Part Two: Frank Lorenzo: The Man Who Ruined Air Travel

Robert is joined again by Miles Gray to continue to discuss Frank Lorenzo.

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Episode Transcript

Speaker 1 (00:02):
Ah, what's Miles, my.

Speaker 2 (00:09):
Miles? How are you doing? Miles? What's Miles? My Miles?

Speaker 1 (00:13):
Miles? What Miles my Gray? Maybe I just had a
bunch of ice cream. Yeah, yeah, you're eating blue ice cream,
which is gonna make it look like you were I
don't know. I want to say like something grossly sexual
about like the Brave Heart guy, because all the blue stuff.

Speaker 3 (00:29):
But yeah, yeah, yeah, well your alice. Yeah, I did
figure out a good joke ahead of time. So yeah,
I don't know what you'd say, but I get it.
I get where you're going with it.

Speaker 1 (00:38):
Like you understand what the potential was.

Speaker 2 (00:40):
Oh yeah, totally. I see.

Speaker 3 (00:41):
I see the elements on the table for something great.
I just didn't know how to put it together either.

Speaker 2 (00:46):
Yeah.

Speaker 3 (00:47):
But yeah, this ice cream is so blue that it's
I'm a little alarmed how much I like it. And
I feel like a fucking child when I order it
at this place. But you know, what gives a fuck?
Maybe I'm a child.

Speaker 1 (01:01):
What was your first thing that you ate as a
kid and then you ate it again as an adult
and you're like, this isn't food?

Speaker 2 (01:06):
What the fuck? People shouldn't have access to this? Oh
my god?

Speaker 3 (01:10):
There's a few things, but I feel like maybe like
shark bites or like gushers.

Speaker 2 (01:17):
No, gushers are wholesome. Love I mean, I love them too.

Speaker 3 (01:21):
I mean and I remember back at the old studio
we had them there, remember, so yeah, order, yeah.

Speaker 2 (01:27):
And I remember.

Speaker 3 (01:28):
But here's the thing, not that I'm saying I disrespect them,
but I remember eating them, Like, yo, this is fucking
this is just sugar.

Speaker 1 (01:35):
But sugar mine was always and I still kind of
love them. Is those like uh, what do you call it?
It's like the stick and then like the pouches of
colored sugar.

Speaker 2 (01:47):
Oh, fun just like.

Speaker 3 (01:52):
It's so funny, like something, yeah, just chemicals on a dipstick.

Speaker 2 (01:59):
They just licked over and like what was that stick
even made of? It's pure sugar, miles all. The only
thing is just raw sugar. It's just pure I guess.

Speaker 3 (02:09):
The only thing is that, yeah, just like the pouch
that it was in was just the only thing that
was not sugar.

Speaker 1 (02:14):
No. And it's like, you know, we're we're recording this
the week that I don't know when this will air.
But as we're recording this, everyone like there's just a
big store where they're like, oh, aspartame causes it can
cause you cancer, and like you look into it and
it's like, well, if you have like between a dozen
and three dozen cans a day, you might get cancer

(02:35):
as opposed to like, I don't know, man, if everything
like we're all shoveling so much crap and poison into
ourselves at all times, I don't know that. I feel
like diet coke's not going to be many people's primary
risk factor.

Speaker 3 (02:46):
But whatever, it's And it's also it's pronounced as spark
may Okay, we all know that that's but yeah, it's
I think that also feels like the kind of thing
that like the sugar lobby would come out with too.

Speaker 2 (03:01):
Funlike sugar which is a problem.

Speaker 1 (03:06):
Sugar, Yeah, fucking just just do whatever, gat like listen,
like statistically, like a third of the people listening to
this are doing so well. Blanketed in wildfire smoke and
like burning the burning remnant sevassbestos and insulation, Like it's
not going to be the aspertain that kills you guys.

Speaker 3 (03:26):
Take your aspertame, eat your blue ice cream, do it
for the sword, you know.

Speaker 1 (03:30):
Yeah, whatever, it doesn't matter, Like every you're fine, and
by fine, I mean doomed, but everything is so it's
okay whatever. Anyway, you want to talk some more about
Frank Lorenzo, No I do so today. You know, uh,
United Airlines is kind of the descendant of Continental, and

(03:50):
United Airlines is like an airline, right. I don't think
anybody's like, ah, United. I have so many great United experiences.
It's also not like the word of the airlines. They're
just kind of like right in the middle, yeah, right
right in the middle. You know, they're not as nice
as like a smaller airline like Alaska, but I will
take them over I don't know, fucking American Airlines or whatever,

(04:12):
certainly over like Spirit. But I'm never like psyched to
get on a fucking United flight either. But people were
psyched to fly Continental back back in the day. Continental
was like one of the airlines as shit. You know,
the Reagan eras kicking off. You know, you've kind of
got like the it's like the end of the late

(04:32):
Carter era, early Reagan era is when sort of Continental
is kind of starting to starting to look its age.
You know, even after deregulation, they've kept their high fees
and they've kept their passenger perks, so like, passengers consistently
rate it as like one of the best airlines in
the world, but it's not making a lot of money,
whereas TI, the airline Lorenzo runs, is basically the opposite.

(04:54):
It's a shitty budget airline that cannot make or that
like makes a profit, but because it's it's shitty enough
for people to afford. In nineteen seventy nine, Continental lost
more than thirteen million dollars, and the bleeding accelerated. In
nineteen eighty, the company gets a new CEO at this time,
a guy named Alvin Feldman, and Alvin is generally remembered

(05:17):
that should be a spoiler as a nice guy and
a diligent businessman of the old style. And he's like
he's trying to stop the bleeding, but he doesn't want
it to like change its character. He tries to like
emerges it with this other company. He's hoping that like
he can keep it, you know, special and somehow make
it profitable. But Continental, in addition to like dealing with
changes in the market, is also feuding with their workers

(05:38):
over new contracts. And because they're not as big as
like American or TWA, you know, they've got a pretty
small market cap, which means that you can actually purchase
a controlling interest in their stock for surprisingly little money.
And Lorenzo, to Lorenzo, this is like a shark smelling
blood in the water, right, So it's total market values

(06:02):
like one hundred and fifty million, and because again the
stock market's nonsense, the company is worth way more than
one hundred fifty million. If you just like add up
all of their planes, they're worth a lot more than that.
But because the business isn't doing as well as it
used to be, like, their market cap is shit, and
so he's able to Lorenzo's able to basically like buy
up a bunch of big investors who have like interests

(06:24):
in it and like work out a buy like he's
he just basically starts eating up more and more and
more of like getting closer to a controlling interest in Continental,
because if he's able to get it, he'll wind up
with way more value in like assets he can strip
that he's actually spending on this thing. So this process

(06:44):
starts for him in February of nineteen eighty one, and
Feldman when he realizes, oh my god, this guy who
is like the corporate raidar of the airline industry is
buying up my beloved airline. He tries to go to
war with him, right, but Lorenzo is a lot fast,
he's a lot smarter, uh in dirty huh and fights
dirty or uh he fights dirty. Feltman's like a nice guy.

