Wayne Yeoman Interview by Jerry Barrett

BARRETT: This is Jerry Barrett talking. Today's date is April 11, 1986. I'm interviewing Wayne Yeoman, Senior Vice President for Finance of Eastern Airlines at Eastern's headquarters in Miami. Mr. Yeoman, why don't you start by just talking a little bit about what you did before you came with Eastern.

YEOMAN: Alright. I spent 26 years in the Air Force and while I was in the Air Force, I had occasion to go to the Harvard Business School and got an MBA up there and then later went back for a Doctorate in Business Administration -- this was while I was in the Air Force. And when I retired, because I had been a pilot for the 26 years, I was very interested in the airline business. There was 00:01:00an opportunity at Eastern. I took it and I have spent 14 very interesting years at Eastern. I left the Air Force in 1972, came to Eastern and have been with the organization since '72.

BARRETT: Do you ever think it might have been better to go with United?

YEOMAN: Well, no. As a matter of fact, I wouldn't have missed this for anything. It's been a pretty exciting period, but a lot has been accomplished at Eastern. Some things have been tried that may not have worked as well as we had hoped, but it's been a great, an educational 14 years and I wouldn't have missed it for anything.

BARRETT: That's good to hear, that's good to hear. Can you talk a little bit about the events that have taken place since deregulation, particularly from the 00:02:00financial end?

YEOMAN: Yes. I'm sure you've heard it a million times, but deregulation has had a very profound impact on this industry and it came to Eastern airlines in a big way very early in the process. And I think we heard about deregulation very quickly and we came to know more about it than some others because of the way it started in this country. But in 1978, the industry was deregulated. It had been a regulated industry much like utility companies. And the companies within the 00:03:00industry operated in many respects like utility companies. We were told where we would fly. We had a franchise and there was very little competition on that franchise. And we operated within the rules of the game. We charged the prices that Washington told us we could charge. We flew to the destinations that they had allocated to us. We configured our airplanes the way they thought we should configure them and it was a very peaceful, stable environment. It was also possible to pass through expense increases very easily because as long as you owned the franchise, then all you had to do was justify cost increases and those increases in cost would be translated into increases in prices. So it was very 00:04:00difficult to fail in that kind of an environment and it was expected that life would be stable, and it was. It would take literally months and sometime years to change a single destination on the airline. If you filed for a new route, you spent months in Washington going through hearings on that new route and then finally you or someone else would be awarded the route. And so you had tiny little changes out at the edge of your system but they were tiny. The changes were infrequent and you knew pretty well what life was going to be about. And then in 1978 the Congress passed a law that exposed us to the marketplace. They said this industry is going to act the way normal industries in the United 00:05:00States act. New airlines may start up and any airlines that are out there can fly wherever they want to fly; charge whatever prices they want to charge within reason; offer whatever services they want to offer; and really the only requirement was that you have a safe operation and you conduct yourself in a way that was acceptable to passengers. The deregulation process came to Eastern in a hurry because it was our bad luck to have People Express start up in Newark. The airport was there; it was almost vacant. And People Express started buying used airplanes and increased their operation at a very rapid rate. And they did it in 00:06:00our marketplace and this went on for several years before they left the Eastern marketplace to go out West and to go to Europe. And during that period, we were suddenly faced with a new competitor that had totally different costs than we had. And the cost differences were dramatic. For example, People Express paid about one-fifth the amount for flight crews per hour that Eastern paid. And the numbers were on the order of $500 an hour for the front-end crew in a 727 at Eastern and $100 an hour for a front-end crew for a 727 at People Express. And these differences translated into huge dollar differences because our payroll 00:07:00costs represent a very big percentage of our total expenses. 37%, 38%, 39% percent of all the money we spend, we spend on wages and salaries and benefits. Our labor costs during 1986, for example, will be about $1,775,000,000. And when you have differences of 5 orders of magnitude on an expense category that's as big as compensation, then you immediately face a very difficult, new, competitive challenge. In addition to People Express, there were other new entrants and then when Continental in the fall of 1983 filed Chapter 11 and came 00:08:00out of that process as a new airline — a low-cost airline — then the whole industry was in for tremendous change. And that process has gone on since about 1981. It took 3 or 4 years for deregulation to get under way. People started in 1981, and from that time the process has accelerated and it continues to be about the most important thing in our life even now in April of 1986. And employees who had been in the most stable kind of an environment were suddenly faced with change that was constant and dramatic. And most of the things that 00:09:00have gone on at Eastern since 1978 that have really been important have been in one way or another associated with deregulation in this brand new, competitive environment that we faced. And this whole experiment in participatory management at Eastern Airlines had its roots in the pressures that came out of deregulation because we had to change; we knew we had to change. We knew that if we were going to succeed in this environment, Eastern would have to operate in ways that were very different than the ways they had operated during our whole period of 00:10:00regulation. So we did some interesting things and they didn't all work out the way we had hoped but it was an experiment that just had to be performed. Maybe it's time has not yet come, but we learned a lot from it.

BARRETT: Can you talk about some of the things that were done to deal with deregulation, particularly with the wage bill?

