Printer Friendly

Paradise tossed; how a chance to save American capitalism was sabotaged at Eastern.


In August 1985, Eastern Airlines was flying high. The airline company had rebounded from a staggering loss of $183 million in 1983 and was running solid operating profits for the sixth straight quarter. The prime cause of Eastern's turnaround was the largest experiment in labor-management cooperation in American history. It encouraged a new cost-cutting ethic in Eastern's employees that saved the company $100 million and allowed for wage concessions that saved another $295 million. Some saw the agreement as the solution to America's crisis of productivity, a model for a new cooperative American capitalism: managers and workers laboring side by side, sharing sacrifices, profits, and power, making the company vigorously competitive.

Today, Eastern is owned by Texas Air, whose flamboyant owner, Frank Lorenzo, refuses even to talk to the union leaders. Massive layoffs and pay cuts seem certain, as does a return to the kind of 19th-century-style labor relations that has burdened American industry. The fragile marriage between Eastern's managers and workers has ended in bitter divorce, with machinists union leader Charlie Bryan and Eastern chairman Frank Borman deciding they would rather give the company to Lorenzo than work with each other. "In the end Borman just threw up his hands, and Charlie Bryan decided he'd rather deal with the devil he didn't know than the devil he did,' one observer explained.

Eastern's brief experience with worker participation is of urgent relevance to the American economy. As our economic competitors erode our markets, sacrifices will be needed--but no longer can they be borne solely by workers. In this country, small but dramatic success stories such as Weirton Steel, where employees prevented their steel plant from closing by buying it, and Western Airlines, where unions took sharp pay cuts in exchange for stock and positions on the board of directors, have encouraged discussion about changing fundamentally the role of workers in companies. Even some of the most traditional managers have come to think they can increase productivity by listening to their workers. Eastern Airlines, a $4 billion company with 40,000 employees nationwide, was the first test of power sharing on a massive scale. In December 1983, in exchange for huge wage concessions, Eastern gave workers 25 percent of its stock, representation on the board of directors and a significant role in running the company.

Why did the experiment fail? Many reporters following the Eastern story blamed the February, 1985 break up of the airline's labor accord on the animosity between Bryan and Borman. The decisions of these two men were pivotal, but their personal estrangement reflected much deeper antagonisms between labor and management that were, in turn, powerfully reinforced by other pressures. Frank Borman worried about Wall Street's disdain for the agreement and the banks' constant pressure for bigger and bigger wage cuts. Charlie Bryan, on the other hand, worried about delivering higher wages to the union members who elected him. These pressures converged at a time when Eastern most needed this cooperative approach to help face the fierce industry-wide competition brought on by deregulation. Finally, managers simply did not want to cede enough power to workers and workers were ultimately unwilling to take responsibility for the financial well-being of the company.

Monkeys in the cockpit

"I lived and breathed fighting management and Eastern Airlines,' said Leo Romano, a chief steward for the machinists union at Boston's Logan Airport, describing what both management and the workers called "the wars.' For ten years prior to the 1983 accord, hostility between the two groups intensified until each cared more about fighting the other than making the company competitive. Eastern added a new class of manager whose only job was to watch the machinists. In the engine shops in Miami, these managers hid inside jet engine cowlings and huddled behind two way mirrors, trying to catch workers in violation of Eastern's myriad work regulations. In Boston, there were often four supervisors watching three baggage handlers unload an aircraft. To avoid the union's jurisdiction, Eastern farmed out repair work to outside contractors, even though the practice inevitably raised the cost. "Constantly, we were at each other's throats, whether it was over a table in arbitration or down on the floor telling employees how to do their jobs,' said Jeff Callahan, a labor relations lawyer at Eastern. "But you have to understand the culture of the corporation at the time. The only way you were going to rise through the management ranks was by being the meanest, nastiest, toughest guy on the block.'

