CHAPTER ELEVEN
The Shuttle Sale
From the Wings of Man to the Wings of Trump
1988–1990
THE DECISION to sell the Eastern shuttle, which we reached in 1988, was difficult because it was a valuable asset that was considered by employees and many others to be one of the crown jewels of the company. The factors that went into deciding to sell it are complex. Indeed, the first sign of trouble in our Eastern acquisition was one we had not fully anticipated: the divestment of New York Air landing slots and gates because of antitrust concerns on the part of the Reagan administration. As I mentioned in chapter 10, Reagan officials refused to approve our purchase of Eastern, claiming that by adding Eastern’s shuttle service to our New York Air operation, we would damage competition in the heavily trafficked Boston–New York–Washington corridor.
While we had been concerned about the antitrust aspects related to the shuttle and New York Air, the ruling nevertheless caught us by surprise because the federal government had been routinely approving mergers and acquisitions in the airline industry in the 1980s, as I’ve mentioned. We had counted on using Eastern’s shuttle to complement New York Air’s commuter service and had been looking at increasing our combined frequency to half-hourly departures. As it was presented to us, we had to divest ourselves of one or the other in order to secure government approval of the purchase.
At that point, it really was not an option to hang on to New York Air and sell the Eastern shuttle. Eastern employees regarded the shuttle as a proud company symbol, and from a human relations standpoint, there was no way we could sell such a high-profile asset just as we were taking ownership of the company. Shareholders would not have been happy either, because the shuttle was probably one of the most well-known, most prestigious, and most consistently profitable operations in the airline business and clearly had a greater value than the New York Air shuttle operation.
As much as we hated to lose the shuttle part of New York Air—the guts of its business—on May 13, 1986, after negotiations with several parties, we agreed to sell most of New York Air’s shuttle landing slots and applicable gate space to Pan Am for $65 million. When DOT officials deemed the sale inadequate (we suspected they were likely pressured by behind-the-scenes lobbying from Pan Am), we were forced to sell Pan Am an additional fourteen slots for $9.8 million.
The sale of the original core of New York Air was a very painful move for us, since we all were so intimately involved in the birth and nurturing of the company. Indeed, an airline operation at LaGuardia had always been a somewhat hazy dream of mine. Also, we had gotten to know many of the NYA employees right from the start, and most of them had an entrepreneurial flair, given the start-up nature of the company. It was a difficult decision for us to have to implement, and it decreased, at an early stage, the value of Eastern for us.
By 1988, the situation at Eastern had grown so dire that the company eventually had to resort to the sale of assets just to stem the flow of losses. Phil Bakes had one of his senior people draft what would become a controversial memorandum examining the impact of various asset sales against a standard set of criteria. The memo was known internally as “Chunks” for the way it broke the airline down into its component parts and considered the consequences of shedding virtually every severable aspect of our business—which was how the Eastern shuttle ended up on the chopping block.
To the public and to employees, the shuttle stood at the heart of Eastern’s business, but in truth, it represented only 5 to 6 percent of the airline’s revenues and had a stated book value of less than $50 million. After more than twenty-five years, given new competition, Eastern’s grip on the shuttle market was no longer what it was. Ridership was declining as the Pan Am shuttle gained market share—as had New York Air itself in the early years after we started the airline in 1980.
The Eastern shuttle was also such a Spartan product that there were many in management who felt that it gave the rest of the airline a bad image, despite its popularity and historic but declining profitability. Indeed, our research suggested that a commuter accustomed to the shuttle’s bare-bones service was not likely to consider Eastern’s full-service operations to Florida. The Eastern shuttle was also a poor feeder because it was not particularly integrated with other routes. Nobody flew from New York or Boston to Washington on the shuttle in order to connect to Florida, because there were plenty of nonstops between New York and Florida and Boston and Florida.
But the most compelling reason to pursue a sale of the shuttle was that Eastern needed the cash as losses from the rest of the airline’s operations continued to mount. Nonetheless, we had enough misgivings about shedding the shuttle, perhaps mostly psychological or employee attitude–driven, that our first move was to explore a kind of hip-pocket transaction through our Jet Capital holding company. That proposed deal, valued at $250 million, would have kept the shuttle operating under the Eastern name and largely under Eastern control. Effectively, Jet Capital would have put together a group of investors, and a large bank loan, to purchase the shuttle business without any of its airplanes. In this way, we thought, we could do a fair deal that would bring Eastern a lot of cash and at the same time keep the shuttle in the family.
By all independent accounts, this was a sound move, a reasonable investment benefiting both Eastern and Jet Capital. But the deal was quickly greeted by a firestorm of negative reactions from the company’s unions, which we fully expected—and from Wall Street, the media, and Eastern employees, which we had not expected, at least not to such a degree. It looked like Jet Capital was trying to steal the shuttle from Eastern at a distress-sale price. This was not at all the case, as the ultimate sale would bear out.
