TIME: Almanac 1993/TIME Almanac 1993.iso/time/082090/0820105.000

Text File | 1992-08-28 | 3.8 KB | 82 lines

                                                                                NATION, Page 48

Gone But Not Forgotten


The most vilified airline boss takes the money and runs


    The ending was right out of an Old West tale where the tough
guy tells his adversary, "There ain't room in this town for
both of us." The labor feud at Continental and Eastern airlines
came down to a highly personal fight to the finish between
union-busting chairman Frank Lorenzo and his employees. Last
week it was Lorenzo who left town. The bile as well as the
bubbly flowed when Lorenzo announced that he was stepping down
and selling his interest in the parent company, now called
Continental Airlines Holdings, to SAS, the Scandinavian airline
(1989 revenues: $4.4 billion). Said John Peterpaul, a vice
president of the International Association of Machinists and
Aerospace Workers: "Frank Lorenzo demolished Eastern Airlines,
wreaked havoc on thousands of workers' lives and severely
devalued Continental Airlines. Our condolences to whatever
industry he stalks next."

    Lorenzo acknowledged the bitterness, indicating that he
believed the airline company would be better off without him.
Said he: "I have obviously become a lightning rod." During the
past 18 years, Lorenzo built his airline empire on low fares,
which he accomplished by hacking away at labor costs. When
fed-up machinists struck Eastern early last year, Lorenzo
steered the troubled carrier into federal bankruptcy
proceedings, using a tactic that had broken the unions at
Continental six years earlier -- and had probably saved that
airline. Though Eastern's strikers have persisted, Lorenzo has
replaced most of them. Last April the machinists won a partial
-- if Pyrrhic -- victory over their opponent when the federal
bankruptcy court in Manhattan removed Lorenzo from control of
Eastern and appointed former Continental president Martin
Shugrue as trustee to guide the airline out of bankruptcy. The
airline faces nearly insurmountable problems, though, in
re-establishing itself against strong competition in a weak
economy.

    Seeking to boost its U.S. business, SAS bought a 9.9%
interest in Continental Holdings in October 1988. Under the
terms of last week's deal, SAS will pay $51 million to increase
its equity stake to 16.8% and to buy all the outstanding shares
of Jet Capital, the investment vehicle that controls the
company. (American law forbids foreign carriers to own more
than 25% of any U.S. airline.) For his part, Lorenzo will
collect $29.9 million, remain a director of Continental
Holdings and retain options allowing him to purchase 783,333
shares of the company's outstanding stock. A surprising clause
in the deal prohibits Lorenzo from working in the industry
until 1998. The Department of Transportation, which must
approve such a substantial foreign investment in an American
carrier, is expected to weigh the deal carefully.

    The new man at Continental's controls will be Hollis Harris,
who resigned last week as president of Delta Airlines after 36
years with that company. SAS, which is 50% publicly held and
50% owned by the governments of Denmark, Sweden and Norway,
faces the task of rebuilding a beaten-down company. The
polished Scandinavian firm has made a start. Since last year,
it has operated a so-called charm school, a two-day training
course, for Continental employees at the company's Houston
headquarters. While confirming last week that Lorenzo's
departure was an essential condition of the deal, SAS chief Jan
Carlzon charmingly praised Lorenzo as "one of the real
entrepreneurs in the industry." Sounds like Carlzon could take
a turn teaching that class.


By Janice Castro. Reported by Jerry Hannifin/Washington and
Richard Woodbury/Houston.