolf took his own steps to keep the authorities abreast of Crandall’s mischief. Wolf had made a point of getting to know Sam Skinner, who before becoming transportation secretary was a well-known lawyer in United’s hometown of Chicago. Skinner was widely thought to have political ambitions in Illinois, and it went without saying that the support of one of the state’s biggest employers would be of no small value. Wolf and Skinner had become pen pals of a sort—“Dear Sam,” “Dear Steve”—to the point that Wolf felt comfortable sending the transportation secretary the text he had obtained of a Wings Club speech given by Crandall. In the speech Crandall derided political leaders for mishandling international aviation negotiations and accused Skinner’s agency of suffering from a “leadership problem” and “diplomatic dithering.” Wolf transmitted the speech to Washington with a cover letter that noted, “Bashing of this type is simply not constructive.” Skinner answered with a friendly thank-you.

  But nothing compared with the battle royal over one of the great questions of U.S. aviation policy in the early 1990s: which of the two airlines, American or United, should win the authority to fly between Chicago and Tokyo?

  For years only a single U.S. carrier, Northwest, had enjoyed the privilege of carrying passengers between the two great cities, but a new round of multilateral bargaining had opened up the route to a second carrier of the U.S. government’s choosing. With Wolf and Crandall battling for every last passenger at O’Hare, the Tokyo route would become a vital source of passenger feed—at full-fare and first-class prices to boot. The route was worth an estimated $300 million a year in business. The profit margin was projected at 18 percent, the kind of return available in the cosmetics business maybe, but nowhere else in aviation.

  It was a battle destined for decision as much on influence as on economics. United won the support of Chicago Mayor Richard Daley and Illinois Governor James Thompson, leading Crandall to accuse the company of playing political games. American meanwhile was conducting a massive local advertising campaign—“American means business in Chicago”—on which it was rumored to be spending some $6 million in the first half of 1990.

  In the end United won, a decision that Crandall took so bitterly that he personally fired the Washington representative who had been handling the lobbying. Of all the government decisions that ever went against American, Crandall would say, “the worst screwing we got was Chicago-Tokyo.”

  By 1990 Stephen Wolf and Bob Crandall were each separately convinced that they had very little time left to align their companies as “global megacarriers” for the next century. They feared that Europe, never particularly welcoming to the Americans, would slam shut by the end of 1992, when the European Community would be fully constituted. Crandall and no less Wolf were especially keen to stake a major claim in the vital gateway of London. American’s existing flights mostly flew over London to the heartland of Europe, while United still had only the data-processing artifice of service to London through its code-sharing relationship with British Airways.

  Domestic political uncertainty intensified the pressure to act quickly. President Bush had largely maintained the hands-off antitrust policy of the Reagan years, but as Crandall aide Bob Baker would explain, “There was a sense that if we wanted to get some of this shit, we’d better get it while we could, we’d better not do this too many times or the government’s going to shut us down. The fact is we’re getting bigger and bigger and United is getting bigger and bigger and the smaller carriers are falling by the wayside, and the music would stop soon.”

  As eagerly as the two rivals wanted to act, their opportunities were limited. Whether “diplomatic dithering” played a role or not, opening up new overseas routes was an agonizingly slow process. And there were precious few airlines left to be taken over—except, most notably, Pan Am, still out there with a For Sale sign hanging around its corporate neck.

  Crandall and Wolf looked covetously at Pan Am, now in the hands of Tom Plaskett. The three of them, all once colleagues in the marketing operation at American Airlines, were now aligned in a triangle, each with an eye on the other two. The standoff would be readily resolved if only Wolf or Crandall would move to seize Pan Am. But there would be no frontal attacks, no bidding wars. For as eagerly as Plaskett wanted to sell and Wolf and Crandall wanted to buy, a vast chasm of strategy and expectation existed in the middle of that triangle. Would Pan Am, one of the greatest names in the history of commerce, survive as an affiliate of a rescuer? Or would it, like Eastern, be shredded, with its people, to pieces?

  CHAPTER 18

  LONDON CALLING

  Chicago has the world’s busiest airport, Dallas the biggest, Denver the newest. But in the world of international flight, none of them comes close to matching the importance of Heathrow Airport in London.

  Much more than an airport, Heathrow is a crossroads that links the Middle East with North America, Africa with South America, Europe with Asia and every other continent. Heathrow is to the planet Earth what Chicago, Dallas, or Denver is to the United States. In terms of handling international passengers, no U.S. airport—not JFK, Dulles, or O’Hare—ranks even in the world’s Top 10. But the whole world changes planes at Heathrow.

  Along with being vital, Heathrow is inaccessible.

