CHAPTER THIRTEEN

Leaving Continental

A Change of Course

1990

THE LATE 1980s were years of reflection for me. My first business partner and close friend, Bob Carney, had sold his position in Jet Capital in 1987, and I missed my longtime partner and his sage advice. I also could see that my anti-union reputation, while, of course, very unfair, could hurt the company. I would be turning fifty shortly, and I began to think seriously about a life outside the airline business. After all, I had spent twenty-five years in that sector, eighteen of them as a CEO, and I knew how tough it was. Despite my love of it, I imagined that there was a life beyond it.

Airlines had been in my DNA since I was a teenager. But I tried to be honest with myself: I wanted a life away from the public eye and the twenty-four-hour schedule that was the lot of any major airline CEO, particularly one who had endured difficult financial situations and many very bruising public fights with unions.

As a result, I mentioned to our directors in mid-1988 that I hoped to be able to step away from running Texas Air and Continental before I turned fifty, in 1990. Sharon and I also spent a lot of time discussing this move. She was not particularly in favor of it, because she was concerned about the hole it would leave in our lives. On one flight back from Europe, I recall making a long list of the pluses and minuses of selling, which invariably involved both financial and personal considerations.

But before I could consider life after Continental, I had to develop a plan to sell Jet Capital’s controlling stock position in the company, either indirectly by selling our holding of Continental’s equity, or directly by a sale of Jet Capital. Unlike most CEOs, I could not just look for another opportunity or resign. Because we at Jet Capital were the major controlling shareholders, I did not want to leave the company with our stock position remaining behind—or remain at the company without our major position. So, in the summer of 1989, I hired Drexel Burnham to quietly work on a sale of Continental or Texas Air, with its controlling position in Continental. I also sought out some individuals who had expressed interest in acquiring the company or made sense as a possible acquirer, although these discussions were always handled in a low-key, highly discreet manner.

One of the most interesting discussions I had in this capacity was with Lee Iacocca, CEO of Chrysler. I had gotten to know Lee in Nantucket through a friendship with his daughter Kate, who vacationed there. We felt that Lee’s strong image would be a major plus for Continental and provide it with a fresh image. He was also a man interested in new challenges. I even flew to Detroit and had a sit-down with him to discuss the idea. Lee was quite interested. He always had an attraction to airlines, he explained, but, as it turned out, he had several other major issues on his plate at the time and felt that he could not dilute those other efforts. We soon were forced to ask Drexel to cut short its search for a buyer— disappointing, since the transactions the firm envisioned would also have involved minority shareholders being bought out.

As 1990 came into focus, I began discussing with Jan Carlzon the longterm interest SAS had in Continental now that it was a 10 percent owner. Previously, in 1989, during lunch at the InterContinental Hotel in New York, which SAS owned at the time, Jan laid out his strategy for strengthening SAS internationally. He sketched out on a napkin how he planned to link up the traffic flows of several airlines, starting with British Midland Airways, which had a large, valuable hub at London’s Heathrow Airport and in which SAS had already taken a sizable position. At the center of the napkin was Continental, with which SAS already had developed a strong traffic arrangement and, of course, in which it owned a 10 percent stake.

In addition to Continental and British Midland, Carlzon indicated that he valued the SAS position in LAN Chile. SAS acquired its LAN interest in the hopes of obtaining important traffic feed from South America to its system. But up to that point, LAN had been a disappointment, incurring substantial losses while providing only limited traffic feed to the SAS system. In a way, it seemed to me, Carlzon had been spoiled by SAS’s arrangement with Continental, which was bringing major traffic feed to the SAS system and which provided other benefits, including a handling arrangement at Newark and important brand awareness throughout the United States. He probably assumed this was easily repeatable.

Carlzon had a seat on our board of directors and was an active and effective participant in our discussions. However, though he never said anything directly, I could tell he was frustrated that Continental and its partners were being hurt by the negative image and publicity stemming from Eastern—which of course was a frustration we all shared— including my personal reputation, developed by the unions, as the bad guy.

I decided to approach Carlzon with the idea, which I was sure he had thought of also, of buying Jet Capital’s controlling position in Texas Air. While we both knew that a foreign carrier could not control a US carrier or own more than 25 percent of its equity, having a much larger stake than its current 10 percent could well be attractive to SAS. A deal to acquire Jet Capital would allow SAS and Carlzon to effectively direct the activities of the company. While Jet Capital voted more than 30 percent of the equity of Texas Air, the actual economic ownership was just under 10 percent. But a buyout of Jet Capital would leave a control vacuum on the CAL board that SAS could fill with US nationals.