YEOMAN: Sure. Yeah, I think some of the things that gave us problems in the eighties have their roots back in the seventies because Eastern was a financial problem even during the regulated years. A number of the airlines were able to be profitable during regulation. Eastern was not able to be profitable even 00:11:00during that period when you owned your franchise and life was about as stable as it could possibly be. As a matter of fact, in November of 1975, we faced a financial crisis and out of that crisis Colonel Borman became President of Eastern. And that happened, as I recall, in December of 1975. And he instituted a number of things that were new. We had a wage freeze in 1976. Then we started the variable earnings program where people had 3.5% percent of their pay withheld and either repaid or not, depending on the profitability of Eastern 00:12:00Airlines because profitability was absolutely critical to us. We had come to the point where we had no financial cushion. We had an old fleet and it was either re-equip or get out of the airline business, and that's very expensive. So it became absolutely essential that we generate some profits or we could not have continued to buy the equipment that would let us stay in business. But, as a result of a new spirit at Eastern Airlines that started in 1976, I think it is absolutely the case that Colonel Borman had the support of all the employees at that time. And you could see it in the performance of the airline, plus the 00:13:00financial help that we got from the variable earnings program. We were profitable in '76 and '77 and '78 and '79. And in many ways, Eastern Airlines was reborn during those periods and we were a much, much better company in '79 than we were when we started into this at the end of 1975. But there were people in the work force who started running for office on the basis of getting rid of the variable earnings program. Straightforward, well, Charlie Bryan was one. And Charlie — the whole basis for his campaign was to get rid of that program. And it was most unfortunate that it happened then because it exposed us to a lot of the problems that we had had before deregulation and then the deregulation came 00:14:00along in 1978. So when the recession hit us in 1980 and it was a serious one as you will recall, we had losses in 1980 and '81, in '82 and a disastrous loss in '83. And it was at the end of '83 that things had become so serious that we had to do something. And we were looking at the possibility of a Chapter 11 or changing our way in life, or changing our life in a way that was significant enough that we could reverse the losses. And again, I'm sure you've heard a lot about what happened in the fall of 1983. Bill Usery came down here. There was a 00:15:00commitment by all of the employee groups here that we would all join hands and see what we could do about fixing the financial problems that we had at Eastern. Together we looked at 1984 and together we decided what we had to do to make sense out of 1984 from a profitability point of view. And it was during that process that we launched a number of changes here that resulted in a lot more employee participation in the things that went on in their work stations. And the changes went all the way to membership on the Board of Directors and participation in a lot of the important decisions that are made in the airline 00:16:00day by day. We were able to accomplish in 1984 about what we had set out to accomplish. It turned out that our forecasts were very close to what materialized and 1984 turned out to be the kind of year that we hoped it would be — a tremendous recovery from the disaster that we had in 1983. We had agreed at the end of '83 that not only would we do what was necessary together to fix 1984, but we would have additional sessions toward the end of '84 and address '85 in the same way. Unfortunately, we were not able to do that. Bill Usery was down here on an almost daily basis and I think, did everything that a 00:17:00human being could do to try to make that process work. It did not work. We were never able to repeat in the fall of '84 what we had done in the fall of '83. Bill did come up with a recommendation for a compensation program in '85 that had we been able to implement it, would have given us another good year in '85. But for a whole series of reasons, things started coming unraveled. In 1985, we found ourselves in federal court in Brooklyn with the pilots, in court here in Miami with the flight attendants and there were suits that had been threatened by the IAM. And so 1985 started off with a real bang. We did well during the 00:18:00first 6 months, helped by a couple of strikes -- one at Pan American and another at United. But again, we had a very good first 6 months and then we started having all sorts of problems during the last 6 months. And these problems were not only internal of the variety that I've just talked about. And those were serious because a lot of the cooperation and participation that we had experienced during '84 and the first part of '85 started falling away as we got into all these legal arguments. And then great pressure started being experienced on the fare level part. We had fare wars all over the U.S. and the 00:19:00last 6 months of '85 were very difficult. The first quarter of this year, more of the same. And you know what happened on February 24th. So now we find ourselves in the process of working on a merger with Texas Air. Again, an awful lot happened between the fall of '83 and February 24, 1986. All of it was interesting. Some of it represented real progress and some of it was tragic because some things that should have worked, didn't.

BARRETT: Can you go back to the period when you first arrived here. You said that the financial situation in the company was not as good as some other airlines.

