Airline Dealmaker Frank Lorenzo Says Doug Parker Got It Right
Lorenzo, 72, formed Jet Capital Corporation, which advised airlines, in 1969. In 1972, Jet Capital acquired Texas International, which "was threatened with extinction because Southwest (LUV) was breathing down its throat," flying the same routes out of Love Field, Lorenzo said. "(Southwest president) Lamar Muse said he was going to put Texas International out of business." The threat devalued TIA enough that Lorenzo could afford it.
"I have often said that we wouldn't have had an opportunity if it wasn't for Southwest," he said.
Soon thereafter, the Civil Aeronautics Board awarded new routes, including Dallas to Los Angeles via Albuquerque, to TIA, and the airline had a chance to become profitable. "In 1977, we came up with peanut fares, the first unrestricted fares to be filed," Lorenzo said.
Subsequently, Lorenzo initiated efforts to acquire larger airlines National and TWA, accumulating shares in the stock market. When the efforts failed, he sold the shares at a profit. In the case of National, he sold out to Pan Am, which then took over National in one of the worst airline acquisitions ever.
"You didn't have to go to UT (University of Texas) to realize that it didn't make business sense to buy a company with a lower cost structure and then raise all the employees to your standard," Lorenzo said. When the National bid started, TIA's net worth was $12 million; the stock sale produced $45 million of profit.
Besides merging TIA with Continental and Continental with People Express and with Frontier, Lorenzo started New York Air from scratch and acquired Eastern, which was operated separately by his holding company, Texas Air Corp., in 1986.
Throughout his career, Lorenzo battled labor, using bankruptcy to force concessions at Continental. But in 1989, when he tried to force concessions on the International Association of Machinists at Eastern, the union struck and was followed out by flight attendants and pilots, forcing the carrier into bankruptcy court. There, a judge took control from Lorenzo and awarded it to a trustee, who ran Eastern until it failed in 1991.