(07:08):
He's going to try the high minded way of fighting
back and it's not going to work for him. But
like so he as Continental. He goes to court to
try to get the CAAB to rule in favor of like,
you know, basically saying that, like, hey, for Lorenzo to
buy up Continental because he already owns these other airlines
is anti competitive. But the CAAB rules in Lorenzo's favor

(07:30):
because it's the Reagan era. Texas Monthly writes quote. While
the fifty three year old Feldman remained at Continental's Los
Angeles headquarters, Lorenzo was everywhere, flying around the country, lobbying legislatures,
institutional investors, and even the media. Lorenzo made many promises.
He wrote California officials that he had no plans to
move Continental headquarters or any of its operations out of
Los Angeles. He said he had no intention of firing employees.

(07:53):
He said he wouldn't sell planes to raise money. Within
two years he had done them.

Speaker 3 (07:57):
All. Yeah, what worry you, I'm not gonna do it.
I'm not going to like sell the planes I see
here for money.

Speaker 2 (08:05):
No, why would I do that? If I come on? Guys,
come on, as.

Speaker 1 (08:08):
A rule, if you're like a regulator and like somebody
starts making specific promises about what they won't do, if
you let them do something they want to do, those
are the things they plan on doing, right, Like they're
telling how themselves. Yeah, So Continentals unions are kind of
the most effective defense that Continental has against Lorenzo, and

(08:28):
kind of working with Feldman, they come up with what
seems like a pretty good idea on paper. It's it's
what's called an employee stock ownership plan or ESOP, And
basically the idea that these unions work out with Feldman
is that workers are going to buy control of the company.
This could work out for them because federal law gave
ESOPs really nice tax breaks and they're able to kind

(08:50):
of work with some banks to get like there's like
one hundred and eighty five million they need to get
in financing for this. So Feldman's on board the unions
start like making a national campaign basically telling people, hey,
you know you have all these nice fond memories of Continental,
you know, where this like prestigious airline, and you know,
we want to stop these ghoulish, soulless Reaganites from taking
over our beautiful airline and it'll be worker owned. And

(09:14):
it's like it shows you how different the world is that,
like the Texas legislature passes a resolution like cheering on
the effort, right, actually opposing a Texas based company trying
to take over the airline.

Speaker 2 (09:27):
Yeah.

Speaker 1 (09:27):
Well because like if you think about it, like I'm
not going to say necessarily that there's less culture war
brain poisoning, but it's different. And conservatives in this era,
you know, they voted for Reagan obviously, but there's still
this attitude of like, well, these are working The idea
of like working class people taking over their own airline
is going to be more attractive to a lot of
conservatives than like letting this ghoulish, bloodless Harvard grad take it.

Speaker 3 (09:52):
You know, right, Whereas now it's completely inverted and it's
like the thought of like any worker powers it's like no, no, no, no,
like than fire bomb them.

Speaker 1 (10:00):
Yeah, he would post Lorenzo would post a picture of
himself in jeans and a shotgun, and people would be
like assassinating pilots on the on the highway, you know.
So there was a This is like a potentially you know,
cool idea, but there's a problem. The plan needs majority
approval at a shareholders meeting for like the employees to

(10:21):
be able to do this thing, and Lorenzo had forty
eight point five percent of the stock at this point,
which is enough to block like anything from happening. Continental
goes to the New York Stock Exchange and the California
Corporation Commissioner's office to try and like force through the
ESOP plan without a vote, but they get denied, and
on August seventh, because it's not working out, the banks
who'd offer to help finance it withdraw their financial commitments,

(10:44):
and like you know, it falls apart. So this doesn't
work tragically, like the the employees are not going to
be able to buy their own airlines. And so two
days after the banks pull their financing, while Lorenzo continues
his full court press to take over Continental, the CEO
Feldman issues a press release telling all of his workers

(11:05):
that the esop plan is no longer possible, he tells
them sadly. He's like, and this is like a pretty
emotional letter for him. He's like, you know, we can't
get financing. You know, this has kind of sunk our chances.
I'm so sorry that this failed. And then after sending
this out, he leaves his office at LAX in the
middle of the day, goes on a little shopping trip,

(11:25):
and he returns soon after with a package. Frank works
the rest of the day winding down his control of Continental,
preparing to hand it off to Lorenzo, and then at
a little after seven pm Pacific standard time, he calls
the security desk and he asks them to turn off
the lights in his office. Then he gets on the
couch and he shoots himself through the head.

Speaker 2 (11:45):
Oh my god, No, it's like it's pretty bleak.

Speaker 3 (11:51):
The fuck some Paul Thomas Anderson, Yeah, it kind of is,
like it's it's this really like intense story.

Speaker 1 (11:59):
There's a lot about side kind of the changing of
the guard, just sort of within the capitalist system from like,
you know, Feldman, I'm not going to pretend al felt.
I'm sure he wasn't like, uh, you know, a fucking
flawless hero. But it comes from this era where like, yeah,
like we're capitalists, but there's this understanding of like the
prestige of the business some things are it's not purely
about maximizing profit as opposed to Frank Lorenz was like, no,

(12:20):
nothing matters but short term stockholder value. Yeah, because and
it's like, yeah, Feldman is like from there of like
you provide people a service and they give you money,
and you want it to be fair and you give
them some kind of value back, and this guy's like
a fuck all that all that shit, let's sell your
fucking planes, dude, get the fuck out of my face. Loser,
like Feldman just can't exist in the era of Frank Lorenzo.

Speaker 2 (12:43):
So no very like no country for old men. It
really is.