YEOMAN: Yea. Eastern in 1972 was a very inefficient airline. I'll never forget 00:20:00that during the first week I was here, and this was during 1972, I had occasion to look at some comparative statistics of Eastern and Delta. And it was extraordinary how much more efficient an airline Delta was than Eastern. Their costs in producing a seat mile were almost 20 percent less than Eastern's. And that is a very dramatic difference. And I recall, after looking at those numbers I went home and told my wife not to buy any furniture, not to buy any curtains, because I couldn't imagine that Eastern Airlines would be able to survive given the inefficiencies of the company as compared to its principal competitor, 00:21:00Delta. And it turned out that the numbers in that analysis were real and you could see it in the day-to-day operation of Eastern and Delta. They were profitable for reasons that were perfectly easy to understand. They just got an awful lot more output for each employee at Delta Airlines. And I would guess that it took Eastern a lot of years to develop the work habits and the relationships between management and the employees that cause that tremendous disparity in productivity. Now it was exciting and exhilarating to watch Eastern Airlines between the beginning of 1976 and the early eighties close that gap 00:22:00against Delta. And there were tremendous strides made at Eastern Airlines to improve the quality of this company. The product got better; employees' productivity grew to a point where it was equal to Delta. But we started this deregulation game a long way behind. And if you have been inefficient and unprofitable for years and years and years, you're going to pay a price. And when we came up to the end of 1975, the price was very clear. We had one of the oldest fleets in the industry, a balance sheet that was not good and a history of being unprofitable. And I think people get used to not making money. And if 00:23:00they make money, then they want to do something with that. There was just no profit-making habit loose in this organization. And that made what we tried to do in the late seventies and the early eighties even more difficult. The crisis that was probably the most important one in the last ten years came with the IAM settlement in March of 1983. We had, as I indicated earlier, lost money in '80; lost money in '81; lost money in '82. We had been in a very serious recession. We were looking at the impact of deregulation and we signed a contract with the 00:24:00IAM that called for wage increases on the order of 35 percent. This was in March of '83. We could not afford it. Colonel Borman has made the point many times it was not something that we did and then realized 3 weeks later we had done something that we should not have done. We were just faced with the alternative of shutting the airline down or signing a contract that called for huge increases in costs and seeing if you can do something about that. We were never able to recover from the huge increases that were put in place in 1983 because the minute they were put in place, those wage levels became the base line. And any adjustment from that base line was a give back. And from very early on, 00:25:00anything that was given back was soon to be recovered as early as possible. And we have listened to a lot of conversation about how absolutely critical it was to get back all of that 20%-22% percent. And when we moved the base line, we were just never able to get the discussion back to the issue of what is it that we can afford. And that's made these last several years difficult ones. But the employees, for whatever reason, simply failed to understand that what was 00:26:00demanded in 1983 could not be delivered; that the world had changed. And you have to say that somehow we failed to educate the employees in a whole new and different set of realities. We never were able to do that. And I'm sure as you look back over the history of Eastern Airlines you will wonder why we were never able to do it, but we simply were not. And the demand for a fundamental restructuring of work rules and compensation levels was absolutely required. We were just not able to do it.

BARRETT: It is a hard thing to convince someone that they have to work harder and get less compensation.

YEOMAN: Yes. But others did do this in ways

BARRETT: Other airlines?

YEOMAN: -- that at least up 'til now have been effective. Well, the new entrants came in with totally new wage rates and work rules. And they were somehow able to protect those wage rates and work rules. People Express came in in '81 with a cost base that was far, far below ours and they have been able to maintain it. And I would have expected that there would have been a lot more pressure to raise those levels than there has been. American came in with their B scales and they have been able to maintain those B scales at very large differentials with their old A scales. And they now have a third of the work force on B scales. Piedmont has about a third of their people on B scales. Piedmont has about 30% 00:28:00percent of their employees as part-timers, which means that their benefit package is zero. And they have been able to sustain that kind of an arrangement and it's been a very important difference between the cost of those carriers and our cost. And we've been sort of typical of what's happening at United and TWA, of U. S. Air and some other carriers that continue to have very high expense bases. And I can tell you people around here tried. There was a tremendous amount of effort. I think it was well organized. We had a lot of help from the outside. We had consultants in the organization helping with the whole employee 00:29:00participation movement. But these things take a lot of time. We need more time? OK I will be back in a minute.

[Break]

BARRETT: Okay, we're back on now.

YEOMAN: Before the break, we were talking about the problems associated with educating employees on the changes that had taken place in the whole competitive environment, and the fact that we had tried and we simply did not succeed in that effort in a way that was necessary. And at the end of it, we were faced with the fact that we were not able to do what we had hoped to be able to do and what was absolutely essential if we were to survive as Eastern Airlines. And 00:30:00that was one of the great disappointments of the 1980s.

BARRETT: Yea. I can certainly see that it was — I would imagine -- particularly in a case for someone like yourself who is in a position of overseeing the financial end of the business because the numbers were very clear.

YEOMAN: They were.

BARRETT: Some of the numbers you gave before — what People Airline was paying and what you were paying. And --

YEOMAN: That's right. It's just impossible for an airline that produces seat miles that cost 8.5 cents, 8 3/4 cents to compete effectively against airlines that are producing essentially the same out commodity for 6 cents or 5.5 cents. And those are the differences that prevail in the industry at this time. And it is a real challenge to educate people on those differences and how essential it 00:31:00is to eliminate them. You don't have to eliminate them all because Eastern has competitive advantages that will allow it to bridge some of that gap. But our yields have been coming down the last several months and I think they will continue to come down in the future because the people who have the 6 cent a mile expense basis are just going to continue to put the heat on us.

BARRETT: Yes. There's no reason for them not to, none whatever.

YEOMAN: No, no.

BARRETT: That's their advantage and they'll play it up as well as they can.

YEOMAN: Absolutely.

BARRETT: Was there any hope during any of this period that — not so much on the part of the employees, they would always hope that things would go back to normal — but I mean, within the organization that something would happen to 00:32:00return things somewhat to the way they had been? For example, you alluded to the fact that you were surprised that more pressure wasn't put on at Peoples Airline for upward movement in their wage rates. Were there other things like that that you –

