Printer Friendly

Eastern's final days: labor relations lessons for managers in other organizations.

Few, if any, contemporary strikes have generated more media attention and public awareness than that involving Eastern Airlines (EAL) and the Transport Workers Unions of America (TWU), Air Line Pilots Association (ALPA), and the International Association of Machinists (IAM). Previous articles have analyzed EAL's labor relations activities from Frank Borman's presidency through the March 1989 machinists' strike, which was honored by Eastern's pilots and flight attendants.(1) This article portrays and analyzes the events occurring after the pilots and flight attendants called off their sympathy walkout in November 1989, through Eastern's announced closure in January 1991. It also draws some labor relations lessons from Eastern's experience for managers in transportation and other industries.

Labor Relations Activities and


Fourth Quarter, 1989

Machinists (represented by the International Association of Machinists) attempted to make the best of the situation when the pilots announced they would return to work November 1989, and the flight attendants (represented by the Transport Workers Union) made a similar announcement shortly thereafter. The IAM appreciated the financial sacrifices made by ALPA and TWU and maintained that "we will [now] have friends on the inside."(2) ALPA strikers, who sought reemployment, could add their names to a recall its established August 1989, after Eastern met its pilot quota when some 600 pilots crossed union picket lines. A new rehire list of flight attendants was also developed.

Eastern management also had some setbacks as the end of fourth-quarter 1989 approached. The airline, which originally planned to emerge from bankruptcy protection on September 1, 1989, had to request a third extension for its reorganization plan. By December's end, EAL operated 829 flights daily at 50 percent load factor. Airlines typically require traffic at 60-65 percent just to break even. Eastern's 1989 losses were 852.3 million(3) ($284 million of which occurred in the fourth quarter), and a management representative explained, "It is easy to forget that we were still in the midst of a campaign to recover traffic lost in the strike. . . . That does not happen overnight."(4)

AFL-CIO President Lane Kirkland claimed that this situation meant management as well as the union lost in the Eastern strike.

We cannot say that the strike has been a success for labor because its objective, a fair and decent solution, has not been achieved. . . . But I do say there's been no victory for the employer. Clearly his objective was to operate at substandard rates, gaining an advantage on other airlines.(5)

The Strike At One Year-Appointment of

Eastern's Trustee

Almost one year to the day of the strike, management received another setback when the appointed bankruptcy examiner, David Shapiro, released a 300-page report indicating that there was substantial evidence in 12 out of 15 cases that Texas Air transferred $285 to $403 million worth of assets (planes, gates, and landing slots, for example) from Eastern without adequately compensating the airline.

Shapiro noted that Texas Air agreed to settle the claims by paying Eastern $380 million and that this settlement was not an admission of liability by Texas Air. ALPA, TWU, and the IAM contended that this report vindicated their strike positions against Lorenzo's "Robber Baron" approach toward upstreaming Eastern's assets. However, Shapiro continued to contend that Eastern did not need a trustee to guide the organization out of bankruptcy.

Management maintained that this action, coupled with an earlier agreement with its unsecured creditors, would enable Eastern to emerge from bankruptcy by July 1, 1990. A few weeks later, however, management revised its loss estimate to $300 million for 1990, some $185 million larger than its January estimate for the year.(6)

This revision indicated that management needed to extend the date for emergence from bankruptcy. The revision also prompted management to ask unsecured creditors such as the unions and manufacturers of aircraft and jet engines (Boeing and General Electric, for example) to settle for 25 cents on the dollar, revised downward from 50 cents on the dollar proposed in January 1990 and full payment with interest proposed in July 1989.(7) Management indicated that this revision was due to tremendous increases in fuel prices and business travelers who continued to shun the airline.(8)

Eastern also asked U.S. Bankruptcy Judge Burton Lifland to impose lower wages on EAL's pilots, thereby saving the company $50 million a year. This request followed a decision by the National Mediation Board not to begin a legal process that would cancel Eastern's existing labor agreement with the pilots.(9)

The unsecured creditors refused this offer and asked Lifland to appoint a trustee to sell the airline.(10) On April 18, 1990, after hearing four days of testimony, Lifland concluded that EAL management was not competent to operate the airline. Related evidence included EAL's financial losses ($1.2 billion) since filing for bankruptcy in March 1989, and the inability of EAL management to make reliable forecasts even over the short run. Lifland did not indicate any publicized opinion or concern regarding the necessity and/or possible effects of a trustee's appointment on Eastern's union-management relationships.

Lifland appointed Martin Shugrue to manage EAL.(11) Shugrue was a former president of Continental Airlines (from which he was ousted by Lorenzo) and before that, an executive of Pan American World Airways. He was associated with large wage and benefit packages given to Pan American employees; one airlines insider observed, "He has a little trouble saying no to somebody he likes."(12) Shugrue also considered himself to be a close friend of two union executives, John Kerrigan of the TWU and E. J. Breen, a principal spokesperson for the airline pilots.(13)

Some analysts were cautiously optimistic that Shugrue's appointment might remove labor relations uncertainty associated with a drop in customers since the machinist's strike had begun thirteen months ago.(14) Eastern's passengers in some cities had experienced taunts from striking machinists,(15) while police at Miami International Airport reported handling 408 cases of strike-associated vandalism between March 1989 and May 1990, including golf balls in automobile gasoline tanks, human feces on sidewalks, and nails thrown at people as well as parking places.(16) Conceivably, Shugrue's appointment would curtail these tensions and resolve the collective bargaining impasse. Securing labor peace would also make Eastern a more attractive acquisition for a unionized air carrier.