  Like the New York airports, Heathrow has long been governed by slots, every last one of them long ago spoken for. Europe is a crazy quilt of air traffic control; a flight to Heathrow from Athens, say, may encroach on the sovereign airspace of Albania, Bosnia, Italy, Liechtenstein, Germany, France, Belgium, the United Kingdom, and possibly a few others, including NATO, depending o
n the route. European air traffic control is a tower of Babel involving 55 control centers, 18 varieties of computer hardware, nearly two dozen operating systems, and something like 70 programming languages. No one, therefore, can be positive when an inbound flight from the continent might reach Heathrow. In determining how many takeoffs and landings can be permitted and at what times of day, Her Majesty’s Government and the slot planners must allow for any number of flights arriving at nowhere near the correct time. Landing capacity also has to take account of the unpredictable London fog.

  On top of everything else, Heathrow is hemmed in by the suburban sprawl of London. There are two runways at Heathrow. In the interest of diluting the noise over the surrounding communities, the authorities restrict one runway to departures and the other to arrivals, instead of allowing each to handle both.

  Heathrow is a closed shop, and that fact alone has helped to solidify British Air’s position as the self-proclaimed “world’s favourite airline.” That Heathrow is British Airways territory is evident to anyone driving through the main entrance, where a giant scale model of the supersonic Concorde, painted in the colors of British Airways, is on display. As a result of takeovers, mergers, government grants, and the company’s influence with the British Airports Authority, British Airways controls about 38 percent of the slots at Heathrow, while the remaining airlines of the world each have trifling operations in comparison. British Airways also enjoys the finest indoor quarters in the airport; it received its own sprawling new terminal in the late 1980s. The new facility, Terminal Four, is trimmed in British Air’s colors, with dozens of huge screens identifying the check-in points for the world’s most exotic destinations. Check-in service is supreme: a bank of video cameras monitors the queues by destination, with computers guaranteeing the most efficient deployment of check-in personnel.

  The sinecure of British Airways at Heathrow was assured for perpetuity in 1977, when the government declared that no newcomer would be allowed to land there. Pan Am and TWA were grandfathered at Heathrow, but all latecomers—Braniff, Delta, People Express, and eventually American Airlines—were forced to land at the newer and much less convenient Gatwick Airport. Not that the British discriminated against foreign airlines alone: the Briton Freddie Laker’s SkyTrain service to Newark was in its time also banished to Gatwick. Gatwick was fine for shuttling low-fare tourists between the United States and the United Kingdom, but no full-fare business traveler was eager to spend six hours on a flight to England only to endure an interminable cab ride, much less a bus trip, upon arrival. Airlines flying to Gatwick were also disadvantaged because they received only a small part of the traffic bound for the Continent or elsewhere: oil sheiks could not fly nonstop to Abu Dhabi through Gatwick; finance ministers could not reach Nairobi. Heathrow, not Gatwick, was the turnstile through which passed the richest and most important travelers in the world.

  In a fateful step in 1980 the United States, at the behest of Sen. Edward Kennedy and House Speaker Thomas “Tip” O’Neill, demanded some amendments to the treaty known as Bermuda II in order to allow Pan Am to fly from Boston to Heathrow. Britain agreed, though at a price: the United States had to agree that only two U.S. airlines could ever serve Heathrow at the same time, even if space became available for more. If not Pan Am or TWA, the amendment read, only their “corporate successors” could land at Heathrow—whatever that meant.

  Los Conquistadores del Cielo—what a bizarre organization it was. The top executives of commercial aviation, only a few dozen in number, competed to the point of annihilation 51 weeks a year and then spent the week after Labor Day together on a spread of more than 15,000 acres in Wyoming called the A Bar A Ranch. They would turn out in cowboy hats and boots—Stephen Wolf in an elegant knitted sweater, perhaps, and Bob Crandall in a leather vest and bolo tie. They would feast on prime rib, buffalo burgers, trout pâté, and bacon smoked on applewood. Their poker stakes regularly surpassed $10,000. Though city slickers all, they would throw themselves into fast-draw competitions, trapshooting, fly fishing, and horseback riding. The tradition of the games included a race on horseback in which the contestants stopped at the halfway point to pull on pink frocks; as the aviation men galloped to the finish line, their dresses waved in the wind.

  Although a welcome diversion, the 1990 gathering was clouded by a new and tremendous stress: the imminence of war in the Persian Gulf. One month earlier Iraq’s lightning-quick invasion of Kuwait had thrown the global airline industry into a hard depression, devastating the airlines as no event had since the firing of the air traffic controllers nine years earlier. The price of oil, after mercifully plunging from the heights of the early 1980s, once again spiked upward. The greatest military buildup since World War II—the allied operation known as Desert Shield—reactivated thousands of reserve pilots, pulling them from the cockpits of their commercial airliners. Civilian U.S. aircraft were also diverted to the Persian Gulf. American Airlines conducted so much flying for the U.S. government that the pilots’ union attempted to negotiate a special set of work rules, provoking a bitter labor-management conflagration and accusations of a lack of patriotism. After its most sustained period of profitability since deregulation, the U.S. airline industry was bathed in red ink.