On various occasions, I discussed the thought of selling our interests with Rob Snedeker, our chief financial executive. Rob had been a partner going all the way back to Lorenzo, Carney & Co. in the 1960s and was a substantial shareholder of Jet Capital. He was in full agreement with the idea of selling, since he was well aware of the difficulties we had encountered in trying to sell Continental in total and giving all shareholders a chance to participate in the sale. Rob was also intimately aware of the substantial debt repayment schedule that Texas Air and Continental faced beginning in 1992. It was clear to us that this debt position would limit our flexibility and put significant pressure on the company as time went on, particularly if we encountered difficult times and were finding our ability to refinance the debt very tenuous.

We were also noting the weakening of the economy and had the feeling that more weakness might well lie ahead. Coincidentally, when we were examining SAS boarding data on the flights we handled at Newark Airport in the spring of 1990, we could see significant weakness already showing up, a marker of what might lie ahead. We figured that if SAS encountered a substantial downturn in its results, it would be much less likely to be interested in investing further in Continental. I decided that this was the time to move and flew to Stockholm in May 1990 to present the Jet Capital buyout idea to Carlzon.

At that point, we had dropped the name Texas Air from our holding company and had renamed it Continental Airlines Corporation, while our fully owned airline was termed Continental Airlines, Inc. This reflected the fact that we no longer owned Eastern Airlines and that New York Air had merged into Continental. Clearly the most basic part of Texas Air, at that point, was Continental Airlines. In a way, this made it easier to talk with Carlzon, since he had always had little interest in Eastern. In presenting the buyout idea in Stockholm, I told him that I had already initiated a search for my replacement and that there were several airline executives who might be interested, including Hollis Harris, who was president of Delta at the time. Hollis handled the operating functions under Ron Allen, Delta’s CEO, and while he did not have any financial background or much experience outside of day-to-day operations, he carried a powerful title and was believed to be a reputable manager. Carlzon was very enthusiastic about the possibility of attracting Harris and said his interest would be even higher if we could get him.

On the question of price, I told Carlzon that we would not be interested in a deal that was solely based on the price of Continental’s stock on any single day. I proposed that we use the average stock price over the previous year as the price of the deal, reflecting the fact that we were selling our position for the first time in eighteen years and it would not have been reasonable to pin the deal on one day’s closing price. This was quite important to us, since our stock had fallen a lot after the announcement of the 1989 loss and the effects of the Eastern bankruptcy situation, which hopefully would be only a temporary stock weakness. Jan said he would study the prospective deal and get back in touch.

In June, Rob and I flew back across the Atlantic to meet again with Carlzon. Meetings with Jan were very interesting. His office was completely paperless—and this was before the age of computers. We would walk in, and after the customary small talk, he would contact his principal financial executive, who would join us and give a full report on where the Jet Capital analysis stood, displaying a number of papers. Eventually, after some back-and-forth, we arrived at an agreement on a price for our position that was developed in line with our averaging proposal and that, although considerably more than the current market price, we felt was reasonable under the circumstances. With this understanding in hand, Rob and I flew home to begin work on the sale with the lawyers.

From that point on, things moved quickly. I interviewed Hollis Harris in late June, and he indicated that he would accept the Continental position if it were offered. We also developed a timetable that would have us announcing the deal at the end of July. In addition, we had a holding company board meeting during which we set forth the deal. There was a lot of discussion at the meeting, and of course much of the focus was on the premium that we would be receiving over our current share price. We agreed to bring in unaffiliated investment bankers to evaluate the fairness of the plan to minority shareholders, and their report ultimately satisfied the directors.

The agreed-upon timetable had us signing the agreement on Wednesday, August 8, 1990, after a board meeting of our holding company the prior Monday and an SAS board meeting on Tuesday. Thanks to the miracle of the Concorde supersonic airliner, which crossed the Atlantic quickly in those days, Carlzon could move very speedily between meetings. The plan was that on Wednesday, after the signing, we would immediately inform the Department of Transportation by means of a senior Continental corporate officer who would travel to Washington early on Wednesday. The signing was scheduled for noon, and Carlzon’s arrival was expected at around 11:00 a.m. in our Rockefeller Center office after his transatlantic journey to New York.

But things did not exactly go according to plan. On Thursday, August 2, the world saw the unexpected invasion of Kuwait by Iraqi forces. This attack had an immediate impact on the worldwide oil market, and for an airline, it was not a good impact. As planned, Carlzon flew over on Sunday, August 5, for some last-minute discussions with us and to attend the holding company board meeting on Monday morning at which the evaluation and fairness report was formally delivered by the independent investment bankers and the deal was approved. The nomination of Harris to succeed me as CEO was also approved. After the meeting, Carlzon flew back on the evening flight to Stockholm, and on Tuesday, as planned, he had his SAS board meeting at which the purchase was approved.

