Gone But Not Forgotten

By Janice Castro

The ending was right out of an Old West tale where the tough guy tells his adversary, "There ain't room in this town for both of us." The labor feud at Continental and Eastern airlines came down to a highly personal fight to the finish between union-busting chairman Frank Lorenzo and his employees. Last week it was Lorenzo who left town. The bile as well as the bubbly flowed when Lorenzo announced that he was stepping down and selling his interest in the parent company, now called Continental Airlines Holdings, to SAS, the Scandinavian airline (1989 revenues: $4.4 billion). Said John Peterpaul, a vice president of the International Association of Machinists and Aerospace Workers: "Frank Lorenzo demolished Eastern Airlines, wreaked havoc on thousands of workers' lives and severely devalued Continental Airlines. Our condolences to whatever industry he stalks next."

Lorenzo acknowledged the bitterness, indicating that he believed the airline company would be better off without him. Said he: "I have obviously become a lightning rod." During the past 18 years, Lorenzo built his airline empire on low fares, which he accomplished by hacking away at labor costs. When fed-up machinists struck Eastern early last year, Lorenzo steered the troubled carrier into federal bankruptcy proceedings, using a tactic that had broken the unions at Continental six years earlier -- and had probably saved that airline. Though Eastern's strikers have persisted, Lorenzo has replaced most of them. Last April the machinists won a partial -- if Pyrrhic -- victory over their opponent when the federal bankruptcy court in Manhattan removed Lorenzo from control of Eastern and appointed former Continental president Martin Shugrue as trustee to guide the airline out of bankruptcy. The airline faces nearly insurmountable problems, though, in re-establishing itself against strong competition in a weak economy.

Seeking to boost its U.S. business, SAS bought a 9.9% interest in Continental Holdings in October 1988. Under the terms of last week's deal, SAS will pay $51 million to increase its equity stake to 16.8% and to buy all the outstanding shares of Jet Capital, the investment vehicle that controls the company. (American law forbids foreign carriers to own more than 25% of any U.S. airline.) For his part, Lorenzo will collect $29.9 million, remain a director of Continental Holdings and retain options allowing him to purchase 783,333 shares of the company's outstanding stock. A surprising clause in the deal prohibits Lorenzo from working in the industry until 1998. The Department of Transportation, which must approve such a substantial foreign investment in an American carrier, is expected to weigh the deal carefully.

The new man at Continental's controls will be Hollis Harris, who resigned last week as president of Delta Airlines after 36 years with that company. SAS, which is 50% publicly held and 50% owned by the governments of Denmark, Sweden and Norway, faces the task of rebuilding a beaten-down company. The polished Scandinavian firm has made a start. Since last year, it has operated a so-called charm school, a two-day training course, for Continental employees at the company's Houston headquarters. While confirming last week that Lorenzo's departure was an essential condition of the deal, SAS chief Jan Carlzon charmingly praised Lorenzo as "one of the real entrepreneurs in the industry." Sounds like Carlzon could take a turn teaching that class.

With reporting by Jerry Hannifin/Washington and Richard Woodbury/Houston