However, specific publicized accounts of Shugrue's previous labor relations methods appear nonexistent. Unions leaders eagerly welcomed his appointment more for his being an alternative to Lorenzo than for his specific qualities. Charles Bryan, for example, commented, "It's not just a moral victory. . . . It's a very real victory in terms of taking control out of the hands of Frank Lorenzo."(17)

Bryan also indicated that the machinists' strike would continue until a labor agreement was negotiated and acknowledged that striking employees may not have their jobs back until 1995. Eastern management did not appeal Lifland's trustee decision in U.S. District Court. Philip Bakes resigned his $325,000-a-year position as president of EAL within two days of Shugrue's appointment, noting that Shugrue ". . . will assume all duties normally associated with the position of chief executive of Eastern Airlines . . ."(18)

Shugrue accepted the job, realizing that it more than any of his other previous assignments relied on "communication and diplomatic skills . . . to resolve the conflicting emotional interests, here on the property."(19) He informed airline pilots, "In twenty-two years, I have never questioned a captain's judgment. I will never do that, and no one who works for me will either."(20)

However, this potential for collective bargaining resumption and resolution appeared to be diluted after Shugrue assumed office. Eastern's full-page advertisements in June stressed its "100 days" campaign, which pledged the organization "to be a little better every day." Potential efforts to resolved collective bargaining impasses were obscured by an emphasis on "human relations." Shugrue noted in the advertisement:

We are in the human relations business. And if we don't take care of each other, how are we going to take care of our customers? So if there's one thing I can promise and deliver on, it is that the human equation will be paramount at Eastern. If that thinking is a change from what you've experienced before, so be it. That's the way we're going to do it. Period.(21)

At least one of the union presidents at Eastern, Mary Barry, who represented flight attendants, labeled this approach as little more than rhetoric. "There hasn't been a concerted effort to make things better . . . I don't think you'll find a great number of people saying there have been dramatic changes."(22)

Bargaining Stalemate: Third Quarter, 1990

Collective bargaining sessions between Eastern and the Airlines Pilots' Association occurred after Shugrue's appointment. No such formal talks occurred with the machinists. Management and ALPA representatives disagreed over recall rights for about 1,400 ALPA members who had been off the job since striking in sympathy with the machinists in March 1989. Only 90 pilots were recalled after ALPA called off its job action in November 1989.(23) Company officials wanted first job recall going to union members who offered to return to work in the summer of 1989, but were unable to do so because available positions were filled by replacements.(24)

In June 1990, ALPA leaders instituted two procedures to remove some bargaining barriers while at the same time solidifying fragmented membership. They first granted "amnesty" to the 600-plus pilots who returned to work August 1989, some three months before ALPA ended its sympathy walkout supporting striking machinists. Pilots charged with violating union strike rules were given the option of retroactively resigning their membership. ALPA official Skip Copeland indicated that these union-initiated procedures would "sweep clean the threat of union disciplinary action and fines" against pilots who did not honor ALPA's job action for its duration, and "provide a solid foundation for peaceful labor relations at Eastern."(25)

In July 1990, Eastern management withdrew its previous request before Judge Lifland to impose a new (and lower) wage scale and labor agreement on the pilots' union. However, a bargaining impasse was declared when the union rejected the company's final offer. Disputed bargaining issues were the returning of non-working Eastern pilots to the company and the order of preference they should receive in going back to work. A federal mediator proposed arbitration of the bargaining impasse; however, Eastern refused this alternative, setting in motion a 30-day cooling-off period. Pilots could strike after this period expired, although a company spokesperson indicated that the large number of nonunion pilots would make a strike vote a "nonevent."(26)

Union-management differences again surfaced in July when EAL and ten of its management employees were charged in a sixty-count indictment with conspiracy in falsifying maintenance and safety records to avoid costly flight delays and cancellations. The grand jury indictment represented the first time an airline had faced criminal charges involving violations of maintenance procedures mandated by the Federal Aviation Administration.(27) It resulted after a ten-month investigation of EAL's maintenance activities between July 1985 and October 1989 and alleged that(28)

* Eastern failed to perform mandatory maintenance

on its jets and, to avoid costly flight

delays and cancellations, falsified records to

make it look as if the work had been done.

* Those indicated falsely signed their own

names, forged others' names, and signed

fictitious names to maintenance records.

* Employees installed defective or untested

parts, including cockpit instruments, in jets

before takeoff.

* Employees gave false testimony to the Federal

Aviation Administration and falsified

FAA records.

If convicted on all counts, Eastern would face a maximum fine of $30 million and each indicted individual could face up to five years in prison and $250,000 fines for each count. The penalties' seriousness mirrors the allegations. In Atlanta, EAL was charged with knowingly installing faulty cockpit gauges on jets; also other equipment such as landing gear, radar and fuel systems, and automatic pilots were said to have been improperly maintained.(29) The falsification charges involved other critical maintenance items, including ". . . internal inspections of jet engines, of devices designed to detect engine damage, stress, fatigue and cracking, lubrication of flaps, control systems, and landing gear, and procedures for removing contaminants from fuel tanks."(30)

Some union officials publicly cheered the indictments. For example, IAM Vice President John Peterpaul was quoted as stating that the indictment "vindicates the machinists and striking workers at Eastern."(31) Union officials claimed the indictment reflected the "tyrannical" management style of Frank Lorenzo, who pressured - even transferred - managers who failed to get the airplanes out on time. They suggested to the public that their organizations' strikes consistently protested this approach, which also placed customers in peril.

Yet at least some of these safety problems were likely influenced, if not in part caused, by union intransigence and militance. Some unionized mechanics and pilots insisted on following all rules to the letter, a practice of "legal sabotage," to disrupt the EAL's flight schedule as part of a bitter battle with management.(32) Shugrue's response to the indictment avoided labor-management issues. He maintained, "The ultimate test is a personal one. . . . I have a wife and four kids, and they fly Eastern."(33) Management attempted to counter the safety issue with full-page advertisements placed in major newspapers. No mention was made of potential union-management joint safety concerns and related approaches. The advertisement instead stressed that Eastern was the most inspected airline in the United States; thus ". . . if Eastern wasn't meeting the highest government standards of safety we would not be flying."(34)

July's collective bargaining efforts were further blunted if not demolished by worsening financial estimations. Lorenzo had predicted four months earlier that Eastern's losses for 1990 would be $330 million. Shugrue enlarged this forecast to $550 million. He also indicated that an aggressive campaign to attract more business travelers could generate an organizational profit by 1991. He suggested why marketing considerations were more immediate and significant than labor-management relationships in achieving company solvency: "I don't have a magic wand to make bad labor relations disappear overnight."

