Frank Lorenzo, the aggressive airline entrepreneur who has purchased Eastern Airlines, said today that Eastern will retain its separate identity and will not be merged with his own Continental Airlines and New York Air.
Lorenzo, who has a reputation as a tough foe of airline unions, stepped away from any direct challenge to Eastern's unions, whose confrontation with Eastern over labor cost savings prompted the sale of the nation's third-largest airline.
"Any talk of union-busting is absolute nonsense," Lorenzo said during a press conference at Eastern's headquarters here. He recalled his pride at carrying a Teamsters union card as a college student.
But he served notice that further cost concessions by Eastern's mechanics are "essential."
Eastern's lenders, who are owed $2.5 billion, have demanded labor agreements providing $400 million a year in concessions with a deadline of Saturday. Lorenzo said he expected the creditors would be "most willing to make adjustments" following the announced sale.
"We look forward to a period of increased stability" at Eastern, Lorenzo said, but he added that the only guarantee of employment for Eastern's workers is the airline's profitability.
Lorenzo and Eastern's embattled chairman, Frank Borman, sought to assure Eastern's employes -- and customers -- that no dramatic changes are in store for Eastern's routes and service once Lorenzo's Texas Air Corp. takes control. That could come in about six months if government regulators approve the merger, Eastern officials said.
Lorenzo's offer of $10 a share brings the purchase price to just under $700 million, he said. For Eastern's employes, who are major shareholders, the price may be less important than the assurances Lorenzo offers about their futures.
Borman said that, contrary to some reports, he will not quit Eastern, and looks forward to working with Lorenzo.
Eastern's directors will not entertain any other purchase offer, even at a higher price, Borman said: "The deal is done. We negotiated in good faith." Lorenzo's price is fair, and the company had no other firm offers when it agreed to the sale, he continued. "My mission now is to make this thing work well."
Borman said that if the airline and its three unions, representing pilots, flight attendants and mechanics, had been able to agree on $400 million in new cost reductions, Eastern would not have approached Lorenzo. Although Eastern did obtain a 20 percent wage cut and other concessions over three years from its pilots early Monday morning, it ran into a bitter impasse with the International Association of Machinists and Aerospace Workers, representing Eastern's mechanics. IAM official Charles Bryan, an Eastern director, said the union would make further reductions only if Eastern fired Borman. The airline's directors rejected that idea and then approved the sale to Lorenzo at about 2:45 a.m. Monday.
Since then, Borman and Lorenzo and top aides have been studying the operations of the three airlines -- Eastern, Continental and New York Air -- to see how the pieces may best be rearranged.
"We do not intend to merge," Lorenzo said. Eastern will remain an independent subsidiary, "keeping its own great name," he added. But Eastern officials believe there is great potential for savings and profits through blending operations.
At a meeting with Eastern vice presidents this morning, Lorenzo said that Continental and Eastern should pursue their separate applications to the Deparment of Transportaion for the right to serve a new West Coast-Japan route. The applications may be blended into one, as an example of synergy, Lorenzo said.
Although Lorenzo and Borman discussed the knockdown competition between New York Air and Eastern on the Washington-New York-Boston routes, they reportedly made no decisions about altering their operations. They agreed to avoid any rash decisions and will study the options, one source said. For the present, nothing will change, officials said.
Asked whether New York Air will drop its barbed-humor ad campaign against Eastern's shuttle service, Lorenzo suggested that was not his decision. "New York Air advertising doesn't come down to Houston," the headquarters of Texas Air, he said.
Airline industry analysts speculate that Eastern or New York Air could make a windfall selling some of the current landing rights, or "slots," that they now have at Washington's National Airport and La Guardia at New York if the government permits these sales. Lorenzo did not mention that option, and he contended that a sale of facilities is not required to satisfy antitrust requirements, even though New York Air and Eastern dominate service on the shuttle corridor. "They are well within the market concentrations that have been allowed on many, many mergers," Lorenzo said.
The two airlines may share maintenance and repair facilities and equipment, and coordinate connecting flights. One Eastern official said the opportunities are "limitless. It's a gold mine," said Jerry W. Cosley, Eastern senior vice president for communications. But there will not be a mingling of aircraft flights and crews. As far as customers are concerned, Eastern remains Eastern, an official said.
Lorenzo said his strategy is that you don't fix it "if it ain't broke." He implied that Eastern is a good deal less broke thanks to the concessions it had received from its pilots and that he anticipated concessions from flight attendants, who are resuming negotations with Eastern.
Eastern's operations remain relatively expensive based on one standard measure of airline efficiency, costs per seat mile. Eastern's average at the end of September was 8.3 cents, according to Airline Economics Inc. That is above the industry's average of 7.9 cents and higher than Continental's 6.1 cents. (The standard compares the cost of operations with total miles flown by an airline's aircraft and the number of seats on each flight).
If Lorenzo's declaration of Eastern's independence stands, it would not have to close that efficiency gap right away. But he has alerted the machinists that he regards their contract as a problem.