Speaker 1 (12:46):
Yeah, it's what if like this, it's one of the
more like yeah Cohen brother z e fucking stories in
the history of like modern capitalism. And that's like this
that's the day that the shit fell through basically that yeah, yeah,
kind of well like a couple of days after right,
like that was like but that was sort of like
the last of yeah that that rule. Yeah, and it's

(13:09):
one of those things it's interesting. I haven't seen a
lot of like you know, we've got we do get
to bring up the Coen Brothers. We've gotten a lot
of like movies about like you know, those the corporate
gul or the capitalist goruls of like the train industry, right,
like stuff like that, right, and a lot of more
modern stuff. I've never actually seen this period depicted. But
it's pretty like we're going to go over some of this,

(13:31):
like what's happening this like battle between like the unions
and the airlines and like this old attitude that's less
competitive of like how airlines should be in the new one. Obviously,
like none of these people are. You know, when we
talk about the old way of things, it is worth
noting part of why it falls apart is that it
can't make money because it was never that was never
the primary purpose. So you know, it is it is complex.

(13:52):
It's certainly more complicated than a lot of this stuff
we talk about. But yeah, Frank Lorenzo is like reached
to by the New York Times and he issues a
statement being like, oh, you know, mister Feldman was a
was a great guy. You know, I'm so sorry to
his family, Like.

Speaker 2 (14:08):
Oh my God.

Speaker 1 (14:10):
Yeah, Like you don't need to say anything, man, we
know you don't care, Like, of course, you know, nobody
expects that from you. Yeah, your job is to not
have a soul. Frank Lorenzo, it's fine.

Speaker 3 (14:19):
He's like, yeah, but I gotta say this stuff, you know,
so I like, human, you.

Speaker 1 (14:22):
Got to say the thing. Union Resistance died with Feldman.
Texas Air takes over Continental the next month, and in
short order the two airlines are combined, which means Frank
Lorenzo now controls effectively the seventh largest airline in the
company or in the country. Now, there's a downside to
acquiring a big, bleeding, giant giant like Continental. It is
a money sink, right, There's a reason why it was

(14:43):
on the table to buy. The airline industry is in
a very new place, and it's kind of reeling from
alt from deregulation, from all these sudden changes at the
end of the Carter era and then at the start
of the Reagan era in August of nineteen eighty one,
you have the air traffic controllers strike, right, and this
is basically air traffic controllers.

Speaker 2 (15:01):
It's like a hard gig.

Speaker 1 (15:02):
The hours are shit, they're not making enough money, so
they decide to go on strike.

Speaker 2 (15:07):
Disaster if you fuck up, so many people die.

Speaker 1 (15:10):
But when they decide like most people again like if
you've got I don't know, like people who work at
Albertson's grocery stores go on strike, you know, that can matter.
That matters in a community. It certainly matters to Albertson's,
but like there's other grocery stores, you know, like the
the overall impact to the country isn't massive. Whereas if
all the air traffic controllers go on strike, like good,

(15:32):
you can shut like yeah, and you know, obviously that's
not something a guy like Ronald Reagan is going to
think should be acceptable. He is fundamentally against the idea
that any union should have as much power as the
air traffic controllers do. So he calls their strike apparel
to national security, and he orders them back to work
at the risk of losing their jobs. And there's still
elements of this in like air unions. I think we

(15:54):
all remember when like the stewardesses union put an end
to that, like the fucking budget, like the government shut
down basically by being like, well, what if planes can't
go in the air, how would you fuckers feel that
you know, right, right right? And this is yeah, so
uh there's a yeah. Basically, Reagan's like, yeah, if you
guys don't go to work, I'm going to fire everybody.

(16:16):
And the union calls Reagan's bluff, and Reagan does, in
fact fire everyone, and he bans all of these air
traffic controllers who had struck from federal service for life. Uh.
This is very celebrated by conservatives, but it is a
fucking disaster for a while because like suddenly all the
guys who make air travel possible are gone, right, so

(16:36):
they have to fill vacancies. They bring in the military,
you know, flight controllers and shit from the military. There's
controllers who like, for whatever reason, had worked outside the
union and like different, like weird, little kind of niche
parts of the industry they bring in, like like retirees
and stuff. They bring in like people who had refused
to go with the union on the strike. But it
takes ten years before FAA controllers staffing returns to normal.

(17:01):
The benefit of this for Republicans is that as much
of a fuck up as it is for the industry
and for flyers and for obviously these controllers, it does.
It's almost like a death blow to organized labor, and
a lot of ways you could argue that, like you
kind of have the labor movement, you know, starting up
late eighteen hundreds, early nineteen hundreds, fighting for that eight
hour work day, all these other things that we get
from organized labor, and labor has a significant degree of

(17:24):
power kind of up until Reagan crushes this strike, and
it's it's like a it's an epochal change in the
way that we conceive of labor in this country.

Speaker 3 (17:35):
Yeah, I mean it's I feel like the last time
we were talking about this was just with the rail
workers at the end of the year, and like, oh,
what's the government going to do? Because the last time
it was the air traffic controllers and look where that
got us. But yeah, it is, Yeah, it is true,
Like you're there's so many huge fundamental shifts happening, whether

(17:55):
it's just like the perspective of what even a business
is and what it's meant to do, and like who
it's supposed to provide value for to who the fuck
even deserves to like, you know, demonstrate that they need
better wages or working conditions. Yeah, in such a like
cynical way.

Speaker 1 (18:13):
Yeah, now you know, we can talk more. There's a
lot more to say about, you know, Reagan and the
breaking of that strike, but that is not the story
of today. And while you might expect Frank Lorenzo obviously
to be in favor of Reagan breaking the strike, and
obviously he like he's a fuck the unions guy, this
also has a negative impact on his business because it

(18:34):
like he is when he buys Continental, his plan is
to basically cut a bunch of like the routes that
aren't efficient and launch a bunch of new routes and
kind of like uses existing business to make it more effective.
But like he can't actually expand or really wildly change
the way his airline works and the way that he
needs to if there's this like cap on how much

(18:55):
air travel can exist because we're out of fucking controllers, right,
people Like this is a problem for him, and he's
just burnt a shitload of capital to buy Continental, so
he needs to be able to expand and show that
like he can make a profit. In nineteen eighty one,
then Continental reports losses of again when he had bought Continental,
they were losing a thirteen million year and eighty one,

(19:16):
they lose one hundred million dollars. So it's a little
bit of like an Elon Musk type thing where it's like,
I don't know, man, maybe this wasn't the best plan.

