Francisco Anthony "Frank" Lorenzo (born May 19, 1940) is an American businessman and philanthropist. He was best known for his takeover from Eastern Airines, and his "leadership" from Texas International Airlines and its parent, Texas Air Corporation, between 1972 and 1990, where he formed or acquired a number of major US airlines including Continental Airlines, Eastern Air Lines , Frontier Airlines, New York Air and People Express Airlines.
As an airline manager, he earned a reputation for the destruction of unions, which stemmed from his leadership during the 1983 Continental bankruptcy that allowed the company to abort union contracts, and during strikes and bankruptcies from the East that eventually led to a permanent closure in 1991 The history of Lorenzo is highly controversial, both "hated by unions and admired by aviation strategists." In 1990, after Lorenzo liquidated its ownership after 18 years in the airline industry, Alfred E. Kahn, "the main architect of airline deregulation", offered a perspective on Lorenzo's leadership: "I do not think there's any question that he saved Continental, but his tactics obviously not working when he took over the East. "
Since 1990, Lorenzo has been chairman of Savoy Capital, Inc., professionally devoted to asset management, private investment and venture capital, as well as a number of philanthropic activities.
Video Frank Lorenzo
Kehidupan awal
Born from Spanish immigrants Olegario (died 1980) and Ana (nÃÆ' Â © e Mateos), Lorenzo grew up in Queens, New York. His father was a private investor and an old salon owner in Manhattan.
Lorenzo attended Forest Hills High School and then worked through Columbia University, working several jobs, including at Macy's. He graduated in 1961 with a B. degree in economics, followed by an MBA from Harvard Business School in 1963. He spent a short time in the army that year, and then returned to New York.
Maps Frank Lorenzo
Initial carrier carrier
Lorenzo's first professional work was at Eastern Airlines and Trans World Airlines, working in financial analysis, from 1963-1966. He then formed Lorenzo & amp; Carney, Inc., a financial advisory firm specializing in aviation and related businesses, in 1966 with Robert Carney, who also attended Harvard Business School.
Jet Capital
Lorenzo and Carney later formed Jet Capital Corporation, an airline advisory firm, in 1969. The first two corporate advisory clients were Mohawk Airlines and Texas International Airlines in 1971. Jet Capital raised more than $ 1 million in public share offerings, and then asked by Chase Manhattan Bank to take over Texas International Airlines (TIA) as an alternative to bankruptcy.
Texas International Airlines
After consulting with Texas International Airlines (TIA) for several months, Lorenzo acquired control in 1972 through Jet Capital, which acquired 26% of TIA's equity interest and 59% of voting power of $ 1.15 million. Lorenzo became president in August 1972. The agreement was approved by the Civil Aviation Council (CAB), which regulates the aviation industry in the United States at the time.
When Lorenzo took over the TIA in 1972, he was on the verge of financial collapse, losing money since 1966. Two years later, Lorenzo's management was able to steer the company to break even because of significant streamlining operations. A few years later an analyst from Oppenheimer & amp; The company, citing the strategy of Lorenzo and Carney's business partners to replace jet-lagged aircraft, eliminate unprofitable routes in exchange for higher-demand destinations, and institutionalize half-price "beans" for the first time in the aviation industry, noting the TIA's ability to compete and win against a much larger and financially stronger company.
In the next five years, Lorenzo's management changed the character of the airline, changed its fleet, increased utilization, cut costs and dropped many losing routes and added flights to powerful segments. Average travel distance per passenger rose by 25% from 1972 to 1976 In 1977, the company earned $ 8 million, and in 1978, TIA reported net profit of $ 13.2 million and it was described as "aggressive, innovative operator ".
The airline takeover attempt
National Flight
For several weeks beginning in June 1978, Texas International Air purchased shares of National Airlines, filed documents with the US Securities and Exchange Commission when its shares reached 9.2%, just less than 10% which would require prior approval from the Civil Aviation Council (TAXIS). TIA was reported at the time to study the national "probability of finding control". A few weeks later, TIA announced its intention to purchase up to 25% of National shares, and requested approval from CAB to acquire shares and direct control of the National. TIA's larger National takeover attempt "shocked a lot of people", because National was about six times the size of TIA at the time. Lorenzo's management team sees National shares as significantly underestimating the company's assets, and the move is financial in addition to aiming to combine routes from both airlines.