The company tried to improve performance by stepping up discipline and rigidly enforcing rules. The unions responded in the most destructive way possible--they followed the rules to the letter. "The more they pushed the less we did,' said one Miami-based mechanic. "We got out the manual [which includes thousands of pages of technical jargon]. We just went page by page, step by step and the engines never went anywhere.' Experienced mechanics capable of repairing minor engine problems in a few hours would meticulously follow manufacturer's instructions, taking the entire engine apart over several days. In New York, baggage handlers for the Eastern shuttle refused to unload other planes no matter how busy the airport, citing strict rules on job assignment.

The bitterness at Eastern in the 1970s was prolonged and intense--very much in keeping with U.S. labor history. When unions arose to counter the bargaining advantage of management, management often struck back with goon squads, industrial spies, layoffs and strike-breaking police patrols. The 1934 passage of the National Labor Relations Act gave unions the right to organize and bargain collectively. But they were not given any right to encroach on "managerial prerogatives,' such as deciding executive salaries, investments, plant locations, and the organization of work. The act simply made the traditional labor-management conflict more civilized. Both sides still talked only about wages and benefits. Management insisted that corporate efficiency was enhanced by a strict division of labor: management did the thinking and workers did what they were told. Having no stake or say in the way a company was run, workers came to identify only with their wages. And that was fine with both sides. Labor leaders felt that cooperation was cooptation, which would only weaken the vigilance of the union.

Airline deregulation forced Charlie Bryan and Frank Borman to reevaluate their old adversarial ways. Although the 1978 deregulation of the airline industry hurt all of the large carriers, it hit Eastern especially hard. Throughout the 1970s, Eastern tried to buy labor peace through extravagant wage hikes, knowing that the higher costs would simply be passed on to the consumer through government-regulated fares. After deregulation, however, Eastern had to compete against aggressive new low-cost carriers like People Express and New York Air (a subsidiary of Texas Air) that were not saddled with the same high-priced union contracts. Salaries, wages and benefits cost Eastern 3.28 cents per available seat mile, versus .68 cents per mile for People Express. Eastern's labor accounted for over 39 percent of its expenses compared to 20 percent of People's. When People's, New York Air and Air Florida started to move into Eastern's lucrative NY/Florida market, Eastern often had to fly at a loss in order to match the fares of its competitors.

At the same time that Eastern struggled to compete, it was amassing a huge debt. Thinking that rising fuel prices could give Eastern a competitive advantage, Borman decided in 1980 to modernize Eastern's fleet. Despite losses of $17.4 million in 1980, $65.9 million in 1981, and $74.9 million in 1982, Borman spent $1.4 billion for 52 fuel-efficient planes such as the Airbus A-300 and the Boeing 757. Borman's gamble proved a failure when the price of fuel failed to rise. By 1983, Eastern's debt had reached $2.5 billion. The company was paying out $260 million annually to its lenders.

District 100 of the International Association of Machinists and Aerospace Workers (IAM), which represented 12,800 mechanics, maintenance workers and ground crews, felt little sympathy. The IAM suspected that Eastern's banks had encouraged the company to take on a debt it couldn't afford. The union discovered that Eastern and Boeing shared 12 lenders and that Citibank, one of Eastern's major banks, was also Boeing's largest lender. Boeing had been in financial difficulty and desperately needed to sell its new line of planes, the 757s. There was, said one IAM insider, a "triangle of interests' between the banks, Boeing and Eastern. If the banks could secure for Eastern a low purchase price for the 757s, everyone would benefit--except the machinists, who felt they would be subsidizing the purchase of the planes with wage concessions.

As its debt grew, the banks increasingly came to treat Eastern as the International Monetary Fund does a Third World debtor country, becoming involved in the management of the company to guarantee the safety of their loans. It was the bankers who precipitated the first crisis that led to the labor accord. In 1983 they told Borman that if he didn't wrest wage concessions from the employees the banks would refuse to relax credit terms for repayment of the old loans. Without such a relaxation, Eastern would have to default on its loans and declare bankruptcy. On September 15, Borman went to his employees and asked for $400 million in wage concessions. The machinists and the two other unions--the Transport Workers Union representing flight attendants and the Air Line Pilots Associations representing pilots, co-pilots and engineers--all refused.

