Frank Lorenzo: Difference between revisions
| Line 13: | Line 13: | ||
[[Image:Texas International.jpg|thumb|250px|left|[[McDonnell Douglas]] [[DC-9]]-15, Mexico City, 1976.]] |
[[Image:Texas International.jpg|thumb|250px|left|[[McDonnell Douglas]] [[DC-9]]-15, Mexico City, 1976.]] |
||
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 |
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]], [[Midway Airlines]], [[Chicago Air]], and [[Presidential]], and in later years included United Airlines, US Air, Northwest and Delta Airlines.<ref name="Scott"/> |
||
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|Aviation Week and Space Technology]]'' Laureates Award during an event held at the [[Smithsonian Institution]]'s [[National Air and Space Museum]]. |
|||
[[Image:NAL.DC-10.jpg|thumb|right|[[National Airlines (NA)|National Airlines]] DC-10, Houston (IAH), 1978]] |
[[Image:NAL.DC-10.jpg|thumb|right|[[National Airlines (NA)|National Airlines]] DC-10, Houston (IAH), 1978]] |
||
In the autumn of 1978, TI management attempted a tender offer acquisition of trunkline [[National Airlines (NA)|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 American World Airways|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<ref> Pan Am company filings</ref>. |
In the autumn of 1978, TI management attempted a tender offer acquisition of trunkline [[National Airlines (NA)|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 American World Airways|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<ref> Pan Am company filings</ref>. |
||
Revision as of 20:34, 6 February 2009
 |
Francisco A. "Frank" Lorenzo[1] (born 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,[1] as well as a number of philanthropic activities[1].[citation needed] 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.
Lorenzo has been both praised and villified for his transformational role during the period when he led Texas International Airlines, Texas Air Corporation, and particularly Continental Airlines and Eastern Airlines. The changes forged by Lorenzo and his management team have been seen as catalytic in transforming a once moribund and tradition-bound industry into a more profit-driven, bottom-line oriented one. However, Lorenzo's other legacy--of contentious, combative, and even acrimonious labor relations--has been long lasting. It has been conventional wisdom since the 1980s that the gains in airline industry profitability and capitalization have come at the expense of labor; however, recent scholarship has, at least to some extent, raised questions concerning the factuality of this point of view.[2] On the other hand, it is indisputable that during the tenure of Lorenzo's successor at Continental, Gordon Bethune, wages increased an average of 25%, and during the same period, airline performance and employee productivty increased to such a degree that Continental went from "worst to first" in the industry, as chronicled in Bethune's 1999 book of the same name.[3] In light of all the data, it is perhaps most accurately asserted that Lorenzo's methods enabled Continental to survive the initial period of airlne deregulation and consolidation; and that Bethune's methods allowed Continental to become the preeminent trunk airline in the U.S. airline industry.
Pre-deregulation and Texas International
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, Midway Airlines, Chicago Air, and Presidential, and in later years included United Airlines, US Air, Northwest and Delta Airlines.[4]
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.
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[5].
Texas Air Corporation creates New York Air
In 1980 Lorenzo created a holding company for TI called Texas Air Corporation. Shortly after forming Texas Air, Lorenzo started a new airline called New York Air (NYA), the first post-deregulation airline. New York Air was based at New York's LaGuardia Airport, very near the Queens neighborhood where Lorenzo grew up. New York Air would become Lorenzo's challenge to the expensive Eastern Airlines Shuttle, and provided cheaper and more frequent (hourly) flights between New York, Boston and Washington-National. The ALPA pilots' union fought it vigorously, running picket lines at LaGuardia and Washington National and taking out critical ads in the New York newspapers. Suspected acts of vandalism, interference, and prohibited aircrew operations were also reported by New York Air managers. New York Air's representatives to the Airline Scheduling Committees (CAB-authorized committees of airline representatives that allocated takeoff and landing slots at capacity-controlled airports in New York, Washington, and Chicago) were stonewalled for months as they sought to get the necessary 'slots' for New York Air to operate its shuttle services between New York, Washington, and Boston. Eventually, however, the airline succeeded in overcoming all obstacles. New York Air service commenced on 19 December 1980 with shuttle operations between New York LaGuardia, Washington National, and Boston Logan airports. [4]
New York Air grew rapidly, adding scheduled services from LaGuardia to Cleveland, Buffalo, Detroit, Louisville, and other cities, before eventually being combined into today's Continental Airlines after Texas Air Corporation succeeded in acquiring Continental in 1981.[4]
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[6]. 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.
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.[7]
Divestiture from Continental
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.
Investment Manager
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.[1]
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[8]. .[citation needed]
References
- ^ a b c d "Savoy Capital Management". Retrieved 2008-07-28.
- ^ Pagano, Marco and Paolo Volpin, Labor and Finance (draft paper), Università di Napoli Federico II and London Business School, 14 June 2008.
- ^ Bethune, Gordon, From Worst to First: Behind the scenes of Continental's remarkable comeback (ISBN 978-0471356523), Wiley & Sons, 1999.
- ^ a b c Cite error: The named reference
Scottwas invoked but never defined (see the help page). - ^ Pan Am company filings
- ^ Delaney, Kevin J., Strategic Bankruptcy: How Corporations and Creditors Use Chapter 11 to Their Advantage (ISBN 0-520-07359-2), University of California Press, 1999.
- ^ Salpukas, Agis (1991-01-19). "Eastern Airlines Is Shutting Down And Plans to Liquidate Its Assets". Retrieved 2008-07-28.
- ^ http://www.gencat.cat/economia/noticies/noticies/19226291.html
- 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.