And so, in February 1988, we retained Merrill Lynch to evaluate the shuttle and scout the marketplace on our behalf. The investment bankers set an estimated price tag of between $350 million and $425 million for the shuttle, including eighteen Boeing 727 aircraft, which we saw as a validation of our $250 million price tag on the proposed Jet Capital deal. After all, the Jet deal didn’t include the airplanes and parts and instead anticipated an attractive-to-Eastern lease on the equipment, which would have netted a further $75 million or so to Eastern. In addition, Merrill assumed that other airlines would be our most likely buyers, which we knew would inflate the value of the deal by at least $50 million. In these terms, the value of the Jet Capital deal was around $375 million, which placed it right in the middle of Merrill’s valuation range.
While we were waiting on the Merrill Lynch report, I had drawn up a list of potential buyers, and somewhere near the top was New York real estate developer Donald Trump. Trump had originally been contacted by our bankers about being part of the group of investors buying into the shuttle with Jet Capital. Other names were Jack Kent Cooke, who owned the Washington Redskins football team and whom Barry Simon, Eastern’s general counsel, had previously worked for, and Jay Pritzker, the Chicago financier and hotelier who had alerted me to the Continental opportunity ten years earlier.
While we were focusing on potential buyers, we were severely distracted by a DOT investigation stirred up by the unions. With all the falsely created pilot reports, ALPA and IAM succeeded in convincing Jim Burnley, secretary of transportation, to launch an investigation of the safety and management of Eastern Airlines and the Texas Air group, even though it was a totally partisan and unreasonable request and clearly just a public relations stunt and an effort at harassment, since airlines are continually monitored by the FAA. This investigation was unprecedented for a major carrier and spoke to the enormous political power of unions, even during a Republican administration.
On Wednesday, April 3, 1988, Burnley announced a thirty-day inspection program. The evening news and newspapers put our “examination” front and center during the entire review period. Although we received a clean bill of health from the DOT on May 31, 1988, much public relations damage had been done to our airlines’ reputations, which was not repaired by the Friday-afternoon “all clear” news release from the government.
However, despite this hostile environment, and even because of it, we pushed on with the possible shuttle sale. The ideal buyer, to our thinking, would have to be an independent non-airline buyer. If we were going to lose the shuttle, we did not want it to end up with one of our major competitors. We also wanted to attach a number of restrictions on the sale, which included long-term prohibitions on its resale to other airlines and the right of first refusal in any resale transaction. And we wanted to ensure that Eastern’s frequent-flier program remained the shuttle’s principal incentive program after the sale.
Trump was the perfect suitor, I thought, because the shuttle was the kind of high-profile property that he seemed to crave. Most important, he appeared eager to do deals. He appeared to be flush with cash and banker friends, although we were not sure which was more likely to be backing up his commitment. He had casinos, hotels, apartment buildings, office towers, and plans to build more of the same. His purchase of a giant luxury yacht from Adnan Khashoggi, the Saudi arms dealer, sparked an international photo opportunity after it was refurbished somewhat and rechristened the Trump Princess. It was at the time the largest private yacht in the world.
I approached Trump personally in April 1988 at the wedding reception for Jonathan Tisch and Laura Steinberg, scions of two of New York’s best-known families. The affair was held in the Great Hall of the Metropolitan Museum of Art, completely redone for the occasion, of which the father of the bride, my old friend Saul Steinberg, was a major benefactor and of which the groom’s uncle, Larry Tisch, was an active trustee. The wedding did more than unite two of the city’s most socially prominent families: it also provided me with the opportunity to float the idea to Donald Trump that he might want to consider adding the Eastern shuttle to his vast holdings.
I was not all that subtle about it, because I had the feeling that subtlety was not Trump’s strong suit. During cocktails, I walked over, drink in hand, to where he and his then wife, Ivana, were standing. (As I approached, it occurred to me that the fabulous emeralds Ivana was wearing could have easily have been worth as much as the shuttle down payment.) When Trump and I were left alone, I let it slip that the shuttle might be for sale. “It’s the kind of thing that might make sense for you someday,” I said as matter-of-factly as I could.
From the look on Trump’s face, I could tell he had interest right away. One thing he did not have was an airline, and no matter how much money airlines can lose, or what a nuisance they can be to run, there is something sexy about owning an airline. (That is, until you own one.) Trump, I sensed, wanted to own one. I knew, of course, that he had just paid more than $400 million for the Plaza Hotel, so I compared those apples and oranges at my first opportunity. “The shuttle is our Plaza Hotel,” I said, appealing to the side of him that clearly coveted these showcase properties, “but I’m not sure the board wants to sell. It’s probably premature.”
“Well,” Trump said, in what I took to be an effort not to sound too eager, “if you and your board are ever interested in selling it, let me know.” He and Ivana then had a photograph taken of the four of us and made a toast, and off into the illustrious crowd we went.
Just after this encounter, on the following Tuesday—an indication of his immediate interest—Trump called and wanted to follow up on our conversation, which we did around a month later during a breakfast meeting. We would have met sooner, but I was only in New York every few weeks, and this was the first common opening in our busy schedules. Trump suggested we meet at the Plaza, in the Edwardian Room, and I happily agreed. I figured that going there as Donald Trump’s guest would be an experience.