But on September 20, 1983 the rules of the game changed. Continental Airlines closed down. A few days later, Continental--which, along with New York Air, was a subsidiary of Texas Air-- reopened under chapter 11 of the bankruptcy code, which permits a company to operate while it figures out a way to pay its debts. As part of the reorganization a federal judge permitted Continental to cancel its high-priced union contracts. Continental President Frank Lorenzo summarily dismissed 8,000 people and slashed the salaries of his remaining employees in half.

Two days later, terrified Eastern employees sat in conference rooms and media centers around the country to watch a videotape of Frank Borman threatening to declare Chapter 11, "a la Continental,' unless employees took 20 percent wage cuts. "In my estimation,' Borman said, "you will be voting on your jobs.'

The threat infuriated Eastern's unions. Much of the employees' anger was directed at Borman himself, a former Apollo 8 astronaut, and one of America's most visible CEO's. During this period Borman received so many death threats that he took to wearing a bullet-proof vest and hired police protection.

If Borman's warnings about bankruptcy were initially exaggerated, he quickly fulfilled his own prophecy. Within two days of Borman's bankruptcy speech, passengers who feared they might be stranded over the Thanksgiving holiday redeemed $2 million worth of tickets. That was cash the troubled airline badly needed to continue to operate. Eastern was close to shutting its doors.

That put IAM's Charlie Bryan in a bind. On the one hand, he knew the company was in trouble and needed relief in the form of wage concessions. The recessions of 1979 and 1982 had forced unions to recognize that holding out for higher wages as a company fell apart meant unemployment. On the other hand, Bryan's role as a union leader was not to sympathize with management's plight. His popularity with the rank and file depended on his ability to deliver wage hikes, not retire the company's debt.

Bryan, a 53-year-old jet mechanic from West Virginia, had first been elected in 1979 to end the company's "Variable Earnings Plan,' which he called the "Veritable Extortion Plan.' VEP was a wage giveback formula which made 3.5 percent of the employees' salaries rise and fall according to the profitability of the corporation. Since Eastern had been losing steadily, so had its employees. In 1980, Bryan recalled, he stood before a stockholders meeting and in his low-pitched Southern drawl told the audience that Eastern's employees "had donated enough wages to have bought every single share of stock at Eastern Airlines. They could have purchased their own company lock, stock and barrel. Yet they hadn't received a single share of stock. It was the old scenario of taxation without representation.'

A snappy flourish of rhetoric in 1980, that notion became Bryan's bargaining position in 1983. With the help of Randy Barber, a labor consultant, and Locker-Abrecht Associates, an accounting firm, the union had conducted a thorough financial investigation earlier in the year that confirmed Eastern's dire condition. The union could now not only determine how much Eastern could afford in wages, but could learn how to play a constructive role in running the company. With this knowledge, Bryan came to the table with a new proposal. If Eastern needed wage concessions to survive, then the company would get them. But it would no longer get "taxation without representation.' In wage negotiations that started in November, the union insisted that their wage cuts be treated as an investment in the company. Therefore, they wanted stock in exchange for wage cuts and a say in the way their money was spent. Borman was not pleased with the union's demands. "I'm not going to have the monkeys running the zoo,' he said, with a degree of grace and tact he would ultimately bring to the implementation of the cooperative agreement.

But in the end, Borman didn't have much choice. Because the IAM had done its research, it knew how far it could push Borman. "On the one hand, we knew the banks had a hammer lock on the company and could have taken it into default,' said Randy Barber. "On the other hand, we were also aware of the banks' strong financial interests in keeping Eastern aloft [because of Boeing].' The union was right. Under pressure from Eastern's labor consultant, ex-Secretary of Labor William Usery, and Eastern's banks, Borman accepted the radical new agreement. During the final financial negotiations Borman wasn't even present. Bryan hashed out the numbers with representatives from Citibank and Merrill Lynch.

On December 12, 1983, Usery, flanked by Bryan and Broman looking like newlyweds at a shotgun wedding, announced Eastern's new labor pact.

