(2 of 3)
Another potential problem is that the Government could challenge the merger on antitrust grounds. New York Air and Eastern are currently direct competitors on heavily traveled routes from New York to Boston, Washington, and Florida cities. While the Justice Department is studying the deal, other airlines could come forward to top Texas Air's bid. Says Robert Joedicke, an airline analyst for the Shearson Lehman Bros. investment firm: "The merger is not a fait accompli yet. A lot of things can happen."
For Eastern, the sellout is a rough landing after years of financial turbulence. The airline expanded too aggressively in the 1970s, taking on a crippling debt load to buy new aircraft. In the 1980s, fare wars slashed revenues while labor costs had got out of control. The carrier's pilots now , make an average of $112,535 a year, almost twice what Texas Air skippers receive. Eastern has slipped repeatedly into the red, and its comebacks never seem to last. After managing a $73 million profit for the first nine months of last year, the airline lost $67 million in the final quarter. Many employees fault Borman, the former Apollo astronaut who became chairman in 1976; they feel that he has never earned his wings as a successful business executive.
By last month Eastern was $2.5 billion in debt and its bankers were threatening to call in some of the loans if the airline's unions did not agree to make $450 million worth of wage concessions. Eastern was perilously near bankruptcy. Said Borman: "It was either fix it, sell it or merge it."
Enter Lorenzo with an offer to buy Eastern. Borman was by then negotiating night and day with the airline's unions. He delivered an ultimatum: accept 20% wage cuts or the airline would either sell out or go under. The pilots agreed to Borman's terms, and the flight attendants tentatively accepted a pact, but the machinists' union balked. That led to a confrontation between Borman and Charles Bryan, a 30-year company veteran who has led the machinists since 1979 and been an Eastern board member since 1983. Known as Chairman Charlie because of his power in the company, Bryan declared that his union would accept 15% wage cuts, but only on one condition: Borman would have to resign as chairman.
It was a bold and risky ploy. Bryan apparently assumed that Borman would resign rather than agree to sell Eastern. Borman, for his part, calculated that the labor leader would never allow a takeover by Lorenzo. Reason: Lorenzo had enraged virtually every card-carrying union member in 1983, when his Continental Airlines filed for bankruptcy and abrogated the airline's union contracts. Lorenzo laid off the firm's 12,000 employees and offered them their jobs back at about half salary.
During a seven-hour board meeting at Eastern's Miami headquarters that culminated in the decision to sell, the atmosphere was tense. Before the vote was taken, Borman shouted at Bryan, "I'm going to tell the 41,000 employees that you destroyed this airline." Bryan's retort: "I'll tell them that you did it." To outside observers, it was no way to make a rational business decision. Says John Simmons, an Amherst, Mass.-based management consultant: "It didn't have to end in a shoot-out at the OK Corral."