Eastern Airlines

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Eastern Airlines

Miami International Airport
Miami, Florida 33148
U.S.A.
(305) 873-2211

Public Company (controlled by Texas Air Corporation)
Incorporated: March 29, 1938
Employees: 37,415
Sales: $4.185 billion
Market Value: $522 million
Stock Index: New York

Eastern Airlines has been in existence since the beginning of commerical aviation in the United States. It has been led by two of the most well-known men in 20th century aviation history, Harold Pitcairn and Eddie Rickenbacker. Starting as a mail carrier Eastern has grown to become a widely recognized and successful airline serving three continents.

The story of Eastern begins with a man named Harold Pitcairn, who shocked his family when he decided to pursue aviation as a career. He was only one of many entrepreneurs drawn into the airline business by the Kelly Airmail Act of 1925 which allowed private carriers the right to bid for airmail routes. He designed an airplane called the “Pitcairn Mailwing,” built six of them, and then assembled a team of barnstormers and World War I pilots to fly them. Financed by his skeptical father, Pitcairn won the New York to Atlanta route in 1928 by entering the lowest bid. Later that year, he acquired an extension to Miami, doubling the network to 1400 miles. Pitcairn increased the fleet to sixteen with improved versions of his open-cockpit single-engine airplanes. The future looked bright. However, due to two fatal plane crashes, or perhaps because his first love was airplane manufacturing, he sold Pitcairn Aviation in July of 1929. Clement Keys of North American Aviation purchased the company for $2.5 million and changed the company’s name to Eastern Air Transport. Under Keys, Eastern became associated with a number of companies which later formed the Sperry Corporation. This fortunate connection gave the company’s pilots an opportunity to work with state of the art flight instruments.

Airmail was the company’s primary business until congress passed the McNary-Watres Act in 1928. The act changed the airmail pay scale from a poundage to a mileage basis. As a result, passenger business became profitable on a wider scale. All the airlines began transporting more passengers. Keys siezed the opportunity by inaugurating a daily-except-Sunday route between New York and Richmond, via Newark, Philadelphia, and Baltimore, using the new Ford tri-motor airplane. Over the next two years Eastern expanded its fleet and route system while maintaining an excellent safety record. By 1932 it was possible to fly a Curtiss Condor, Kingbird, or Fokker tri-motor airplane to many destinations along the Eastern Seaboard. An advertisement for their popular Florida destinations read, “From the frost to the flowers in fourteen hours.”

In February of 1933 General Motors, in search of promising investments, acquired a controlling interest in Eastern’s parent company named North American Aviation. The following year, however, the government decided to terminate the lucrative private airmail contracts and turn them over to the army’s air service. A few months later the Air Mail Act of 1934 restored the private contracts, but not in time to save many companies from bankruptcy. At Eastern both employees and routes were substantially reduced. Despite the award of new routes and another airmail contract, the company was losing in excess of a quarter-million dollars a month. Eastern was in dire need of new and more effective management. General Motors chose the dynamic Eddie Rickenbacker to head the company.

Rickenbacker was awarded the Congressional Medal of Honor for his exploits during World War I. After the war he and a partner started Florida Airways. Yet Rickenbacker, a race car driver before the war, left the company in order to work as a sales executive at General Motors. In 1932, however, he resigned from General Motors rather than relocate. Nonetheless, he impressed company management enough to be called back to direct Eastern Air Transport. When he accepted the general manager’s post in 1935 Rickenbacker vowed to have Eastern removed from its government subsidy and also vowed to make the airline profitable. In the ensuing three years Rickenbacker revised the company’s management structure, reduced costs, and updated the airline fleet with Douglas DC-2s.

Seemingly, as soon as the airlines adjusted to one market condition something else happened to disturb the market again. The Black-McKeller Law, and later the Civil Aviation Act of 1938, decreed that airplane manufacturers must divest themselves of controlling interests in airline subsidiaries. When General Motors sold Eastern’s manufacturing partners in the North American Aviation Consortium, management was also tempted to sell the airline. However, the Depression was still serious enough to eliminate potential buyers, and General Motors was forced to hold on to Eastern for the time.

Despite this disruption, Rickenbacker’s austerity policies and careful management kept the airline in good financial condition. In fact, it was showing such promise by 1938 that a Wall Street investment group threatened to acquire it. Alfred P. Sloan, chief executive of General Motors, gave Rickenbacker the option of purchasing Eastern for himself, if he could match the $3.5 million Wall Street bid. In a frantic eleventh hour effort, Rickenbacker succeeded in raising financial support for his own bid on Eastern. On April 22 Rickenbacker’s group purchased Eastern Airlines from General Motors. Rickenbacker became president of the company and assumed almost total control of its operations.

The company’s new independence was overshadowed by the Japanese attack on Pearl Harbor. Eastern joined the war effort, placing not only its equipment, but also its personnel at the disposal of the United States Army. Since Eastern had already established itself as the dominant carrier in the American Southeast, it was assigned the duty of transporting men to Brazil for the trans-Atlantic ferry in addition to shuttling priority passengers and cargo along the east coast. Under the authority of the Military Transport Division, Eastern operated over 7000 miles of supply routes across the South Atlantic. In October of 1942 Rickenbacker was temporarily lost during an airbase inspection tour when his plane was forced down in Samoa.

When he returned to the airline after the war Rickenbacker resumed strict control of the company. In his quest to achieve reliable and efficient service at the lowest possible cost, he set demanding standards for himself and expected the same dedication from all his employees. Obsessed with detail, he organized Eastern so tightly that he could determine an up-to-the-minute performance history of any one of his airplanes. The stringent management proved successful as profits rose to $14.7 million by 1956. Eastern added new routes and modernized its airline fleet, but only offered dividends when Rickenbacker thought the airline was in excellent financial condition. He surprised many of his critics by accepting the unionization of his workers, and also became the first airline president to introduce a standard 40 hour work week.

The 1950’s were the golden days for Rickenbacker and for Eastern. The airline continued to generate a steady profit, maintain a modern fleet, and expand. With the merger of Colonial Airlines in 1956, Eastern added almost 3000 route miles and numerous “authorities,” or destinations, to its network. The new airline served the Atlantic seaboard from Boston to Miami and the Caribbean, in addition to St. Louis and mid-Texas.

Eastern had a service monopoly on many of its destinations. As a result, they were free to operate the airline at their own convenience and at the expense of their customers. At times service became so bad that an activist group formed, called “WHEAL,” for We Hate Eastern Airlines. Among other things they complained that Eastern stewardesses were curt, aloof and rude. When and where they could, customers expressed their dissatisfaction more practically by switching to Eastern’s competitors.

To compound the problem, Eastern decided to purchase only a minimal number of the new passenger jetliners. Instead, they favored propeller-driven DC-7s, Super Constellations, Lockheed Electras, and Martin 404s, believing that they were better suited for the company’s predominantly short-haul routes. However, Eastern’s competitors invested heavily in jets. The company’s major rival, Delta, actually acquired the DC-8s reserved for and later waived by Eastern. The result was disastrous for Eastern as Delta soon dominated every market involving the two companies.

At the dawn of the jet age, after 26 years leadership, Rickenbacker decided to relinquish the presidency of Eastern. While he remained as chairman, the company now had the additional burden of replacing one of the most successful airline presidents in history. Malcolm Maclntyre was chosen to succeed Rickenbacker. He was a very talented lawyer, but like many of the men who were to replace an airline’s founder, Maclntyre knew very little about running an airline. Besides the poor economic climate in the industry and the divisive effect of Rickenbacker’s continued meddling, the company had to contend with the Civil Aeronautics Board’s opposition to regulated long-haul monopolies. The establishment of exclusive rights to certain airlines on specific routes could have meant large profits for Eastern. In addition, the public lost confidence in Eastern’s main airplane, the Electra, following several crashes. After two consecutive labor strikes in three years, Eastern’s record of profitability was shattered, and Maclntyre was relieved of his duties.

To his credit Maclntyre upgraded the quality of service, reduced costs, and introduced the very successful Boeing 727. Most notably, Eastern started an air shuttle service on April 30,1961 linking Washington, D. C., New York, and Boston. The service evolved out of a need to keep jetliners from remaining idle. Since the hourly flights did not require reservations, when a plane was filled to capacity the company prepared another plane for the same route.