Trump met me at the hotel wearing a deep blue suit and a yellow tie, which was standard attire for him. He was looking a little flabby, which I guessed was attributable to lack of exercise, although after we sat down to breakfast, I figured his diet was a factor, too. It certainly was not designed by a nutritionist. For this first breakfast he ordered eggs and bacon and all the trimmings. I had my usual—hot cereal and fruit—and I don’t think the contrast was lost on either of us. It led us right into our first bit of small talk, about health and nutrition. He was clearly sensitive to the fact that his diet and exercise habits left something to be desired, particularly in the face of my avowed interest in nutrition—plus, he had heard about my marathon running.
Amusingly, in our subsequent breakfast meetings, also at the Plaza, Trump’s eating habits improved while mine worsened. I doubt whether he was consciously aware of it at the time, but he gradually switched to lighter, more healthful fare as I gravitated toward the heavy artillery. I guess I was trying to make him feel more comfortable with what he was eating and to come across as less of a health freak, while he may have been looking to show more self-control than his taste buds had been used to.
Once, after a long run in Central Park before one of our breakfasts, I decided to treat myself to pancakes, which I enjoy on rare occasions, particularly when I “earn” them, as I had that morning. When I sat down at the Plaza, I ordered a stack, figuring my guilty pleasure would be mitigated by the fact that he would at least be able to feel good about what he was eating. But Trump aced me out of my consolation by ordering a bowl of hot cereal. The moral of the story: people do strange things when they’re sitting across the table from each other trying to do a deal.
Breakfast with Trump in the Edwardian Room often turned out to be quite a spectacle. After we were seated at the corner window table, with a grand view of Central Park, he would usually say hello to a number of people who passed by. For a guy with a reputation for being somewhat insensitive, he was very courteous and gracious with his guests—and with me. Once he finished playing Mr. Hotelier, and after we had dispensed with our pleasantries, it was usually fairly easy to get down to business and keep his attention.
At our first meeting, I told him how I saw the deal. I cautioned him that the board had not yet decided whether to actively pursue a sale and that I myself was still unsure of the best course of action. But I let on to him that our price, if we were to sell, would be $425 million for the entire operation, including the planes. (I had sent him a copy of the Merrill Lynch study noting the $425 million valuation prior to our meeting, so he had some idea where I was coming from.) He seemed to choke a little bit on the price. Maybe “gag” is more like it. I was really aiming for $400 million. I knew that if I went to the board with that offer, I could truly say that it was an excellent price.
Of course, I had some lofty expectations, but I knew I had the leverage of selling to one of our competitors or other investors to fall back on. Clearly, the shuttle was worth more to American or United than it ever would be to Donald Trump. He and I both knew this. What Trump probably did not know was that there was no way we would ever consider a sale to another major airline except as a last resort. He came back with a lowball indication of $250 million, which was the price of the proposed Jet Capital deal. I told him I could not imagine our doing a deal at $250 million or anything close to it, and he promised to take another look at the numbers and get back to me if he wanted to continue talking. It was, I thought, a pretty good first meeting. His price was lower than I thought it would be, but he was clearly interested. And I got the definite impression that his interest was not going away anytime soon.
After our hour-and-a-half breakfast and discussion, Trump took me on a grand tour of his historic hotel, which he was very eager to show off. There was, I suspect, some braggadocio to this turn, but I also had the sense that he was genuinely proud of his hotel and enthusiastic over its prospects. He was absolutely determined to make the entire operation over in his first-class image. He was very animated on our tour, very energetic, like a boy showing off his newest and most expensive toy. He showed me the various changes he was making to the already magnificent lobby area, such as adding gold leaf to the stunning ceilings. At one point, he led me right into a dress shop at the southeast corner of the hotel, picked a moderately priced garment off the rack, and said, “Look at this cheap stuff. I’m going to bring some real quality to this place.” He had an equally low opinion of Trader Vic’s, the restaurant downstairs, which he seemed to think was a well-worn tourist trap. He hoped to replace it with a high-tech, high-class disco.
For good measure, he even tossed in a little anecdote about the off-site parking service offered to hotel guests. I think he told me the story as much to amuse me as to demonstrate his tough, hands-on management style. When Trump first bought the Plaza, he told me, guests’ cars were being parked around the corner, at a separate facility. He was astonished to learn that the parking garage did not split its fee with the Plaza. “Imagine that,” he said. So he marched over to the garage, introduced himself, and came away with a 50 percent split, which he claimed would improve the Plaza’s profitability by more than $1 million a year. He really got a kick out of telling this story.
My next step after this first meeting was to pursue our other prospects and give Trump some time to think about the deal. Time, as I saw it, was working in our favor, at least at that point. The longer I held firm at $425 million, and the longer we actively courted other buyers, the longer he would have to stew over the deal. We began active discussions with several candidates in May, around a month after our first Plaza breakfast. The most promising of these discussions were with America West Airlines, a small Arizona-based airline not competitive with Eastern. Those negotiations were handled by my very able associate Kevin Moore, president of Jet Capital. Kevin and I had real doubts whether the aggressive America West team could secure the financing for the shuttle, but in the leveraged days of the 1980s, anything seemed possible. And because the airline had to go to the banks for financing, we were pretty sure Trump would hear about it. We needed America West’s interest to play off against Trump’s and others’ interest.
