Lorenzo Departs

Frank Lorenzo was obviously not cut from the same airline cloth as were the early aviation chieftains like Jack Frye, Eddie Rickenbacker, and Juan Trippe, people who loved to build things and loved to fly. Lorenzo was first and foremost a financial guy, the quintessential MBA focused on finance, with little thought or care for tradition, history, or national concept. Whereas the airlines had been built by men who expected to make money from their efforts, not every deci­sion they made was a financial one; not every action taken was with a view toward the bottom line. Empire building in the early days was done one step at a time, not in one fell swoop like the hostile takeovers, leveraged buyouts, and unre­strained mergers that became the modus operandi of the deregulated 1980s. Lorenzo had turned the venerable airline industry on its head: Continen­tal had absorbed People Express (and Frontier) and New York Air. Texas Air, in turn, owned Continental, and had then acquired Eastern Air Lines. By 1987, Texas Air controlled 20 percent of the domestic airline market, and it had only 20 employees.

By the late 1980s, Lorenzo and his business methods were wearing thin in most quarters, including labor, the banks, other airlines, and the agencies of the federal government. His reputa­tion was preceding him. It was said that the Ber­lin wall, before it began to come down in 1989, bore Lorenzo’s name in red with a slash through it, signifying the negative. The ultimate indus­try rejection came from the bankruptcy order of Judge Burton Lifland, in his termination of Lorenzo’s status as debtor in possession of East­ern. Judge Lifland noted that Lorenzo was “not competent to reorganize” the company. Lorenzo himself seems to have tired of the game. Pickets from Eastern regularly appeared outside of his home and there was some concern for his safety and that of his family.

Jan Carlzon had built SAS (Scandinavian Airlines System) into a niche airline operation within the continent of Europe, competing with the large state-owned airlines. His vision was to beat his European competition to the markets of America now opening due to deregulation. Thus, he began overtures in the middle 1980s to estab­lish a relationship with a United States carrier. After negotiating unsuccessfully first with East­ern, then TWA, he approached Lorenzo with a proposition for a partnership arrangement with Continental, based out of Newark. This led to an agreement in October 1988 for SAS to purchase a minority interest in Texas Air for $50 million, to be followed the next year with another pay­ment of $40 million. Texas Air, in the late 1980s, was suffering hefty losses, and the experience with Eastern after its purchase by Texas Air was draining.

Lorenzo’s reputation had made its way to Europe, where labor interests looked askance at the prospect of the Texas Air-SAS alliance. One European tabloid ran a cartoon depicting Carlzon and Lorenzo in bed together with the caption “It’s fine if you go to bed just don’t go to sleep.” Even Lorenzo had to acknowledge that his repu­tation detracted from the ongoing success and potential of Texas Air holdings. In 1990, Texas Air was reorganized into Continental Air Hold­ings, and in the summer of that year Lorenzo struck a deal with SAS for the sale of his entire personal stake in the company for $50 million.

Seemingly always at the top of his game, and a master of timing, Lorenzo sold out just before Iraq invaded Kuwait in August 1990. The invasion and resulting worldwide reaction spurred fuel costs and depressed airline travel. Continental was unable to meet the financial strain imposed, and filed for Chapter 11 protec­tion again in December 1990, prompting some wags to suggest that Continental was now in “Chapter 22.”

Lorenzo made one last appearance on the airline scene in 1993. His idea was to inaugu­rate a new carrier called “Friendship Airlines.” He made application to the DOT, as required by law, for a Certificate of Public Convenience and Necessity. Since deregulation, this procedure has been used to determine the “fitness” of an appli­cant to conduct an interstate air carrier operation. The DOT denied the application. Lorenzo was finally gone. [14] [15]