George Kourpias, international president of the IAM, countered that "Shugrue took his time" in effecting his priority of establishing labor peace. Kourpias, moreover, contended that Shugrue "sealed Eastern's fate" when he insisted that permanent strike replacements remain on the payroll, thereby preventing strikers from returning to work.(36)

Shugrue's labor relations approach could have been checked by a federal judge who stated that the company was wrong when it replaced pilot strikers desiring an organization return with subsequently hired trainees. The decision recognized that an employer can have business justifications for permanently replacing strikers, but this right does not extend to trainees since these individuals cannot fly revenue-raising flights until they have completed the training program. Thus, trainees would not ". . . fill the void left by the striking pilots, at least until some later date."(37) Management did not regard this decision as an impetus for resolving collective bargaining differences with ALPA. It instead indicated that it would appeal the decision, a process ". . . likely to take some time."(38)

In August, Frank Lorenzo announced that he was stepping down as chairman of Continental Airline Holdings Inc. He earned some $30 million by selling his financial interests in Continental Holdings Inc., formerly Eastern's parent, Texas Air, to Scandinavian Airlines System.(39) E. J. Breen of ALPA gave a likely union assessment of the situation:

We drove the son of bitch out of the industry. . . . [Lorenzo would be remembered] as a tyrant, a failed experiment who walked away with a lot of money and walked away from a lot of failed lives and careers.(40)

Yet Breen and other ALPA officials did not seize Lorenzo's resignation as an opportunity to publicly encourage collective bargaining efforts with Shugrue. While negotiations were not resumed, the union did not call a strike when the 30-day cooling-off period, initiated in July, expired.

Eastern management also agreed not to impose lower wages or work rule changes when the cooling-off period expired. However, a few days later the bankruptcy court gave EAL permission to reduce pilots' wages by as much as 20 percent, which could save the airline up to $9 million a month. Judge Lifland explained the court's action by stating that "It's clear that prompt cost reductions, including pilot labor-cost reductions, are essential if an imminent liquidation is to be avoided."(41) Although most of the 1,900 pilots flying for EAL at this time were not union members, they were represented by the pilots' union in related court proceedings. ALPA contended that Eastern relied on the bankruptcy court to modify the labor agreement rather than impose the wage reductions itself to avoid a backlash among the working pilots hired after ALPA's March 1989 walkout.(42)

Eastern's Final Months: Labor Relations

Obviation By Marketing and Financial


Management's attention remained on its marketing tactics, and its "100 days" promotion was extended to enable every business traveler to pay a coach price and fly first class. Related full-page advertisements stressed customer comfort and value; actual or even potential labor relations progress was not mentioned.(43) The marketing approach did apparently attract customers. By November 1990, EAL handled 18,000 passengers a day at its highest fares. This figure was 6,000 more than Eastern expected at this point but some 3,000 less than the airline needed. Shugrue stated:

I don't intend to break up the company. . . .A viable Eastern is in everyone's best interest and we have a real chance to produce one here, given the time.(44)

Eastern's unsecured creditors were not impressed with the passenger statistics, however, and urged in mid November that Judge Lifland begin "a prompt and orderly liquidation" of the airline.(45) A lawyer for the creditors noted that EAL's financial projections ere continually and increasingly miscalculated and that Shugrue, unlike the creditors, ". . .can easily believe in miracles because it is not his money."(46) Shugrue countered that no one is well served in liquidation, and wanted Lifland to release $30 million from the $257 million held in escrow to maintain operations.(47) This hearing coincided with Eastern's third-quarter 1990 earnings statement, which indicated the airline lost $252.8 million, bringing its total loss for the year to $424.9 million.(48)

On November 14, Judge Lifland determined that Shugrue had a reasonable basis for his business judgment. Lifland stated that "there has been some kind of turnaround" at Eastern sufficient to show "some prospects" of recovery. Lifland also maintained that the creditors' committee had failed to demonstrate that its business judgment was "superior to that of the trustee."(49) He stressed that the consumers "who have scrimped and saved for tickets" were the major reason he kept the airline flying.(50) Progress, or the lack thereof, in union-management relations appeared to be irrelevant in the judge's decision. He initially assigned $15 million to Eastern and established December 3, 1990 as the review date for determining if the released of additional funds would be appropriate.

Shugrue was concerned that being kept on a short financial leash would result in continual, publicized uncertainty, and related drops in passenger levels each time the airline returned to court for funds. Lifland must have been impressed with this logic because he departed from this original decision and allowed EAL up to $135 million to maintain operations through the first quarter of 1991.(51)

Collective bargaining remained an unpublicized event throughout the fourth quarter, 1990. The only exception occurred in late December when a U.S. Court of Appeals upheld a district court's finding that Eastern had no legitimate business justification for filling pilot positions with trainees instead of ALPA members who had offered to return to work. The Appeals Court noted that Eastern's practice "discourages employees from exercising their rights to organize and strike"; "strikes a fundamental blow to the union and the collective bargaining process"; and "undermines one of the [Railway Labor Act's] fundamental central goals: the preservation of the employer-employee relationship both during and after the strike."(52)

Randolph Babbit, ALPA's president-elect, called the court ruling "a major victory for organized labor." He maintained that as many as 800 union pilots could obtain reinstatement and back pay under the decision.(53) Eastern responded that, as a "gesture of compliance,"(54) it would begin January 15, 1991, to rehire about sixty pilots who struck the airlines nearly two years ago on a seniority basis. Eastern President Bob Gould indicated that this action "allows us to move forward in a positive manner to solve our remaining differences."(55) Yet Eastern also indicated that it would appeal the decision.(56)

Gould's prediction of bargaining impasse resolution was made irrelevant by EAL's shutdown on January 18, 1991. Shugrue actively and unsuccessfully pressured potential purchasers of Eastern during the first two weeks of 1991.(57) On January 16, Eastern's executives decided to terminate operation of the airline at midnight on January 18. Attention shifted to the unsecured creditors who were owed $1.4 billion. Frank Lorenzo in the early days of Eastern's bankruptcy was fond of reciting the value of Eastern's assets and pledging that creditors would be paid in full. Now, creditors wondered if they would receive anything as losses since the beginning of the strike reached $1.5 billion.(58)

Law firms involved in Eastern's bankruptcy and labor relations matters represent and exception to the creditors' dilemma. Through June 1991, they had received $66.9 million of the $85.7 owed for their services. David Shapiro, the bankruptcy court's examiner and advisor, has been paid $1 million of the $1.1 million owed him while his law firm has received $5.9 million of a total bill of $6.3 million.(59)