YEOMAN: Well, the conventional wisdom, at least among people in the old trunk carriers, was that the cost for the new entrants would rise; the cost in the old trunks would decrease and we would come to some accommodation that would allow life to go on in the old trunks and life to go on in the new carriers. We simply did not see much conversion — or convergence over the years. People stayed at 5.5 cents; Continental stayed at 6 cents a seat mile; and we stayed up at 8.5-8 00:33:003/4. And that simply did not allow us to compete effectively in the marketplace against an airline like Continental that is a full-service airline, but provides that full service at a cost that is very significantly below Eastern Airline's cost. So we were faced constantly with the proposition that we somehow had to reduce our costs. And employees are critical of coming back again and again and again to the compensation package as being the place for the adjustment. But if wages and salaries and benefits comprise 37%, 38%, 39% percent of all your costs, then that category of cost becomes the big element that you can manage. You can pray over fuel costs, but you can't manage fuel costs much. You can pray over the price of the meals that Marriott gives you, but you can't do much about 00:34:00the cost. You can pray over communications costs, and landing fees, and commissions, and advertising, and all the rest, but there is very little that you can do about changing those costs. And as you look across the industry, you can take all of the costs, except compensation, and they are very similar in other airlines. You can look at Delta, or TWA, or United, or Republic, or U. S. Air, or Continental and there is a very small difference between all other costs except compensation. So you are left with the proposition that that really is the bottom line when it comes to managing costs. And it is the big difference between airlines. And that's why we spent so much of our time from 1978 on 00:35:00addressing ourself to that one issue. And employees, I'm sure, got very tired of listening to that same old refrain. The problem was it was just essential that we keep addressing that topic.

BARRETT: There really wasn't much choice on the —

YEOMAN: No, there wasn't. There wasn't a choice. There was not a choice.

BARRETT: You actually were coming at it in two different ways. One was the amount paid out, but also the amount of input by the employee, that is to say that typically —

YEOMAN: Absolutely. The discussions always involved pay levels — compensation levels, really. Because in this industry, fringes are such an important part of 00:36:00total compensation that you have to talk about pension benefits and health care benefits and all the rest when you talk about compensation. And the other part of the equation involves productivity — how much output do you get? And again, there was a tremendous disparity, and still is, between the productivity levels in the old trunk carriers and in the new entrants. The new entrants came into this industry requiring that their pilots fly 80 hard hours a month and their pilots flew 80 hard hours a month. And ours fly 47, 48, 49, 50. We now have a contract that will let us go to 56 hard hours a month. But there's still a tremendous difference between 56 and 80. The same thing applies to the flight attendant work rules — very different with the new entrants and the old trunks.

BARRETT: I think that that with less -- are you suggesting there was less difference as far as the mechanics were concerned in the new entrants and —

YEOMAN: Oh, I think clearly the productivity levels with airport agents, with mechanics, with revenue accounting clerks -- the differences there are small between a new entrant and one of the old trunks. That's not to say that we can't improve our work rules but you're not going to get 50% percent increases or 75% percent increases.

BARRETT: OK. It just would not be that much help. Can you talk a little bit about equipment changes? I take it for one thing that that's one of the advantages that Eastern does have. Now it does have a modern fleet, and it does 00:38:00have larger, more comfortable planes.

YEOMAN: Well, our fleet now is much more efficient than it was in 1975 and it is on a par with the competition. Now that all happened at the price of some big re-equipment programs. We spent about a billion dollars for our A-300 fleet. We spent another billion dollars for our 757 fleet. We had to do that. But with those two programs, we have converted a fleet that was right at the bottom, as far as acceptability was concerned, to one that is at least at the average for the industry. That was another issue with employees. There were a number of 00:39:00employees at Eastern Airlines that had a terrible time understanding why in one breath we would ask for adjustments to compensation and in the next breath tell them about why we had to purchase new equipment. And I think that they understood why we had to purchase the new equipment but if you don't like compensation adjustments, then you have a perfect excuse to argue that really it was equipment decisions that caused all the pressure on compensation. And that was another issue that was a continuing one with us and it was an irritant on both sides because we couldn't understand why they couldn't understand. And it 00:40:00was a reason for them not to understand and get upset about pay reductions.

BARRETT: I imagine the decision to go into upgrading of the equipment was a hard one to make just for the reasons you've outlined.

YEOMAN: It was hard, but it also had to be made. There was simply no choice. In 1975 we had 70-some 727-100s, the short 100s. We had Electras, the DC-8s. There wasn't any way in the world we could continue to fly that fleet profitably through the rest of the seventies and into the eighties. I think Colonel Borman recognized more clearly than some others how critical the problem was and he was largely responsible for an A-300 program that allowed Eastern to take a giant 00:41:00step to improving its fleet because we were able to get those airplanes on very favorable terms. They were available to us quickly. And the same kind of thing happened with the 757. We were the launch customer. We got attractive financing and attractive prices on the 757 and the airplane turned out to be a magnificent airplane. So those two programs were huge successes for Eastern. I can't imagine the consternation among our employees had the A-300 and 757 been problems, because there was a lot of discussion about whether or not we should have bought the airplanes when we got them under the most favorable financial conditions that you can imagine. And both airplanes have worked very, very well in our fleet.

BARRETT: As far as efficiency and maintenance —

YEOMAN: Oh yes, efficiency, customer acceptance, maintainability — those are two magnificent airplanes. But like airplanes today, they cost money and we spent a billion approximately on each of the 2 fleets. But we had to.

BARRETT: The way it is a continuing problem only is that it caused tremendous debt.

YEOMAN: That's right. But the airplanes have in fact paid for themselves. Most of the debt that has been accumulated at Eastern Airlines has been accumulated as a result of losses. We have not made any money. And year in and year out, we have been funding losses. The A-300 has paid its way; the 757 has paid its way. But as a result of having a cost structure that's driven in a very important way by compensation costs, but having a cost structure that's totally out of line 00:43:00with the competitive environment that exists out there now, we haven't made any money. And when you lose money and you stay in business, it means you have to go out and borrow money to finance the losses. And we've done a lot of that at Eastern Airlines.

BARRETT: Again, that would be a hard thing for employees to understand.

YEOMAN: It would, because it involves long and very esoteric discussions about return on investment and all that sort of thing. And that is difficult to have conversation with employees. And we have spent hours and hours and hours talking to employee groups about those capital investment decisions. But I can just tell you that's difficult going for employees. And it's especially difficult if they don't want to believe what it is you're telling them.

BARRETT: Yes, that makes it particularly difficult, yes.

YEOMAN: Absolutely.

BARRETT: One of the things I understood that Usery proposed to help to get this across to employees -- some of these high finance kinds of questions, reinvestments, and so forth was the bringing in of some outside auditors that you call. How did that work?

YEOMAN: Yea, we brought in outside financial consultants and it started back in the fall of '83, very shortly after Bill came in here. We brought in Lazard, a very well-known banking investment firm in this country. And another very small firm that had worked with the IAM, Locker Abrecht. Mike Locker and Steve Abrecht were the 2 principals in the firm and I think they were perhaps the 2 employees in the firm. But they did some very good work at Eastern Airlines. Both Lazard 00:45:00and Locker and Abrecht played an important part in reviewing Eastern's cost structure. Back in the fall of '83 they played an important part in the forecast for 1984. They were helpful in translating what we were doing to the employee groups. Locker and Abrecht with the IAM and the TWU; Lazard with the pilots. And following that process that was put in place in the fall of '83, we had financial consultants available to the unions on a continuing basis. And 00:46:00monthly, we went over all of our financial statements. During those sessions, the financial consultants would be present with the union leadership and available to the union leadership.

[Break]

BARRETT: Okay, we're back on.

YEOMAN: And so the employees had access to all the financial data at Eastern and they also had access to people who could interpret the financial data for them. I think that was a very important step forward for Eastern. It was an educational process for the leadership of the various employee groups. One of the great strides forward that we have taken at Eastern is that we're no longer 00:47:00arguing about whether or not the company is keeping two sets of books. We got that one behind us. Everybody has agreed that the financial reports reflect the financial condition of the company and because the unions and the non-contract people have had total access to the financial records, we just no longer engage in great arguments about whether or not the numbers are real. They are real and I think our employees know they are real. And that has advanced the discussion. We can at least now discuss numbers and both sides of the table will agree that those are the real numbers. And that is absolutely critical in any sort of an experiment like the one that we have been conducting here at Eastern Airlines. You're going to have participation by employee groups. They have to be confident 00:48:00that the numbers are, in fact the right ones and do reflect what's going on.

BARRETT: Did you, and the people that work with you, were they apprehensive about this group coming in to look at the books, in effect?

YEOMAN: No. People were not apprehensive about outsiders coming in to look at the books because we have outsiders looking at our books all the time. We are a public company and Price Waterhouse lives with us at Eastern Airlines. We had absolutely nothing to hide so there were no misgivings about that. I think there was some concern about whether or not it was appropriate to open up the books of 00:49:00the corporation to employee groups. There are some perfectly normal adversarial positions that employee groups may take. And if they are looking at everything that's going on with the finances of the corporation, you ask yourself whether or not they may not complicate your life on down the road. As far as I am concerned, it's an easy argument to dispense with. I think employees should know what's going on and even if it gives union negotiators a little information that they wouldn't otherwise have, I think that is a very small price to pay. In the environment that we are in, I think it's critical that employees understand the financial condition of their company. And if they don't, then I don't see how in the world they can make decisions on the issues that they are going to be 00:50:00pressed for decisions on. I don't think you can ask people to adjust to a whole new competitive environment unless they understand it. There was never much resistance at all on the part of management at Eastern and what little resistance there was, very quickly collapsed. That part of the program, in my opinion, went well. We didn't pay a price at all for telling our employees exactly what was going on at Eastern Airlines.

BARRETT: I imagine there was some sense of pleasure among the people who actually maintained the records and do the books and set them up and administer them, that they did come out looking OK.

YEOMAN: Yea, but again, I don't think many people spent much time gloating about 00:51:00I told you so. I think what we were much more concerned with was do people really understand the numbers and do they understand the implications of the numbers. And I think the greatest disappointment in all of this to me has been that we never were able to convince people that what happened in 1983 was easy to forecast; that what happened in '84 was easy to forecast; that what happened in '85 was easy to forecast. Deregulation is sort of Economics 101, and it is not differential equations. It should have been possible for us to have 00:52:00explained all of this more effectively than we did. We never changed the hearts and minds of the people who were critical in this process.

BARRETT: That would be a frustration, I guess.

YEOMAN: Yea, it was too bad. I thought in the beginning that surely we would be able to do that and that there would be a consensus about what needed to be done. And I became even more confident that we would be able to do it in 1984 because with -- and we were a little lucky in this, but our forecast for 1984 was right on the button. It was one of the best ones that we ever made. And so the first time the employees were exposed to this process of let's look at what needs to be done; figure out how we do it and then do it. We were working with numbers in '84 that just came in bang, bang, bang, and at the end of '84, the revenues were what we thought they would be; the expenses turned out to be what 00:53:00we thought they would be; the bottom line was what we thought it would be. And we'd had this tremendous improvement and we could explain to each other why it had come about. And at the end of 1984, all we did with that experience was go right back to some old habits and make demands on 1985 that we had absolutely no chance of coping with. So we just blew ourselves away after we should have known enough not to do that.

BARRETT: When you say demands now, you mean the unions —

YEOMAN: Oh yea. You know, Bill came out with a program of a 5% percent wage increase for 1985. We thought we had that in place. We could have lived with that and had a very profitable 1985 with that kind of compensation program. But 00:54:00before the end of the year was out, the whole thing had come unglued and we were back to salary of record, and it was just because the unions simply did not find the 5% percent acceptable. They had to get back to salary of record and they finally did it and blew their foot off and our foot off. And we were not able to explain well enough that that was sure to happen, because it was.

BARRETT: Was part of the problem the concept of salary of record; that people, once having seen that written down, you have a sort of an inalienable right to get back to it?

YEOMAN: Absolutely. Once you move the base line, you are in trouble. And when that contract in March of 1983 was signed with the IAM and it involved a 35% 00:55:00percent increase — and you know, here we were coming off of a loss in '80, a loss in '81, a loss in '82 and you just knew that you were going to have a terrible time making sense out of '83 without any pay increase. And now you're looking at a 35% percent pay increase and you know that that's the end of the world. And after the IAM, then the pilot agreement followed, then the TWU. And the non-contract people were all adjusted, and they were adjusted way up here. And that salary of record became a God-given right. And the reduction from that salary of record was just never accepted. We just had to get back to salary of record. And even the discussion of what people gave up was put in the wrong context because we talked about givebacks of 20% percent, 22% percent and these 00:56:00were not reductions in pay, but these involved foregoing pay increases that were out there. And so it never was the problem that an individual would make $100 a day on Thursday and $80 a day on Friday. What it was is, he made $80 on Thursday; he had a $20 pay raise on Friday; and he had to pass that $20 pay raise up. And that was a messy piece of information to transmit because if you were on the outside of Eastern reading the newspapers, listening to TV or radio, you were told that Eastern employees had taken pay cuts of 20%-22% percent. And 00:57:00given that, I'm sure there were a lot of people out there who thought it was just perfectly reasonable that they try to get those pay reductions back. But they weren't pay reductions, it was a matter of employees foregoing huge pay raises that the company had no chance to finance.

BARRETT: Can you talk a little bit about the crises that we seem to come up against at Eastern which seem to be precipitated by pressure from the banks or the debtholders?

YEOMAN: OK. OK. And the banks certainly play a part in Eastern's life because we have about $2.5 billion of debt. The bank's interest all along has been in 00:58:00Eastern Airlines' making enough money to be sure that it could pay its bills, buy new equipment and survive. And they had no interest in running Eastern Airlines. They had no interest in dictating some particular level of profit except that we had to be profitable enough to survive -- that's what they wanted. They had no particular level of compensation that they were pressing for. They simply wanted to reduce the risks on the money that they had loaned to Eastern Airlines. I think the banks were quite supportive through all the years of turmoil. They spent almost no time telling us how we ought to run Eastern 00:59:00Airlines. But they were concerned that we could be profitable in this new deregulated environment. They got some heat from employee groups and I can understand that, and they understood that. It's perfectly normal that companies under some pressure are going to look around for somebody to get mad at. The banks were sitting there and there were some good stories about Chase Manhattan Bank really running Eastern Airlines and that is totally ridiculous. On the other hand, that's one of those good stories that's very hard to kill. And I am not sure that we have convinced any employee who wanted to believe that Chase was running Eastern that Chase was, in fact, not running Eastern. But as a 01:00:00practical matter, that was not a problem.

BARRETT: What they were looking for then was basically some kind of business plan that would show what's going to happen next year.

YEOMAN: Well, yeah. And they wanted a business plan that made some sense. They had big problems with business plans that had $300 million losses or $200 million losses or $400 million losses and if you came forward with that kind of a plan, then they were going to be upset and concerned about it. And had I been representing one of those banks, I would have been upset and concerned about it.

BARRETT: Explaining this to a complete layman how this might work, when the newspapers were talking about the banks, the debt holders, and they were waiting 01:01:00for Eastern to produce a reasonable business plan, would the banks have single representatives or would they have a spokesman for all the banks? How would that work?

YEOMAN: No, each of the banks, each of the banks has an account officer who is looking after the Eastern account, in this case. We have 28 domestic banks in our domestic credit line and 3 European consortiums -- 1 in England, 1 in France and 1 in Germany. We also have lenders from the insurance companies, so when we have a lenders' meeting at Eastern, we have quite a gathering. But we typically have 1 person from each of the banks, though with a bank with a big 01:02:00participation in our credit line — like Chase or City Bank. You would normally have a couple of people from those institutions.

BARRETT: And when you had such a meeting, are they generally together in the way they would analyze a business plan and go up or down on it?

YEOMAN: Oh yeah. There was very little dissention in the bank group about whether something made sense or did not make sense. And they're not looking for things that are so specific that you would have big arguments. They are not looking to try to run the company and so you wouldn't have Chase behind one allocation of your resources and City behind another allocation. They were interested in whether or not you were going to make money. And if you flip a slide up there that says we're going to make $100 million and they believe that, 01:03:00if you can support that sort of a number and that number makes sense, then they are all happy. You flip up a number that says minus $200 and you're going to have a problem with all of them.

BARRETT: Yes, that makes sense. As you came down to the very serious crunch in February of this year, I imagine the banks had great concern about the choices that were faced. Someone had said to me that the choices that the company had really set up for itself were to fix it, sell it, or to declare bankruptcy.

YEOMAN: Those were the three alternatives that were discussed. I don't think that we established those alternatives. I think the marketplace established 01:04:00those alternatives. Clearly, we wanted above everything else to fix Eastern Airlines and to let Eastern Airlines continue to operate the way it had operated for all these years. And Eastern Airlines is a big company and had a good chance to survive in its present form. And that was the first choice by everybody. Chapter 11 is the last resort. When all else fails, you seek the protection of the courts. And nobody wants that except as a last alternative. Now, if you can't fix it and you want to avoid stepping over the canyon wall, then joining 01:05:00someone else is the obvious in-between. There was, in this case, another company that was interested in Eastern and once you had gone by alternative A and you couldn't fix it, and you are looking at B and C, then that's not such a difficult choice.

BARRETT: And down at the end there, in meeting with the 3 major unions, there was a real effort to fix it?

YEOMAN: Sure, absolutely. I think that it was the feeling around here that we would fix it. It would be during the last 5 minutes of the last hour. But Bill was down here night and day. I think he thought we were going to fix it; Frank thought we were going to fix it; I thought we were going to fix it. We all understood the risks but you just have to believe that in the final analysis 01:06:00people are going to be rational and they are going to do what has to be done. And, unfortunately that didn't happen. It almost happened, but not quite.

BARRETT: In effect, somebody used the expression "but coming to the party," that two of the major unions did, in fact, agree down toward the end.

YEOMAN: Well, we had an agreement with ALPA. The TWU was very close but, as you will recall, we negotiated for another couple of weeks before we got every last detail on that contract sorted out. And the IAM didn't do it. There was an offer of a 15% percent reduction with some things that were totally unacceptable, like 01:07:00Frank goes. But I don't know whether that one was all that serious or not. You know, would that have been ratified by the membership, I don't know. The whole process with the IAM was totally different than with the ALPA and the TWU. There had been serious negotiations and serious discussions with the ALPA and with the TWU. Before that last night, the IAM had pretty much said after you get things sorted out with the others, come and see us, and time simply ran out.

BARRETT: On the part of management, going into that down to the wire with a hope and expectation that you were going to be able to fix it, you were going to get an arrangement with all 3 of the major unions, there must have been a lot of 01:08:00disappointment about that. I mean, now looking back on it, it may not look so bad, you know, having been sold. I imagine there must have been a tremendous amount of disappointment that you had to accept alternative number 2, not number 3 certainly, but you didn't get number 1, which was what —

YEOMAN: Sure, that's right, that's right. People had invested a lot in the process that we'd just been talking about. I think it is tragic that this experiment did not work. And I think it is going to cost the American labor movement something for not having been able to pull this one off. I think labor had a big stake in this experiment working. Because what it would have told the world was that organized companies can adapt to change; they can get rid of all those old adversarial ways; they can cooperate; they can make a judgment about 01:09:00changes in the marketplace and do whatever is necessary. And believe me, this company tried, but we didn't pull it off. I'm going to continue to believe we got pretty close, but we didn't pull it off. And that's a tragedy.

BARRETT: There were some things put in place, though, that still look like –

YEOMAN: Oh, I agree. Look, we made some great strides here and much of what we've done will continue and it will be helpful. Now once you start the whole process of cooperating more than you used to, of having people participate more 01:10:00than they used to, that's all to the good, and it will continue to help Eastern Airlines. We just didn't quite get there. And what's really unfortunate is that we now are flying another flag or we will be shortly. And maybe some things will change there that might not have been introduced had Eastern been able to go its own way and continue the experiment in its other form.

BARRETT: That remains to be seen.

YEOMAN: That remains to be seen. We may have something here that we'll hang on to in almost all of its parts. We may not lose much of what I think we've 01:11:00learned. On the other hand, you put some of that at risk when you get into another organization.

BARRETT: Yea. You're just less in control as an entity —

YEOMAN: Sure, that's right.

BARRETT: -- over what comes out of it. This shows my lack of knowledge about finance but there were newspaper stories, as you came down to the deadline there in February of this year, that suggested that certain of the — that, in effect, representatives of some of the banks were standing at the airport saying, tomorrow morning we'll repossess that one and some other bank would repossess another. Was it really that close and is that the way it would actually have worked?

YEOMAN: As we had more and more problems in resolving our labor difficulties, some of the banks became more and more convinced that we might not get this done. And they do a lot of business with other airlines; they know the industry well; they understand all the pressures that are coming out of deregulation. And they recognized that Eastern would have to solve its problems or be in very serious difficulty. And what they didn't want to happen was for Eastern to go along, operate without solving its problems, use up all its cash, and put their loans at greater risk. So they were pretty close to blowing the whistle on what was going on in Miami. They became less and less tolerant of our continuing to 01:13:00conduct a civil war down here. They wanted us to straighten out our problems and get on with it. And if we could not straighten out our problems, then they knew absolutely that we were not a survivor and they didn't want us wasting a lot of their resources. So yes, they would have stepped in.

