Frank Lorenzo
Francisco Anthony "Frank" Lorenzo is an American corporate raider and former airline executive best known for his controversial and destructive tenure in the U.S. airline industry during the 1970s and 1980s. Through his holding company, Texas Air Corporation, Lorenzo gained control of Texas International Airlines, Continental Airlines, New York Air, People Express, Frontier Airlines, and finally Eastern Air Lines.
Lorenzo's management style became synonymous with aggressive cost-cutting, union suppression, and controversial asset transfers between carriers he controlled. In 1983, he placed Continental Airlines into Chapter 11 bankruptcy despite the airline still having around $50 million in cash reserves, a move widely condemned as a tactical maneuver to void labor contracts and impose wage and benefit cuts.
His 1986 acquisition of Eastern Air Lines is viewed by many analysts, union leaders, and government officials as a case of corporate dismemberment, involving the transfer of Eastern’s most valuable assets to other companies under his control, such as Continental, while burdening Eastern with debt and deteriorating operations. These actions contributed directly to Eastern’s financial collapse and eventual liquidation in 1991. The U.S. Department of Transportation later declared Lorenzo unfit to operate an airline, effectively banning him from holding a controlling interest in any U.S. airline.
While Lorenzo’s defenders frame his efforts as adapting to the pressures of deregulation, his legacy is widely viewed as a cautionary tale of unethical corporate practices, labor exploitation, and the misuse of bankruptcy law to advance executive control at the expense of workers and long-term viability.
Since 1990, Lorenzo has been chairman of Savoy Capital, Inc., an asset management and venture capital firm. He has served as a trustee for The Hispanic Society of America since 2005.
Early life
Born to Spanish immigrants Olegario Lorenzo and , Lorenzo grew up in Queens, New York. His father was a long-time beauty salon proprietor in Manhattan; his mother worked as a hairdresser at their salon.Public high school, Columbia and Harvard Business School
Lorenzo attended Forest Hills High School and then worked his way through Columbia University, holding several jobs, including at Macy's as a salesperson and Coca-Cola as a truck driver and member of the Teamsters Union. He graduated in 1961 with a B. A. degree in economics, followed by an MBA from Harvard Business School in 1963, as he was turning 23.Jobs at TWA, Eastern, and the Army
Lorenzo's first professional jobs, from 1963–1966, were at Trans World Airlines, as a Senior Analyst, and then at Eastern Airlines, as Manager of Financial Analysis. He also spent six months in the Army reserve in 1964, and then returned to his job in New York.Lorenzo, Carney & Co.
Despite having only three years of professional experience, he formed Lorenzo & Carney, Inc., a financial advisory firm specializing in airlines, in 1966 with Robert Carney, who had also attended Harvard Business School. Their first offices were atop the Pan Am Building in New York. The firm's first significant transaction was arranging the 1966 sale of Zantop Air Transport, a supplemental air carrier, to new owners, creating Universal Airlines. This provided the nascent company with its first significant income and credibility. Later, the firm participated in the refinancing of British West Indian Airlines.Jet Capital
Lorenzo and Carney later formed Jet Capital Corporation in 1969, initially as an aircraft leasing company. Jet Capital raised $1.5 million in a public stock offering, and was later asked by Chase Manhattan Bank to attempt a refinancing plan for Texas International Airlines as an alternative to bankruptcy, as the airline was in default on its aircraft bank loans. Jet Capital put together a refinancing and equity infusion for Texas International Airlines in 1971.Early airline career
Texas International Airlines
As part of the refinancing plan for Texas International Airlines, Jet Capital acquired control of TIA in 1972, and received 26% of TIA's equity interest and 59% of its voting power for $1.15 million. Lorenzo became its president and Carney its executive vice president in August 1972. The deal was approved by the Civil Aeronautics Board, which regulated the airline industry in the United States at the time, after a contentious CAB approval process fought with Howard Hughes, who at the time controlled Hughes Airwest.When Lorenzo took control of TIA in 1972, it was on the verge of financial collapse, having lost money since 1966. Two years later, Lorenzo's management was able to steer the company to break even due to significant streamlining of operations. Some years later an analyst from Oppenheimer & Company, citing Lorenzo and business-partner Carney's strategies of substituting obsolete planes with jets, eliminating unprofitable routes in exchange for destinations with higher demand, and instituting half-price "peanut-fares" for the first time in the aviation industry, noted TIA's ability to compete and win against much larger and financially stronger companies. TIA also had to compete with a new-at-the-time Texas intrastate airline, Southwest Airlines, which was union-free then and had much lower costs.
Lorenzo's management changed the character of the airline, having revamped its fleet, increased utilization, cut costs and dropped many losing routes, while adding flights on strong segments. The average trip distance per passenger boarded jumped 25% from 1972 to 1976. In 1977, the company earned $8 million, and in 1978, TIA's reported net income was up to $13.2 million and it was described as an "aggressive, innovative carrier".
TIA implemented in 1977, just before the advent of airline deregulation, the first unrestricted airline low fares, which were called "Peanut Fares." The success of this promotion drove major improvement in TIA's financial position. In his book on aviation history, author R.E.G. Davies refers to these fares as "...a watershed in airline passenger tariffs." Also in 1977, TIA was the first to develop and implement a forerunner to the frequent flyer programs of today, which were called Payola Passes - coupons based on flight segments.
Airline takeover attempts
National Airlines
In 1978, the airline world was astonished to learn that Lorenzo had moved to take over National Airlines, a domestic trunk airline three times its size, having purchased 9.2% of the stock of National Airlines, becoming the first airline to buy up shares of another airline as a prelude to a possible takeover.For several weeks starting in June 1978, Texas International Air had acquired shares of National Airlines, filing documents with the U.S. Securities and Exchange Commission when its stake reached just short of the 10% that would require prior approval of the Civil Aeronautics Board. TIA was reported at the time to be studying the "possibility of seeking control" of National. Several weeks later, TIA announced intentions to buy up to 25% of National's stock, and requested approval from the CAB to acquire the stock and direct control of National. TIA's attempted takeover of the much larger National "surprised a lot of people", because National was so much larger than TIA at the time and no airline had ever attempted an "unfriendly" takeover of another airline before. Lorenzo's management team viewed National's stock as significantly undervaluing the assets of the company, and the move was financial in addition to being strategic and aimed at combining the routes of the two airlines.
A competing offer for control of National was submitted to the CAB by Pan Am, and National ultimately agreed to be acquired by Pan Am; these actions drove up the price of National's stock. The CAB gave TIA and Pan Am each permission to acquire up to 25% of National's shares, and the two companies acquired 45% of the shares in total. The management and directors of National, as a group, owned less than 5% of the outstanding shares. In December, Eastern Airlines also joined the bidding for National. TIA and Pan Am considered the bid a "ploy to block their own chances" of completing the deal, but Eastern chairman Frank Borman called the offer serious.
In April 1979, the United States Department of Justice and the United States Department of Transportation both announced opposition to a merger of Eastern and National on the grounds that the merger would be anti-competitive. In July, the CAB said it "would not stand in the way of airline mergers that appear to benefit the public". National accepted the Pan Am offer and did not submit TIA's offer to its shareholders, which rendered the TIA offer "effectively dead". TIA agreed to sell its shares in National to Pan Am, earning TIA a net profit on the merger attempt of approximately $46 million.
TWA in 1980 and 1985
With a large amount of cash on hand, observers said that TIA was likely to begin another acquisition attempt quickly, to preclude becoming a takeover target itself. TIA did exactly that, accumulating shares of Trans World Airlines, an even bigger target than National. TWA had airline revenues about 14 times those of TIA, and the total revenue of TWA's parent corporation, Trans World Corp., was 20 times TIA's. TIA's plan was to merge TIA with the TWA subsidiary of Trans World Corp., providing it with smaller feed aircraft and a feed network.TWA was opposed to the merger; its board "unanimously affirmed" publicly that TWA was not for sale. After accumulating more than 4% of Trans World's stock, TIA eventually backed out of the proposed deal, selling all of its holdings by January 1980.
In 1985, Lorenzo's team again sought TWA as a merger partner. This time they were approached by the management of TWA as a "white knight" against the threatened acquisition of TWA by Carl Icahn, who was feared by TWA management and employees. Lorenzo signed a formal contract for the acquisition of TWA in June 1985. However, Icahn pressed on with his acquisition attempt after he received the backing of TWA's pilot union who promised major cost cuts.
In August 1985, the TWA board voted to cede the company to Icahn who didn't require any government approval, while Lorenzo's airline would, since airline acquisitions of another airline still required DOT approval.