Union and management responses to Eastern's announced closure were ironical. E. J. Breen and Frank Borman agreed that Eastern's demise was analogous to the death of a loved one. Borman also agreed with Martin Shugrue and Charles Bryan that "tragedy" represented the best single-word description of the event. However, Borman and Bryan did disagree over the meaning of "tragedy." Borman observed,

The real tragedy . . . is the fate of the nonunion people who were so very loyal. No one gave it a harder effort than those people did, and they're the people who will be hurt the most.(60)

Bryan placed the "tragedy" in a union-management perspective: "If there's a lesson to be learned by corporate America, it proves that union-busting is bad business."(61) He also indicated that with hindsight he would not have changed his strike actions to possibly prevent this situation from occurring: "I regret that the strike had to happen, but there was absolutely no choice, and I have yet to meet a striking machinist who didn't think so."(62) Bryan might have been responsible for the final irony in Eastern's union-management relationship when he called off the machinists' strike one week after Eastern's shutdown. He noted that a strike is automatically terminated whenever a company goes out of business; moreover, picket line duty was stopped to "get a positive resolution of this."(63)

Bryan hoped that a sizeable portion of EAL's operations might be sold to another carrier and indicated that he was ready to negotiate a labor settlement with the new employer since "we no longer have the problem of replacement workers." When the shutdown came, approximately 1,000 ALPA members continued to seek rehire while all TWU members had been previously offered rehire.

Judge Lifland scheduled an auction of EAL's assets such as routes, gates, and landing slots a month after the announced closure. Several "strong" airlines enthusiastically participated in this event, considered unprecedented for the industry.(64) Delta Airlines bid more than $100 million for planes and assets in New York, Washington, and Atlanta, while United Airlines bid $28.3 million for Eastern's gates and slots at Washington National Airport.(65)

In March 1991, EAL's parent, Continental Holdings, Inc., announced a fourth-quarter 1990 loss of $2.25 billion (including $1.8 billion in one-time writeoffs from its bankruptcy case and the Eastern liquidation). It was the largest quarterly loss in American aviation history.(66) The Department of Labor also made an announcement in March that a $1 million grant was furnished to help laid-off Eastern employees retrain for new positions.(67)

Approximately 1,600 employees were still working at Eastern 100 days after its announced closure. About 1,000 maintained Eastern planes, and most of the rest were involved in monitoring or selling EAL's assets.(68)

At least two labor issues remained after flights ended: retirees' insurance benefits and pilot trainees. The first issue arose when Shugrue asked the bankruptcy court on May 3, 1991 to terminate retiree medical benefits, which he said were costing the estate $3.6 million a month by August 1. After related hearings, Judge Lifland denied Shugrue's notion and indicated that retirees represented by ALPA, TWU, and IAM would for the first time contribute ($75 a month) to the plan. Moreover, the Eastern estate would contribute $145 a month, a figure that could rise to $170 if plan costs rose above projections. The current level of medical benefits was reduced on July 1, 1991 although the plan would continue through 1991.(69)

ALPA has continued to seek back pay for striking pilots who could not assume the jobs for replacement pilots who were in training.(70) Management has recently asked the Supreme Court to overturn the previously discussed U.S. Court of Appeals decision which generated the back pay liability.(71)

Implications and Possible

Managerial Lessons

The events reviewed in the preceding discussion suggest several labor relations lessons for management in similar organizations and/or circumstances. Three such lessons attributed to Martin Shugrue's management, and three others independent of Shugrue's tenure, are provided.

Shugrue's Collective Bargaining


Shugrue faced a difficult if not impossible task when he became Eastern's trustee. One observer commented, "Saving Eastern would have taken more than first-class discounts and Marty Shugrue's pep rallies; it would have taken an act of God, providing God had a $3 billion line of credit."(72) He also inherited a hard-line labor relations atmosphere, a situation discussed later in this article.

Perhaps Shugrue's largely reactive labor relations posture was also due to adverse events at Eastern perceived to be more pressing. He was no doubt concerned about adverse publicity regarding declining financial figures, incorrect revenue and creditor payment estimations, alleged safety irregularities, and judicial decisions contending his organization was wrong in replacing pilot strikers with newly hired trainees.

The conditions notwithstanding, Shugrue's first miscalculation occurred when he did not seize the best if not only opportunity to resolve the collective bargaining impasse; namely, his appointment as trustee. Shugrue's appointment as trustee represented a major face-saving opportunity for involved union officials, who could claim a strike "victory." The long-sought union objective of wresting control of Eastern from Lorenzo was attained. Shugrue probably could have leveraged this situation, along with his friendship with some union officers associated with Eastern, if he had even so much as suggested that management would subsequently approach collective bargaining (activities and issues) in a different fashion. These activities never occurred as marketing concerns received top priority, a situation representing Shugrue's second miscalculation.

Shugrue did not realize that labor relations peace and progress represented an essential marketing, customer attraction aspect, particularly when Eastern's flights could not be assumed safe. Some $23 million was spent on advertisements featuring Shugrue, an act described by one critic as "ego polishing."(73) Customers were thought to be interested in being more comfortable in aircraft while at the same time paying lower prices for this service. This assumption might have been correct, although customers were also concerned about airline safety and dependability.

Eastern management had publicly indicated some five months before Shugrue's appointment that the strike and attendant violence including strikers' heckling of customers resulted in fewer passengers. Potential passengers' concern was likely intensified when some managers were indicted for alleged safety violations.

Shugrue could have also learned from previous strike experience at a competitor, Greyhound Lines, Inc. This strike was marred by dozens of shooting incidents, more than 100 bomb threats, and other violence.(74) Management officials at Greyhound contended this publicized labor relations acrimony sharply reduced revenue for the first quarter 1989. Indeed, Greyhound reported a $55.8 million loss for this period,(75) which ended by only weeks before Shugrue's appointment as Eastern's trustee.

Eastern's marketing programs stressing lower fares and more passenger attention/comfort may have interested potential customers. Yet unsettled union-management relations subtracted from, if not obliterated, Eastern's advertised advantages.