Bids competing for National controls were handed over to CAB by Pan Am, and National agreed to be acquired by Pan Am; this action raises the price of National shares. CAB grants TIA and Pan Am each permit to acquire up to 25% of National shares, and both companies earn 45% of the total shares. National management and directors, as a group, hold less than 5% of the outstanding shares. In December, Eastern Airlines also joined the offer for National. TIA and Pan Am regarded the offer as a "tactic to block their own chances" in finalizing the deal, but East chairman Frank Borman called the offer serious.
In April 1979, the United States Department of Justice and the United States Department of Transportation announced the rejection of East and National mergers on the grounds that the merger would be anti-competitive. In July, the CAB said, "it will not block the merger of airlines that seem to benefit the public". The National has accepted Pan Am's offer and has not submitted TIA offers to its shareholders, which makes TIA's offer "dead effectively". TIA agreed to sell its stake in National to Pan Am, earning TIA a net profit on a merger effort of nearly $ 45 million.
TWA
With large sums of cash in hand, analysts say that TIA is likely to start another acquisition effort quickly, to hinder its own takeover target. TIA did that, accumulating shares of Trans World Airlines (TWA), a larger target than National. TWA has 14 times the airline's revenue from TIA, and TWA's parent company's total revenue, Trans World Corp., is 20 times that of TIA.
Analysts wonder why Lorenzo and TIA will try to take over such a big company; some speculated that he and his team would "love to heal TWA", believing it could be "working miracle" in TWA, or interested in other profitable businesses owned by Trans World Corp., including Hilton International, Canteen Vending, and Spartan Food Systems. Others suggest that Lorenzo is trying to create another advantage over the sale of shares, which he denies. There are still other analysts who have different perspectives, pointing to the structural and financial synergies that will be displayed by TIA and TWA mergers. One offers that TIA "will get the route system, equipment and facilities in place." To other analysts and even airline executives, it's clear why Lorenzo is interested in TWA: an executive says, "Frank is a financial man - that's the game," and TWA offers to Lorenzo a difficult financial situation with an unattractive amount of long-term debt. ($ 643 million, a relatively large amount in the industry) was offset by a portion of the debt carrying very attractive interest rates and a low interest rate of 4%.
TWA opposes sales; his council "unanimously affirms" publicly that TWA is not for sale. After collecting more than 4% of the shares of Trans World, TIA finally withdrew from the proposed deal, selling all its holdings in January 1980.
Establishment of Texas Air and New York Air
Lorenzo restructured the TIA in 1980, forming a holding company called Texas Air Corp., controlled by Jet Capital, as the previous TIA. Texas Air is owned by TIA and has a cash holdings of about $ 60 million, which Lorenzo says will be used primarily for investment in the aviation industry. Then in 1980, Texas Air formed a new airline, New York Air, with a capital of $ 25 million. Lorenzo is the new company chairman, who will fly a shuttle flight between New York La Guardia, the center of the airline, Boston-Logan, and National-Washington Airport. The plans include expansion into several cities in the Northeast.
New York Air plans to win customers by charging lower rates and providing better services and more spacious seats than the dominant carrier between New York and Washington, Eastern Airlines, which responds by offering lower rates. Pan Am, which has announced competing services after the formation of New York Air, also lowered its tariffs.
The formation of New York Air was opposed by union employees from Texas International Airlines, who were angry that non-union employees were hired and that wage rates were much lower than union rates in the TIA; in the pilot case, that figure is about half the level of the union. Unions feel that the company is specifically set up to "avoid long contracts with well-organized employees" and that work should be offered to TIA employees. The pilot union planned a $ 1 million protest campaign and boycotted a company that did business with Texas Air, the parent company, but the campaign was canceled due to the 1981 air traffic control strike.
Continental Airlines
Buy
In January 1981, Texas International Airlines announced an offer to buy Continental Airlines. It already bought almost 10% of Continental shares, and offered to buy enough to bring its shares to 35% to 48%. Continental already has an agreement to join Western Airlines, and Texas Air announces that it will seek to choose its shares against the merger. Like the previous attempt, the TIA takeover target is a company much larger than itself.
