Frank Lorenzo

www.dw

Francisco A. "Frank" Lorenzo (born (1940-05-19) May 19, 1940) is an investment manager, entrepreneur, philanthropist, and a former airline CEO in the United States. Since 1990, Lorenzo has been chairman of Savoy Capital, Inc., professionally devoted to asset management, private investments and venture capital, as well as a number of philanthropic activities. Born to Spanish immigrants in Queens, New York, Lorenzo graduated from Columbia University in 1961. He had worked his way through university, selling neckties, waiting on tables, and driving Coca-Cola trucks. Harvard Business School admitted him straight from university. Lorenzo graduated with a Master of Business Administration (MBA) in 1963 and worked in the finance divisions of Trans World Airlines and Eastern Air Lines. In 1989 Lorenzo received the John Jay award for Distinguished Professional Achievement from Columbia University.

Pre-deregulation and Texas International

Frank Lorenzo, 1978

In 1966 Lorenzo and Harvard classmate Robert J. Carney established an advisory business to assist air carriers and investors interested in aviation. In 1969 Lorenzo co-founded, with Carney, an aircraft leasing company called Jet Capital Corporation. In 1972 Jet Capital acquired Texas International Airlines (TI), a struggling regional carrier, based at William P. Hobby Airport in Houston, Texas previously known as Trans-Texas Airways. The Lorenzo team pushed new marketing approaches on the U.S. airline industry, including the first regulator approved low fares (first known as "Peanuts Fares" because some were so startlingly low) and other consumer benefits, like being the first carrier to forbid pipe and cigar smoking on airplanes in 1976 and, in later years, being the first US airline to bring first class seats to business class, and eliminate first class service.

Lorenzo was active in recruiting a talented and energetic management team. In fact, during the late 1970s, TI was an incubator for much of the talent that would subsequently form the core of other U.S. startup airlines. Former Lorenzo managers were at some point CEOs, founders, or top executives of existing or new airlines, which included: People Express, TWA, New York Air and Midway Airlines, and in later years included United Airlines, US Air, Northwest and Delta Airlines. The combination of cost rationalization with marketing, pricing, and service innovations returned TI to profitability by 1976 and in 1977, Lorenzo was awarded the Aviation Week and Space Technology Laureates Award during an event held at the Smithsonian Institution's National Air and Space Museum.

File:NAL.DC-10.jpg

National Airlines DC-10, Houston (IAH), 1978

In the autumn of 1978, TI management attempted a tender offer acquisition of trunkline National Airlines. National, with headquarters in Miami and hubs there and in New Orleans, Houston, and Los Angeles, would have allowed tiny Texas International to expand substantially beyond its south-central U.S. area of service, merge with National and, in addition, create a major Houston hub, already a goal of the company. National, however, fought the acquistion stubbornly, and finally consummated a merger with Pan Am, who had emerged as a 'white knight' during the takeover battle. Texas International, which amassed about 25% of the stock of National in the attempted merger, made a $45 million profit from the sale to Pan Am.

Texas Air Corporation creates New York Air

In 1980 the Lorenzo team created a holding company for TI called Texas Air Corporation (TAC), and then, in the autumn of 1980, created a new airline called New York Air (NYA), the first post-deregulation airline (see Airline Deregulation Act of 1978). New York Air was based at New York's LaGuardia Airport, very near the Queens neighborhood where Lorenzo had been raised. New York Air would become Texas Air's challenge to the expensive and near-monopoly Eastern Airlines Shuttle, with plans to provide cheaper and equally frequent (hourly) flights between New York, Boston and Washington-National. The ALPA pilots' union fought New York Air vigorously, running picket lines at LaGuardia and Washington National and taking out critical ads in the New York newspapers. New York Air service commenced on 19 December 1980 with shuttle operations between New York LaGuardia, Washington National, and Boston Logan airports. New York Air grew rapidly, adding scheduled services from LaGuardia to Cleveland, Buffalo, Detroit, Louisville, and other cities, before eventually being folded into today's Continental Airlines.