Shugrue committed a third, related miscalculation when he failed to publicize a management collective bargaining spokesperson and subsequent activities/progress. He publicly placed faith in his pilots and "human relations" efforts. Yet he never expressed any public confidence or optimism regarding collective bargaining and the management and union officers involved in the process. Shugrue became by intention or default the spokesperson for all of Eastern's activities, including labor relations.

Collective bargaining should not take place in public. The media can distort union-management positions. Moreover, as evidenced in Lorenzo's tenure, comments made in public can unnecessarily harden bargaining stances, thus precluding subsequent maneuvering and compromise efforts.

However, collective bargaining efforts should be acknowledged in public, particularly when the organization's future is in doubt. Again, Shugrue could have drawn from Greyhound's experience where its president increased striker resolve when he told a press conference, "the strike is over, or at least it's irrelevant." One union member responded, "with talk like that, you could see a lot more violence."(76)

Management could probably have resolved at least minor collective bargaining issues if it so desired. Union counterparts carried some potential for less significant bargaining accomplishments because they represented EAL's biggest unsecured creditors. They were owed about $300 million because of unpaid wages and unused vacations.(77) The TWU, which represented the flight attendants, had begun voting on a new labor agreement calling for reduced benefits and elimination of most vacations in 1991, days before Eastern's shutdown announcement.(78) Pilots also indicated cooperative potential since they had accepted wage/benefits concessions in eleven of its last thirteen labor agreements,(79) and had begun discussion of wage concessions for 1991.(80)

Management did not even symbolically evidence interest in collective bargaining. For example, there were few if any pictures, joint statements, or news conferences involving union-management officials. Indeed, the only evidence of management's interest in collective bargaining during Shugrue's tenure, the announcement that some sixty striking pilots would be rehired, occurred three days before management announcement it would cease al of Eastern's operations.

Eastern's Likely Labor Relations Issues for

Other Managers

The following three lessons reflect but are not limited to Shugrue's tenure at Eastern. The first lesson, for example, integrates and extends Shugrue's previously discussed miscalculations: If management desires to reverse a legacy of hardline labor relations, it must take proactive initiatives with union officials.

The first part of this statement assumes Eastern management desired at some point to resolve its labor relations impasses, which stretched over a two-year period. This assumption appears plausible because if it costs more to disagree with a union than agree, then management will seek and likely accept a negotiated settlement. EAL management's precise costing efforts and calculations have not been publicly revealed. However, its disagreements costs associated with the bankruptcy proceedings and organizational closure had to be greater than its agreement costs.

Much has been written about the internecine standoff between Shugrue's predecessor, Frank Lorenzo, and Bryan of the machinists;(81) indeed, their relationship was characterized as being like "two scorpions in the bottle." Of course, union officials must share some responsibility for this| situation. According to former president Bakes, EAL unions destroyed public confidence in Lorenzo and Eastern before the Texas Air acquisition was completed and while the Frank Borman management team was still in place.(82) Union officers' cheering of subsequent EAL problems such as safety violations did not help ease tensions.

Lorenzo became a symbol that persuaded many employees who were adverse to unions and strikes to change their minds. One such employee, a pilot, indicates how he was converted to union intransigence:

. . .my frustration, anger and dismay [grew] over the last several years as I struggled to meet what I considered to be my responsibility to the passengers who flew with me. . . .I fought a corporate mentality more obsessed with selling off parts of our company and creating employee dissension than running an airline. I fought with supervisors over generators, altimeters, parts missing, parts broken, inaccurate weights and improper dispatches. I could not understand why they did not seem as concerned about the welfare of the 200 men, women and children in the Boeing 727 as I was.(83)

This managerial attitude and legacy of union-management mistrust remained even after ALPA terminated its job actions in November 1989. Some felt that Lorenzo missed this opportunity to be "gracious" - to reconcile a work-force after this union loss.(84)

Even Phil Bakes, former president of Eastern, realized that management continually erred when it requested temporary labor cost reductions as if competition were temporary while at the same time promising future wage increases. This situation created ill will among EAL's unionized employees, who could seldom trust management to deliver what was promised. Bakes also faulted Lorenzo and himself for not clearly communicating the need for cost reductions to employees and for not being more accessible to unions and employees during the buyout attempts at Eastern.(85)

EAL's continued reliance on strike replacements soured if not eliminated collective bargaining relationships between union and management officials. George Kourpias of the IAM noted after Eastern's closure that managers of other companies should realize that this bargaining tactic might be inappropriate:

The day that Eastern went bust is a sad comment about the society we live in. We are the only Western nation that allows companies to hire permanent replacements to take strikers' jobs. If corporations think labor will allow them to exploit that fact, they should first study the Eastern scenario.(86)

Hiring strike replacements can break the union if operations continue without many if any union members-strikers returning to work. Yet EAL's experience illustrated that this action can also result in legal problems for management and additional labor relations adversity, as indicated by the second lesson: Weak and fragmented unions typically offer more disadvantages than advantages to management.

Unions were fragmented and seriously weakened by events surrounding strike replacement considerations. Related controversies no doubt influenced a change in ALPA's national leadership(87) and prompted a serious local union rival challenge led by two pilots who did not walk out with other ALPA members in March 1989.(88)

Chinks in the pilots' union organizations at national and local levels were magnified by three categories of pilots who crossed the picket lines:

* Working pilots who crossed the picket line

on the first day of the strike. They call

themselves "Day One Pilots"; the union

calls them "Golden Scabs."

* Pilots who cross the picket line later, dubbed

"Crawlbacks" by everybody and "Bavis

Scabs" by the union, in honor of Jack Bavis,

the union leader who encouraged their return

and was ousted soon thereafter.

* Newly hired working pilots, called "New

Hire Scabs" by the union.(89)

Former pilots who offered to return to work were also divided into two factions based on when they offered to return to work: August versus November 1989. The first group was on a preferential recall list, the latter group was labeled "unemployed."

A weak union does not facilitate collective bargaining for two reasons: Union officers faced with this situation typically devote much time and attention to ameliorating factions' priorities and quelling serious political rivals. Also, management cannot be sure that union leaders can speak for the union membership in bargaining proposal formulation and resolution. "Agreements" pertaining to specific issues or general principles/strategies reached between union and management negotiators over the bargaining table can subsequently unravel when an unruly membership did not understand and/or desire related terms/activities in a consensual fashion.