On Wednesday morning, signing day, we awoke to a major front-page story in the Financial Times claiming that the Kuwait invasion would hit airlines especially hard because of the skyrocketing price of fuel. We gulped and had great concern about the effect the story would have on Carlzon. We knew he was an avid Financial Times reader and would certainly see the article as he recrossed the Atlantic that Wednesday morning on his way to our deal signing at noon. Jan did not disappoint us.

At 10:30 a.m., while he was being driven in from the airport after his Concorde flight, Jan called to say that we should delay the signing of the deal for a week or two and let things in Kuwait settle out. I told Jan that there was no way we were prepared to do that. I explained that we had a corporate officer already at the DOT, and the press had been invited for an announcement in the afternoon. I told him that if we didn’t sign now, we would terminate the deal—essentially saying it was now or never. He told me he would think about it and meet at our office as planned.

I also put in a call to Carl Pohlad and brought him up to date on my conversation with Jan. I explained that it was my feeling that when a deal like this gets postponed, it never gets done. Carl agreed and said he would give Carlzon a call, which he did. When Carlzon arrived at our office, he could see the elaborate preparations that had been made for the signing and the follow-on press conference. For example, we had written a letter to employees explaining the transaction and included a statement from me about the sale and a welcome to Hollis. By noon, Carlzon had acquiesced, agreeing to go ahead, and we held our signing. After that, everything went according to plan, with the announcement to the secretary of transportation and to our employees followed immediately by the press conference, which Carlzon enjoyed. This was a big deal for the employees. The response to the deal was predictable: unions invariably said good riddance to Lorenzo, but the media, by and large, viewed it favorably. A number of newspaper editorials published a salute to my days in the business.

The following Monday, August 13, I was back in Houston, introducing the executive group to Hollis. I also moved out of my airline office. Up to that point, I had maintained two offices in Houston—one at Continental, in the American General Building, and the other at the holding company, in Allen Center on Allen Parkway in the downtown area. Hollis was still finishing his time at Delta, which meant he didn’t really need his airline office, but I wanted to send a very clear signal to our people that Hollis was now in charge. Two days later, on Wednesday, August 15, Continental held a major goodbye-to-Frank event at the George R. Brown Convention Center in Houston for more than three thousand employees. We showed a video that had been prepared by our marketing team describing the major progress that had been made at Continental under my tenure.

On September 12, 1990, the deal was formally closed with SAS, and my days of Continental ownership and executive leadership ended. It was a bittersweet time for me. While I was glad that our family now had sharply increased liquidity and that I would have the freedom and time to invest our resources, I was very sorry to leave behind a company and an employee group that had meant so much to me. I knew I would miss the many great friends I had gotten to know over the years. I was a very full-time guy, and I only knew how to do things with all my energy. Now it was time to move those energies elsewhere.

As I prepared to leave Continental, James Ott, a writer for Aviation Week, summed up my legacy in an August 1990 article titled “Lorenzo, Peanuts Fare Creator, Furloughs Himself from the Airline Business.” Ott wrote, “Frank Lorenzo has etched an indelible mark on the U.S. airline business. Whether he is a union buster, an opportunist, or keen businessman depends on one’s perspective, but his mark has been deep and may be lasting.”

Ott continued, “For an executive with two airline bankruptcies on his record and a permanent place on the union hate list, it may come as a surprise that Lorenzo has some loyal coworkers and former colleagues. He is a private man with an awful public persona. People who have worked with him say that the public image is false, a grotesque creation of the union propaganda machine.”

The New York Times wrote, “Both despised by unions and admired by airline strategists, Mr. Lorenzo epitomized the industry during the freewheeling days of merger mania and brutal fare wars that followed deregulation twelve years before. His tough bargaining stance with unions and use of bankruptcy protection rules to break up high-cost contracts made him, more than any other executive, a target of fierce union attacks.”

Many other news reports of my departure were similar. I think these are fair summaries of my legacy. But they were written at the 35,000-foot level. Closer to the ground, my legacy is really that of the hardworking executives, managers, and frontline people up and down our ranks who, with me, led the way.

My involvement with Continental didn’t completely end on September 12, 1990. As part of our sale of Jet Capital’s stock interest to SAS, I committed to a no-compete agreement and to remain as a director of the company, both for two years in order to be available during the transition. But as it turned out, I was no help to Harris. In fact, I never received as much as a call from him, although I attended almost all board meetings and witnessed the Greek tragedy that was to unfold. I’ll get to that shortly.