Trump and I had another breakfast meeting around a month later, in mid-June, again at the Plaza. I told him that the Texas Air board had still not decided to pursue a sale but that I wanted to go ahead and bring them the best offer indication we could find. I told him we had other interest in the shuttle and that his initial price of $250 million was far too low. “You’ve got to do a whole lot better,” I said. He came up to $325 million. I was surprised at the leap, but I still did not budge from my first figure. I told him I thought his offer was substantial but still short of what we felt the board would be expecting if indeed we decided to sell.
“So where are we, then?” he said.
“We’re closer,” I said, “but we’re still not there in terms of price.”
In truth, we were a lot closer than I was letting on. We were having some difficulty getting firm financed offers from our other prospective buyers. The marketplace was not as rich as I had thought or hoped. Besides, I thought a deal with Trump made the most sense because it did not bring the competitive problems that another airline would and because he was willing to live with a ten-year restriction on resale to another airline. Plus, I felt that Donald Trump had the ability to close the deal. This was a key element in his favor. Just about the last thing one wants in a deal like this is to do all the paperwork, gain government approval, and then have it all unravel six months later when the buyer can’t come up with the money. That was always a possibility in a deal of this size and complexity. But Trump was in the best position to make the deal with the least hassle and the least risk—or so we thought.
In fact, at another breakfast, he showed me a financial statement to allay my concerns in this area before I even had a chance to express them. He simply reached into his inside jacket pocket and handed me a statement of his net worth while we were eating. I guess if you’re Donald Trump, you always keep one of these things handy. The document was revealing, claiming net liquid assets of $934 million ($2.45 billion in 2024 dollars) and a total net worth, including his real estate holdings, of more than $3 billion after netting out the debt. Trump modestly and candidly pointed out that the number that counted was the net liquid assets figure, since his real estate holdings accounted for most of the rest and real estate prices were often quite subjective. Amusingly, the top of the net-worth statement was marked CONFIDENTIAL in bold letters, and then, right next to it, FOR USE BY HOWARD RUBENSTEIN & ASSOCIATES ONLY, also in big letters. Howard Rubenstein was Donald’s public relations agent; I really got a kick out of that.
We also involved family in our back-and-forth. One day, at Sharon’s suggestion, I invited Trump, along with Ivana and their children, to join us at the Tavern on the Green for dinner, an invitation he gladly accepted. There Ivana noted that Sharon had brought a number of toys for the children, theirs and ours. She remarked at how well prepared Sharon was for a night out with the kids, something new to her, and mentioned that she and Trump never took the kids out because they stayed with their nanny for dinners. At one point in the conversation, she mentioned that their son Eric was having an interview the next morning at Buckley, where they were eager for him to enroll. Sharon, upon asking if Ivana was taking him over for the interview, was told that their nanny would take him there; Ivana said she was tied up. Sharon told her she thought that was a mistake, and Ivana countered, half kidding, that they weren’t worried at all because Donald would build the school a gym if necessary. Ultimately, Eric didn’t get in and went to Trinity, another excellent K–12 school, instead.
At our next Plaza breakfast, in July, Trump raised his shuttle offer to $350 million. I had meanwhile come down to $400 million, so we were finally in the same ballpark. We had another meeting the following week, in his Trump Tower office, and for the first time, we had company for our conversation. I brought along Kevin Moore, who was by then working actively on this deal. Trump had his lawyer, Harvey Freeman, with him, and the four of us talked through the specifics of a potential deal. We were close on almost every important point. From time to time during the meeting, Trump would walk over to the window that looked down from his office to the Plaza Hotel, a few blocks away, and I took one of these opportunities to press my point on the shuttle’s intangible value. It was a lifetime sale, I said, just like the hotel. I thought I could move him up in price a little bit, but he was not budging. I did not want to press too hard. After all, he had already gone from $250 million to $350 million, which was starting to look like the best he could do. So we let things rest at that point.
I also continued to have reservations about going forward. In the months since we had begun the Trump discussions, Eastern’s business had brightened a bit, and there seemed to be some possibilities for labor peace. It no longer seemed certain to me that we had to do the shuttle deal. I thought perhaps we had a new window through which to maintain the shuttle or explore the best possible terms over a longer period of time.
Trump, perhaps sensing my continued uncertainty and wanting to move things along, extended our business relationship to include a family outing. He knew my family summered on Nantucket, where he was planning to join his family in late July 1988, so he graciously invited us for lunch on board the Trump Princess with Ivana and the children. Sharon and the kids were really looking forward to it. I was, too. We had all seen pictures of the yacht in the newspapers and on television, and we were curious to see what all the fuss was about.
Our initial weekend plans for the lunch were upset a bit, as it turned out, but not by much. Trump’s ship captain called on Friday afternoon to tell us that he had decided not to chance bringing the ship into Nantucket Harbor. He was afraid he’d run aground, since the Princess drew eighteen feet and the harbor was dredged to only nineteen feet. So he rerouted to Martha’s Vineyard, where there was a deeper draw. Trump also called and suggested we meet them there. “Catch one of your flights to the Vineyard,” he said, “and we’ll have lunch there, as we’d planned in Nantucket.”
So we did. It was a beautiful sunny Saturday in early August, and the change of venue was not really any big inconvenience. It was just a ten-minute ride to the airport and a short hop in a small airplane to the Vineyard airport. We dressed for a relaxing day on the boat. Sharon and the kids and I wore casual shirts and shorts. To say that we were under-dressed would be a vast understatement. Trump was basically wearing the same outfit I had seen him wear in New York. He had slipped out of his suit jacket and wasn’t wearing a tie, but he was still wearing what looked like suit pants along with a somewhat sportier shirt and business shoes. Ivana was dressed in a fancy outfit with short pants; it looked like she was going to a cocktail party. And their kids were decked out in the kinds of clothes most parents save for holidays and special occasions. Trump’s parents and his sister joined us on board, along with his in-laws, and they also were dressed as if they were going to a serious lunch.
The formality did not end with the clothes. We ate in the ship’s main dining room. It was beautiful on deck, with a nice breeze and a clear sky, but we stayed inside. We had a big, heavy meal, complete with a bottle of fine wine—which Trump didn’t drink because he does not touch alcohol. Don’t get me wrong: it was a wonderful meal, but it wasn’t quite what we were expecting. Our kids were hoping for more summery fare—perhaps hamburgers, french fries, and the like. Nothing matched the interesting setting, however.
We were all seated at one end of a long, formal table, with the Trumps fanned out in one direction and the Lorenzos in the other. Donald and I sat at the head, and Ivana and Sharon were at our sides. I was not planning to discuss the shuttle, but Trump coyly brought it up anyway. He wanted to know where I stood with our board on pursuing a sale. Sharon told me later that she noticed Ivana stop their discussion when she heard the shuttle mentioned. They had been talking across the table about something else—something more appropriate to the occasion, I imagine—when Ivana just tuned Sharon out and tuned her husband in.
“Look, Don,” I said, trying to shift the conversation to a more Saturday tone, “we’re still looking at it; we’re still talking about it. We’re meeting in a few days, and I’ll know more then. I was hoping to have a price that I know they will find hard to turn down if they decide to sell.” But I also explained that selling the shuttle was not our first choice because of its symbolic and real importance to our employees and our public image.
Like our first breakfast at the Plaza, this meal also came with a tour and a story. The tour was extraordinary. The Princess was truly a masterpiece, although it was more than a little excessive, even for Donald Trump. The boat was basically in the same shape as it was when Trump bought it. The bathrooms were all done up with gold-plated fixtures. There was even a fully equipped hospital ward on board, although it wasn’t staffed. Trump was particularly delighted with the Khashoggi-installed walls and ceilings, which were made of elephant skin. I had never seen anything like it. It must have cost a fortune. However, the real problem with elephant skin, I learned, was that it was impossible to clean. Trump seemed quite concerned about the kids and their messy hands. All you need is a room full of kids with jujubes or whatever, and there goes the elephant skin.
The story about the purchase of the yacht provided another chance for Trump to make a point about how tough he was in negotiations. According to him, Khashoggi had spent well over $100 million to build and decorate the yacht, but when hard times hit, it was put on the market for $100 million with no takers. Ultimately, Khashoggi accepted Trump’s offer of $30 million, and while the papers were being drawn up, Trump managed to shave off another million by showing some chutzpah.
Clearly, the first thing he planned to do once the transaction was completed was put his own name on the vessel; I had never known him to build or purchase a high-profile property without putting his name on it. When Khashoggi called to confirm that the name on the yacht, Nabila—named for his daughter—would be taken off, Trump said he assumed the name was part of the package and that he liked the name. After some back-and-forth, Khashoggi consented to a $1 million discount on the price in exchange for which Trump agreed to drop the name to make room for his own, which was undoubtedly what he planned to do in the first place—hence his $29 million purchase price.
At our next meeting, at the Plaza, I came right out and told Trump his $350 million price would not do. This time, he quickly said he would go to $365 million. “That’s progress,” I said, trying to mask my pleasant surprise at the jump. “I’ll have to go back and discuss it with our folks.” While my tone was probably even and nonplussed, in truth I was delighted. It seemed we had finally reached Trump’s bottom line, and it was pretty close to what we’d been hoping for.
Before we finalized the deal, however, I wanted to make one final pass at exploring the alternatives to a sale. During these protracted negotiations with Trump, I asked Kevin Moore and some of the Eastern guys to examine the feasibility of financing the shuttle ourselves. We could hock it, which was essentially what Trump was planning to do. Kevin had reported back that we could get a $200 million loan secured by the shuttle, which in many ways would be preferable to an outright sale to Trump at $365 million. The only hitch to this refinancing was that it required labor peace at Eastern, which we very clearly did not have, and if we had it, there would probably have been a restriction on asset sales.
Of course, that did not mean it couldn’t be achieved, so I used the few days following Trump’s last and best offer to meet with Jack Bavis, head of Eastern’s pilots’ union, on a hot August afternoon. We met at the University Club in New York, during which I laid out the situation. I told him we were close to a deal to sell the shuttle in order to fund Eastern’s working capital, but that it might be preferable to keep the shuttle and borrow against it, provided we could reach some sort of workable agreement with the unions.
Bavis was a moderate union leader, unlike some of the hotheads who dominated the ALPA group, and he reacted very positively to our discussion. He did not want the shuttle sold and was willing to look with me at some of the alternatives, so we talked through what a labor deal might look like. When we came up with something we both could live with, he promised to go back to his master executive council to canvass the reaction there. I heard back from him a few days later, by phone, and the response was not what I was hoping for. Not only did the radicals on the council have no interest in a deal, a dejected Bavis informed me, they also wanted to toss Bavis from his leadership position for having talked with me without their approval.
By early September, it was apparent that our only viable option was to proceed with the sale. I called Trump and told him we had a deal, then instructed our attorneys to finalize the documents, which had already been prepared in draft form. Predictably, the finalization process had its share of snafus and misunderstandings, all of which were to be expected in a complicated deal of this type but none of which was insurmountable. The paperwork was completed within a month, and we made plans to sign and announce the deal on October 12, 1988, at a Plaza press conference.
The announcement was noteworthy for the way Trump pulled out all the stops. With Donald Trump, it was not enough to simply call the media and disclose the terms of the deal. He took over one of the hotel’s function rooms and really dressed the place up. He placed a model 727 at the front of the room, which he had painted in Trump colors. He had not yet settled on a design for his new airline, but this served nicely for the time being. The room was jammed with reporters and some of his support personnel. He even tied the purchase in with his Atlantic City properties, suggesting that the shuttle could possibly fly in gamblers. “Flying people in would be an interesting concept,” he said. Trump seemed to relish the noise and attention. It was his day, his glory, and it was clear he loved being at the center of it all.
Shaking hands at shuttle deal announcement in front of a Trump airplane model (1988).
A week after the sale, he was still flying high. “I like buying Mona Lisas; the shuttle is the single finest asset in the airline industry, the best,” he was quoted as saying. “I like collecting works of art. This is a work of art.”
Reaction to the sale was pretty much as expected. Of course, the unions were dead set against it. But it was clear to us that the unions, so intent on letting the airline bleed dry, were dead set against any move that would give the company some breathing room. The pilots’ and the machinists’ unions checked in with their loud disapproval. Moreover, the machinists tried to block the sale in court, claiming that we were prevented from making any material changes to the company structure while we were still at an impasse over a new contract. It was a preposterous legal position. We knew it. They knew it. It was just harassment and PR—a delaying tactic.
One of the amusing and unexpected reactions to the shuttle sale came from Carl Icahn, who had expressed his interest in buying Eastern in the weeks leading up to the Trump announcement. Icahn’s pursuit had been contingent on the airline remaining intact, with important assets such as the shuttle unsold. In going forward with the shuttle sale, I fully believed that Icahn’s interest (if it was indeed genuine, and I had my doubts) would be heightened by the shuttle sale, because now the buyer would be looking at an additional pocketful of cash. Happily, this prediction was right on the money. I spoke with Icahn shortly after the Plaza press conference, and he told me he liked the deal and he liked the company with all the extra cash.
Trump and I spoke from time to time over the following six months, by phone and at a couple of breakfasts, while he concluded the financing for the deal and recruited an experienced management team to head his new enterprise. He also asked us to make recommendations for new management.
Trump seems to be getting some advice (1989).
As we were approaching the Christmas holiday break, Trump invited us to ski with him one day in Aspen, since we were also planning to be there. We had built a log house in Snowmass, next to Aspen, because our children were enjoying skiing and because building a log house had been one of my longtime goals. I arranged with Trump’s assistant that we would meet at the bottom of the Little Nell run, at the Little Nell lift, at 9:30 a.m. on the appointed day. Then Sharon and I waited for Trump and Ivana at the base of Little Nell, but nine thirty came and went without any sign of them.
We waited and waited on that chilly morning, and at around ten fifteen an employee of the Little Nell hotel approached us with a message from Trump. He apologized and said that he was sorry he’d gotten delayed and would have to meet us at the mountaintop restaurant at noon for a brief ski run; Ivana wouldn’t be joining the group. Looking a bit haggard, he joined us shortly after noon, along with Arnold Schwarzenegger. We took one run together, noting that he was a pretty good skier. He and Schwarzenegger then took off.
On Monday, in the gossip columns, we learned what had probably caused his delay. It seems he had brought his then girlfriend, Marla Maples, and put her in another room at the Little Nell, where he and Ivana were staying. According to the gossip column, Ivana discovered this on the morning when we were supposed to meet. Needless to say, she wasn’t happy and had a major argument with Trump over it.
We continued talks with Trump that winter as we awaited action from the government on our deal. In some of these talks, particularly as we got close to the March deadlines, we discussed some delicate and potentially troublesome matters, such as Eastern’s fractured labor picture and the emerging possibility of a union strike.