Management faced with a weak union has two other alternatives: unilateral imposition of terms after the union leaves and/or is decertified; and governmental determination of labor agreement content. The first alternative will likely take too much time, particularly if management is subject to short-term financial pressures. The second alternative is unpredictable and unwise, as evidenced by the final lesson: Governmental agencies can weaken physically and mentally collective bargaining between management and union officials by prolonging the process without shaping its results. One such agency, the National Mediation Board, became involved in EAL negotiations for fourteen months after the contract expired. Eastern's former president, Bakes, blamed this agency for acrimonious and unsuccessful collective bargaining.

This transformed the typically tense atmosphere of collective bargaining into a tinder box waiting to explode. It did in March 1989, after the agency belatedly released the parties from the straitjacket of ineffective mediation.(90)

Congress repeatedly expressed concern about the Eastern situation but was unable or unwilling to pass legislation which would shape the terms of the labor agreement. Various judicial levels also did not become involved in the actual and/or future content of the labor agreement. Related decisions pertained to a bargaining tactic (strike replacements) and did not consider specific bargaining issues such as wages. Moreover, the final appeal and remedy of these decisions were still pending some six months after Eastern's closure.

Bankruptcy court judge Burton Lifland represented the most prominent government official in EAL's union-management negotiations since his decisions enabled EAL to spend enormous funds estimated between $400(91) and $685(92) million during bankruptcy proceedings. His financial largess and other labor relations decisions were subject to criticism.(93) One observer suggests Lifland erred when he catered to public policy (e.g., keeping Eastern alive for the customers who were not claimants) instead of legal strictures,(94) while another claims he was personally biased in Eastern's favor.(95)

He did affect one labor agreement provision when he gave Eastern officials permission to reduce pilots' wages. Yet he never appeared to explicitly consider union-management relationships in his bankruptcy court decisions. Hence, this lesson suggests that decisions made by "outsiders" (courts and government agencies) on labor relations issues neither enhanced union-management relationships nor resolved collective bargaining differences.

Overall, Eastern's final days reflected a continuously deteriorating labor-management relationship which originated under Frank Borman's unilateral extension of wage concessions in 1985. The personalities of Borman, Lorenzo, and Bryan galvanized thousands of employees into an "us versus them" mentality. The strike was based on narrow and vindictive principle which did not permit flexibility, compromise, or face saving.

Other transportation executives should realize from Eastern's experience that destructive labor-management relationships can adversely affect an organization's financial and marketing concerns. Moreover, this situation can only be revered by the parties themselves, and not through governmental agencies.


