Airline Dealmaker Frank Lorenzo Says Doug Parker Got It Right.
Frank Lorenzo was not the most popular person in the history of the airline industry. He was perhaps the most unpopular.
But in hindsight, Lorenzo shaped the industry as very few people have done. He was the first to use bankruptcy to restructure an airline; now bankruptcies represent a common industry strategy. Combining assets from Eastern and Continental. He also redesigned airline fares...
Lorenzo was also a leader in growing through mergers. In 1972, he took over a small, insignificant, cash-squeezed western airline. In 14 years, he built the world's largest airline company. Similarly, in 2001, Doug Parker took over as CEO of America West, a small, insignificant, cash-squeezed western airline. When US Airways ( LCC) merge with American Airlines, ( AAMRQ.PK), Parker would become CEO of the world's largest airline.
"Those guys have put together a wonderful story of growth," Lorenzo said. "Assuming they can get the deal put together, it's a heck of a story. You have at US Airways a very entrepreneurial team, which is nice to see, because often at the bigger companies you don't find as much of an entrepreneurial spirit." Others have done deals, of course, but few have been so focused for so long on deal-making, and none have started with so little and then built airline companies so large as the ones Lorenzo and Parker built.
Lorenzo thinks the US Airways/American merger will work, but not immediately. "Merger is a tough game," he said. "You have to take a long-term perspective. Over the short term, as United ( UAL) has found out, it's not a party. It's very tough. There's so much technology that has to be brought together, in addition to labor groups.
"You didn't have to go to UT (University of Texas) to realize that it didn't make business sense to buy a company with a lower cost structure and then raise all the employees to your standard," Lorenzo said.
Lorenzo battled labor, using bankruptcy to force concessions. But in 1989, when he tried to force concessions at Eastern, the union struck and was followed out by flight attendants and pilots, forcing the carrier into bankruptcy court, Eastern failed in 1991.