In late September, Sharon and I took part in Continental’s inaugural trip to Japan, which we had planned earlier in the year. The previous March, CAL had embarked on a major route expansion, adding one hundred daily departures and seven new cities. It also received new route authority from Houston nonstop to Tokyo. This expansion to Tokyo from our major hub was a big victory for us. Although domestic operating authorities had been deregulated, the government still called the shots on international routes, and the grant process was very political—so we were pleased to see the success of our pleadings in Washington and the help we received from Texas legislators. But even though we had scheduled the Houston–Tokyo service to start early in July, a strong season for the service, summer was not generally a good time for inaugural flights from a business point of view. So we waited until September for the “official” inaugural flight, which took place just after the SAS closing. Sharon and I went along on the trip with Hollis, a group of Houston city officials, and a couple of other CAL executives.

The trip to Japan was a beautiful one, well arranged by our Japanese staff, led by Jun Mokudai, whom we had recruited to CAL from Northwest the year before. We spent some time in Tokyo and the rest of our time in the countryside and in Kyoto. Japan always impressed me—the people were so friendly, and everything seemed so perfect. Unfortunately, on the trip, I was able to detect an aloofness on Harris’s part toward the city officials and the other CAL executives making the trip. CAL had always been a village, relying on an immense amount of teamwork, and to my mind, Harris’s attitude didn’t augur well.

In September, I set up a new firm, Savoy Capital, as an investment advisory concern. Initially, it was with Rob Snedeker, but he shortly thereafter told me that he had lost interest in business. He seemed burned out to me, which was understandable, given the tough and dispiriting days he had lived through. I wanted to establish a business through which we would invest our own capital along with capital from outside investors, enabling us to do things away from the airline business. For office space, we bought the former Texas Air space at Allen Center from Continental, which became the home base for Savoy Capital. My longtime loyal assistant, Millie, did not even have to move: when she switched from the holding company’s payroll to that of Savoy Capital, she kept the same desk. Yvonne Hiller, our longtime accountant at CAL, also did not move far.

Sharon and I were able to plan some personal travel as well, a great luxury for us that we would now be able to enjoy. In early October, we traveled to Russia and Spain for two weeks with Team 100, a Republican contributors’ group, to celebrate my new freedom. We had never been to Russia, and because those were still the Soviet days, the trip turned out to be very enlightening. We stayed at one of the few nice hotels in Moscow in those days, the October Hotel, normally only available to Communist Party officials and their guests. While this hotel was reasonably nice, particularly compared to the alternatives, guests were unable to place or receive international calls, so we were out of touch for several days, since this was well before the existence of the internet and cell phones.

In mid-October, as we made our way to Spain and the last portion of our trip, the ability to communicate with our office returned, and I got an urgent message from Clark Onstad—CAL’s very capable government affairs person. Clark wanted me to know that he had learned that the CAL board was going to hold an emergency meeting the following week to discuss the possibility of filing for bankruptcy. Clark also told me that Mickey Foret, who had continued under Hollis as president, had been terminated.

As one might expect, I was shocked by this news and made immediate plans to drop our planned sojourn in Spain and return to Houston. Mickey had been one of the rocks of the organization, and I could not believe that Hollis would fire him—unless he just didn’t want someone telling him the truth. Naturally, I also realized that Hollis had the right to choose his own team. And choose he did: many loyal and very capable Continental managers such as Jim Arpey, the first officer I had hired at Texas International in the early 1970s, Neal Meehan, and later even Clark were told to leave.

The board meeting was indeed held in late October. It was my first after the stock sale and my first without an executive role. It turned out to be a very sad meeting. Filing for bankruptcy was indeed considered. Fuel prices had doubled since July because of the Kuwait invasion, and what was projected to be a normal offseason loss for October of around $20 million was turning into a more than $80 million loss—almost entirely because of fuel. Fuel costs had risen from approximately $40 million in July to double that, more than $80 million in October, and were projected to continue at these high levels—although fuel prices were always anyone’s guess. When management extended the elevated prices in its forecasts, with no assumption of fare increases, certainly an unreasonably conservative assumption given the circumstances, it would only be several months before the company ran out of cash.

Needless to say, Jan Carlzon was shocked and very upset about this. He argued against the projection of fuel costs staying abnormally high for so long. Management assumed the enormous rise in fuel costs would continue indefinitely, without anything else happening. It was also unreasonable on management’s part to assume that no action was necessary in response to the situation in their forecasts. Cuts in flying, cost cutbacks, fare increases, some moderation in fuel prices—these were all things are that could and should have been considered and built conservatively in their forecasts.