(1) Kenneth Jennings, "Union-Management Tumult at Eastern Airlines: From Borman to Lorenzo," Transportation Journal, 28 (Summer 1989), pp. 13-27; and Kenneth Jennings, "Peripheral Collective Bargaining at Eastern Airlines, Transportation Journal, 29 (Spring 1990), pp. 4-19. (2) "Eastern Pilots, Attendants Face Delays in Reclaiming Jobs," Bureau of National Affairs Inc., Daily Labor Report, Number 226 (November 27, 1989), pp.3-4. (3) Roger Lowenstein, "Caution: Holes in Texas Air-Eastern |Wall,'" Wall Street Journal, March 19, 1990, p.4 C-1. (4) "Kirkland: No Winner in Strike At Eastern," Miami Herald, February 20, 1991, p. 4-B. (5) Ibid. (6) "Eastern Forecasts Increase in Losses, Delay in Paying Creditors," Florida Times Union, March 28, 1990, p. D-5. (7) For specific details concerning the January 1990 and March 1990 proposals see "Eastern Creditors Reported to Reject Latest Debt Plan," New York Times, April 4, 1990, p. C-1. (8) Bridget O'Brian, "Eastern Air's Unsecured Creditors Spurn Latest Offer, Press for Naming of Trustee," Wall Street Journal, April 16, 1990, p. A-5. (9) Agis Salpukas, "Eastern's Fate Shifts to Judge," New York Times, April 15, 1990, p. C-5. (10) "Eastern Creditors Committee Pushes to Have Trustee Appointed to Run Airline,"Bureau of National Affairs Inc., Daily Labor Report, Number 73 (April 16, 1990), p. A-17. (11) "Trustee Named to Take Helm of Eastern Air," Wall Street Journal, April 23, 1990, p. A-3. (12) Unnamed airline insider as quoted in Thomas C. Haynes, "Trustee Has Experience, and Plenty of Problems," New York Times, April 20, 1990, p. C-5. (13) Ted Reed, "King Shugrue," Miami Herald-Business Monday, June 11, 1990, p. 15. (14) Agis Salpukas, "Court Trustee Urged for Eastern," New York Times, April 11, 1990, p. C-1. (15) Eric Weiner, "For Eastern's Public Guarded Optimism," New York Times, April 20, 1990, p. C-J. (16) Patrick May, "Strike Vandals Taking A Toll in Pain, Damage," Miami Herald, June 17, 1990, p. 1-A and 10-A. (17) "Texas Air Will Not Fight Trustee Decision," Florida Times-Union, April 20, 1990, p. C-7. At least one governmental agency, the Pension Benefit Guarantee Corporation, also supported Shugrue's appointment. The agency was concerned about Eastern's unfunded pension liabilities. For related details see "PBGC May Take Action Soon on Eastern's Underfunded Plans," Bureau of National Affairs, Inc., Daily Labor Report, Number 74 (April 17, 1990), pp. A-7 and A-8; Bureau of National Affairs Inc., Daily Labor Report, Number 78 (April 23, 1990), p. A-3; "PBGC, Eastern Reach Agreement Resolving Pension Fund Issues," Bureau of National Affairs, Inc., Daily Labor Report, Number 182 (September 19, 1990), pp. A-11 and A-12; and Agis Salpukas, "Eastern Pact With Agency Assures Pension Payments," New York Times, September 19, 1990, p. C-1. (18) "Eastern President Resigns," Florida Times-Union, April 21, 1990, p. C-6. (19) Reed, "King Shugrue," pp. 12 and 13. (20) Ibid, p. 15. (21) USA Today, June 25, 1990, p. 9-A. (22) Bridget O'Brian and Amanda Bennett, "Eastern Air Seeks Fast Fix for Labor Ties," Wall Street Journal, July 23, 1990, p. B-5. (23) "Eastern Rejects Proffer of Arbitration; ALPA Announces Balloting on Strike Vote," Bureau of National Affairs Inc., Daily Labor Report, Number 132 (July 10, 1990), p. A-13. The TWU was mainly concerned about Eastern's reluctance to formulate recall procedures for its flight attendants. For related details see Michael Huber, "Eastern Asks Court to OK Hiring Policy," Miami Herald, November 15, 1989, pp. 1-C and 2-C. (24) "Negotiators for ALPA and Eastern Discuss Process for Recall of Pilots," Bureau of National Affairs, Inc., Daily Labor Report, Number 101 (May 24, 1990), p. A-10. (25) "ALPA Votes Amnesty for Most Pilots Who Crossed Picket Lines at Eastern," Bureau of National Affairs, Inc., Daily Labor Report, Number 117 (June 18, 1990), p. A-10. (26) "Cooling Off Period Is Set at Eastern," New York Times, July 10, 1990, p. C-4. (27) The FAA, however, had previously imposed $12 million in fines against Eastern during the past three years, of which $1 million had been paid. "Eastern Airlines Charged with Falsifying Maintenance Records," Bureau of National Affairs, Inc., Daily Labor Report, Number 144 (July 26, 1990), p. A-10. (28) Doug Carroll, "Eastern, 10 Execs Charged," USA Today, July 26, 1990, p. 2B. Neither Mr. Lorenzo nor Mr. Bakes were mentioned in the indictment. (29) Eric Weiner, "Eastern Airlines Indicted in Scheme Over Maintenance," New York Times, July 26, 1990, p. 1. (30) "Eastern Airlines Charged," p. A-10. Similar charges were repeated in December 1990. The government contended that EAL management had doctored safety logs as recently as November 1990. Shugrue countered that the government has a "vendetta" against him and Eastern, USA Today, December 17, 1990, p. 1-B. (31) Eric Weiner, "Charges Deal Another Blow to Eastern," New York Times, July 27, 1990, p. C-1. (32) Agis Salpukas, "Difficulties at Eastern Traced to Pressure to Avoid Delays," New York Times, July 31, 1990, p. A-1. (33) Weiner, "Charges Deal," p. C-1. (34) USA Today, July 27, 1990. p. 7-A. (35) Eric Weiner, "At Eastern, Optimism Despite A Glum Report," New York Times, July 14, 1990, p. 19. (36) "Don't Forget Lorenzo," USA Today, February 11, 1991, p. 11-A. (37) "Court Finds No Business Justification for Replacement Status for Eastern Trainees," Bureau of National Affairs, Inc., Daily Labor Report, Number 151 (August 6, 1990), p. A-3. (38) "Court Gives Support to Pilots," New York Times, August 3, 1990, p. C-4. (39) For related details see Eric Weiner, "Lorenzo to Leave Airline Industry in Deal Selling Continental Stock," New York Times, August 10, 1990, pp. A-1 and C-20; Bridget O'Brian, "Bailing Out: Lorenzo Plans to Sell Continental Air Stake to Scandinavian Air," Wall Street Journal, August 9, 1990, pp. A-1 and A-6; and, "Unions Elated by Lorenzo Resignation, But Say Action Should Have Come Sooner," Bureau of National Affairs Inc., Daily Labor Report, Number 155 (August 10, 1990), pp. A-8 and A-9. (40) Michelle Osborn and Doug Carroll, "Lorenzo: Visionary Turned |Lighting Rod.'" USA Today, August 10, 1990, p. 7-B. (41) Eric Weiner, "Eastern Can Trim Pilot's Pay," New York Times, August 15, 1990, p. 1-C. (42) "ALPA Leaders at Eastern Call Meeting Following Court Approval for Pay Cuts," Bureau of National Affairs, Inc., Daily Labor Report, Number 159 (August 16, 1990), pp. A-11 and A-12. (43) New York Times, September 17, 1990, p. A-15, see also Doug Carroll, "Eastern Airlines: 100 Days and Still Flying," September 12, 1990, p. 7-B. (44) Doug Carroll, "Eastern Strategy Luring Business Fliers," USA Today, November 7, 1990, p. 1-B. (45) Agis Salpukas, "Eastern Creditors Urge Liquidation," New York Times, November 