There is opposition to the planned takeover of TIA. In particular, employees are afraid that Lorenzo will fire workers and that he is anti-union, shown by the establishment of New York Air as a non-unionized company, the allegation that Lorenzo rejected by explaining that employees have the right to choose union representatives should they be highly desirable. While the TIA acquired 49% of Continental shares, a group of employees sought to stop the plan through legal maneuvers designed to give them control over the company rather than sell to TIA. Continental chairman Alvin Feldman objected to the purchase, telling Lorenzo that he thought the combined company would be "very weak"; as the takeover battle continues, Feldman is described as "strongly opposed" to the plan.
Financing for the planned purchase of the group's employees failed, and when Continental prepares for public announcement, Feldman commits suicide in his Los Angeles office. TIA received approval for its purchase from CAB, and President Ronald Reagan did not block the deal. The legal battle between the two companies ended in November, with Lorenzo and his two colleagues elected on the Continental board of directors.
1981 was a tough year financially for Texas International, New York Air, and Continental. Lorenzo claims, and some analysts agree, that Continental's problems are worse than those they face before their purchase. Continental's losses for 1981 were over $ 100 million, and the economic recession further hurt Continental's finances. It seeks to renegotiate the contract with several unions.
A series of steps to combine TIA and Continental followed. Lorenzo incorporates TIA Dallas's historic center into Houston as part of its plan to combine TIA and Continental routes in the hub and spoke system. Continental moved its annual meeting from May to March 1982; at the meeting, Lorenzo was appointed Continental chairman. In July, Continental and Texas Air approved the company's "financial incorporation", although the operation remained separate. In September, employees of Texas International and Continental were told that there would be "operational and management integration of both companies effective on October 31 [1982]". Although Texas Air remains the parent company, the combined company operates under the name Continental, brand, and aircraft livery.
Strike and bankruptcy
After 19 months of negotiations, Continental and its mechanical union failed to reach a work agreement, and the mechanics broke down in August 1983. Continental continued to operate, partly by hiring replacement mechanics, but largely because of TIA's valid and current mechanics. contract. but filed for Chapter 11 bankruptcy protection from lenders a few weeks later, laying off 65% of its employees. After filings of bankruptcy, the pilot union broke down to protest the lower wages offered by the company. The bankruptcy filing allowed Continental to cancel the union contract. It returned to operating profit in 1984, but remained under bankruptcy protection until 1986, after drafting a plan with creditors to repay most of its debts for 10 years.
During bankruptcy, Continental claims that its labor costs are too high and will force the company out of business entirely if left unchanged. Unions claim bankruptcy is merely a legal maneuver intended to cancel a contract. The company cut operations and expenses during the reorganization, fired one-third of its employees, canceled contracts, and cut two-thirds of its flight routes. The average salary of Continental pilots after filing for bankruptcy is 30% to 50% lower than before filing.
Expansion and occurrence of bankruptcy
The "New Continental" began to appear when in bankruptcy. With its cost structure consistent with the derivation carrier after deregulation, the airline began to compete effectively with the old operators. In May 1984, Continental operated 83 of its 105 aircraft, most of which were based on bankruptcy filings. Despite operating near capacity, it was done with nearly half of 12,000 employees, with half the wages, than before bankruptcy. In the summer of 1984, Lorenzo's team had filled many of the downsized positions during the strike, and employment had reached 9,000 with a route system serving 67 destinations. The average aircraft contains 67% load factor, among the highest in the industry. Continental's low-cost airline strategy is just beginning to pay off.
In June 1984, Continental received a favorable ruling from Bankruptcy Judge R.F. Wheless Jr. who decides that "Continental is justified in rejecting the [pilot] contract it describes as incriminating" and that it "has no choice but to file a reorganization." Continental's Lorenzo and his team have successfully argued that "labor costs will force airlines to liquidate."
In the second quarter of 1984, led by Lorenzo's team, Continental's restructuring showed more promise. The company reported net income of $ 10.4 million, an increase of $ 36.9 million from a loss of $ 26.5 million over the same time period in 1983.
Further signs that the new low tariff business model run by Lorenzo's management team, are just beginning to show. With all the initial tariff set at $ 49, the airline is able to compete with the old operators. It also puts into place a stock ownership plan with a 1 million share grant, new profit sharing and compensation forms, including an option to buy new shares to reward employee loyalty during and after a trade union strike. Pioneering innovations in the industry, such as Flyway Ticket Machines and Continental's partnership with Federal Express to provide nationwide overnight shipping tickets to customers, proved to be effective.
In September 1984, Lorenzo's team had led the airline to surpass the number of seated-flown seats before the bankruptcy with 25% fewer employees. Although the airline has competitive pricing with new entry operators, the airline still offers full services such as hot food, checked baggage, frequent flier program and code sharing with partner airlines. A record profit of $ 30.3 million was reported for the third quarter in 1984. Continental has successfully transitioned from "a high-cost carrier losing its ultimate shirt to a low-cost carrier producing a good profit." In September 1986, "New Continental" succeeded in emerging from bankruptcy as a slim, sustainable and profitable airline. In particular, Lorenzo's management team has reached an agreement with all of its creditors to pay them 100 cents dollars without equity compensation, a scarcity in previous bankruptcy.
Exit Continental
In 1989, Continental served 133 airports worldwide, carrying about 9% of US commercial air traffic and offering over 1,250 departures daily. Lorenzo agreed to sell his controlling stake in Continental Airlines' parent company to Scandinavian Airlines Systems (SAS) on August 10, 1990. Lorenzo agreed to remain on the company's Board of Directors for two years.
Eastern Air Pass
​​â € <â €
In 1975, Frank Borman became president and CEO of Eastern Air Lines. It hurts financially, and Borman negotiates concessions from his employees, but he also orders a new expensive airplane. He also often clashed with trade union leader Charlie Bryan. The atmosphere in the East is such that "[l] the above fights ravaged the East with regular tropical storms in Florida". (The company was later described as "anemic for most of the past 20 years" and because it "staggered from one financial crisis to another".)
Takeover
In January 1986, the East faced another financial crisis and sought more concessions from its union. Eastern is described as the need to "get long-term economic aid from its union or enter bankruptcy and impose it, just as Continental now developed under Frank Lorenzo in September 1983". The East Machinist Union refused to renegotiate his contract; After Texas Air made an offer to buy the East, although union opinions were generally negative against Lorenzo's tactics, union leader Bryan said, "it might surprise a relationship that can develop between Lorenzo and our organization." The East set a deadline with three major unions to grant concessions or to have the company sell to Texas Air; when the deadline passes without a concession, the Eastern deal is pursued. Although there are more legal maneuvers that seek to stop the deal, it was approved by shareholders in November 1986.
In December 1986, Texas Air also finalized an agreement to acquire People Express Airlines, a low-cost carrier that had been formed by eight executives who had left Texas Air in 1980. The deal includes assets from the bankrupt Frontier Airlines, which People Express has bought in 1985. In February 1987, People Express and New York Air merged into Continental. The combination of the airline controlled by Lorenzo through Texas Air accounts for 20% of the aviation industry in the United States, and some estimates describe it as the largest airline in the Western world, and second only to Aeroflot around the world.
Disposal of assets
In February 1987, Texas Air transferred six planes from the East to Continental, a move seen as an anti-union movement because Continental no longer has unions. In March, Texas Air purchased Eastern's reservation system in its new subsidiary, SystemOne, for $ 100 million, well below the estimated value of $ 200 million to $ 400 million. East fees are then paid to lease back the system. This system is combined with other computer system assets and has 5,100 travel agent customers. Texas Air then sold half of its interest in the system for Electronic Data Systems for $ 250 million.
In October 1988, Donald Trump purchased an $ 365 million Eastern shuttle service, changing his name to Trump Shuttle. In December 1989, American Airlines agreed to buy a route to Latin America (inherited from Braniff and Panagra) for $ 471 million.
Worker strikes and decreased generated services
Due to the ongoing management and trade union struggle regarding contracts of employment, service at airlines declined resulting in a series of more politically charged and controversial events.
In March 1987, Senators Frank Lautenberg and Lowell Weicker sent letters to Lorenzo questioning declining service levels, including procrastination, transfer, cancellation, and poor communication. After outlining some of the problems their Senate committee found, they affirmed that Texas Air did not fulfill its "obligation to provide reasonable levels of service to its passengers" and requested that Texas Air work towards that goal and provide a "quick response".
The FAA knew that Eastern said it would pay any fine from the FAA for flying practices beyond the rules. The technicians, pilots, and flight attendants are all stricter target rules of attendance that will allow the East to fire them after fewer offenses than ever before. The East also fired more and more employees under charges of drug abuse and false medical claims and insubordination. A study by Virginia Tech in 1987 showed that only 2% of Eastern pilots described their work as "highly beneficial", while 85% in others surveyed felt that way. In September 1987, the roll of Eastern work has been reduced by 4,000 to 39,000 people. Eastern Unity and machinists' prepare for a strike to happen.
Lorenzo instituted cost-cutting measures in the Eastern by outsourcing some maintenance work, which required pilots to fly longer, and delayed repairs. In one instance, a pilot refused to fly with only one AC unit that worked on cross-country flights. The FAA investigated in the summer of 1987 and found that the East had the worst repair records of 11 airlines, and an average of 55 items were not repaired per day, compared with an average of 29 in the industry. In October 1987, at a congressional hearing, the pilots said that they were forced to fly an unsafe aircraft.
In April 1988, the US Department of Transportation initiated an investigation into the financial and safety fitness of Texas Water and the East; The investigation was announced at the same time as a $ 823,000 fine imposed by the FAA for security breaches. Investigations deemed Texas Water have passed the test and added that labor disputes "could endanger safety in the East".
In the midst of the negative publicity that followed, Barbara Walters dubbed Lorenzo "probably the most hated man in America" ​​in a 1989 interview, which she rejected, blaming the union for a bad press.
Crash - illegal locking
After negotiations with the three unions failed to produce a labor agreement, the mandated 30-day cooling period began on 1 February 1989. If an agreement could not be reached, the strike would begin on March 4, 1989. During this period, Lorenzo met with potential buyers from the East, including Carl Icahn, and although agreement was reached, the details were not workable and the sale did not happen. Other potential buyers include Jay Pritzker and Peter Ueberroth, but the deal also did not work.
On March 3, 1989, President George HW Bush issued a statement outlining his decision not to act on the recommendation of the National Mediation Council to appoint a presidential emergency council to try to reach a work agreement, the same day private security forces entered the streets at Miami airport. with a shotgun, remove the engineer. The flight attendant and the pilot union respected the IAM's picket line and then broke down at midnight. {account true by James L. Caufman, EAL pilot,} who witnessed the illegal lockout of the A-300 cockpit parked on a hill. Thousands of flights were canceled, and thousands of nonunion employees were dismissed.
Bankruptcy and closing
The East filed for bankruptcy protection on March 9, 1989. Following filings of bankruptcy, additional potential buyers were contacted, including Kirk Kerkorian and Marvin Davis. Both Pritzker and Ueberroth offered to Texas Air, but when Ueberroth was asked to pay more to approach Pritzker's deal, he withdrew his offer, and Pritzker later withdrew him because he did not like the negotiating tactics Lorenzo used. Ueberroth was convinced to re-enter the negotiations, and a tentative agreement was reached, but the final agreement could not be resolved.
Nearly three months after the strike began, Lorenzo was interviewed and responded to the suggestion that he was "one of the heaviest bosses in the country" by saying: "I am not paid to be a donkey of candy, I get paid to go and finish work."
The law has changed since the Bankruptcy of Continental six years earlier, and it is more difficult to cancel union contracts in bankruptcy. The East continues to operate a reduced schedule, employing non-union pilots and using pilots crossing the picket line. In November, they claimed to have returned to the road to profit and asked for more time to file a reorganization plan to bankruptcy court.
After Bush refused to appoint an emergency council to mediate labor disputes, Congress passed a compromise bill designed to establish a special bi-partisan commission to "investigate labor disputes" in the East, but vetoed by Bush on November 21, 1989. The next day, the pilot union chose to ended its strike, after about 800 members had crossed the picket line, and many others had retired early or gone to work for other airlines. The flight attendants ended their strike the next day, but the machinists continued to attack.