Under most bankruptcies, the shareholders are wiped out, so it was no surprise that Carlzon was feverishly opposed. However, management personnel who do not have a major stock position are often in favor of filing, if only because bankruptcy provides a clean slate and new low-priced stock options that they can ride up from their previous lows. Bankruptcy also takes the owner out from direct management and substitutes a bankruptcy judge in his place. Therefore, while the board decided to hold off at the October meeting, it was no great surprise to me that Harris was back at it in the December meeting, recommending that the board authorize a bankruptcy filing. This time, the board voted to do so.

Because of my contract, I had to stay on the board and witness this unfolding Greek tragedy. And tragedy it was, particularly for SAS and other shareholders. Over a two-year period after the filing, as conditions improved, the airline and its creditors sought other investors who could provide a capital infusion and acquire control in a plan to emerge from bankruptcy. SAS also entered a rough period during which Carlzon left SAS, and the company subsequently declined to provide more capital to Continental and support its major position.

A couple of friends from Houston discussed with me the possibility of becoming part of a deal to reacquire control, but I had moved on in my thinking and did not want to return to the airline wars. It was a “been there, done that” moment for me. As it turned out, the board (which included me) sold the airline to Texas Pacific Group, a new private equity firm founded by David Bonderman from Dallas and a West Coast partner, James Coulter. The Continental transaction went on to be hugely profitable for them, and the deal put Texas Pacific, later called simply TPG, squarely on the private equity map. At my last meeting as a member of the CAL board, we voted to sell the airline to TPG, and all the directors resigned to make way for new ones.

At that time, I was very busy with activities at Savoy Capital and with a lawsuit brought by some of CAL’s subordinated creditors against Rob Snedeker and me. They sued us for a major portion of the sale proceeds, claiming that we had been unjustly enriched by the CAL sale. They tried to use the transaction structure—wherein CAL, funded by SAS, bought stock options from us for tax purposes—as a hook, claiming that for an instant, CAL had the option proceeds and should have kept it. They sought to bring the case, which was, obviously, totally without merit, before a jury. However, since we did not want to go through a long jury trial, we ended up settling the case after a year of back-and-forth.

The meritless creditor litigation was extremely time-consuming and frustrating for us. I learned after many sessions with our lawyers that jury decisions are all too often driven by emotion, not facts. They can be dangerous in situations like ours, particularly given the publicity that had been generated and despite the fact that all the evidence was on our side. The CAL sale was a relatively straightforward transaction, and the creditors’ counsel clearly knew this, but there was always the possibility that the jury, infected by union propaganda, would take sides.

We were also occupied at Savoy in early 1992 by a start-up airline deal. I had promised myself when we set up Savoy that I would not get directly involved in airline start-ups, which were very popular at the time. Such an endeavor would distract us from the diversified business we were creating and require me to devote much too much of my time and focus to it. But I broke my promise by agreeing to partly finance and work on a start-up on the East Coast, because the need and opportunity were so obvious and because the management team, whom I knew well and who had brought the idea to us at Savoy, was so capable.

The business plan for the airline, initially to be called Friendship Airlines, called for developing a DC-9 aircraft hub in Baltimore, whose airport was then called Friendship International Airport and had no major hub operation. There were also many DC-9 aircraft on the market, in good shape, including quite a few from the liquidation of Eastern. The CEO of the airline was to be Steve Kolski, whom I knew well from Texas International days. He had been extensively involved with our start-up, New York Air. Dave Hackett, a great partner of mine who at the time was with Savoy, also played a major role with the new airline. Dave had airlines in his DNA—his father was a longtime senior captain for United.

Savoy agreed to provide the initial capital for the venture and assume the risk of financing and government certification. Financing proved to be a long, drawn-out process, since we were the first major start-up in the 1990s after a number of old-line airline failures. Both Eastern and Pan Am were wound down, not surviving their bankruptcies, and times were difficult for all airlines, including Continental. However, in the end we raised more than $100 million (around $221 million in 2024 dollars) from private investors and institutions for our venture, which was a tidy sum with which to start an airline in those days.

We did a lot of research into the viability of our investment thesis—the Baltimore hub—in an effort to determine whether any major airlines had the same idea in their near-term plans. The last thing we wanted was to start a new carrier that would be in the crosshairs of a carrier with a major Baltimore strategy and significant resources. One carrier that certainly could have been a possibility was Southwest. To get a feel for this, one morning at the Metropolitan Club in Washington I had a visit with Herb Kelleher, the longtime CEO of Southwest and a good friend. I often told Herb that in many ways, we owed much of our success to Southwest, both in the transaction in acquiring TIA in 1972 and in what Southwest taught us. Herb let on that he could see a significant Baltimore operation in the future, but not over the near term.