14, 1990, p. C-1; Bridget O'Brian, "Eastern Airlines' Unsecured Creditors Ask Judge to Shut Down the Carrier," Wall Street Journal, November 14, 1990, p. A-2; and "Creditors' Group Urges Court to Liquidate Eastern Airlines," Bureau of National Affairs Inc., Daily Labor Report, Number 221 (November 15, 1990), p. A-13. (46) Michael Huber, "Judge Was in Mainstream, Experts Say," Miami Herald, February 3, 1991, p. 1-G, and "Judge Grants Eastern Trustee $135 Million to Cover Costs," Bureau of National Affairs Inc., Daily Labor Report, Number 229 (November 28, 1990), pp. A-7 and A-8. (47) Agis Salpukas, "Eastern Chief Argues Against A Shutdown," New York Times, November 15, 1990, p. C-1. (48) "Judge Gives Eastern Cast Infusion," Florida Times Union, November 15, 1990, p. C-11. (49) "Eastern Airlines Averts Liquidation Order, But Bankruptcy Judge Puts Curbs on Spending," Bureau of National Affairs, Inc., Daily Labor Report, Number 222 (November 16, 1990), pp. A-1 and A-2. (50) Michael Huber, "Profile: Technically Excellent, Arrogant," Miami Herald, February 3, 1991, pp. 1-G and 3-G. (51) Bridget O'Brian, "Eastern Air Bid for $135 Million Cleared by Court," Wall Street Journal, November 28, 1990, p. A-3; Agis Salpukas, "Court Gives Eastern An Escrow Aid," New York Times, November 28, 1990, p. A-3. (52) "Treating Trainees As Replacements A Blow to Bargaining, Appeals, Court Says," Bureau of National Affairs Inc., Daily Labor Report, Number 247 (December 24, 1990), pp. A-11 & A-12. (53) "Appeals Court Upholds Funding That Eastern Trainees Got Unfair Priority," Bureau of National Affairs, Inc., Daily Labor Report, Number 246 (December 21, 1990), p. A-6. (54) "Eastern Says It Will Take Back 60 Pilots from ALPA Recall List," Bureau of National Affairs Inc., Daily Labor Report, January 7, 1991, p. A-7. (55) "Eastern Agrees to Recall 60 Union Pilots," Florida Times Union, January 2, 1991, p. A-5. (56) "Eastern Says," p. A-7. (57) For related details of these efforts see Agis Salpukas, "Liquidation Is Seen Near for Eastern," New York Times, January 16, 1991, p. C-1; and Judith Valente and Bridget O'Brian, "Eastern Airline Faces Shutdown," Wall Street Journal, January 15, 1991, p. A-2. (58) Agis Salpukas, "Eastern Airlines Is Shutting Down And Plans to Liquidate Its Assets," New York Times, January 19, 1991, p. 1. (59) Scott Thurston, "Several Firms Have Collected $67 Million in Fees Thus Far," Atlanta Constitution, July 31, 1991, p. C-8. (60) Ted Reed and David Satterfield, "EAL Passengers Scurry to Find Other Flights," Miami Herald, January 20, 1991, p. 1-A. (61) Ibid. (62) Salpukas, "Eastern Airlines Is Shutting Down," p. 1. (63) "The End: Machinists Call Off Strike Against Eastern" Miami Herald, January 25, 1991, p. 1-C. This announcement also indicated that the union would stop paying $100 weekly picket duty which had been given to some 7,500 members. (64) "Strong Airlines Gather at Auction of Eastern," Miami Herald, February 5, 1991, p. 6-B. See also Agis Salpukas, "An Auction Is Planned for Eastern," New York Times, February 1, 1991, p. C-1. (65) Ted Reed, "Bidders Pick Through Pieces of Eastern," Miami Herald, February 5, 1991, p. 5-B. (66) Keith Bradsher, "Continental Loss Totals $2.25 Billion," New York Times, March 22, 1991, p. C-1; "Continental Parent Loses $2.2 Billion," Miami Herald, March 22, 1991, p. 1-C. (67) "Grant of $1 Million Helps ex-Eastern Workers, Retrain," Florida Times Union, March 3, 1991, p. B-8. (68) Ted Reed, "After the Fall: 100 Days After Eastern's Shutdown Most Employees Are Out of Work," Miami Herald, April 28, 1991, p. K-1. (69) Bureau of National Affairs Inc., Daily Labor Report, Number 101 (May 24, 1991, pp. A-12 and A-13. The judge's decision also terminated the retirees' life insurance benefit. (70) "Eastern Shutdown Provides Sense of Relief, Machinists' Leaders Says," Bureau of National Affairs, Inc., Daily Labor Report, Number 15 (January 23, 1991), p. A-11. (71) Scott Thurston, "Supreme Court Asked to Toss Out Ruling on Rehiring Eastern Pilots," The Atlanta Journal/The Atlanta Constitution, June 13, 1991, p. E-8. (72) Carl Hiaasen "Union Belligerence Led to Eastern Airline's Collapse," Miami Herald, January 21, 1991, p. 1-B. (73) Joan Chrissos, "The Question in Eastern's Wake: Was the Ad Campaign Worth It?", Miami Herald's Business Monday, January 28, 1991, p. 21. (74) "Greyhound Bus Chief Sets His Departure," New York Times, May 25, 1991, p. 21. (75) Kevin Kelly, "Greyhound May Be Going to The End of The Line," Business Week, May 21, 1990, p. 45. (76) Ibid. (77) "Eastern Ran Out of Borrowed Time," Florida Times Union, January 23, 1991, p. 7. (78) Hiaasen, "Union Belligerence," p. 1-B. (79) Broderick, "A Fed-Up Pilot," p. 8. (80) Hiaasen, "Union Belligerence," p. 1-B. (81) "Lorenzo Takes Off," Miami Herald, August 12, 1990, p. 2-C. (82) Phil Bakes, "Why Eastern Failed," Miami Herald, February 3, 1991, p. 6-C. (83) Pat Broderick, "A Fed-Up Pilot Speaks Out," Newsweek, April 23, 1990, p. 8. (84) "Fly Right, Eastern," Miami Herald, November 26 1990, p. 2-C. (85) Bakes, "Why Eastern Failed," Miami Herald, February 3, 1991, p. 6-C. (86) "Don't Forget Lorenzo," p. 11-A. (87) "ALPA Leaders Elect Babbitt to Succeed Duffy as President," Bureau of National Affairs Inc., Daily Labor Report, Number 207 (Oct. 25, 1990), p. A-9. (88) "Rival Union to Represent Eastern Pilots Led by Pair Who Refused to Support Strike," Bureau of National Affairs Inc., Daily Labor Report, (Number 83), April 30, 1990, p. A-2; and, "ALPA Announces Suit Seeking Ban on Eastern Contract Changes," Bureau of National Affairs, Inc., Daily Labor Report, Number 142 (July 24, 1990), p. A-18. (89) Reed, "King Shugrue." (90) Bakes, "Why Eastern Failed," p. 6-C, Lorenzo's similar position regarding the NMB is found in his article, "We'll Miss You Eastern," New York Times, January 30, 1991, p. A-23. (91) Christi Harlan, "After Eastern, Debtors Face Bumpier Ride," Wall Street Journal, January 22, 1991, p. B-3. (92) Desiree French, "Eastern's Failure May Hurt Other Stragglers," USA Today, January 22, 1991, p. 4-B. (93) Doug Carroll, "Critics Blast Eastern Judge," USA Today, January 21, 1991, p. 5-B. (94) Laurence A. Weiss, "Beware the Bankruptcy Judges," New York Times, April 28, 1991, p. 4. (95) William Stockton, "Unhappy Landing," New York Times Book Review, August 26, 1990, p. 11.
COPYRIGHT 1992 American Society of Transportation and Logistics, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Eastern Airlines Inc.
Author:Jennings, Kenneth
Publication:Transportation Journal
Date:Mar 22, 1992
Previous Article:Railway management employment trends: 1976-1989.
Next Article:Modeling customer behavior in negotiations for motor carrier contracts.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters