Paradise tossed; how a chance to save American capitalism was sabotaged at Eastern - Eastern Airlines

Washington Monthly, June, 1986 by Alex Gibney

As its debt grew, the banks increasingly came to treat Eastern as the International Monetary Fund does a Third World debtor country, becoming involved in the management of the company to guarantee the safety of their loans. It was the bankers who precipitated the first crisis that led to the labor accord. In 1983 they told Borman that if he didn't wrest wage concessions from the employees the banks would refuse to relax credit terms for repayment of the old loans. Without such a relaxation, Eastern would have to default on its loans and declare bankruptcy. On September 15, Borman went to his employees and asked for $400 million in wage concessions. The machinists and the two other unions--the Transport Workers Union representing flight attendants and the Air Line Pilots Associations representing pilots, co-pilots and engineers--all refused.

But on September 20, 1983 the rules of the game changed. Continental Airlines closed down. A few days later, Continental--which, along with New York Air, was a subsidiary of Texas Air-- reopened under chapter 11 of the bankruptcy code, which permits a company to operate while it figures out a way to pay its debts. As part of the reorganization a federal judge permitted Continental to cancel its high-priced union contracts. Continental President Frank Lorenzo summarily dismissed 8,000 people and slashed the salaries of his remaining employees in half.

Two days later, terrified Eastern employees sat in conference rooms and media centers around the country to watch a videotape of Frank Borman threatening to declare Chapter 11, "a la Continental,' unless employees took 20 percent wage cuts. "In my estimation,' Borman said, "you will be voting on your jobs.'

The threat infuriated Eastern's unions. Much of the employees' anger was directed at Borman himself, a former Apollo 8 astronaut, and one of America's most visible CEO's. During this period Borman received so many death threats that he took to wearing a bullet-proof vest and hired police protection.

If Borman's warnings about bankruptcy were initially exaggerated, he quickly fulfilled his own prophecy. Within two days of Borman's bankruptcy speech, passengers who feared they might be stranded over the Thanksgiving holiday redeemed $2 million worth of tickets. That was cash the troubled airline badly needed to continue to operate. Eastern was close to shutting its doors.

That put IAM's Charlie Bryan in a bind. On the one hand, he knew the company was in trouble and needed relief in the form of wage concessions. The recessions of 1979 and 1982 had forced unions to recognize that holding out for higher wages as a company fell apart meant unemployment. On the other hand, Bryan's role as a union leader was not to sympathize with management's plight. His popularity with the rank and file depended on his ability to deliver wage hikes, not retire the company's debt.

Bryan, a 53-year-old jet mechanic from West Virginia, had first been elected in 1979 to end the company's "Variable Earnings Plan,' which he called the "Veritable Extortion Plan.' VEP was a wage giveback formula which made 3.5 percent of the employees' salaries rise and fall according to the profitability of the corporation. Since Eastern had been losing steadily, so had its employees. In 1980, Bryan recalled, he stood before a stockholders meeting and in his low-pitched Southern drawl told the audience that Eastern's employees "had donated enough wages to have bought every single share of stock at Eastern Airlines. They could have purchased their own company lock, stock and barrel. Yet they hadn't received a single share of stock. It was the old scenario of taxation without representation.'