Speaker 2 (19:25):
I think I can do something. Oh fuck my life. Yeah,
oh shit.

Speaker 1 (19:29):
You know, some of this is not directly his fault,
but it's certainly the fault of like kind of the
ideologies he's championed.

Speaker 2 (19:36):
This like war on the rights of labor.

Speaker 3 (19:39):
And did he do like a boxing match against another
airline exect?

Speaker 1 (19:42):
Yeah, he does. He actually beats the shit out of
Mark Zuckerberg. But at this point, Mark Zuckerberg is just
like you've seen some of those old Catholic propaganda cartoons
with like the babies that are in heaven before.

Speaker 2 (19:52):
They're wor yeah, exact, that's who he's fighting.

Speaker 1 (19:54):
Yeah, like the like the Catholic anti abortion propaganda angel,
Mark Zuckerberg of Catholic propaganda. This podcast is sponsored by Catholicism. Catholicism.

Speaker 2 (20:14):
It's fine, now, yeah, what what mood are you in
today's I don't know.

Speaker 1 (20:22):
I don't know, Sophie. I don't know where I'm coming
or going here. We are back and Miles. This is exciting.
I just found out from you once, once I started
talking about Catholicism that you are actually engaged in recruiting

(20:43):
for a new crusade to retake the Holy Land. But
because we're nineties kids, the Holy Land is kind of
the ephemeral concept of playing the N sixty four with
your with your friends at a birthday party exactly. There's
still a high death to expected, is that correct?

Speaker 2 (21:01):
Yeah?

Speaker 3 (21:01):
Yeah, because as much as we love Golden Eye, we
are going to be using actual land mines and proximity
minds excellent, excellent.

Speaker 1 (21:09):
Yeah, yeah, yeah, Well find find Miles on a gibsond
Go and Treon. He's taking donations on both of those
to reclaim our nineties video game past.

Speaker 3 (21:21):
And by that, I think you guys know what I
really mean. But I'm but you know, before we get
the money, it's about N sixty four, Okay.

Speaker 1 (21:29):
Yeah, uh so nineteen eighty one Continental loses one hundred
million dollars and Texa Texas Air is plummeting too. Right,
he's brought he had like it was looking like, wow,
this guy's he's saved this company. He made it profitable.
What a genius he loses fifty million dollars in nineteen
eighty one. So this is a disaster. Barons calls it
a stockholder's nightmare. And what's actually happening here is that

(21:52):
a lot of Frank's success, the perception that he was
this like master of rescuing damaged airlines, was not real success,
but the result of a rational exuberance. Investors liked how
we talked about unions, and the market was good for
the kind of airline he ran, but he was making
a ton of bad calls too. After the Continental acquisition,
he launched a new major marketing rollout that had flopped disastrously,

(22:15):
making Continental in this period the only airline that sees
both revenue and passenger load drop for the quarter. So
this is kind of revealed that he's not a great
airline manager. He was just good at convincing stockholders that like,
that's we're on the open.

Speaker 3 (22:31):
That's how like all these private equity things end up,
is guys who only know how to make line go
up end up taking over like healthcare companies, and they're like,
I don't know, I just know how to make fucking
numbers look different.

Speaker 1 (22:42):
Yeah, I can make the line go up. Now I
will say in a little bit of like defensive Lorenzo,
this is like a real bad time to be running
most airlines. If you're not one of the top like
two or three big ones, you're having a lot of trouble.
Branef collapses at this time, so do a lot of
the other old giants, and most of them are like
getting bought up by kind of like the controllers at

(23:03):
the very top. And Frank has like the seventh biggest airline,
but there's a pretty big drop off between like the
top three or four and numbers seven. And what we're
seeing in this period is kind of the backswing of deregulation.
Right Initially there's this huge drop in ticket prices, way
more people take to the sky, But the end of
the caab's anti competitive regime also leads to an inevitable

(23:27):
tightening of the industry. And kind of where that's ended
up today. You know, we talked about it. It's not
entirely negative. There's a lot of things that are positive
about the deregulation. But the other thing, the thing that
it's like, the way it all winds up, is that
today four carriers control eighty percent of the domestic airline market.
As former American Airlines chairman Robert Crandall told ABC, the

(23:50):
consequences of deregulation have been very adverse our airlines. Once
world leaders, are now laggards in every category, including fleet age,
service quality, and international reputation. Fewer and fewer flights are
on time, Airport congestion has become a staple of late
night comedy shows, and even higher percentage of bags are
lost or misplaced. Last minute seats are harder and harder
to find. Passenger complaints of skyrocketed airline service by any

(24:13):
standard had become unacceptable. Now Crandall is a business school too,
write and he's like he's kind of moaning the deregulation
in part because like he's a guy who had succeeded
at an earlier age of yeah, like pride and exactly. Yeah,
but it's one of those things, so like, I don't know,

(24:33):
there's a lot of downsides to deregulation. And at first
the you know, it doesn't matter to Lorenzo, but like
by the time kind of we're in the early eighties,
the industry is starting to contract, and he's just kind
of it looks initially he's not big enough to like
make shit work. He's getting eaten alive by all sides.
So the walls are kind of closing in on the
guy at this point, and he defaults to what was

(24:55):
basically his only real strategy, cutting perks for passengers and
squeezing his employees as hard as possible. Frank didn't just
see this as good business. There was a degree to
which this is like a thing he enjoys. It's like
a pleasure to him, fucking with his workforce. I found
a book series called Flying the Line by George Hopkins.
George is a former Navy pilot and an air travel

(25:17):
industry historian, and these he writ He's got like this
series of books called Flying the Lion, and if you like,
if you want a frustrating amount of detail about how
air travel used to work, George is your boy, right.
He will tell you way more than you ever wanted
to know about how fucking airlines worked in the seventies
and eighties. He portrays Lorenzo, and again he's got an

(25:38):
axe to grind against this guy. He portrays Lorenzo as
almost ghoulishly excited to fuck over stewardesses. In particular, quote
Phil Nash who went to work for Continental in nineteen
sixty six after serving in the US Air Force and
later became ALPA EVP in nineteen eighty to nineteen eighty two.
We'll never forget his first encounter with Frank Lorenzo. Above
all others, Lorenzo typified this new managerial breed. At a

(26:01):
special meeting in Denver, Nash asked Lorenzo, who was in
the process of taking over Continental left the time, why
he was so intent on reducing the pay of flight attendants.
Didn't he know phil Nash asked that many of them
were single parents who couldn't afford to own homes, that
the pay rate Z was proposing. Lorenzo looked at Nash
as if he were crazy. Quite frankly, I don't believe
flight attendants ought to make enough money so they can

(26:21):
own houses, Lorenzo told a flabbergasted Nash. Maybe they should
find another job that pays better.