Whispering Joe's heat shield

"It was an awesome experience being right next to that engine, running it at high power settings, sometimes even take off power,' says Charlie Bryan, recalling his days as a line mechanic when he would tune jet engines on the tarmac. "It was like standing right next to a volcano. You could actually feel the bones in your body vibrating from all that power right there in front of you, that you were actually adjusting and had control over.

"I think if you wanted to draw an analogy to what we've evolved into [at Eastern] it's not that different.'

Under the agreement, Eastern gave its employees 25 percent of its common stock, some preferred stock, and four seats on the 15-member board of directors--one for the machinists, one for the pilots union, one for flight attendants, and one for non-unionized workers. In addition, employees had profit-sharing for 1985 net earnings over $90 million and preferred stock dividends. In addition, unions received permanent access to the company books and the right to review all corporate business plans. In exchange, all workers gave wage concessions of 18-22 percent, totaling $295 million, agreed to abandon inefficient work rules and pledged productivity improvements amounting to $75 million. The average machinist's take-home pay was cut about $50 a week.

More significant than the transfer of power at the top of the organization was the shift at the bottom. "We were suddenly able to influence what items we might buy, what materials we might use, how jobs should be done,' said Bryan. "It was a process that completely changed the culture of the top-down management. It was truly a lateral movement of authority and responsibility, so that everyone was working together. And that was the term we adopted--"working together.''.

Though forced into the agreement, Borman quickly seemed to become committed to its principles. "Many of the other business executives that I've talked to told me flat out that they would rather have shut the company down than make the accomodation with the unions that we've made,' he recalled later. "But I really believe that it was the right way to go.' In a bold public relations move, coordinated with the unions, Borman appeared in a new Eastern commercial surrounded by pilots, mechanics, flight attendants and ticket takers. "Who can serve you better,' asked Borman, "than the owners.' He approved spending more than $1 million to train every manager how to listen to employees instead of telling them what to do--not an easy task considering managers had previously been rewarded for their authoritarianism. In fact, six months after the agreement was signed, four of Eastern's senior vice presidents, uncomfortable with the new atmosphere, left the company.

Together, the unions and management installed an employee involvement program. "Action teams' of workers and managers met to solve job-related problems. Slowly, workers who had felt disenfranchised began to believe they had both a financial stake and a say in the way the company was run. "Two years ago I wanted to quit Eastern Airlines,' said Logan Airport ramp service man Al Marescalchi. "Now when I come to work it's like coming to work in my own shop. Eastern Airlines is mine.'

While Eastern's management was busy learning how to listen to its workers, the IAM was teaching its members the language of business management. The union trained its members how to read budgets, purchasing forms, and vendor contracts to they could ferret out ways to save money. Going far beyond suggestion boxes or the love-your-company participation plans of the Japanese, Eastern tapped into the entrepreneurial traditions of American culture. Every person in the company was to use his or her ingenuity to figure out better ways to do things. Eastern's president Joe Leonard gushed with enthusiasm while the program was in full-swing: "Instead of using the ideas of a few managers, we're tapping the potential of 40,000 brains.'

One of the most capable machinist "brains' was John "Buddy' Sugg, a raspy-voiced veteran of the union/management wars, who headed up both the "contracting-in committee,' which helped bring repair work back in-house and the "Efficiency Credit Teams,' which sought ways to increase productivity and cut purchasings costs. When asked about the cost savings, Sugg likes to hold up a small plastic filter. "This goes in the engine of an aircraft,' says Sugg. "We used to pay $20 for every filter. One of our guys found that he could buy these things in Connecticut for 2 1/2 cents. That's a savings of $7,000 a year right there. And that's just the top of the barrel.'