  Unlike the controllers’ strike, the invasion of Kuwait and the military escalation that followed afflicted airlines outside the United States as well. The European airlines suffered disproportionately due to their proximity to the terrorist threat, and in this respect Pan Am might as well have been a European airline; whatever small recovery Pan Am had mounted after the bombing of Flight 103 was wiped out by the new hostilities in the Gulf. Chairman Tom Plaskett considered putting Pan Am into bankruptcy, but that was thinking the unthinkable; instead he would press on in the search for a rescuer, and the Conquistadores meeting, he knew, would be an excellent place to look.

  One evening after everyone had reached the A Bar A Ranch, Plaskett approached Stephen Wolf. It was an ironic occasion for Plaskett. A decade earlier Plaskett had been two steps above Wolf in the marketing department at American Airlines. Plaskett would never forget the elaborately detailed presentation that Wolf made putting forward his case for a promotion and a raise. Plaskett had told Wolf he was not yet ready for the promotion, and before long Wolf had quit American. (Plaskett and Wolf also shared the experience of having each served less than one year as the president of Continental under Frank Lorenzo.)

  Plaskett told Wolf he was eager to hear an acquisition proposal from United, and was encouraged when Wolf agreed to give the matter some thought overnight. Wolf, of course, was as eager as ever to put United into Europe, but not at the cost of swallowing Pan Am and all its problems.

  The next morning, as the breakfast dishes were being cleared, the two men sat down over coffee in the rustic mess hall at the ranch. Wolf had scratched out a cryptic proposal on a single sheet of paper, with the words “United” and “Pan Am” evident nowhere. The paper listed two Pan Am routes to London: one from Los Angeles, one from San Francisco, and the figure $75 million. Plaskett was crestfallen. Pan Am was dying by the day. What Wolf was proposing was a Band-Aid, a palliative, not a cure. Plaskett went back to New York to resume the task of fighting off Pan Am’s creditors.

  Within days, however, Plaskett sensed an opportunity to make another approach. Wolf unveiled the largest airplane order in history—$22 billion—making United the U.S. launch customer for the new Boeing 777. Looking on from Pan Am, it was evident to Plaskett that Wolf was trying to stage a series of blockbuster announcements to snap United back from the distraction of the employee takeover. Perhaps, Plaskett thought, a merger with Pan Am could become part of the new momentum.

  This time Plaskett decided to resort to the tease. He would entice Wolf by offering to sell just a piece of Pan Am—the airline equivalent of an ankle, perhaps, or some cleavage. Then, once it had a few hundred million dollars of life-saving cash in hand, Pan Am would have the time to coax United into going all the way.
>
  But what enticement to use? The Pacific was long since gone, to United, in fact. The Latin American routes were a possibility; United was under pressure to make a big move there now that American was operating the Eastern routes in the region. But Latin America alone would not provide Pan Am with the cash it needed to survive in the short term. That left London.

  The delicacy of aviation relations between the United States and Britain had turned Pan Am’s routes to London into a seemingly priceless asset. The amendments to the Bermuda II treaty, after all, restricted Heathrow to Pan Am and TWA, or to their “corporate successors.” Pan Am, in other words, could not sell half or any fraction of its operation at Heathrow to anyone. Doing so would introduce a forbidden third U.S. carrier into Heathrow. Selling the operation in London was an all-or-nothing proposition.

  Wolf had only to hear Plaskett say “Heathrow” to grasp the significance of the overture. Wolf had just begun attempting to pick his way into Europe on the usual tedious, route-by-route basis. If he came to terms with Plaskett, in just this one transaction United would win the right to land at Heathrow from five US. gateways (New York, Washington, Los Angeles, San Francisco, and Seattle). Overnight United would control 15 percent of the entire transatlantic airline passenger market, three times the share that Bob Crandall had established for American after nearly a decade of painstaking effort.

  The deal would also give United the rare and in some cases valuable authorities that Pan Am in the Trippe era had won beyond Heathrow to Europe—to Amsterdam, Berlin, Brussels, Hamburg, Helsinki, and Munich. And quite apart from London, Plaskett was willing to toss in a route from Washington to Wolf’s beloved Paris. It would be the same kind of bold stroke by which Wolf’s predecessor, Dick Ferris, had propelled United into the Pacific five years earlier, in 1985 (also by cleaving routes from Pan Am). It was the kind of breakthrough that could get United moving again.

 

‹ Prev