РефератыИностранный языкEaEastern Airlines Faces Bankruptcy Essay Research Paper

Eastern Airlines Faces Bankruptcy Essay Research Paper

Eastern Airlines Faces Bankruptcy Essay, Research Paper


Eastern Airlines Facing Bankruptcy


In 1986, Eastern Airlines was in desparate trouble. The


fourth quarter of 1985 had shown a $67.4 million loss, and


financially experts had told Frank Borman, president and chief


executive officer, that the airline had three choices: 1) a 20


percent pay cut for all union and noncontract employees. 2)


Filing for Chapter 11 (bankruptcy) or 3) Selling the airline. On


February 23, 1986, Eastern’s board of directors met to decide the


fate of the company.


Frank Borman, quickly left his home in Coral Gables to


Building 16 at Miami International Airport that Sunday evening, to


discuss plans on saving the airlines. The board of directors had


recessed for dinner following afternoon session and was scheduled


to convene at 7:30 p.m. At the earlier meeting, Wayne Yeoman,


senior vice president for finance, had spent most of the time


outlining the details of Texas Air’s offer to buy Eastern. Frank


Lorenzo and Frank Borman had been talking since December


originally about consolidating the computerized reservation


systems, then , as Eastern’s problems deepen, about a possible


sale.


As Frank entered his office, he found his his loyal excutive


assistant; Wayne Yeoman; and Dick Magurno, Eastern’s senior vice


president for legal affairs. For about 20 minutes the three


discussed the fourthcoming meeting and the prospects for saving


the airline. Negotiations were going to come around for ALPA and


TWU but no break from the IAM. The IAM would not budge since


Charlie Byran, head of the machinist’s union, stood firm against a


20 percent wage cut.


At 7:30 the board meeting began with the discussion of the


Texas Air offer, concentrating on some of the conditions attached


to the buying of the company. More talk and hours dragged on.


Finally word got out that ALPA was nearing an agreement. The


meeting recessed for an hour.


During the recess Frank needed to get Charlie’s surport on


the 20 percent pay cut, otherwise the company was going to sold.


He told Charlie to come up to his office. Frank told Charlie, ”


we’ve been at this since 83′ and you have to recognize it can’t go


on. I have every reason to believe that the pilots and flight


attendants are going to give us what we need. I know it’s more


difficult for you because your contract is not open. But I know


you have a sense of history. We have a very good opportunity to


cure this airline, and if you just understand this, in the long


run you’ll come out a stronger, more admirable person. Choose the


harder right instead of the easier wrong, and let’s go forward.”


With this Charlie replied, “Frank you don’t understand that you


are just trying to run the company down and I can’t go along with


that. With this, Frank gave up and told Charlie to wait outside.


He tryed everything he could to get Charlie’s surport but all


attempts failed. This was going to be the end of Eastern Airlines.


The board meeting finally reconvened at 10:30, an hour an a


half away from the deadline. Word had reached that ALPA reached an


agreement and TWU negotiations were still up in the air. The


directors heard analysis of the Texas Air offer by representatives


of Saloman Brothers and Merrill Lynch, at this point Charlie Bryan


finally spoke up. He said, “I’ve had discussion with the chairmen


of the audit and finance committees, and would like the board to


be informed what we talked about.” Two of the directors, Harry


Hood Bassett and Peter Crisp, told Charlie to reconsider in the


view of the 57 years of the airline, and the fact that his


decision would i

mpact all the company’s employees. They also


reminded him that seemed to be a tragic end for such fine people.


Nineteen pairs of eyes turned towards Bryan. Mr. Bryan stated that


when the IAM amended it’s contract on October 17, 1985, they never


complained about the other two unions. The IAM has made


recommendations for cost savings over the past several months, but


we were never given the opportunity to implement them. Frank


responded , “That’s nonsense!”. He told Charlie if he doesn’t co-


operate , he’ll destroy the airline, and it’s his fault! Byran


replied,” Year in and out the unions have been asked to trust


management. Each year has been a crisis situation and unions were


told there were still enormous problems. It’s time for management


to trust the employees to find ways to improve productivity and


reduce costs.” After a half an hour more of discussions, and no


agreement, the board was ready to vote. But then word come around


that ALPA agreement was ready to besigned and TWU was within an


inch of reaching an agreement. Also Texas Air is willing to extend


the deadline to 4 a.m. One board member in a last ditch effort


asked Mr. Byan, “are you fully aware that this board is going to


sell the airline? If so, I’d like you to say for the record that


you still refuse to participate.” Byan replied, ” Although the IAM


will not agree to the company’s proposals, we have proved that we


are saving labor costs and improving productivity, and, if the


board decides to sell or bankrupt the company, you can’t point to


me and say, ‘It’s your fault.’ I am against any activity tonight


to sell Eastern or any decision to file for bankruptcy.” At this


point, one of the board directors said, ” Mr. Bryan you have said


that you will vote no tonight to the sale, and you indicated to me


that there is no basis whatsoever that you would agree to come


along with the other unions to fix it. It is obvious to me that


the responsibility for forcing the board to sell the company is


clearly yours!”


After this there was a brief adjournment, Charlie Byran finally


came back with a proposal to cut the IAM’s salary wages to 15


percent since the IAM had contributed 5 percent through


productivity gains. An attached condition was also proposed that a


new chief executive officer to be appointed within a reasonable


time. Frank responded “Any allegation that the IAM has given 5


percent is nonsense! If the IAM will give 20 percent this evening


like other employees I will submit my resignation this evening. I


will not submit my resignation if the IAM will only give 15


percent, because that supposed 5 percent simply simply doesn’t


exist!” The time was 2:00 am. The board believed that it was time


to vote on the Texas Air offer.


Frank left the auditorium and told the board that is best


that he abstain from any vote. Outside, one of Byran’s lawyers


came out to persuade Frank to resign. He told the lawyer, “like I


said, if the IAM takes a 20 percent wage deduction I will gladly


resign.” After this comment Frank walked away.


A counter proposal was made by the directors to the


appointment of a vice chairmen to be selected by the board


committee if the IAM takes the 20 percent pay decrease. Charlie


went off on a huddle with his lawyers and returned to reject the


proposal.


At 3 a.m. Eastern Airlines sold the company to Texas Air with


a vote to sell was 15 to 4. All four union directors. Byran


included included against the merger.


The major management problem concerned here is that


management was unable to get the IAM union to negotiate proposal


in wage deceases which lead to the selling of the company.

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