Eastern had previously sent CF-6 jet engines to United Airlines to be serviced. Miami mechanics insisted they could do it in house. Within six months they reduced the labor time per engine from 485 to 168 hours, without adding any additional mechanics. This saved Eastern approximately $650,000 per year. As Robert Kuttner wrote in the Harvard Business Review, "on a walking tour of the sprawling Miami base one hears tales of "Whispering Joe's heat shields,' and "George's fan blades.'' Welder "Whispering Joe' Imperatori had saved Eastern $304,000 by developing a new way of welding heat shields, and mechanic George Henderson had saved Eastern $306,000 a year by showing how to repair fan blades at a cost of $19.20 per blade instead of buying them new for $163.80 each.

The union also dropped its most absured work rules. Before, a gyroscope mechanic was not allowed to fix an altimeter even if there were no gyroscopes broken and plenty of altimeters that needed work. Now, said the IAM's Leo Romano, "a mechanic is a mechanic is a mechanic.'

The machinists took over many of the tasks of their former supervisors. At Boston's Logan Airport, Romano, one of the IAM's toughest foot-soldiers during the labor wars, led a new campaign of self-management. In Boston, Los Angeles, and Kansas City, time cards were eliminated--and on-time attendance improved. In Boston and Kansas City, the union lead men allocated work crews, made up worker schedules, and assigned vacations and overtime. In addition, baggage handlers did all the paperwork for flights. They were responsible for preventing and explaining baggage delays and had the right to clear loaded planes for takeoff. Today, these airports regularly exceed Eastern's stringent performance standards.

The bottom line of "working together' exceeded management's wildest expectations. "When we contractually agreed to IAM's promise to find $23 million in cost-savings in 1984, I thought it was a joke,' said Jose Smith, a vice president of finance. By the end of 1984, the machinists had saved the company $35 million. By August, 1985, they had found an additional $10 million. Over the full 18-month period, employees generated $100 million in improved productivity and cost savings. By the end of the third quarter of 1985, Eastern was $80 million in the black. Eastern's managers and workers were sharing information, power and profits.

Perturbed on the street

But Eastern was still a company in conflict. The cooperative agreement was in place, but the adversarial culture couldn't change completely over night, especially when pressures from competitors, creditors, and capital markets exacerbated old tensions. "I think the whole thing was dangerous,' said Robert Joediecke, an airline analyst at Shearson Lehman/American Express. "When you give your employees 25 percent of the stock, you cut yourself off from public financing. Investors get chary about companies that are owned by employees and run for their own good. . . . And putting union members on the board of directors means giving confidential information to the very people who are most likely to use it against you.' Attitudes like Joediecke's, along with Eastern's debt and other financial troubles, made investors way of the stock, despite the dramatic productivity gains of 1984. The consensus on Wall Street was that Eastern had given away the store.

Meanwhile, the banks were being typically rigid. Although they forced Borman's hand to sign the 1983 accord, it was not out of a love for workplace democracy. When pressed, Citibank was willing to give on the issue of control. It was not willing to give on wages. Citibank had wanted wage cuts in 1983 and by early 1985 it wanted more. During the first eleven months of 1984, Eastern had a $168 million operating profit. But the airline's debt payments turned the bottom line ink for the year from black to red--a loss of $37.9 million. Eastern's bankers demanded a 1985 business plan that would reflect 2 percent profit in order to protect their loans.

Finally, there was the suspicion among many unionists that deep down, Borman couldn't bring himself to believe in the principles of the agreement. Perhaps unfairly, they pointed to his military training at West Point, and his subsequent career at NASA as evidence of his authoritarianism. To this day, Borman's nickname is "the colonel.' "West Point doesn't teach you to solicit all the privates to find out how you want to go over the next hill,' said District 100 vice president Russ McGarry.