Another carrier that might well have had plans to bolster its Baltimore operation was USAir. However, it had strategic issues that kind of boxed it in. On the one hand, it was very big at close-in National Airport, and on the other, it seemed to want to build up its presence in Philadelphia to the north. But it was a competitor that was preferable to others, because unlike Southwest, it was a high-cost operator and a bit sleepy—or so it seemed from the outside. Consequently, we didn’t worry about USAir.

We also studied the aircraft market and the likely availability of trained pilots. On both counts, we were quite reassured. Plenty of quality DC-9 aircraft were available, even in addition to those at Eastern, and there were many pilots just looking for our kind of opportunity. As we worked on finalizing the business plan and the financing, several eventful things occurred. The first was that folks at United Airlines let us know that they were unhappy with our using the name Friendship, since they used the word in a copyrighted nickname for the airline. Not wanting to chance a lawsuit, we changed our name to ATX Airlines because businesses that used letters as names were becoming very popular.

In addition, the Baltimore airport authorities decided not to support our application because of union objections. So we decided to move our main hub to Philadelphia, which at the time did not have a major hub airline. There, the unions had no success, because the airport authority and the capable Democratic mayor, Ed Rendell, were committed to what made the most sense for the airport and for area residents—unlike Baltimore.

Much more union opposition was to come. In fact, the major national labor unions joined the pilots’ and the machinists’ unions and took up the fight against us. They consistently found us a convenient hook for stirring up their constituents, since they had done a pretty good job of muddying my name in the past. Because of their PR investment, everything negative became “Frank Lorenzo” this or “Lorenzo” that.

A prime example of the union’s opposition was that in February 1993, the AFL-CIO, at its annual executive council meeting in Bal Harbour, Florida, came away with six goals for the year. The first was predictable—stopping NAFTA, the trade agreement with Mexico and Canada. NAFTA had become a major issue for unions in their opposition to the newly arrived Clinton administration, which was striving to get the trade agreement approved. There were other goals that required fighting the new administration, too, the most important of which was welfare reform, also a Clinton priority. But the fifth AFL-CIO goal, as stated in a PR release and on a sign board in the hotel auditorium, was “keeping Frank Lorenzo from returning to the airline business.” The unions put a lot behind this goal, making it a rallying cry for their members.

We filed our application with the DOT in January 1993. Normally, this application is almost automatically granted unless the principals have a criminal record—although even then they get a clean DOT slate after ten years! It was unheard of and unprecedented for a group like ours to be questioned, let alone made to endure a time-consuming, expensive hearing, since we had long, successful operating records. In fact, the DOT up to this point had been encouraging groups with financing to file, suggesting that it had a special desk for processing new carrier applications and that the process did not even require a lawyer. We were told this in November 1992, near the end of the Bush administration. However, we were set for a hearing in early 1993, after the new Democratic administration took over and the new regulatory world set in.

We tried to stop the hearing, since we knew it would mean a very public, expensive, and unnecessary union fight, but to no avail. It was becoming increasingly clear that the fix was in and that an administrative law judge—essentially an individual largely unaccountable externally—would set the stage for the DOT decision. Predictably, the hearing was in effect a public referendum on Frank Lorenzo’s suitability for a major role in an airline, despite his having built one and a major airline for eighteen years and having been previously investigated by the DOT at the unions’ urging and found to have a clean safety and maintenance record.

During the hearing, the well-respected Washington lawyer Thomas Hale Boggs Jr., who happened to be a friend, testified on our behalf as to our fitness. I had gotten to know Tommy, as he was called, when we purchased Eastern in 1986, because he was a representative of administrative employees and because he was a director who had been placed on the board by the pilots’ union. At the time, we decided to keep a few former Eastern directors on our new board, even after we bought the company and could choose all its directors, in order to provide some important continuity and public credibility. Many wondered at the time why I would select a former ALPA nominee to stay on. Despite his union ties, I was impressed by Boggs’s perspective and, given his strong Washington Democratic leanings, felt that he would add a lot of balance and credibility with unions. It was also clear that he was good at arithmetic and could add up Eastern’s numbers and understand that something had to change.

There was great irony in the attack Boggs took from the ALPA attorneys at the ATX hearing. ALPA concluded its arguments before the law judge by saying that Boggs’s testimony was biased and should be disregarded. A former ALPA representative was now biased and should be ignored! Who would have imagined this scenario?