Continental Airlines

In 1981, TAC initiated a hostile takeover of Continental Airlines, often having been rebuffed on several occasions with attempts to pursue a friendly merger. TAC tendered for 49% of Continental and succeeded in completing the tender, placing the shares in a voting trust with the Department of Transportation ("DOT"). After a contentious acquisition period brought by Continental's management and labor unions, the acquisition was approved by the DOT in early 1982. Texas International was merged into Continental Airlines in June 1982. TI ceased to exist and the "new Continental" relocated its headquarters to its principal hub in Houston. The merger resulted in a large expansion of operations out of Houston's Intercontinental Airport and its routes to Mexico. The Lorenzo team was determined to build a sustainable niche for Continental with the merger in the newly deregulated, free-for-all marketplace. After extensive negotiations with labor unions proved unsuccessful, Continental filed for Chapter 11 bankruptcy protection from creditors in September 1983. Two days after the bankruptcy filing, a new streamlined Continental emerged and, thus, became the first airline to fly through bankruptcy. By the summer of 1984, Continental had grown back to be larger than it was prior to the bankruptcy, due to the success of its new operations. It was also profitable in 1984 for the first time in many years. In 1985, Texas Air attempted a takeover of Trans World Airlines. Although TWA's management favored Lorenzo over rival Carl Icahn, TWA's unions feared Lorenzo and negotiated special concessions with Icahn in order to avoid a takeover by Texas Air. TWA's Board eventually accepted Icahn's offer.

File:31186 FL B737 STL proctor.jpg

Frontier Airlines Boeing 737, St. Louis, 1985

Later in 1985, Lorenzo's Texas Air Corp. made an offer for a Denver-based regional carrier, Frontier Airlines, opening a bidding war with People Express, which was headed by Lorenzo's former TI associate Don Burr, which PeopleExpress ultimately "won." In August, 1986 Frontier filed for bankruptcy and ceased operations. Shortly after, Texas Air acquired PeopleExpress, in order to build the Newark hub, at the same time gaining Frontier, which strengthened Continental's Denver hub. On February 1, 1987, People Express, New York Air, and several commuter carriers were merged into Continental Airlines to create the sixth largest airline in the world, third largest U.S. carrier, and dominant airline serving the New York, Denver, and Houston markets.

Eastern Air Lines

The Lorenzo team pursued negotiations with another troubled carrier that was suffering in the deregulation marketplace: Eastern Air Lines. Texas Air acquired Eastern on February 24, 1986 and started redeploying Eastern assets. Some of Eastern's assets were used to create a world-wide reservation system, "System One", and to expand Continental Airlines' hub at Newark International Airport. Lorenzo divested other assets, including the Eastern Shuttle (sold to Donald Trump) and the South American route system (sold to American Airlines). After lengthy and ultimately unsuccessful negotiations with labor unions, Eastern filed for bankruptcy protection in early 1989. Ultimately Eastern ceased operations and was liquidated in 1991.

Divestiture from Continental & Establishment of Savoy Capital

In 1990, after have been CEO fo Continental and Texas International for 18 years, Mr. Lorenzo sold his controlling interest in Continental Airlines to Scandianvian Airlines System, and stepped down from his CEO role to pursue other entrepreneurial and investment ventures. During his eighteen year tenure, the airline grew from 15 jet aircraft and revenues of $73 million, to 350 jet aircraft and revenues of over $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 largely investing for its own account, but which also invests on behalf of accredited outside investors.

Philanthropy

Lorenzo is a trustee of The Hispanic Society of America, an institution with a free-entrance museum of Art. The museum is located in New York City, and houses the largest collection of Spanish art outside Spain, with major paintings by Velázquez, Goya, Zurbarán, El Greco, and Sorolla. He is additionally a trustee of the Woodrow Wilson National Fellowship Foundation located in Princeton, New Jersey. Lorenzo is involved as an director, donor, or advisor to several other arts and charitable organizations, including the International Advisory Board of Catalonia, Spain. .

References

• Roy Rowan From Mao to Now, a reporter's fifty-year pursuit of Powerful People (ISBN 0-7867-0312-1), Carroll & Graf Publishers, Inc.
• Buckley, William F. Jr., Frank Lorenzo & the free market in National Review, September 17, 1990
• The Handbook of Texas. Texas Air.