John Simmons, president of Participation Associates of Amherst, spent several days observing Borman in 1985 and believes the CEO has genuine egalitarian strains. He notes that Borman abolished all symbols of executive privilege--golf memberships, the company jet, the practice of company carpenters doing executive renovations--and installed the first profit-sharing program in the airline industry. He prided himself on buying his suits off the rack and driving to work in a second hand Chevy. Simmons recalled two meetings that illustrated both Borman's authoritarian strain and his desire to reform. In January of 1985, Borman held a meeting to solicit the views of middle managers. But during the question and answer session he periodically cut off people before they had finished asking their questions. "I don't realize that I do that. I have heard so many of the questions before--I just start to answer them,' he said when one manager later confronted him about it. At the next meeting, the questions were tougher and more persistent, but this time he replied with concern and grace. "And I didn't cut anybody off, did I?' asked Borman. "There were several times that I almost did but caught myself.' Others, more wary of "the colonel,' said the "perk bashing' tendencies were evidence of the spartan ethic of boot camp which insists that the commanding officer share the same harships as "his' men. "He wants the company to survive,' said McGarry. "In his heart he believes in the people in the company. Yet he's afraid to ask for their help, because he thinks it deletes from his power.'

"A treacherous act of betrayal'

Whether out of a reluctance to cede power, or because he was facing such strong pressure from the banks, Borman made the first fatal mistake that would lead to the demise of the agreement. He decided to renege on the provision in the original contract that would restore wage custs by December 31, 1984. When that day came, Borman, without consulting the unions, unilaterally extended the pay cuts, saving the company $22 million per month.

Bryan was furious. He called Borman's decision a "treacherous act of betrayal,' and filed suit against the company for breach of contract. The one intangible that was essential to making the agreement work--trust--had been broken. The wage-cut extension probably was justified on financial grounds, but by imposing it unilaterally, Borman was reasserting old "managerial prerogatives' instead of asking his co-owners, the employees, the best course to follow. Under the traditional adversarial system of labor relations trust is not necessary; it may even be a hindrance. But in an experiment of cooperation, the slightest broken promise can be fatal. By February, Eastern and the IAM managed to patch together another cooperative agreement by creating a gain-sharing program in which the workers could buy back wage concessions by finding cost savings. But the gain-sharing program ultimately made matters worse. Under the plan, the company had to increase wages each time employees came up with cost savings, dollar for dollar. Management therefore had no incentive to help the employees find savings. In fact, by September, the IAM had found so many ways to cut costs that they had earned back more than half of the 18 percent wage cut. With wage hikes scheduled for 1986 and 1987 the gain sharing program would have put machinists' hourly pay an average of $1.30 above the highest rates in the industry. The average mechanic would end up making $18.82 per hour in wages and benefits. Eastern had never counted on the machinists finding so many cost savings. They began to fight the mechanics over every penny.

Meanwhile, the other unions were increasingly annoyed by the IAM's gain-sharing because they didn't have such plans of their own. They saw IAM's wage buy-backs as unfair preferential treatment. "We had created a monster,' Bryan later admitted. In September, he offered to cancel the program. Instead, Eastern agreed to restore their 18 percent pay cuts by the end of the year and the IAM agreed to moderate subsequent wage hikes to keep the machinists' pay in line with the rest of the industry.

The gain-sharing program had contributed to already existing tensions among the employee groups. It was often difficult to create a common sense of mission among three very different labor groups: the blue collar machinists, the highly-paid white collar pilots, and the predominantly female flight attendants. The flight attendants and the pilots claimed that Charlie Bryan jeopardized many labor agreements by refusing to bargain jointly with the other employee groups.

Though Bryan's single-minded determination was responsible for creating the 1983 agreement, many question whether his obduracy--critics called him "Chairman Charlie' and the "Little Napoleon'--was well suited to building the bridges of trust needed to make the agreements last. For example, according to Simmons, Bryan "stormed out of what had been a reasonably relaxed session at a retreat with Borman and other senior managers' after an executive vice president suggested quietly that "Bryan would be easier to talk to if he didn't make speeches all the time.' His stubbornness was reinforced by the militancy of his union's membership.

The leadership of all three unions discovered that cooperation with management was a political liability when the rank and file expected a more truculent posture. Because of cooperation, Robert Callahan, president of the Transport Workers Union at Eastern told John Simmons, "I will be unelectable in three years.'