Speaker 2 (26:27):
Oh fuck wow.

Speaker 3 (26:30):
He's always wearing his like sociopath badge on his sleeve,
like at every opportunity. He can't even He's like, yeah, yeah,
they don't, I mean, they don't deserve air.

Speaker 2 (26:37):
Yeah, I don't even think they're really people. Yeah, fuck him.
Why don't we just shoot them? Yeah we did.

Speaker 3 (26:42):
I mean, if it's up to me, we'd throw him
out the fucking plane before we land and get a
new crop before the next flight takes off.

Speaker 1 (26:48):
And like, yeah, it's it's wild because like Nash is
obviously Nash is a capitalist. Nash is a guy who
believes in free enterprise. But also he does he comes
from this old era where he's like, well, but they
wouldn't be able to buy houses, and that's like the
whole point, right.

Speaker 2 (27:02):
Like everyone to be able to buy a house. That's
why you toil. No, some people take these jobs and
fuck them if they take them.

Speaker 1 (27:11):
Yeah, like they work, and then ideally they drop dead
at age forty nine when they stop being as profitable.
So Frank's prime target next is going to be pilots. Now,
for very obvious reasons. Pilots tend to make pretty good money, right,
and their costs are one of the more significant baked
in costs for airline management. And this is normally when

(27:33):
we talk about like the struggle of like unions against management,
we're talking about like, yeah, you got like a bunch
of coal miners, right, and maybe the industry changes around them,
or like the executives make a bad decision, but the
coal miners are like doing their job, they're getting the
coal out of the world, and they're just getting like
fucked over by the people who run the company. It's
a bit different with pilots unions because, for one thing,

(27:55):
up until recently, pilots had kind of run a lot
of the airlines. Right, So even if you know you're
just a flyer, you're not in management technically, you're the
guy who runs your company is probably a pilot, and
so are a lot of executives, and maybe you worked
with some of these guys. So like when other airline
unions get fucked over, the pilots are usually safe, you know,

(28:16):
because they're close with management right right, right right. And
it's like, you know, today we're dealing with this thing
where like there's a shortage of pilots in part because
there's this very unreasonably long period of time in the
US where you have to like be trained and have
experience to be able to be a commercial pilot that's
like much longer than like what the requirements are in Europe.
And it's a thing that like the pilot's unions have

(28:38):
fought for because they make more money that way. Not
blaming everything on the pilots, but it's not exactly the
same as like the stewardess's union, right, because they are
closer to running, closer to power, right, So pilots have
more baked in benefits. And they also, like a lot
of them, are like friends with the guys who are
running their companies. So one consequence of this is that

(28:59):
when management and the airlines had made cuts, the pilots
had generally been spared. Dennis Higgins, who worked for Texas International, explained, quote,
some people in senior management were extremely close to the
pilots and smooth that mess over. They spent time in
pilot's homes, went to kids graduations. It was very much
a family atmosphere. So Lorenzo obviously does not care about

(29:20):
the pilots. He wants to fuck them over, but he
understands there's an opportunity here, right because the pilot's unions
are already kind of acclimated to the idea that like, well,
maybe we can fuck over some of like our coworkers
and other unions as and will still be okay. And Lorenzo,
he's kind of like the British Empire. Right, He's like,
I feel like this is an opportunity I can play

(29:41):
these unions off against each other in order to benefit myself.
Hopkins writes. Quote Lorenzo, for all his faults, made no
secret of his plans, but he deviously led various employee
groups to believe that he was after concessions only from
other unions. At the time of his takeover, Lorenzo hosted
a cocktail reception for txi's pilots the Houston Intercontinental Hotel.

(30:02):
Lorenzo flatly declared that except for pilots, he intended to
take the airline back to the employment levels of nineteen
sixty seven. There are profits to be made here. Dennis
Higgins recalls the Lorenzo saying, We're going to continue operating
the same number of trips, but we are going to
get rid of some ground for folks. So because txis ground,
folks are unionized, this strategy means that the airline is

(30:25):
going to like, there's going to be some labor fighting
over this, right, and Lorenzo is eager to fuck with
the union. So he his proposition is like, I'm going
to turn all of our baggage handlers and ticket agents
into temporary employees, right, I'm just going to replace the
unionized guys with temps, which is like a standard tactic
today and that's starting to be more common in this

(30:45):
period of time. He also argues that, like, well, we've
got all these flights to cities that are like outlying,
and so we've they're only on like one or two
flights coming in a day there, so they don't need
any full time employees. So like for these smaller routes,
we'll just hire like college students who need like like
shitty part time gigs to be ground employees just when
like the flight is departing and arriving. And it's one

(31:07):
of those things. Part of how he's able to get
by with this initially is he tells the pilot's union, Hey, guys,
I want you to keep making money, but like, we
can't keep paying you all this money if these worthless
ground employees are siphoning all your money away.

Speaker 2 (31:21):
So what do you say? Yeah, so what do you say? Now?

Speaker 1 (31:26):
All of the pilots don't buy this. There are some
pilots at this big intercontinental hotel meeting that are like, well,
what if we try to offer better flights and try
to make more money that way. And Lorenzo, he has
a violent reaction to this idea. He Dennis Higgins recalls quote,
Lorenzo was openly against the better product concept. He said,
the traveling public looks for the dollar sign. What they're

(31:48):
interested in is a cheap seat. The ones who don't
like our service can go pay higher prices on another carrier.
He was very cynical about the public. And this is
like you can see, this is how all of air
travel works now, right, is like, fuck them. All they
want is to see a cheap price, and you know what,
we can make him pay more in the long run.
If we're Spirit Air, you know, we'll sneak in a
couple one hundred dollars charges that they're not seeing. But

(32:10):
all these idiots care about is that they see, you know,
what looks like a good price.