Veto Bush was supported by the House of Representatives on March 7, 1990. Although Eastern still operates, it still loses money and proposes a plan for unsecured creditors who call for 50% payment of debt, and as conditions worsen, only 25% of debt. The creditors initially called for the liquidation of the company, but changed their request simply asking Lorenzo to be removed and the designated trustee to "increase the value of the estate". The bankruptcy court approved the request and appointed a guardian to run the Eastern region in April 1990, with the aim of continuing to operate the company and find buyers. The move was described by experts as "rare" in the case of bankruptcy.
The operation of the termination of East on January 18, 1991 and its assets was liquidated.
Legacy flight
"Frank Lorenzo has incised an indelible mark on the US aviation business, whether he is a sharp worker buster, opportunist, or businessman depending on one's perspective, but the sign is deep and possibly eternal," James Ott wrote on Lorenzo's departure from Continental.
Lorenzo is often described as "anti-union", especially after bankruptcy at Continental, which canceled union contracts in a successful bid to save the airline from liquidation and permanent job loss. At Texas International Air, he demanded a wage concession in 1974 to return the company to profitability, and one union broke down; when he started recruiting replacement workers, another union at the company joined the strike. After four months, the union returned to work and TIA continued to make a profit in 1976. Before the takeover of the East was completed, his efforts to build a sustainable and profitable airline model were criticized, with opponents saying his company's profits were "behind a broken contract, low and hard working rules. "
Investment career
Savoy Capital
In 1990, after being CEO for Continental and Texas International for 18 years, Lorenzo sold his stake in Continental Airlines to Scandinavian Airlines System (SAS), and resigned from his CEO role to pursue entrepreneurial ventures and other investments. Lorenzo's departure from Continental was a fundamental part of the deal, required by Lorenzo and SAS, although he remained Continental director for two years thereafter as part of the arrangement. During his eighteen-year tenure, his aviation empire grew from 15 jet aircraft (at Texas International) with revenues of $ 73 million, for Continental's combined fleet of 350 jets and revenues of more than $ 5 billion. After the sale of his interest in Continental, Lorenzo founded Savoy Capital, Inc. in 1990 in Houston, TX. Savoy is a private investment firm that mostly invests for his own account, but also invests on behalf of an accredited external investor.
ATX, Inc.
In 1994, a company in which Lorenzo was a significant shareholder, ATX Inc., attempted to start a low-cost carrier serving the east coast of the United States. Application settings by ATX rejected by the US Department of Transport; the agency said that under the supervision of Lorenzo, Eastern Airlines and Texas Air had "experienced the most serious operational, maintenance and labor-related issues in U.S. aviation history" Lorenzo has reduced his stake in the company to 24 percent and said that he will only serve on his board.
Philanthropy
Lorenzo is the guardian and Deputy Chairman of the American Hispanic Society, an institution with a free entrance art museum. The museum is located in New York City, and houses the largest collection of Spanish art outside of Spain, with main paintings Velázquez, Goya, ZurbarÃÆ'¡n, El Greco, and Sorolla. He is also a trustee of the Woodrow Wilson National Fellowship Foundation located in Princeton, New Jersey. Lorenzo and his wife are involved as directors, donors, or advisors to several other arts and charities.
In 1986, Lorenzo founded the Olegario Lorenzo Memorial and Lorenzo Family Scholarship Funds at Columbia College.
Personal
Lorenzo married Sharon Neill (nà © é e Murray) in 1972, and had four children.
References
Further reading
- Bernstein, Aaron (1990). Grounded: Frank Lorenzo and Destruction of Eastern Airlines . Simon & amp; Schuster. ISBNÃ, 0-671-69538-X.
- Peterson, Barbara Sturken (1994). Quick landing: deregulation and shocks at airlines . Simon & amp; Schuster. ISBN 0-671-76069-6.
- Williams, George (1994). Aviation industry and deregulation impact . Aldershot. ISBN: 0-291-39824-3.
- "The Handbook of Texas". Texas Air . Retrieved 2009-07-14 .
Source of the article : Wikipedia
0 Comments