When Maclntyre left Eastern in December of 1963, Eddie Rickenbacker also retired and appointed Floyd Hall to head the company. Previously, Hall had improved the financial condition of TWA, and it was hoped he could do the same for Eastern. When he took over he discovered that Eastern was $70 million in debt. His “operation bootstrap” offered $100 in green stamps to employees who contributed to any of the four prescribed goals of generating more revenue, improving on-time performance, reducing passenger complaints, and increasing compliments. The operation proved so successful that WHEAL burned its charter and the airline turned a $30 million profit in 1965.

By 1967, however, the company was headed for bankruptcy again. Eastern’s top-heavy management and increasingly disinterested president compounded problems of feuding between the New York and Miami offices. The plane which was to revive the airline in the 1970’s, the wide body Lockheed 1011 tri-star, proved to be a financial disaster, with engines prone to breakdown, and ultimately cost millions of dollars in canceled or delayed flights.

The acquisition of Mackey Airways in 1967 and Caribair in 1973 added new routes to the Bahamas and West Indies. However, these new services to popular vacation spots could not forestall the rising tide of misfortunes which led to Hall’s replacement in 1975. The new president was former astronaut Frank Borman, famous for his reading from Genesis while orbiting the moon in Apollo 8 on Christmas Eve of 1968. “The Colonel,” as he was referred to by his employees, previously served as a consultant to Eastern, and was admired because of his association with the highly disciplined and efficient Apollo space program. One of his first moves was to streamline management by “reassigning” or firing half of all middle and executive level personnel. In addition, Borman secured a labor contract (later dropped in 1983) wherein employee salaries were linked to company profit and loss. These factors and the wide scale elimination of waste led Eastern to a $120 million profit through 1978.

Borman moved the main headquarters to Miami, initiated a white shirt-dark suit dress code, and emphasized “dry” business lunches. He sold Eastern’s fuel-guzzling airplanes and invested heavily in new equipment. He maintained an active and high profile, often flying coach in order to talk with passengers and appearing in numerous television commericals for the company.

While Eastern was demonstrating its new viability, the Airline Deregulation Act was passed. Suddenly confronted with drastically changing industry conditions, Eastern struggled to adapt. Borman’s expansion of the airline resulted in a $3 billion debt. Revenues were reduced by a shrinking market share, a result of the increased competition after deregulation. From 1979 to 1983 Eastern lost $200 million, and saved itself from bankruptcy only by wrestling concessions from creditors and employees. In return for temporary but large wage reductions, the airline gave its employees a 25% share of the company’s stock and four seats on the board of directors.

In response to the advice of its creditors, Borman recognized that Eastern was in serious trouble and could only be saved by a complete reorganization or acquisition by another company. In early 1986 the company invited takeover bids, and later agreed to be acquired by Texas Air Corporation, an airline holding company. As a condition of the $676 million sale agreement, Eastern retained its management structure, employees and name. On November 25, 1986 Eastern’s stockholders voted in favor of the acquisition of their company by Texas Air. Prior to that vote, Frank Borman was replaced as chairman of Eastern by Texas Air’s chairman Frank Lorenzo. Borman was in turn named a vice chairman of Texas Air.

With the addition of Eastern to its other subsidiaries, including Continental Airlines, People Express, Frontier Airlines and New York Air, the Texas Air Corporation controlled a four-continent network. The Texas Air network operates major transfer hubs in Denver, New York, Miami, Atlanta, Kansas City, and Houston, and holds over 20% of the domestic airline market. However, the merger of Eastern and Texas Air ran into problems with the Department of Transport, which claimed the move would be anticompetitive in the Northeast corridor. In order to generate more competition in those markets, Eastern sold a number of its gates in the Northeast to Pan Am, which now operates a competing shuttle service.

As part of the new group, Eastern can increase the entire network’s ability to compete on a low-fare basis with its computerized reservations system called SODA. Eastern brings a strong north-south route network to Texas Air, and is compatible with Continental’s predominantly east-west route structure.

Eastern Airlines has survived the most difficult conditions of the post-deregulation era. Since having engineered the successful Texas Air acquisition, the company has been more fortunate than other airlines dismembered by the new market conditions. As a subsidiary it is insulated from periodic hardship in the industry by its well-diversified parent company.