Speaker 2 (32:14):
Initially.

Speaker 1 (32:15):
We can get him to do all sorts of dumb
shit if we trick him. That's Lorenzo's attitude. He's kind
of like one of the first guys in air travel
who sees where things are going to go here, and
he is right, like people mostly care about it being cheap.
It turns out, We're willing to suffer with a lot
on planes as long as we don't have to pay
too much. Yeah seriously, Yeah, which, you know whatever, that's life.

(32:36):
So while he's doing all this getting each union to
agree to a few cuts under the promise that they'll
be spared and someone else will get fired, he starts
selling Continental aircraft as fast as he can. This puts
like twenty one million dollars in the bank right away,
and he gets another big, like thirty million dollar loan
from Chase Manhattan. He does this public stock offering to
raise more money, and over the course of eighty three

(32:58):
he builds up this big war chest, right so suddenly
Continental has like a weird amount of cash on hand,
even though they lose like eighty something million dollars that year.
And everyone assumes he's doing this he's saving up money
because he's gonna buy another fucking airline, because that's what
Frank always does. But he actually has a different, cunning,
more fucked up plan. He's going to break the unions

(33:21):
once and for all, and he's going to do it
by declaring bankruptcy. Yeah, yeah, he is.

Speaker 3 (33:30):
Every hes like I love that, every like all of
his goals are just in line with making things just
as fucked up for other.

Speaker 2 (33:37):
People as possible, just enriching himself.

Speaker 1 (33:40):
Yeah, I mean, of course, like that's the way it all,
that's the way it all works.

Speaker 2 (33:43):
But he's doing it.

Speaker 1 (33:44):
This is like, this is one of the first times
that he's really he's he's creating something. No one had
ever done this before. So basically his plan is, Hey,
if you go into bankruptcy, I think you might be
able to throw out all your union contracts, right because and.

Speaker 2 (33:59):
The part of and shit, yeah.

Speaker 1 (34:01):
And no one, no one knew if it would work
this way, right, Like this had not been done before.
But basically his plan is like, I'll take this shit
to the Supreme Court if.

Speaker 2 (34:09):
I have to.

Speaker 1 (34:09):
I think eventually they'll rule with me, because you know,
Reagan's in the fucking White House, right, I can see
where the fucking winds are blowing.

Speaker 2 (34:15):
Yeah.

Speaker 3 (34:16):
It's like though, like, right, brothers of fucking the unions
over like, I don't know if you can.

Speaker 2 (34:19):
He's like, I don't drive, We're gonna dry man, We're
kind of figure it out. Yeah, and if we do,
and if it works, welcome to a new age. Yeah.

Speaker 1 (34:28):
That is exactly what he's saying, and so he would
claim like he dis disappearance at Harvard the next year
and he's like, well, you know, I really failed and
we had to do chapter eleven because like I just
couldn't make shit work.

Speaker 2 (34:39):
You know, this is on me.

Speaker 1 (34:40):
But we have like notes that he was sending around
the company at the time where he's like, you know,
this is what's gonna work, Like the creditors are ready
for it, Like we're gonna fucking kill the unions with
this shit, Like that's the reason that we're doing this.
And at the same time, he starts to execute this
very slick media strategy where he's he's really playing up
the company these financial problems and he's blaming it all

(35:02):
on workers' salaries, right, like I failed. What I failed
in doing is I just couldn't get salaries low enough.
You know, we're paying too much on workers and that's
why it's impossible to make a profit with this airline,
he claimed in his speech at Harvard. Quote, what we
tried to do was shift the story from it being
a bankruptcy to a labor problem as fast as possible.
And this works really well, right, so's he's Basically, as

(35:25):
this is going on, as he's prepping to go into
chapter eleven, he's renegotiating his contracts with these unions, and
instead of working anything out with him, he just keeps
at the last moment when they'll think they're about ready
to sign a contract, they'd be like, ah, nope, you
know what, I actually I can't do this or I
can't do that. We have to go back to the
drawing board. So the unions eventually decide to go on strike,

(35:46):
and as soon as they go on strike, he furloughs
all of the non striking employees or the striking employees,
he brings in scabs and he declares chapter eleven right,
So he goes into bankruptcy, and he says, well, now
that I'm doing bankruptcy, I want the government to let
me revoke all of my union contracts. So yeah, that's

(36:10):
that's the plot. That's what he's trying to do here.
And this right up from Texas Monthly describes what happens next.
The airline immediately shut down operations and laid off all
but four thousand of its twelve thousand employees. Continental executives
said the line would resume flights three days later to
selected cities at the low price of forty nine dollars
one way. Returning workers would face pay cuts, increased productivity requirements,

(36:30):
and the elimination of all pensions. The salary of flight
attendants would drop from twenty nine thousand to fifteen thousand.
Pilots making eighty nine thousand would be paid forty three thousand,
the same salary Lorenzo said he would take in place
of his normal two hundred and fifty seven thousand dollars.
At press conferences, he glossed over Continental's fifty million dollars
in cash reserves. The airline faced running out of money

(36:51):
in a few days, he insisted. Meanwhile, union leaders and
even some business executives denounced him. Wall Street analysts questioned
the company's future, and competitors rejoice. So Frank's plan here,
there's like an element of desperation to this, because no
one's ever done this before. He's just pretty sure it's
going to work. On September twenty seventh, when he reopens

(37:12):
the airline and starts offering these cut rate flares, basically
the whole Continental fleet remains on the ground. There were
only a handful of flights he was able to actually
pull out, but since the airline had technically resumed operations,
he was able to ask the bankruptcy court to rescind
the union contracts. Gradually, Continental starts opening up more and
more flights, bringing in scabs to do all the work,

(37:33):
but the real financial health of the company is unclear.
He declares at a press conference that like, we're doing great.
The same day he asks the government to release ten
million in their funds to keep the airline from collapsing.
The unions fight back, They go on strike. They refuse
to go back to work for reduced pay, but they
can't stop the scabs from a flooding in, and Frank
is able to bring in enough workers to keep this

(37:55):
minimal schedule operational. Now, the union with the most clout
and thus the most power or are the pilots. And
because pilots made bank they had enough money that they
were able to like draw funding from other pilots unions
to fund their part of the strike. So they start
using some of this money to carry out a media
campaign where they're basically trying to be like, all this
non union labor has made flying more dangerous. You might

(38:16):
die in the air because of what, you know, what
Lorenzo's doing. This may have been true because Continental gets
fined like four hundred grand because the FAA sees that
they're not like they're breaking a bunch of rules basically.
But no planes crash from Continental in this period, so
it's kind of hard to like, you know, yeah, really
point the finger would have helped them if some people

(38:37):
had died, is what I'd say.

Speaker 3 (38:38):
Yeah.

Speaker 1 (38:39):
Now, one of the things that's really interesting is like
how ugly this strike gets. So on November twenty second,
two Continental pilots get arrested trying to evade a police
license checkpoint. Both of these guys are I think this
is like a DUI checkpoint basically, but both of these
pilots had been they'd been driving to the homes of
Continental scat pilots who were gabbing and throwing pipe bombs

(39:01):
at their houses. Oh shit, they get caught fucking pipe
bombs and scaps.

Speaker 3 (39:07):
Oh no.

Speaker 1 (39:08):
And it's like there's this like little war that goes
on because the year after these guys get convicted, a
Houston police attendant lieutenant gets charged and convicted of selling
confidential information about striking Continental employees to a private detective
hired by the airline, So like, yeah, the fucking nasty strike.
Yeah yeah. Soon after all this goes down, a court

(39:30):
case is ignited by Frank's Chapter eleven move and it
gets a ruling from the Supreme Court. They declare that
companies in chapter eleven have the right to cancel burdensome
union contracts. Now, Congress like seals this up. They passed
legislation so that like CEOs can't do what Frank did.
But he wins, right, he gets to actually like do
this shit.

Speaker 2 (39:50):
Oh he got up.

Speaker 3 (39:51):
So he's like, is he the only one they got
it over the line?

Speaker 2 (39:53):
Basically that got.

Speaker 1 (39:55):
It over the line in this way, right, Like there's
still kind of more openings to do this, but Congress
kind of makes it harder. But it works out for Frank.
His company is still in pretty desperate financial straits though,
and because he's the guy who had like led it there,
you might have expected him to have suffered financially. And
he's like making a big claim to like, well, I've
cut my salary, I'm making like way less money. You know,

(40:17):
we're all hurting here. This is a lie. Yeah, So
basically he's like I'm going to drop my salary from
like two hundred and sixty thousand to forty three grand.
But he he's that's not like the whole story, because
like he's getting bonuses. Obviously, he's like making hundreds of
thousands of dollars in bonuses, but he's also he's set

(40:38):
shit up so that like there's this weird he's basically
putting his money into this weird stock transaction that he's
like running through an automated subsidiary, which is like doing
the he's basically like doing like an automated stock trick
where he's like buying shares and then like reselling them
once they get Anyway, the way this all works out

(41:00):
is that he's able to buy two hundred thousand shares
of his company stock at fifty cents a share for
one hundred thousand dollars, but he only has to pay
five thousand dollars because he has Texas Air loan him
the rest of the money, and then he resells it
two years later when it's worth more money and effectively
makes like an extra one and a half million dollars

(41:21):
for paying five grand, where he basically like has the
company subsidize his investments. So yeah, it's he's making He's
doing just fine, right.

Speaker 2 (41:31):
Yes, so, but I mean he's only making forty grand
a year now.

Speaker 1 (41:33):
Are yeah only making for He's like one of the
first CEOs to be like, oh if I just tell
people my salaries cut Like these idiots don't understand all
the ways we can fuck with stock prices.

Speaker 2 (41:43):
I don't know.

Speaker 3 (41:43):
That's like a minuscule. That's not let's I don't even
need a salary. It's all the fucking bonuses and the stocks.

Speaker 1 (41:50):
That's not where the fucking money is. But you know
where the money really is. Miles tell me podcast ads.
Oh yeah, yeah, like these podcast ads.

Speaker 2 (42:06):
Ugh, we're back.

Speaker 1 (42:08):
So yeah, it's really interesting. There's like during this kind
of period of time, Frank is also really willing to
fuck over his other like the corporate ghouls who like
make these moves possible. One of the guys who basically
funds his Chapter eleven scheme is the chairman of a
company called American General Harold Hook, and he floats Frank
the money to keep Continental going while he's like fighting

(42:31):
with the unions, and the understanding is that like they
will be partners in the airline business. Once it gets
back on the black, but Lorenzo doesn't sign anything with Hook,
like it's a handshake deal. And so as soon as
the airline's making money again, Hook is like, well, yeah,
now we're running this together. And Lorenzo's like, what do
you mean what do you mean you thought you know, you.

Speaker 2 (42:52):
Thought a handshake deal meant anything?

Speaker 3 (42:54):
Nah? Bro, No, that wasn't even that wasn't even to
like seal the deal. I was like, I see you
later put her there and then yeah, laugh had nothing
to do. No, dude, it's not even legal.

Speaker 1 (43:03):
And it's because Hook has a lot of money. They
go to court over this, and like a lot of
the case winds up being around how he had used
the word partner in these conversations, and his argument is like,
when I said partner, that was like a colloquial term.
It's like, buddy, yeah, yeah, exactly, how do you partner?

Speaker 2 (43:22):
We're a Texas partner, you know.

Speaker 3 (43:23):
Yeah. I feel like this we can go into business partner. Yeah,
that's kind of what he does. He could be my
business partner. Wait, so I could be your business or
your business partner.

Speaker 1 (43:34):
So after he breaks the pilots union and he wins
this fight, scandals start to erupt. That makes it clear
how he had like done a lot of the business.
So one of the things that he does in order
to get investments is he like makes these deals overseas
while the problems are happening with like in like Australia
to like run a bunch of you know, get get
a bunch of roots for Continental. And it comes out

(43:55):
after the fact that like he had basically bribed the governor,
the ceremonial governor of which is a thing that exists
with free flights, in order to help him negotiate to
get these roots. And then it came out with the
judge the US the federal judge who'd ruled on their
Chapter eleven case before it hit the Supreme Court. Right after,
like the case goes Lorenzo's way, he quits being a

(44:17):
judge and gets a job at the law firm that
represented Lorenzo's companies. So like, yeah, this is all fine.

Speaker 3 (44:24):
Oh yeah, I mean yeah, I mean he's he's got
all the right moves.