By the fall of 1985, worsening business conditions gnawed at Eastern's increasingly frayed accord. People Express targeted Eastern's moneymaking northeast corridor for new discount fares. United and American announced the formation of new East Coast hubs in former Eastern strongholds such as Atlanta. Frank Lorenzo's New York Air announced a new ad campaign: "We clip Eastern's Wings Every Day.' Analysts predicted a fourth-quarter loss, but few were prepared for its size: $67 million. The deficit nearly wiped out Eastern's $73 million profit for the first three quarters. In fact, Eastern might have done even worse, but it was able to apply $52 million from its profit-sharing fund to its bottom line.

In November, Eastern's Joe Leonard shocked employees by calling for more wage cuts. He also infuriated union members by referring to the earlier $500 million pay concessions as "band-aids.' Bryan, in turn, demonstrated the IAM's increasing level of paranoia by claiming that Eastern's management had intentionally planned poor financial performance to extort new wage concessions. He did point out that the company had lost $250 million in revenues by failing to hire enough new pilots to staff its flights, in part because it hoped to hire them later at a lower wage level. The pilots turned down the idea. Eastern was playing hard ball with both the pilots and the flights attendants, who had been working without contracts for several months. IAM viewed this as a deliberate strategy to permanently lower the wage base. As one IAM insider said, "Eastern wanted to become a Continental. They wanted a permanently lower wage base. So they devised a strategy to force a confrontation with the unions--first the flight attendants, then the pilots, and then the machinists.'

Borman renewed his old appeal on wages. "Our battle is with the marketplace not with each other,' he said. "The marketplace says that we need more competitive wages,' In December, the company released a consultant's report suggesting that Eastern declare Chapter 11 to void its union contacts. Not long after, Eastern instructed its main investment banker, Merrill Lynch, to approach Frank Lorenzo, to see if Texas Air would be interested in buying Eastern. The idea, one of Eastern's directors told The Wall Street Journal, was a "pincer-play to put the unions under enormous pressure' to choose between new cuts, Chapter 11, and the vigorously anti-union Frank Lorenzo.

The unions responded with their own pincer play. United by Eastern management's new bellicosity, the three employee groups hired Skadden, Arps, Slate, Meagher, & Flom, a prominent mergers and acquisition law firm, to explore the possibility of joining with an outside party to buy Eastern. All three union leaders advised their members to buy Eastern stock. Eastern's board must have taken the effort very seriously; they soon passed a poison-pill provision in the company's by-laws, which effectively prevented a hostile takeover--even by employees.

Meanwhile, Eastern's banks gave an ultimatum: the company would have to extract a permanent 20 percent pay cut from all its employees by February 28, or face default on all of its loans. On January 20, Eastern laid off 1,000 flight attendants and unilaterally cut the wages of the ones that remained. The pilots and flight attendants, both working without contracts, set a strike deadline for March 1, the day after the bank deadline.

The final confrontation took place on the weekend of February 21, in a dramatic board meeting and a series of all-night wage negotiations in a conference room in Eastern's Miami corporate headquarters. On Friday, Eastern told the union representatives that Frank Lorenzo's Texas Air had made an offer to purchase the company. In fact, it later turned out, Eastern had paid Lorenzo $20 million to make the offer. Rather than face the prospect of dealing with Lorenzo, both the pilots and the flight attendants agreed to take 20 percent pay cuts. But the IAM's Bryan refused to make any pay concessions.

As the deadline for a decision drew near-- Lorenzo had said that he would withdraw his offer after Sunday night--the board meeting erupted into a battle between Borman and Bryan. When it seemed certain that Bryan would not reopen the IAM's contract, Borman yelled across the table: "I'm going to tell the whole world that you destroyed an airline.' Bryan shot back, "And I'm going to tell the whole world that you did. So where does that leave us?'

Close to midnight on Sunday, Bryan agreed to take a 15 percent pay cut--provided that Borman resign. The proposal was briefly debated after Borman voluntarily left the room, and then rejected. "We couldn't do it to Frank,' said one director. Two hours later, with the employee representatives in opposition, the board voted 11 to 4 to sell the airline to Texas Air.

