Eastern Airlines, Inc.

Eastern Airlines, Inc.

In 1926 Eastern Airlines, then known as Pitcairn Aviation, was founded with the purpose of carrying mail between New York and Florida via Atlanta; not until 1930, when the company added passenger routes, did the company become known as Eastern Air Transport. As a fledgling company, Eastern was embroiled in controversy that would sporadically continue for various reasons until its eventual dissolution in 1991. Eastern, along with American, United, and Trans World, was one of the “big four” domestic airlines implicated in the “Spoils Conference” of 1930 in which the Postmaster General and executives of the U.S.’s top airlines divided airmail routes amongst themselves, preventing smaller companies the opportunity to bid for routes. The Senate investigation into the scandal eventually led to the Air Mail Act of 1930, which restored competitive bidding for mail routes.

In 1938, the WWI fighter ace Edward Vernon Rickenbacker purchased the airline and ran it as CEO until 1959 and as Chairman of the Board until 1963; known as “the captain,” Rickenbacker supposedly viewed Eastern as “a corporate army waging war on its competitors” (“Battle for Eastern Airlines”). Rickenbacker’s business strategy certainly paid dividends; in the post-war era, Eastern was for a time the most profitable U.S. airline, never needing financial assistance from the state. However, despite its commercial financial success in this period, the airline witnessed countless workers’ strikes and slowdowns which they were only able to survive because of government regulations that mandated the cost of airline tickets, ensuring Eastern and other airlines always had the funds to be able to offer wage increases to their employees. The Airline Deregulation Act of 1978, which phased out the Civil Aeronautics Board and restrictions on fares and access to routes, marked a distinctive turning point in the company’s history.

In the decades preceding the Airline Deregulation Act, Eastern’s status as the most profitable airline in the post-war era began to falter because of increased competition from other airlines and the birth of the jet age; the primary reason why Rickenbacker was removed as the company’s CEO was because he was reluctant to invest in expensive jets, despite the fact that the jets held wide customer appeal. Eastern was the first U.S. airline to fly both the Boeing 727 and the Airbus A300 and this investment in jet technology resulted in a financial turnaround of sorts for the company. Up until 1965, profits were depressed because of the enormous capital outlays needed to bring the company (and the wider industry) into the jet age - Eastern incurred a $5.8 million loss in 1964. However, by 1965 when the switchover to jet engines was complete, Eastern reported a $29.7 million profit for the year. During the expansion period, airline employees endured several years of flat wages and had the expectation that this would be rectified once the company was enjoying profits once more. Conversely, by 1966 no wage increase had been agreed upon and this monetary dispute resulted in the largest strike in airline history. On July 8th, International Association of Machinists and Aerospace Workers (IAM) members across the country employed by five major airlines went on strike; in total, sixty percent of the commercial U.S. airline industry was shut down for forty-three days during the peak summer season as 35,000 workers refused to work. Eventually, a settlement was reached that amounted to a six percent wage increase.

In other respects, the 1960s and early 1970s were positive for Eastern; on April 31st, 1961 Eastern inaugurated the Eastern Air Lines Shuttle; initially the shuttle operated between New York-LaGuardia and Washington National and Boston every two hours, however, the schedule soon changed to every hour, which was considered innovative during a time when air travel was not a routine occurrence for many people. When Eastern began to dissolve in the late 1980s, Donald Trump purchased the shuttle. Eastern’s expansion during this period included internationalization; the airline opened routes to the Bahamas and Puerto Rico, purchasing the small air carrier Mackey airlines in 1967 as part of this expansion. In addition, in 1971 Eastern became the official airline of Walt Disney World and maintained this status until 1989 when the company filed for bankruptcy. Further change occurred in 1975 with a new company president; Frank Borman, a former astronaut who was known as “the colonel” (“Battle for Eastern Airlines”) at NASA, became Eastern’s president late in the year and launched a new publicity campaign with the tagline, “We Have To Earn Our Wings Every Day,” and he featured center stage as the spokesperson. Up until 1975, Eastern had been based at Rockefeller Center in New York City, however, Borman relocated company headquarters to Miami, Florida, which would prove to have a lasting impact as it resulted in Miami being recognized as the central hub of Latin American and Caribbean aviation – a legacy that still survives today.

    The Airline Deregulation Act of 1978 along with what many have claimed to be poor management decisions permanently altered the company’s fate. In the late 1970s and early 1980s Eastern was hemorrhaging money; deregulation measures, increased competition with other airlines, such as with Delta Air Lines in Eastern’s huge Atlanta hub, widespread inefficient practices of operation, as well as debts from the purchase of expensive jets pushed Eastern to the brink of bankruptcy. By 1983, the company had accrued losses of $183.7 million and in order to avoid bankruptcy Eastern had to reach a labor pact with employees whereby wage cuts were agreed upon in exchange for company shares and a stake in management decisions. Paul J. Baicich notes, management “put enormous pressure on the workers – union and non-union alike – to make concessions,” adding to an “industry-wide chorus” of complaints about labor costs (85). The terms of the agreement were that Eastern got wage cuts of between eighteen and twenty-two percent, which amounted to $292 million, increased productivity worth $75 million, and changes in union work rules. The employees got twenty-five percent of Eastern’s stocks, four seats on the board of directors, access to the company books, and the right to organize work; the airline’s machinists were later able to regain their cut wages by increasing productivity.

Despite the huge savings accrued by the company’s machinists, however, 1985 witnessed a new financial crisis because of fare wars, which forced Eastern to cut fairs below costs; in the last quarter of the financial year, Eastern lost $67 million, which obliterated the previous savings they had made from various cost-saving initiatives. In early 1986, Eastern’s banks threatened to place the company into default unless they managed to get all employees to agree to a twenty percent wage cut by February 24th; it was at this point that management considered finding a buyer for Eastern if they could not resolve their financial crisis via wage adjustment.

On the weekend of February 21st 1986, Eastern’s management board met to decide the fate of the company; they came to a tentative agreement with the pilots and the flight attendants, leaving only Charles Bryan, then president and general chairman of the IAM, and the machinists left to agree. Despite an offer from the machinists that they would accept a fifteen percent wage reduction if Frank Borman would be replaced by a chairman that they all agreed upon, the board voted to sell the company regardless. The buyer was Frank Lorenzo, owner of Texas Air, known as a union-buster and a “raider” – businessmen who launch corporate takeovers of companies by pulling companies apart and making back their money by selling the pieces off. The employees received $10/share for their stocks, but forfeited all stakes and say in the company’s ownership and management. A few months after the sale, 2000 employees were laid off and the remaining employees were threatened with fifty% pay cuts. Charles Bryan eventually lost his position on the board of directors and was banned from Eastern property; he described the sale of Eastern to Lorenzo as a “total betrayal” (qtd. in Baicach).

In February 1987, the Federal Aviation Administration imposed a $9.5 million fine against Eastern for safety violations, which at that time was the largest fine ever imposed on an airline. In 1988, Eastern’s president Phil Bakes made plans to lay off four thousand employees, scale back Eastern operations in the Western U.S., and employees were still threatened with wage cuts. The latter resulted in a huge company-wide labor strike of employees under contract and the company lost millions of dollars in revenue. Longstanding financial problems – augmented by the fine – as well as high fuel prices and deregulation resulted in the company filing for bankruptcy in 1989. In terms of the crippling effects of deregulation, Eastern was not alone; two other major U.S. airlines, Pan American and Trans World, suffered greatly under the deregulation measures implemented in the 1970s and 80s. Like Eastern, Pan American were financially defunct by 1991 and in 1992 Trans World joined them and also declared bankruptcy. Because Eastern filed for bankruptcy protection in 1989, they were allowed to continue operating with non-union employees. However, as a result of neglect and mismanagement, Eastern was removed from Texas Air’s control and they finally cased operations at midnight on January 19th, 1991. In 2017, the Eastern Airlines Retirees Association (EARA) donated the Eastern Airlines Archive to the University of Miami Libraries Special Collections.

Laura Bass
UGrow fellow for the Department of Manuscripts and Archives Management, 2019-2020

Works Cited

Baicich, Paul J. “Machinist vs. Mismanagement at Eastern Airlines.” Labor Research Review, vol. 1, no. 10, 1987, pp. 85-101.

Eastern Airlines Archive, University of Miami Libraries Special Collections, Miami.

“The Battle for Eastern Airlines.” Frontline, PBS, WPBT, 31st Jan. 1989.