Our arguments and witnesses were to no avail, and the law judge presiding over the case recommended that our application be rejected, quoting a litany of union complaints. He cited among many “facts” that I was chairman of Eastern at a time when the company had paid the biggest maintenance fine in airline history. Wow! Not mentioned, conveniently, was that while we did pay the fine—the biggest up to that point, at some $9 million—it had accumulated over the course of many years prior to our acquisition of Eastern and had been a disputed sore point between the airline and the FAA for years. We decided to clear up this old problem and simply pay it, since we were eager to have a clean slate with the FAA and it was an emotional issue with the airline’s maintenance management, which wasn’t helpful.

The DOT followed up shortly after the judge’s decision with its formal rejection of our ATX application. We learned afterward from our Washington friends that for the Clinton White House, we were a very convenient “fish” to throw to the unions, since the new administration had other battles to wage with them and did not want this to be one of them. The AFL-CIO’s fifth goal was an easy victory for the administration to let them have. We went to court afterward, since the case was an obvious distortion of the regulatory process, but as we knew beforehand, federal courts do not generally second-guess regulatory decisions unless fraud, collusion, or something similar can be proved— the unions were too experienced for that.

Another irony was that a month after our turndown, Sharon and I were seated in mezzanine box seats at the Kennedy Center for a concert when we were asked by an attendant to join the president and his guests during intermission. They were nearby, in the presential suite. We indeed went into the suite and met President Clinton and the First Lady. The president was very friendly but said nothing of consequence. Afterward, we asked one of the attendants how it was that we were selected to come over at intermission and were told that Mr. Clinton received the list of box attendees beforehand and chose a few names to invite. We figured that Clinton probably did not associate my name with the ATX case, since it was no doubt handled by his underlings.

Regardless, if there were doubts in our minds about whether an administration, supposedly guided by principles of independence and fairness, can influence a regulatory issue, they vanished. After the DOT’s decision, Bob Crandall of American Airlines, a strong competitor of Continental during my ownership, said the DOT was clearly wrong to have denied our application. Crandall always had a sense of decency and had his own battles with American’s unions.

Following the ATX affair, we continued the process of developing Savoy’s business, generally undistracted by airline deals. Well, almost undistracted.

Later in 1993, we received a call from a successful Chilean businessman, Enrique Cueto, who was putting together a group to acquire control of LAN Chile and wanted to meet with us at Savoy. LAN had been owned by SAS and constituted the southern part of its new intercontinental connecting strategy. (CAL was intended to be the US and transatlantic part.) However, with control of CAL and Carlzon gone, SAS was not interested in retaining its LAN ownership—hence the call.

Dave Hackett, who remained at Savoy after the ATX deal fell through, set up the meeting; I was able to attend only part of it. Cueto laid out the group’s plan to acquire control of LAN from SAS and build the company as a premier Latin American airline. At the time, there were not any profitable, successful airline operations in South America, so the opportunity seemed very promising. Cueto, having had experience with South American carriers, planned to become the company’s CEO and lead the effort. He proposed that we become a partner in the deal with them.

Cueto was accompanied at the Houston meeting by two other proposed investors, one of whom was Sebastián Piñera, who was at the time a successful Chilean businessman, well known for introducing credit cards to Chile—an initiative from which he profited significantly. Aside from being an investor, Piñera was also interested in politics and would go on to become president of Chile from 2010 to 2014 and again from 2018 to 2022. We turned the LAN investment down, largely because we weren’t very confident of investments in South America and Chile at the time and were concerned about the probability of a profitable South American carrier turnaround.

The Cueto-Piñera group, which would go on to great success with the LAN investment, turned the losing air carrier into a highly successful company a decade later, partnering with American Airlines. On assuming the Chilean presidency in 2010, Piñera sold his 26 percent interest in the company for well over $1 billion. We would go on to other investments in South America and would most likely have come to a different decision on the LAN investment in later years. Ironically, I bumped into Piñera between his presidencies in 2015 at a luncheon hosted by an old Argentine friend, Santiago Soldati, in his José Ignacio, Uruguay, home. Piñera reminded me that we had met at our office in Houston, although he didn’t remind me of how successful the deal ended up being. We have turned down a lot of eventually successful deals over the years, as well as many turkeys, but I suspect this was the most ultimately profitable one we left on the table.

In the mid-1990s, even though we were determined to stay away from airline start-ups, we were receiving a number of calls from airline entrepreneurs looking to raise capital. We were not eager to repeat the ATX experience, with its frustrations and expenses, anytime soon and were committed to the diversified investment route that Savoy had been pursuing with some success.

In 1995, however, I received a call from Abe Claude, a former J.P. Morgan banker who had become a headhunter at Russell Reynolds Associates, asking whether I would take a call from a Spanish partner of his, acting as go-between for Javier Salas, then the CEO of SEPI, the Spanish holding company controlling Iberia airline. SEPI also owned and directed many important Spanish government companies. I ended up having a pleasant lunch with Salas, whom I had flown to Madrid on Iberia, their airline, especially to see. He offered me one of the first of three nongovernmental seats on Iberia’s board. Privatization of government-controlled properties was in the air then, and adding three nongovernment voices to Iberia’s board was planned as a first step. But apparently, someone leaked the names of the proposed board changes to the press, and ALPA in Washington, learning of this, went to Spain to convince the Iberia pilot union that I was a terrible guy and should be fought.

When I heard about this, I went to Spain and again lunched with Javier and told him that I did not want to get into another public union fight and that we could handle matters through a private advisory contract. As a result of this association, Savoy went on to spend two very interesting years advising the government, principally through Salas and the CEO of Iberia, Juan Saez. Our work provided the initial stage of a tie-up with American Airlines, which also brought in British Airways as well as a strategy to deal with Iberia’s South American airline invest-ments—Aerolíneas Argentinas in Argentina, VIASA in Venezuela, and Ladeco in Chile. Our work with Iberia and a later attempt to purchase Aerolíneas Argentinas, then owned by Iberia, with a group largely from Spain and Argentina, introduced me to a world of opportunities in Spain that affected many of my undertakings for years afterward, both in and out of business.

Later in the 1990s, Savoy partnered with a Spanish investment banking firm on a private equity fund for investment in the Iberian Peninsula. Savoy also maintained an investment office in Spain until 2004, closing it only when the anti-American Zapatero government was elected, at the time of the terrible terrorist-inspired Atocha train station bombings.

Presenting an award to Leopoldo Rodes from Spain, at the Hispanic Society Gala (2012).

On the cultural side, I became directly involved with Madrid’s Prado museum in 2006 as a member of its international advisory board. I have found this association, which gave me an insider’s view of the museum’s major financial turnaround, very interesting as well as culturally stimulating. Sharon and I have made many great friends within the group, and it continues to be an important activity of ours.

Also important to me has been my association with Spanish cultural organizations in the United States. I served for a number of years as a director of the Queen Sofia Spanish Institute in New York, which offers Spanish lessons and hosts myriad cultural, medical, and humanitarian events. My association with the organization led me to put together a successful exhibition of Spanish artworks in 2004 at the institute’s former building on Park Avenue, principally sponsored by Boeing. The art came from the Hispanic Society of America, which was celebrating its one hundredth anniversary in 2004. The following year, I was elected one of five trustees of the Hispanic Society. Its museum building, renamed the Hispanic Society Museum and Library in 2015, houses one of the most amazing collections of Spanish art objects and books and manuscripts outside Spain.

I’ve also been actively involved with a number of charitable organizations as trustee or director, such as the Boys & Girls Clubs of America and the Woodrow Wilson National Fellowship Foundation, which has since been renamed the Institute for Citizens & Scholars. In addition, I’ve been a member of the Nutrition Council at the Harvard T.H. Chan School of Public Health, Department of Nutrition, given my passion for good nutrition and making nutrition education accessible to K–12 schools in lower income areas.

With Denzel Washington at Boys and Girls Club of Houston (1991).

My interest in the art world has also been nurtured by Sharon’s activities in the field. After graduating from Mount Holyoke, she went on to receive a master’s in art and education at Columbia University as well as a JD and MBA in Houston. She also studied at the City University of New York, receiving an additional master’s degree (in the history of art of Spain and Latin America) and nearly completing her doctorate, lacking only the approval of her thesis. It has been enjoyable to see her recognized as an authority on a range of art-related subjects. Among her many activities has been teaching a seminar in art law at the University of Pennsylvania law school, writing art criticism for the lifestyle blog A Sharp Eye, and lecturing on a variety of art subjects

Sharon and I are never too far from an airplane, because we love to travel. Both of us got the bug at an early age. I took my first flight when I was fifteen, as I’ve recounted. Sharon took her first trip when she was seventeen and went to Paris by herself for a summer, polishing her French at L’École Française. We have visited my parents’ hometown in Spain on numerous occasions and have dug up the birth records of Sharon’s ancestors in their hometowns in Scotland and Denmark.

Without question, travel has been a rich source of fulfillment in my life, both on land, in numerous car trips that Sharon and I have done through our lives, and in the skies. Not least important, sharing these special destinations with family is one of life’s greatest pleasures.