Hard Landing (39 page)

The
average Continental pilot was earning about $90,000 a year, including benefits—not a king’s ransom in 1982 and 1983, perhaps, except that he received that pay for an average of about 11 days’ duty per month. The pilots had already agreed to significant cutbacks, but in Bakes’s view their concessions had bought the company only a little more time. The pilots would have to be pressured to give up much more, along with the other union groups.

Continental’s flight attendants earned salaries and benefits averaging $37,300 and enjoyed work rules that Bakes considered reprehensible—large hotel rooms with double beds on overnight trips, for instance.

But the most immediate labor-cost issue involved Continental’s mechanics, who pulled down nearly $40,000 a year. Bakes had had some acquaintance with their union, the IAM, during his Kennedy years. The IAM was so enamored of Teddy Kennedy and his pro-labor stance that it donated the
use of a private airplane for the ill-fated Kennedy presidential campaign. Such loyalties didn’t mean a thing now, of course.

The Continental machinists were working under an expired contract, which made them the first targets for deep cuts. The talks on a new contract were proceeding perfectly rationally, with the prospect of some give-and-take. But the atmosphere at Continental
changed
overnight when Charlie Bryan and the machinists’ union at Eastern crushed Frank Borman, walking away with a 32 percent increase. After Bryan’s triumph in Miami the Continental machinists didn’t want to hear a word about the financial problems of Continental. They wanted the same contract from Lorenzo that Bryan had won from Borman.

Without bothering to consult Steve Wolf, who was still his boss, Bakes called together his own subordinates and declared that Continental would take on the machinists. “We’ve got to
prepare for a strike!” Bakes announced.

There was indeed virtue in taking a strike. Under the peculiarities of airline labor law, if the machinists went on strike, the company could replace them immediately with scab workers—and do so on whatever terms the company chose. A strike would cure Continental’s cost problem, at least insofar as it involved the machinists.

On August 12, 1983, Frank Lorenzo took the machinists strike that Frank Borman had refused to accept. It was, for Lorenzo and Bakes, far from a disaster. The pilots traipsed through the machinists’ picket lines. The middle management groups at Continental and Texas International, not yet fully comfortable with one another, galvanized into a unified group in the interests of keeping the airplanes aloft. Within days Continental was back flying at full strength, having cut its labor costs in the process—a big step on the long path toward reversing the company’s fortunes.

While
Lorenzo and Bakes were rejoicing, they knew they had yet to take on the flight attendants and pilots in order to lock in the easier debt terms the bankers were willing to provide, and there was a huge payment coming due in a few weeks. And although the machinists’ strike had been utterly broken, it
had
driven away some business and burned up a lot of cash in the pell-mell effort to recruit and train scab workers.

Five days after the machinists had walked out, Hurricane Alicia swept through the center of Houston, shuttering businesses for days and driving anyone who could afford it into air-conditioned hotel rooms. Bakes and his family checked into a Guest Quarters Suite Hotel, where Bakes began crafting a mighty speech, one that Lorenzo would deliver in the days ahead to convince employees to consent to wage cutbacks or accept the consequences.

But what exactly were the consequences?

• • •

A few months earlier Bakes had been interested to read about an
appellate court decision in Philadelphia. A New Jersey building supply company called Bildisco had filed for bankruptcy protection, and in doing so had repudiated its labor contracts along with its financial obligations, as if its work rules and wage rates were accounts payable. The court ruled that if collective bargaining agreements threatened the claims of other creditors, they could, in fact, be unilaterally abrogated—wiped out, kaput, while the company continued about its business. Bakes passed out copies of the case to some of his fellow executives.

Bankruptcy. The notion was so … intriguing: a perfectly solvent company, with a valuable franchise and assets of tremendous value, nevertheless using bankruptcy as a way of escaping from wage agreements it no longer wished to honor. It would be a provocative measure, certainly far less preferable than a negotiated settlement with the unions, but among some of Lorenzo’s senior executives a negotiated solution appeared less likely all the time. Continental’s senior vice president of flight operations, Richard Adams, jotted down some notes at one point in which he observed, “I don’t believe we can get these concessions on a voluntary, persuasive basis.… We must get an
awfully big stick.… Most effective stick may be Chapter 11.” In August 1983 Harvey Miller of Weil, Gotshal & Manges, the dean of the bankruptcy bar, traveled to Houston from New York for his first consultation with Lorenzo and his aides.

Bankruptcy remained a fallback position. No airline had ever gone into bankruptcy and emerged to fly again. Braniff provided a harrowing precedent. No one knew whether the public would ever trust a bankrupt airline. Lorenzo, Wolf, and Bakes launched one last campaign to talk the unions into a deal.

They met with Continental’s pilots in the air-conditioned chill of a hotel ballroom near Houston Intercontinental Airport as a fog of humidity blanketed the city and the cleanup from Hurricane Alicia continued. Lorenzo had flown in from New York just in time to give the speech. Wolf and Bakes flanked him at the front of the room. It was obvious to Bakes that
Lorenzo was nervous—nervous in a situation that demanded Lorenzo be at his calmest and most deliberate. The pilots stared angrily at Lorenzo and his confederates, wondering
why, after agreeing to grant concessions a year earlier—why, after agreeing to cross the machinists’ picket lines—they were being singled out again to give more.

What Lorenzo wanted, in brief, was to cut their wages nearly in half, immediately, even though the existing pilots’ contract had 13 months left to run.

“The company,” Lorenzo told them, “is losing money at an
alarming rate.” Just as bad, American and United were bearing down with “biased travel agent computer reservation systems that distort traffic patterns and competitive market shares.” People Express, he noted, was also closing in, attacking Continental’s home base of Houston. Bob Crandall was hiring b-scale pilots to expand the American fleet at a terrifying rate just 250 miles away in Dallas.

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.