Flippin' burgers at McDonalds

The sale to Texas Air must be approved by the Department of Transportation and the president before it is finalized, but it probably will be. Eastern and the machinists are now suing each other over the contract dispute. At the same time, the union is searching for a takeover partner to buy back the company. But despite the union's offers of pay cuts to posible buyers like Jay Pritzker, the president of Braniff, it seems unlikely that any outside proposal can overcome the lockup provisions of the Texas Air deal. Meanwhile, Eastern's financial troubles continue and the federal government has fined the airline for alleged safety violations, which could well have been caused by the demoralized workforce.

By May, a new labor war had started. Frank Lorenzo called the machinists "fat cats' and said their "wage rates are absurd.' When Bryan sent a telegram to Lorenzo asking for an opportunity to discuss Eastern's problems, Lorenzo responded, "I don't talk to union leaders.'

Eastern didn't have to shift from an agreement in which managers shared power and profits with workers to one in which they wouldn't even talk to them. Mistakes were made along the way that undermined the spirit and letter of the agreement. Borman's decision to unilaterally extend the wage cuts without consulting the workers was by far the most grievous blunder. And Bryan's decision not to give wage concessions just before the sale to Lorenzo didn't serve the interests of either his members or the company. "When the bloodbath comes to Eastern--either this summer or next winter--Charlie's membership may wonder if he served them well when their wages have been slashed and half his work force is flipping hamburgers at McDonalds,' said John Simmons.

But the agreement was ruined by more than merely the mistakes of the two men. The problems were more fundamental. Despite all the cooperative rhetoric, management still viewed labor as a production cost. "The only thing that stands between us and the profits we need to survive are our non-competitive labor costs,' president Joe Leonard said. Meanwhile, despite their role in forging the agreement, banks were interested in only one thing: immediate wage concessions. Even after the cooperative approach had clearly improved the health of the company, making it more likely that it could thrive in the highly competitive airline industry, the banks virtually guaranteed the collapse of the accord by pressing for another round of concessions.

Charlie Bryan, despite intense competition from low cost competition, clung to the belief that high wages could be maintained solely by increasing productivity. And his inflexible line position on wage concessions in the end was probably hardened by the militancy of his union. As one IAM advisor puts it, "Even if [Bryan] thought Eastern's management was better than Texas Air, he couldn't have sold it to his membership. His worst enemies showed up the next day with Bryan buttons on. That's how strong the sentiment was. The message he was getting from above and below was "don't give 'em a goddam thing unless Borman's gone,' This is a democratic union.'

For workplace cooperation to succeed, workers and managers have to learn to care about more than just their own bottom lines--profits and wages. We can only hope that CEO's who experiment with the cooperative approach in the future will learn from Frank Borman's story that they will injure their company--and American industry's ability to compete--when they jettison worker participation at the first sign of financial trouble. Similarly, employees need to learn from the mistakes of Eastern's workers, many of whom will soon receive wage cuts or get fired, that it pays to care about the financial well being of the company--even when a legacy of hostility between labor and management makes that difficult.

Workplace cooperation can work; the 1983 accord saved Eastern. But to work, employees and managers must abandon the adversarial tradition that has proved so destructive to American capitalism. We need to establish a new tradition in the workplace--a tradition of mutual trust and shared enterprise in which managers forfeit power and become accountable to workers, and employees are willing to accept the risks along with the rewards of participation.


Eastern chairman Frank Borman (1) and machinists union president Charles Bryant (r) listen as negotiator William Usery announces the 1983 accord.
COPYRIGHT 1986 Washington Monthly Company
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1986, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Eastern Airlines
Author:Gibney, Alex
Publication:Washington Monthly
Date:Jun 1, 1986
Previous Article:There's nothing liberal about rent control.
Next Article:For immediate release: four ways to sell your senator.

Related Articles
American forces press service (Oct. 3, 2005): Pace issues guidance to help military 'shape the future'.
Cynthia Knight joins South Lane.
Errors mar Autumn issue.
Cool the globe, plant a tree: a simple step we all can take to help combat global warming.
Hope for hemlocks?
U.S. Forest Service.
How the human "network" collided with the environment.

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters