Paradise tossed; how a chance to save American capitalism was sabotaged at Eastern.

• Author: Gibney, Alex
• Position: Eastern Airlines

PARADISE TOSSED

In August 1985, Eastern Airlines was flying high. The airline company had rebounded from a staggering loss of $183 million in 1983 and was running solid operating profits for the sixth straight quarter. The prime cause of Eastern's turnaround was the largest experiment in labor-management cooperation in American history. It encouraged a new cost-cutting ethic in Eastern's employees that saved the company $100 million and allowed for wage concessions that saved another $295 million. Some saw the agreement as the solution to America's crisis of productivity, a model for a new cooperative American capitalism: managers and workers laboring side by side, sharing sacrifices, profits, and power, making the company vigorously competitive.

Today, Eastern is owned by Texas Air, whose flamboyant owner, Frank Lorenzo, refuses even to talk to the union leaders. Massive layoffs and pay cuts seem certain, as does a return to the kind of 19th-century-style labor relations that has burdened American industry. The fragile marriage between Eastern's managers and workers has ended in bitter divorce, with machinists union leader Charlie Bryan and Eastern chairman Frank Borman deciding they would rather give the company to Lorenzo than work with each other. "In the end Borman just threw up his hands, and Charlie Bryan decided he'd rather deal with the devil he didn't know than the devil he did,' one observer explained.

Eastern's brief experience with worker participation is of urgent relevance to the American economy. As our economic competitors erode our markets, sacrifices will be needed--but no longer can they be borne solely by workers. In this country, small but dramatic success stories such as Weirton Steel, where employees prevented their steel plant from closing by buying it, and Western Airlines, where unions took sharp pay cuts in exchange for stock and positions on the board of directors, have encouraged discussion about changing fundamentally the role of workers in companies. Even some of the most traditional managers have come to think they can increase productivity by listening to their workers. Eastern Airlines, a $4 billion company with 40,000 employees nationwide, was the first test of power sharing on a massive scale. In December 1983, in exchange for huge wage concessions, Eastern gave workers 25 percent of its stock, representation on the board of directors and a significant role in running the company.

Why did the experiment fail? Many reporters following the Eastern story blamed the February, 1985 break up of the airline's labor accord on the animosity between Bryan and Borman. The decisions of these two men were pivotal, but their personal estrangement reflected much deeper antagonisms between labor and management that were, in turn, powerfully reinforced by other pressures. Frank Borman worried about Wall Street's disdain for the agreement and the banks' constant pressure for bigger and bigger wage cuts. Charlie Bryan, on the other hand, worried about delivering higher wages to the union members who elected him. These pressures converged at a time when Eastern most needed this cooperative approach to help face the fierce industry-wide competition brought on by deregulation. Finally, managers simply did not want to cede enough power to workers and workers were ultimately unwilling to take responsibility for the financial well-being of the company.

Monkeys in the cockpit

"I lived and breathed fighting management and Eastern Airlines,' said Leo Romano, a chief steward for the machinists union at Boston's Logan Airport, describing what both management and the workers called "the wars.' For ten years prior to the 1983 accord, hostility between the two groups intensified until each cared more about fighting the other than making the company competitive. Eastern added a new class of manager whose only job was to watch the machinists. In the engine shops in Miami, these managers hid inside jet engine cowlings and huddled behind two way mirrors, trying to catch workers in violation of Eastern's myriad work regulations. In Boston, there were often four supervisors watching three baggage handlers unload an aircraft. To avoid the union's jurisdiction, Eastern farmed out repair work to outside contractors, even though the practice inevitably raised the cost. "Constantly, we were at each other's throats, whether it was over a table in arbitration or down on the floor telling employees how to do their jobs,' said Jeff Callahan, a labor relations lawyer at Eastern. "But you have to understand the culture of the corporation at the time. The only way you were going to rise through the management ranks was by being the meanest, nastiest, toughest guy on the block.'

The company tried to improve performance by stepping up discipline and rigidly enforcing rules. The unions responded in the most destructive way possible--they followed the rules to the letter. "The more they pushed the less we did,' said one Miami-based mechanic. "We got out the manual [which includes thousands of pages of technical jargon]. We just went page by page, step by step and the engines never went anywhere.' Experienced mechanics capable of repairing minor engine problems in a few hours would meticulously follow manufacturer's instructions, taking the entire engine apart over several days. In New York, baggage handlers for the Eastern shuttle refused to unload other planes no matter how busy the airport, citing strict rules on job assignment.

The bitterness at Eastern in the 1970s was prolonged and intense--very much in keeping with U.S. labor history. When unions arose to counter the bargaining advantage of management, management often struck back with goon squads, industrial spies, layoffs and strike-breaking police patrols. The 1934 passage of the National Labor Relations Act gave unions the right to organize and bargain collectively. But they were not given any right to encroach on "managerial prerogatives,' such as deciding executive salaries, investments, plant locations, and the organization of work. The act simply made the traditional labor-management conflict more civilized. Both sides still talked only about wages and benefits. Management insisted that corporate efficiency was enhanced by a strict division of labor: management did the thinking and workers did what they were told. Having no stake or say in the way a company was run, workers came to identify only with their wages. And that was fine with both sides. Labor leaders felt that cooperation was cooptation, which would only weaken the vigilance of the union.

Airline deregulation forced Charlie Bryan and Frank Borman to reevaluate their old adversarial ways. Although the 1978 deregulation of the airline industry hurt all of the large carriers, it hit Eastern especially hard. Throughout the 1970s, Eastern tried to buy labor peace through extravagant wage hikes, knowing that the higher costs would simply be passed on to the consumer through government-regulated fares. After deregulation, however, Eastern had to compete against aggressive new low-cost carriers like People Express and New York Air (a subsidiary of Texas Air) that were not saddled with the same high-priced union contracts. Salaries, wages and benefits cost Eastern 3.28 cents per available seat mile, versus .68 cents per mile for People Express. Eastern's labor accounted for over 39 percent of its expenses compared to 20 percent of People's. When People's, New York Air and Air Florida started to move into Eastern's lucrative NY/Florida market, Eastern often had to fly at a loss in order to match the fares of its competitors.

At the same time that Eastern struggled to compete, it was amassing a huge debt. Thinking that rising fuel prices could give Eastern a competitive advantage, Borman decided in 1980 to modernize Eastern's fleet. Despite losses of $17.4 million in 1980, $65.9 million in 1981, and $74.9 million in 1982, Borman spent $1.4 billion for 52 fuel-efficient planes such as the Airbus A-300 and the Boeing...