Speaker 1 (44:29):
Yeah, yeah, he's he's it's going well for a while,
but more acquisitions followed, Like Frank kind of goes a
little nuts after he wins this continental case, and like,
you know, as as profits start to return, he starts
getting more investments. There's a lot of you know, people
are have a lot of confidence in him because he's
this like union buster. So he's able to like basically

(44:52):
work his way into taking over Eastern Airlines next, which
is the number three airline in the country. So he
is like, I send them like twenty percent or whatever,
like one, yeah, one fifth of all air traffic in
the United States is under Frank's personal control at this point.
But also Eastern is like bleeding money, and all of

(45:14):
his companies kind of are because after he's able to
get these kind of like short term investments and shit,
it becomes clear that like, well, he's just made his
airlines a lot shittier like and nobody actually likes flying
on them. So this again, it's the same thing that
had happened like a couple of years earlier. Like he
starts hemorrhaging money. And I'm going to quote from a

(45:35):
write up on avgeehery dot com, Lorenzo was so heavy
handed with subordinates at Eastern that in the end, the
airlines employees basically put their own jobs on the line.
To get rid of him when he first arrived. He
tried to turn the company around by incessantly hammering the
unions to make concessions. He enlisted the help of Eastern
Airlines as managers who were company men, and enforced what
some called abusive policies against employees. Workers were required to

(45:58):
adhere to very strict rules, and we're up for lying
about non existent medical conditions if they called in sick
to work. So many machinists were accused of theft and
or drug use that in one year alone, two hundred
and sixty two unionized machinists lost their jobs. Psychological warfare
was even waged on flight attendants who were forced to
collect garbage on flights, a violation of their contract. What
if a flight attendant refused to act as a garbage collector,

(46:20):
they were fired on the spot for insubordination. So Eastern
gets combined with Continental Frontier and People Express, and you know,
it's one of those things where like his constant cost cutting,
like he's looking great on paper for a while, but
everything starts to fall out, fall apart after this, and Frank,
you know, is squeezing these people too so much that

(46:41):
like Eventually, the Eastern Airlines Machinist Union goes on strike.
And up to this point, like nineteen eighty nine, every
time the union employees had gone on strike against him,
Frank had wound up just like beating the piss out
of them. So he's pretty confident. George H. W. Bush's
in the White House now, He's like, I got this stuff. Yeah, yeah,

(47:01):
hold my beer. But Bush doesn't hold his beer. He
refuse to. He refuses to create a mediation board. He
basically says, no, the federal government's not getting in on this, Like,
you're going to handle this alone. And this is when
Frank thinks back to Andrew Carnegie. So he hires mercenaries
in order to like escort his employees off the airfields

(47:22):
when they try to lock down the airfields at gunpoint.
Like he kind of goes like hard on this shit,
but again without the government backing him, his heavy handed
tactics fail. The pilots and the flight attendancy unions are
so like horrified by what he is doing that they
go on a sympathy strike. He hadn't thought this was possible.
He thought he'd broken them enough that this wouldn't happen,

(47:44):
but they ground his entire Like Eastern Airlines, the third
largest airline in the US, is grounded right after he
buys it, and this just causes a cascading like series
of losses that sends him like bankrupts his companies right right. Obviously,
Lorenz gets away rich, but he is his empire gets
broken up and sold off, and like he gets forced

(48:05):
out of aviation forever. Part of why is that, Like
the Scandinavians buy Continental airlines, but they only do so,
Like if the US government will agree to ban Frank
from working in the airline industry for a decade, they're like,
we'll pull your fat out of the fire, but you
can't let this guy near an airline again.

Speaker 2 (48:25):
Shit.

Speaker 1 (48:27):
He tries two years later to create an airline called
Friendship Airlines, but the Department of Transportation is like an
absolutely not, like you nearly collapse the entire industry. We
are never letting you anywhere near a fucking plane again.
And so he just spends the rest of his life
as a rich guy. He's got like a Capital VC firm.
He still makes he's still alive, he still makes a

(48:48):
lot of money, but he's not allowed in nearplanes anymore.

Speaker 2 (48:51):
Anyway. Oh yeah, now he's doing and look just he's
doing venture capital.

Speaker 3 (48:56):
Yeah, he get private equity in private equity, as it
always is.

Speaker 2 (48:59):
Because I guess it always is same.

Speaker 3 (49:01):
The thing I learned was always like, whenever you think
of business is like shitty, it's and like you're like,
but this business was like so big.

Speaker 2 (49:07):
What happened?

Speaker 3 (49:08):
It's usually because private equity just bought it. Yeah, and
it's like slowly being all the good shit is being
pulled out. There's no people working. So if you like
when you go into like Toys r Us and looks
like a fucking spooky ghost.

Speaker 2 (49:19):
Town, wasn't because like they were fucking up.

Speaker 3 (49:22):
I mean like I mean because they were profitable up
until private equity bought them.

Speaker 2 (49:26):
Yeah, private equity starts following it out. Yeah, so it's good.

Speaker 3 (49:31):
Yeah, it is good. I wonder now I just want
to know what fucking Frank Lorenzo was up to? Is
have like Savoy Capital or whatever is fucking private equity
firms up to.

Speaker 1 (49:42):
Yeah yeah, maybe that will be a story for another day.
But today was the tale of why airlines.

Speaker 2 (49:50):
Be that way? Yeah? Why do they? Yeah?

Speaker 1 (49:53):
Anyway, you at anything to plug miles.

Speaker 3 (49:56):
Uh, just go at my of Gray wherever you see
at based Yeah.

Speaker 1 (50:04):
Yeah, yeah, go to at miles of Gray. Listen to
the daily Zeitgeist. Yeah, and uh, I don't know, Uh
I probably I was going to make a joke about
the pilots and the pipe bombs, but that's probably going
to get.

Speaker 2 (50:20):
Us some trouble. Probably, Yeah, I would you still want
to fly? Yeah?

Speaker 1 (50:24):
Yeah anyway, ad free. Cooler Zone Media whatever We're done later.
Behind the Bastards is a production of cool Zone Media.

Speaker 2 (50:38):
For more from cool Zone Media, visit our website cool
Zonemedia dot com, or check us out on the iHeartRadio app,
Apple Podcasts, or wherever you get your podcasts.