V. THE FACTS DO NOT SUPPORT EITHER THE CHARGE OF There have been many irresponsible allegations made about Continental's situation since it filed for Chapter 11. Much of this is quite surprising in light of the fact that Continental's financial plight was made known to its employees in detail before the filing. Continental, which was a $1.5 billion corporation, simply could not sustain itself; it was a financially disabled corporation. We have provided an overview of Continental's financial situation in this testimony and you can be assured that Continental's finances will be gone over in minute detail during the course of the bankruptcy proceeding. The charge of "union busting" is equally spurious. Continental has made it's recognition of the unions as the lawful bargaining units abundantly clear. Had Continental been set to engage in the alleged type of activities, Continental would have trained several hundred pilots before hand. Continental did not do this but rather continued to try to negotiate with ALPA. Continental also went through its active and its furlough lists to attempt to find pilots who would work in the face of ALPA's attempts to further disable the company and adversely impact those ALPA members who continue to work. Continental has only recently begun to hire replacement pilots in an effort to maintain and expand its schedules. The question might be raised as to what about the replacement of the mechanics in August after the IAM strike and what about the fact that Continental trained 700 flight attendants before the IAM strike? The answer to both of these questions is straightforward. Faced with a strike where the IAM was asking for a 36% pay increase for virtually no increase in productivity, Continental was forced to replace those IAM members who did not return to work when requested to do so. Remember that Continental offered the mechanics a 20% increase in pay for a 20% increase in productivity. In the case of the flight attendants, they threatened prior to the IAM strike that they would not cross the IAM picket lines. Accordingly, Continental was forced to bear the added expense to train potential replacements. Continental's option was to shut down the airline for an extended period of time, perhaps permanently since Continental's traffic would soon fall off as winter approached. The position of the company received tremendous support from its employees as evidenced by the fact that 56% of the IAM mechanics crossed the picket line and, all pilots and flight attendants reported for work. Finally, if in fact, Continental were engaging in the kind of activities alleged, certainly the IAM strike provided plenty of opportunity to file for Chapter 11 with substantially more cash in hand. But what the company did was to fly through the strike in yet another effort to save Continental. It was only after all efforts at negotiation had failed and cash was running out that the petition for reorganization was filed. There are no villians in the story of Continental's failure. Both the unions and management were confronted with factors they had not experienced before and which ultimately defeated them. There are legal mechanisms in place that will protect the interests of all concerned. At this point, Congress should let the established processes work their way; the courts are time tested at solving thorny factual situations such as this. Beyond this, one can only devote all efforts toward rebuilding Continental as an airline that provides value to the consumer and to its shareholders, increased jobs and fair working conditions to its employees. Other companies have successfully reorganized after similar traumatic events. We at Continental are dedicated to making this a successful reorganization. 39-223 0-84-21 LABOR/ROY ROWAN AN AIRLINE BOSS Once a wide-bodied executive with a reputation for remoteness, Continental Airlines' chairman, Francisco A. Lorenzo, has slimmed 45 pounds from his bulging corpus and become just plain Frank. Now a sleek, smooth-running, 3-hour 38-minute marathoner, he is striving to work the same metamorphosis on his bankrupt company. Resurrected three months ago as the "New Continental," the Houston-based carrier has slashed its salaries, fares, and route system in half. The slimmed-down Continental is now making the fiercest attack on costs of any national airline. As the irst major carrier to fly right on through a thunderhead of bankruptcy, it is defying its unions. Last September, Continental shut down and scught protection from creditors under Chapter 11. but a few days later it began fiying again, paying empicyees a lot less than before. The pilots and fight attendants went out on strike, accusing Continental of feigning bankruptcy simply as a ploy to abrogate labor contracts. If the airline can nonetheless keep on flying, Lorenzo will have altered the wage structure of his industry. But first he has to beat back the effort of the unions to void his bankruptcy petition. The union counterattack has a kamikaze aspect-if the bankruptcy court in Houston does side with the unions, Continental will be forced into immediate liquidation. At the time Continentai sought court protection, the press reported that the 43-yearoid Lorenzo looked "tired and gaunt." Actually he was in ane fettle, having just shed the final 15 pounds (down to 160) training for the New York City Marathon. Besides, he was buoyed by business prospects. "We filed for bankruptcy not because the company didn't have a future," he says, "but because we RESEARCH ASSOCIATE Joan i Campo thought it had a hell of a future." Airline analysts are not so sanguine. Lorenzo's colleagues, who use words like "quiet." "introspective." and "cerebral" to describe him, aiso say he is "quite 3 crapshooter." ORENZO became chief executive of Continental in March 1982 following a bitter takeover battle that left employee moraie grounded. High labor costs and what he calls a crazy-quiit route system put Continental-the eighth-largest U.S. airline-in a poor position to survive the aerial free-for-all brought on by deregulation. Competing just by cutting fares is not a rational long-run strategy. Compentors can cut too. Lorenzo frequently teils his stan that "deregulation means carving out your own special niche." His view of Continental's niche is to provide all the frills of flying, but at discount fares. He believes that by focusing this formula on high-density markets Continental couid win over many new passengers and become highly profit able provided he can get costs down by breaking the stranglenoid of the unions on his airline. Just 56 hours after filing for court protection. Continental was up and running again as hard as its boss. It could do that because Lorenzo had deliberately filed before the airline ran out of money. Bran:, he points out. had waited until its cash was exhausted before filing, losing any chance of getting air. borne again without a long hiatus. (Now owned by Hyatt Air Inc., an aliate of the hotel company, Branif expects to resume fiying in March after being grounded for 20 months.) Continental, while overdue on paying many suppliers, still had $58 million in the kitty, enough to hire back 4.000 of its 12.000 employees at drastically reduced salaries. It thus became the first airline to defy the gravity of bankruptcy, so to speak. by 66 FORTUNE JANUARY 9, 1984 POTOGRAPH BY GEOF KERN staying in the sky. "We weren't going to let a great company with 106 airplanes go down the drain." Lorenzo says. On December 13 he was back in Houston's bankruptcy court-still skinny from his running regimen, though he had already succeeded in shaving 27 minutes off his original New York City Marathon time and no longer needed to train. But it was good that he had stayed in shape because his interrogation and cross-examination dragged on for four hours. A battery of lawyers, representing ALPA (Air Line Pilots Association), IAM (International Association of Machinists and Aerospace Workers), and UFA (Union of Flight Attendants), were attempting to prove that Continental had led for bankruptcy in bad faith. "We view Chapter 11 as the end of the line, the last resort." Lorenzo testiñed, in a voice barely audible to the striking pilots and fight attendants seated in the back rows. "The company would have run out of cash in a few days." ALFA's president. Captain Henry A. Duífy, 48. didn't attend. But from his Washington. D.C., headquarters he wasn't shy about letting people know how he feels about Frank Lorenzo. "We don't trust him." says the former Delta pilot. "Frankly, we think he's a little short on corporate integrity." In an angry voice he adds. "This industry has enough problems without Lorenzo." Dufy claims that the pilots had already granted Continental $100 million in wage and work-rule concessions, covering two years, and were prepared to offer whatever it would take to make the company compentive, if it would open its books to prove it wasn't "stashing money away." Lorenzo, who accuses Duffy of "turning the bankruptcy into a strike confrontation." contends that a big part of ALPA's concessions were sup JANUARY 9, 1984 FORTE 67 |