Pan Am didn’t have years. Nor did it have a billion dollars. Time was running out both for Pan Am and for Bill Seawell. Seawell was sixty years old. He wasn’t at the end of his run, but the finish line was in sight. If Pan Am was going to return to its old prominence in air commerce, if Pan Am was ever again to reward its shareholders with dividends, if Pan Am was to recapture its technological leadership in aviation, then Seawell wanted history to show that those glorious events happened under his generalship.
There was no time to waste building a domestic fleet, buying shorthaul airplanes and building facilities, hiring qualified managers and training crews. Instead, Pan Am would buy an airline.
What Seawell wanted was an acquisition, one in which Pan Am absorbed a lesser entity, not a merger in which Pan Am shared or surrendered its autonomy. That ruled out a deal with Eastern. A TWA deal had been explored more than once and dropped. Forget Braniff, which was expanding like an omnivorous animal, driven more by appetite than good sense. And forget the mainline domestics—American, United, Delta—which were getting what they wanted in the international market anyway, thanks to Carter and company.
And that was when Seawell’s attention fixed on National.
National Airlines? Pan Am’s analysts took a look. National was a Miami-based airline, meaning that it was brash, a little on the folksy, Florida cracker side, strong traffic growth, erratically managed, overextended, restive unions, a mixed fleet of airplanes. . .
It was what Seawell wanted. By now the general and his paint-peeling tantrums were well known on the forty-sixth floor. From his staff the chairman heard nothing but voices of agreement.
Yes, sir, general. Why not?
The question was making the rounds of the crew lounges, the cockpits, the layover hotels: Why National?
Why buy any airline, for that matter? If Pan Am had so much money it could buy out someone else’s mess—employees, airplanes, and trash cans—why didn’t it just build on what it already had?
Crewing new airplanes was not the problem. Pan Am already had a legion of pilots out there on the street, some of them furloughed since back in 1969. Training them in newly acquired equipment would cost something, but it was an expense that would have to be borne anyway, sooner or later.
To most of the pilots, there were two views about what was good for Pan Am: a them and an us. A merger might be the best thing for them, meaning Pan Am, the corporation and its stockholders and, possibly, the very senior airmen on the roster. But it wasn’t looking good for the us, meaning the aging, disillusioned, bleary-eyed, time-zone-crossing, so-called new hires about to enter their seventeenth year of apprenticeship. And not by any extrapolation of merger rationale could it be considered a good deal for the legion of furloughed airmen out there on the sidewalk, noses pressed against the window, waiting to be let back in. They would see their cockpit seats filled with fresh-faced new National pilots.
A box of pins showed up one day in the pilot lounges. On the pins was the message: WE HAVE THE URGE TO MERGE.
“We do?” a pilot asked, picking up one the pins.
The pins were distributed by the AWARE group, the grass-roots movement originally started back in Berlin by pilots who wanted to do something about saving Pan Am. But that was six years ago, and the crisis had passed. Gradually AWARE had metamorphosed into a pro-management bunch spouting the company line.
Now here was the box full of pins. AWARE was promoting the company’s—and Chairman Seawell’s—bid to buy National Airlines.
“Why do we have the urge to merge?” a pilot asked the AWARE representative, a flight attendant in her thirties.
“Because the company will grow,” she said. “It’s good for Pan Am.”
“But if we add all the National employees to our list, how will that be good for us?”
“We’ll be a bigger airline,” she said.
“But we’ll have a bigger seniority list,” he said. “I don’t see how that will help us.”
“Oh, but it will,” she said. “You just don’t understand.”
And she was right. He didn’t understand. Nor did anyone else.
Chapter Twenty
The National Caper
If an airline’s business persona bore the spirit of its founder, then National Airlines was a corporate incarnation of George Ted Baker.
Baker was a tough guy from Chicago who smoked cigars. “If you steal a chicken,” Baker liked to say, “don’t pluck it on the way home.” This precept he learned as a teenager when he, in fact, purloined a chicken and rowed it home across a lake. The owner caught up with him by the trail of plucked feathers across the lake.
