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Other unionized carriers looking for their own routes to survival are closely watching Continental's bankruptcy and reorganization. Former Astronaut Frank Borman, 55, chairman of Eastern Air Lines, which is $2 billion in debt and lost $94.4 million in the first half of this year alone, has already said he might follow Lorenzo. Two days after Continental's ploy, Borman told Eastern's 37,500 employees that if they do not accept pay cuts of at least 15%, the company will be forced to either shut down à la Braniff or go into bankruptcy à la Continental. Eastern, one of the most heavily unionized firms in the industry, claims its salaries average a staggering $47,000.
Borman has asked Eastern employees for wage concessions in the past, and they have delivered, giving up possibly more than employees of any other airline. It is unclear whether workers will come around again. Borman, say insiders, has become increasingly aloof and tightlipped, and resentment toward him is growing throughout East- ern. Said Al Hanson, a union spokesman at the airline: "This is a manufactured situation. It is time for Borman to exit; he's become totally noncredible." Borman has given his employees until Oct. 12 to agree to lower wages.
Other unionized carriers are looking at still other ways to reduce labor costs. Trans World Corp. last week was considering spinning off its money-losing TWA subsidiary so that the airline could face its problems alone. Western is offering one-fourth of the company's stock to employees in return for wage concessions.
One unresolved issue in the Continental case is whether the company could legally slash labor costs through bankruptcy, since its real intention was to cut its work force and get employees to accept lower salaries rather than simply to shield itself from creditors. A company filing bankruptcy has, in some circumstances, had to prove conclusively that it was in imminent danger of collapse to get out of its union contract obligations.
Using bankruptcy as a tool to escape from sticky situations has been tried before. In 1982 Manville filed for reorganization to protect itself from an estimated $2 billion worth of suits flowing from alleged health dangers of its asbestos products. The company today is thriving. The Supreme Court is now reviewing a case in which a New Jersey building-supply company declared bankruptcy to escape a labor agreement with the Teamsters. A lower court has already ruled in favor of the company, saying that the terms of the contract were "burdensome."
Lorenzo claims that Continental's wage rates were more than just burdensome. His high-cost airline simply could not compete with the low-cost carriers. An unforeseen consequence of deregulation had given the new, nonunion airlines an important cost advantage over the old ones, and Lorenzo believed that he had no choice but to take drastic steps to reduce Continental's costs. Says he: "Some very, very brutal things have happened to this industry. I have the job of trying to steer through some stormy waters." But if Continental is successful in breaking its union contracts through bankruptcy, several other airlines may go down that same runway. —By John S. DeMott. Reported by Jerry Hannifin/Washington and Lianne Hart/ Houston with other bureaus