“Don’t worry,” Trump said. “We’ll be there, strike or no strike, ready to close the deal.” He did seek at the time—and got—a breakup fee of $8 million in the event he was prevented from closing the deal.
Then, on March 4, 1989, the Eastern pilots struck in sympathy with the company’s mechanics, almost shutting the airline down. Only Eastern’s South American system and the shuttle operation were able to operate during this time. As a direct result, the shuttle’s market share dropped precipitously. It had been consistently pulling between 50 and 55 percent of the market, but suddenly, it dipped to around 25 percent. Some passengers were not sure it was still operating. Others simply refused to cross the picket lines. And others feared that the quality and safety of the service would be diminished. The dramatic decline threatened to kill the shuttle deal. Our lawyers advised us that Trump could opt out because of these drastic changes in market conditions.
On Wednesday, March 15, 1989, I called Trump on speakerphone. I was with Kevin Moore, who would add increased gravity to the call. I told Trump that my family and I were going skiing the following week in Utah. Since we knew that the Eastern strike could trigger the force majeure provision in the shuttle contract and allow him to walk away from the purchase, I wanted to know his intentions before we left, if possible, for obvious personal reasons. Trump assured me that he was fully committed to the deal and had no intention of walking away. We went ahead with our skiing plans.
On Friday, March 17, 1989, an article in the Wall Street Journal headlined “Shuttle Woes Bode Ill for Eastern—Ailing Carrier Faces Uphill Battle to Woo Back Shuttle Fliers” painted a very dismal picture of the strike’s effect on Eastern’s shuttle operations. On the following Monday, perhaps spurred by the article, Trump tried to change the terms of the deal.
I was out West with the family preparing to go skiing, and that morning I took an urgent phone call from Barry Simon. “You’ll never guess what just crossed the newswire,” he said incredulously. “Trump wants to redo the deal. He issued a press release saying that he wants a major price reduction, claiming that because of the strike the shuttle isn’t worth what he originally agreed to pay. He’s asking for a meeting with management.” The next day, the New York Times reported that Trump said he wanted to cut the price by $125 million, to $240 million, because the shuttle’s value had been severely hurt by the strike.
Our response was to try to put a fallback deal in place, since Trump’s strategy was not much different from what businessmen generally would do: “No harm in trying,” most would say. I did not think there was any point in negotiating with Trump without a reasonable alternative. I had our guys place calls to other potential buyers while I arranged for a flight back from ski country for the next day, Tuesday morning. Meanwhile, Trump’s secretary called my longtime assistant, Millie Jones, to arrange a call and a meeting, but I thought a little coolness might go a long way at this stage. I figured Trump still wanted to do the deal, and I didn’t want him to think we were nervous. I had Kevin Moore return the call, which I knew Trump would take as a snub, and he confirmed to Kevin that he was indeed interested in concluding our deal, but at a reduced price. Kevin told him that we were not prepared to cut the price, and that if Trump did not want to buy the shuttle now, at the agreed-upon figure, which we knew was his legal right, we were quite confident there were others who did.
Meanwhile, our talks with other potential buyers went into high gear. America West came on strong, with an allegedly Chase-financed offer of approximately $375 million. (The offer was for more, but it would have required Eastern to give up even more valuable aircraft.) Jack Kent Cooke, the Redskins owner, apparently wanted to sign a contract for $385 million. American Airlines and other prospective buyers were at various stages of evaluation. By Thursday, three days after Trump’s press release, word had reached the marketplace that we had at least two other deals warming should the Trump deal fall apart.
Trump’s secretary continued calling, attempting to set up a meeting. But I pointedly let Trump stew until Thursday, March 23 (a long time in the deal world), when I finally agreed to meet over breakfast the following morning—naturally, at the Plaza. I came armed with a compromise. We were not willing to reduce the price—he was now offering $350 million—but I did have a proposal that would offer him something of value. We had gotten into a very public dance, and I thought there was a meaningful chance that Trump would walk away from it, if only out of pride and to save face if we stonewalled his price-reduction attempt.
So I offered to throw in four more 727 aircraft of the type that the shuttle already flew. They were old, excess-to-our-needs airplanes that had been mothballed in the Arizona desert and were worth maybe $10 million in total, if you could find a buyer. Realistically, they were of little value to Eastern, but we had been told they would be of value to Trump. He had already made elaborate plans to refurbish his shuttle planes, a process that took several weeks per aircraft, and we knew he could well use several additional aircraft as backup. Fortunately, he accepted the proposal without much hesitation, and we shook hands on it. The next day, we put out a press release indicating that we had agreed to a major modification of the arrangement. The release was heavily designed to make Trump feel good and allow him to claim that he was successful in effectively getting the price lowered. We learned a lot about negotiation with Trump in the process: try to make sure the other side looks good. However, that is a good thing to remember in any negotiation and often forgotten.
The week of the renegotiation with Trump was also memorable for me in that on the Monday when Trump put out his renegotiation press release, Columbia University announced that it was temporarily withholding the John Jay Award from me, an award that was scheduled to be presented on the following Thursday, March 23. The university claimed that the machinists’ union impasse provided a climate that “made it impossible to guarantee an atmosphere appropriate to such a celebratory event.” In other words, this great university’s leadership was afraid of union pickets. They went ahead and presented the award to me a year later, at the New York Public Library, a safe distance from the Columbia campus. (It was interesting to note that the tables were turned on Columbia during 2021–2022, when graduate student workers, including teaching assistants, joined a union and went on strike, inciting campus unrest.)
In any event, after our renegotiation with Trump, we moved expeditiously to close the shuttle deal, which we did on June 7, 1989. Trump sank a lot of money into the shuttle as soon as he took it over. He called the shuttle his “little diamond,” and apparently that was all his people needed to hear to open the cash spigots wide. We had been operating the service with around eight hundred employees and employee equivalents, but Trump increased that number to 1,100 in short order, although part of that increase was the separate management layer he now had to add. Moreover, he gave his new fleet of planes a complete facelift. Each aircraft was redone at a cost of more than $1 million each ($2.5 million in 2024 dollars, roughly what it costs to reconfigure a 737 today from one operator to another)—a lot of money to put into a twenty-year-old airplane.
And he spent the money in very untraditional ways. All metal surfaces were changed to chrome, which gave the interior the desired glitzy look but was extremely labor-intensive, requiring a worker to polish the metal after everyday use. Even the bathrooms were elaborately made over, despite the strong reservations that his management apparently expressed to him about the impracticality of chrome surfaces, which they claimed would show fingerprints after just a few flights. When I heard this, I was reminded of Trump’s tour of the expensive Plaza Hotel remodeling, with its gold-plated ceiling trim. But it was his airline and his choice now.
Shortly after the acquisition, the market share of the Trump Shuttle, as it was soon called, rose back up to around 45 percent. Trump was ecstatic, and the resulting press attention was great. Once again, it looked to all the world that the golden boy of New York real estate had not lost his golden touch. We had another of our Plaza breakfasts around a month after closing the deal, and Trump was positively exuberant over the shuttle’s fortunes. He had heard that we were entertaining the idea of selling control of Texas Air, and we briefly aired the possibility of selling to him. We both mused over the kind of increase in market share the airline might realize with the Trump name behind it. We reckoned that even a 5 percent increase in Continental’s sales could maybe mean $250 million more in the cash register each year.
However, Trump did not leave himself much time to fantasize about increasing Continental’s market share through acquisition because he soon set his sights on bigger fish. In October 1989, he bid $120 per share for American Airlines—a potential deal worth more than $7 billion ($17.5 billion in 2024 dollars). The numbers were staggering. We spoke on the phone about his offer, because he wanted confirmation of the airline’s value. But as it played out, Trump’s offer did not get very far because the stock market went through an unrelated swoon, and airline stocks were particularly hard hit, making a deal more difficult. American’s tough CEO, Bob Crandall, was not about to roll over, either. Dan Reed, a journalist at the Fort Worth Star-Telegram, reported that American had drafted a RICO lawsuit against Trump in anticipation of an unsolicited bid. But the change in the stock market killed Trump’s effort before it got off the ground.5
Meanwhile, the Trump Shuttle profit-and-loss figures for the year were coming in, and they were awful. Although market share had gone up, it never budged above 45 percent. That, coupled with the expensive gold plating and chrome makeover, and the increased overhead, left plenty of red ink for Trump and his bankers to handle.
Soon the Trump Shuttle ranked as only one of Trump’s troubles. In early 1990, cracks began to emerge in the rest of the Trump empire— and at home. Casino industry analysts were forecasting doom for his just-launched (and over-budget) Taj Mahal, in Atlantic City. His marital woes and extramarital affairs had moved off the gossip columns and onto the front pages. He was separating from Ivana, which became an even bigger story than his financial concerns. Trump and Ivana were divorced in 1990.
It was a public relations nightmare, and I think it really affected his shuttle business. The research showed that female commuters developed a distaste for Trump over what they saw as his shabby treatment of Ivana and switched their business to the Pan Am—formerly New York Air—shuttle. To stem the losses caused by the decline in ridership, the one-way peak shuttle fare rose to more than $140, up from $99 at the time we bowed out. That chased away even more passengers, given the new competition that had emerged.
By midsummer 1990, things were very tough in the airline business for all carriers, not just the Trump Shuttle. With the invasion of Kuwait in early August, fuel prices spiraled up, nearly doubling by the end of the month. In the process, the Trump Shuttle losses increased markedly, as they did for most airlines. Trump’s other businesses were not much help, either. In September, he missed a $1.1 million interest payment to the banks, and things began unraveling for him.
Soon after the default, the bank creditors took control of the shuttle away from Trump. After negotiations with a few airlines were attempted, the creditors reached agreement with USAir in December 1991. Soon the Trump name came down. The USAir arrangement provided for a lease, with an option to purchase, which it exercised in 1997, at a price of $285 million. Today, the original Eastern shuttle operates as the American Airlines Shuttle.
Trump was in the airline business for only a short while.
5 Dan Reed’s book, The American Eagle (New York: St. Martin’s Press, 1993), page 246.