What Baker learned from the experience wasn’t that it was wrong to steal chickens. It was wrong to leave a trail.
Baker was type-cast for the thirties. It was generally believed—and he would not deny it—that he had been a rumrunner during Prohibition. Short, stocky, tough-talking, cigar jutting from his teeth, Baker was a ringer for Edward G. Robinson. But it was no act. Baker was a real tough guy. He loved nothing so much as a good fight.
George Baker acquired National Air Taxi back in 1934. National’s archrival then was—and continued to be for the next third of a century—Eastern Airlines. Baker elbowed his way into Eastern’s territory, bidding on its mail routes, undercutting its fares, stealing its customers.
Eddie Rickenbacker, who headed Eastern, hated George Baker’s guts. National’s fly-to-Florida advertising theme, the “Route of the Buccaneers,” had to be changed when Rickenbacker started denouncing Baker as “an old pirate.”
Rickenbacker was not alone. Most of Baker’s employees hated his guts too. Baker was a bully who constantly changed his company officers’ titles and salaries, hiring and firing them at whim. At lunchtime he conducted what they called “noon bloodlettings,” at which he verbally pistol-whipped every errant executive who had screwed up in the past twenty-four hours.
And he was cheap. Instead of buying shades, Baker covered the windows of his headquarters with wrapping paper and masking tape. He went over the records of all the company’s long-distance calls. He was in a constant range war with his employees, who formed themselves into seven separate snarling unions to do combat with Baker. Labor war was a way of life at National, and that was okay with Baker, who would just as soon fight as do anything else.
In 1946 National expanded its route system into Cuba. It was a big moneymaker for National until 1959, when Castro overthrew the government. During its last month of flying to Havana, National flew empty airplanes in, then departed full of anti-Castro Cubans. Cuban officials confiscated five thousand cigars from National airplanes.
One day when he saw photos of Castro smoking cigars, Baker came unhinged. “Those are my goddamn cigars!” he roared.
No one could have been more unlike George Baker than Bud Maytag, who took over National in 1962. Maytag had grown up as a rich kid, grandson of the Maytag washing machine company founder. He was a pilot, a real pilot who liked aerobatic airplanes and who personally test-flew National’s new jetliners. He was tall and thin, given to understatement in speech and style. When he was young, he wanted to be a concert pianist.
Maytag didn’t like cigars, and he didn’t like to fight. So when Bud Maytag took over National Airlines in 1962, there was every reason to believe that things would change at National.
But they didn’t, really. National would never change. It was in the company’s blood, stamped on its stationery, embedded in the skin of the airplanes. National was imprinted with the Edward G. Robinson tough-guy, cigar-chomping, ass-kicking personality of George T. Baker.
Bud Maytag, though, turned out to be a competent businessman. Under his management National made money and grew. In 1964 it became the first all-jet airline. In 1970 it became the third U.S. transatlantic carrier, flying nonstop between Miami and London. And then came service to Frankfurt, Paris, and Amsterdam, and nonstop flights to Europe from Tampa and New Orleans. In 1974, Maytag began construct
ion of a dazzling new hangar-and-office complex at Miami Airport. The building won the “Grand Conceptor” award of the American Consulting Engineers Council.
But the fighting went on. It was just something they did at National. The airline’s unions had not forgotten what they had learned from George T. Baker. Almost every contract dispute culminated in a strike. During the seventies National endured successive strikes by mechanics, ground agents, and flight attendants. In 1978 a long strike by the flight attendants wound up in federal court.
That was it for Bud Maytag, who had no stomach for such unpleasantry. He started looking for a way out. “Running an airline is no fun anymore,” he said.
Out in Houston, Texas, in the manicured suburb of River Oaks, it was another clammy, heat-shimmering, asphalt-melting July midafternoon. For the slender, dark-haired young man pounding down the sidewalk, the searing heat was no problem. He was a marathoner, comfortable with adversity. On this torpid afternoon Frank Lorenzo’s thoughts were half a continent away. He was thinking about National Airlines.
Francisco A. Lorenzo was an unlikely player in such a high-stakes game. He was the son of Spanish immigrants who ran a beauty parlor in New York. He worked his way through Columbia driving a Coca-Cola truck. After graduating from Harvard Business School in 1963, he went to work for TWA, and then for Eastern, as a financial analyst. In the late sixties he and his Harvard classmate Robert Carney put together $2,000 to form an airline financial advisory firm, which evolved into a company called Jet Capital Corporation. With a public stock offering they were able to raise $1.5 million, a grubstake with which they bought a little, almost-defunct company called Trans Texas Airlines, known by locals as Tree Top Airlines.
Lorenzo changed Trans Texas to the grander-sounding Texas International. The company became the test bed for his first experiments with no-frills, fly-on-the-cheap, serve-‘em-peanuts airline operations.
Lorenzo had found his niche. He restructured TI’s debt, slashed fares, and managed to resuscitate the company. “The airline was on its deathbed,” said Bob Garrett, Lorenzo’s financial adviser. “Yet Frank managed to pull all the various sides together. He kept working and working after everyone else had stopped.”
This was all before deregulation. Then came 1978, the year of the Airline Deregulation Act. It was a unique moment in airline history— a time just made for someone like Frank Lorenzo.
Who the hell is Frank Lorenzo?
That was what they wanted know at National’s Miami headquarters on July 9, 1978, the day Lorenzo informed the CAB that he had bought 9 percent of National Airlines’ stock. He had also informed the board that he, by the way, intended to buy up to 15 percent, or as much as it took to have controlling interest. In the process, Lorenzo had not bothered to consult National’s chairman, Bud Maytag.
Maytag received the news with dismay. It was no secret that he was fed up with running an airline, but he wasn’t so fed up that he was ready to turn over seventeen years of unstinting work to a guy with a Latin name from somewhere out in Texas. He wanted National Airlines, if it couldn’t continue under its own banner, to be amalgamated with a strong player like Pan American.
And in New York, in his command post on the forty-sixth floor, general Bill Seawell wondered alike: Frank Lorenzo? And more to the point, Texas International? It seemed like a classic minnow-swallows-the-whale caper. But it was just the kind of challenge to get the Cold War gladiator’s combative juices flowing. General William Seawell, by God, had set out to capture National Airlines and he was not going to be outflanked by some cracker-assed outfit from Texas.
The general plunged into the fray. In short order, Pan Am owned 20 percent of National’s stock, exceeding Lorenzo’s share.
So Lorenzo bought more.
Seawell countered. Pan Am bought more National stock.
And Lorenzo bought more.
And so on. By the end of July, Pan Am and Texas International each owned about 24 percent of National Airlines. The stock market reacted to the frenzy quite predictably. National Airlines stock, which had been trading below $20, took off like a Texas jackrabbit. By July 24, the price of National stock had doubled, and it was trading in blocks as large as half a million shares.
Finally it came down to a vote by the National stockholders. Pan Am or Texas International? The biggest offer on the table was from Pan Am—$41 a share—and that seemed to be the upper limit to the madness.
And then, three hours before the proxy material was supposed to go out to the stockholders, another player jumped into the game: astronaut Frank Borman, down from outer space and now the chairman of Eastern, was offering $50 a share.
The game was on again.
Regardless of who made the most outrageous offer for National Airlines, any such merger still required the approval of aviation’s most plodding bureaucratic agency. Even though the Airline Deregulation Act of 1978 imposed a death sentence on the Civil Aeronautics Board, the CAB was still around in the summer of 1979. The five-member board would have to study the matter and make its recommendation. The President, Jimmy Carter, would render a final decision.
While the CAB deliberated—the CAB always deliberated—the fight for National became a prime topic for the business press. Everyone, it seemed, in and out of the industry, felt obliged to express an opinion.
Alfred Kahn no longer headed the CAB. He was now President Carter’s anti-inflation czar, but that didn’t keep him from expressing his feelings about Pan Am. It would be better for everyone, Kahn told the press, “if Texas International won control of National.”
Whereupon General Seawell’s temper reached the flash point. To the Wall Street Journal he suggested, not too delicately, that the President tell his former CAB chairman to “keep his views to himself.”
The case dragged on for a year. Never had little palmetto-hopping National Airlines been the object of such courtship.
Meanwhile, it was hard to take one of the bidders, Eastern Airlines, seriously. Eastern owned no more than a token hundred shares of National and hadn’t joined in the rush to buy more. Eastern had no real chance of taking over National, because neither the CAB nor the Justice Department would approve a merger giving a single airline a virtual monopoly on the East Coast.
Why, then, was Eastern in the game?
Eastern and Pan Am were nearly equal in size. Even though Eastern almost surely wouldn’t be allowed to have National Airlines because of the antitrust implications, it certainly didn’t want a competitor the size of Pan American moving into its neighborhood. Of the other two candidates, the less threatening to Eastern was tiny Texas International.
Seawell, stating the obvious, told Forbes, “Borman is acting as a spoiler because of his fear of competition.” To which Eastern’s vice-chairman, Charles Simon, said of Seawell and company, “I don’t think they know their butts from a hole in the wall.”
The repartee was getting nasty.
Through it all, Frank Borman kept right on smiling his disingenuous astronaut smile. Eastern’s intentions were honorable, he insisted. Spoiler? Certainly not. The airline only wanted to solidify its “historical presence in the eastern seaboard market.” “We’re going to make it happen,” he told the Wall Street Journal.
Not if General William T. Seawell had anything to do with it.
At first, Seawell told the press that Pan Am wouldn’t match Eastern’s ridiculous $50 offer. “We don’t have to,” he said. “An Eastern-National merger would be a textbook case of antitrust.” And that was a matter for the Justice Department.
But there was this guy out in Texas, Lorenzo, still sitting on a load of National stock—and voting shares. He could vote for or against Pan Am’s proposed takeover.
So Seawell did something he hated to do. He made a deal with Frank Lorenzo. If Pan Am would raise the ante to $50 a share, matching Eastern’s offer and, most important, raising the value of Lorenzo’s investment, Lorenzo would not vote against Pan Am at the shareholder meeting scheduled for M
ay 16.
Fifty dollars a share. It was outrageous. Even Borman knew it was outrageous. He had no intention of paying that much.
So Seawell raised the ante, and the National shareholders, especially Frank Lorenzo, loved it.
Pan Am could have National Airlines—if the CAB approved.
The CAB kept on deliberating. The Justice Department kept on ruminating. Lobbyists from all three sides kept tugging at the sleeves of anyone in Washington who might influence the outcome of the National case.
Seawell wanted the employees of both airlines to get on the bandwagon. At Pan Am he already had the AWARE people out there with their URGE TO MERGE buttons. Now he needed to convince the National employees that merging with Pan Am was their best deal.
Down in Miami, they didn’t think so. The National pilots were not keen about such a merger. They were worried about how they would be swallowed in Pan Am’s gray-headed pilot roster. “Have you seen those guys? They’re old! Most of ‘em were hired back when Christ was a copilot. Their junior pilot was hired in 1968!”
Which was true. Pan Am, by age and longevity, was a far more senior airline than National. The National pilots had much to lose in such a merger. Most thought it would be better to be bought up by some benevolent entrepreneur like this guy Lorenzo, whoever he was.
Seawell went to Washington to spearhead the lobbying campaign. He appeared before the CAB. He had briefing papers printed explaining to newsmen why the National acquisition ought to be approved. He flew to Miami and spoke to the Chamber of Commerce.
He appealed to National’s unions. “Not a single employee would lose his job as a result of the merger,” Seawell promised.
And that was some promise. National had 8,350 employees, many of whom were doing jobs already being done by Pan Am people. The two employee groups overlapped in administrative, maintenance, and operations functions. Seawell was making an expensive promise.
Skygods: The Fall of Pan Am Page 20