BARRETT: I'm trying to visualize what must have been some high drama that final day or two here in February. You had the representatives of the banks here; you had the Board of Directors assembled. Certainly all the senior officials of the company here, the 2, 3 major unions with their advisors, and the clock sort of 01:14:00ticking. There must have been —

YEOMAN: Yea. Sure, there was some drama associated with this but I think the most dramatic situations are situations where people are at a loss to know what will happen. If the outcomes are predictable, you may not like what is being played out, but it's not all that dramatic. And by the time we got to the evening of February 24th, it was certainly clear to me that we were either going to get the concessions that we had talked about so that we could fix the expense base of this company and operate Eastern Airlines, or we were going to sell the company. Or, if we could not find someone who wanted to buy it, we were going to have to file. And there wasn't any way in the world that you were going to 01:15:00change that reality. That was fact. And I didn't like what was going on and I certainly was disappointed when we didn't get the adjustments within Eastern that we had to have. But it was not one of those situations where you sit down and say what in the world is going to happen here. I don't understand very much about all this and what sort of surprise is going to come popping out of the wall. That was not the situation at all. You were either going to do it and if you do, then this will happen and we understand that. Or you're not going to do it and something else is going to happen and we understand that, too.

BARRETT: OK. One thing that happened a little bit earlier, I was wondering about the impact that it had on Eastern and that was the PATCO strike.

YEOMAN: Well, the PATCO strike impacted Eastern along with everybody else in the industry because it meant that you had to put a lot of your capacity on the ground or you had to fly a lot of airplanes around up in the air unnecessarily, burning up fuel and increasing your costs. And that was another complication. But it didn't impact Eastern in a very much more important way than it impacted others. Sure, we got the brunt of it in some ways because we are a very important operator out of New York City and the whole New York area had a terrible time with the PATCO strike just because there's so much traffic there. 01:17:00But that was not a problem unique to Eastern Airlines. That just sort of made the whole industry's life more complex for a while.

BARRETT: When you talked about the new startups that impacted on Eastern, you didn't mention Air Florida. Did it have much affect?

YEOMAN: Oh, Air Florida did and Air Florida was another one of those airlines with a very different cost structure than the one that we had. But it was People Express and Air Florida and New York Air and later on Continental, but that was the big problem. Now, another airline that has given Eastern a big problem is Piedmont. They are a different kind of deregulation carrier. In the good old days, Piedmont went out into the countryside, collected passengers, brought them into Charlotte principally, and then Eastern took them from Charlotte to New York, Charlotte to Miami or wherever. Deregulation came along and Piedmont was 01:18:00able to fly anywhere they wanted. So they brought the people in from the countryside and took them over to the Piedmont terminal and flew them off to LaGuardia and to Miami. And in 1981, Piedmont was hauling about 4 million passengers a year. In 1986, they'll haul 20 million passengers and almost all of those right out of Eastern's marketplace. So you can see the tremendous change that's taken place in Piedmont. They are a different breed because their costs are not as low as People Express or Continental, but they're substantially below Eastern's. But they really have been a problem for us.

BARRETT: Because they have the feed-in?

YEOMAN: They have the feed-in. They control that feed from the little places in the Piedmont and they used to turn all those passengers over to Eastern, and they don't do that anymore.

BARRETT: That is a big difference.

YEOMAN: Oh, big. Absolutely.

BARRETT: Isn't the President there a former --

YEOMAN: Bill Howard was here at Eastern, ran personnel at Eastern. He was a lawyer by trade. A very bright, competent person. There are now a lot of ex-Eastern people at Piedmont.

BARRETT: Oh, is that right?

YEOMAN: And they're running a good airline.

BARRETT: That is one thing that is unique about the airlines. There is a good bit at a certain level of management of movement back and forth from one airline to another.

YEOMAN: In the good old days, when we were regulated, this was the most incestuous industry that you can imagine because everybody was friendly with everybody else, and people went from American to United to Eastern. That's not 01:20:00as typical now because we are much more competitive and we get after each other in ways that we were not getting after each other ten years ago.

BARRETT: Was there any concern when the books were basically opened up to these firms that were making information available to the unions back in the fall of '83, that that would adversely affect your competition? That was, the revelation of those internal numbers, would they, do they seem —

YEOMAN: There was some risk that some proprietary information might become available, but it didn't materialize. That was not a problem. The data that needed to be protected, was protected. I came out of this whole thing with a lot of admiration for Mike Locker and Steve Abrecht. Here was a little firm that had 01:21:00done all of its work with the unions and they could have been difficult in terms of misrepresenting numbers or doing a bad job of analyzing numbers, but that just never happened. And those 2 guys, in my opinion, did an excellent job under some pressure. And watching them work was one of the nice little perks of this whole thing. Two guys with a lot of integrity.

BARRETT: That's nice to see, isn't it?

YEOMAN: It sure was. I was very pleased with that.

BARRETT: Can you talk a little bit about what Bill Usery did here? And I'm 01:22:00curious about it because he had told me I should think about coming down here way last fall. And then periodically, when I would see him, he'd say, no, no, not yet. And most of the time he said that to me was by phone because he was down here week after week, month after month.

YEOMAN: Sure. Well, what happened here could never have happened without Bill or somebody exactly like him because we just had to have somebody who could start the process. When he got down here in the fall of '83, we just had to have someone to grab all of the parties, bring them together and get this thing started. And then after that, we had to have someone who could constantly go out there and grab people who were running away from us. And he did that. And he is 01:23:00as good at it as anybody in the world. He must surely be. I've not observed all of the practitioners of that art but I can tell you he was superb at keeping the conversation going, keeping the parties together, being sure that we didn't get so mad at each other that we just stopped talking and working. He came up with proposals for compensation packages and other things that were absolutely essential. He is a real mediator and more than that, he just gave us all his time and all of his energy. He was indispensable to this process. And if anyone starts one of the experiments that we went through here, they'd better have a 01:24:00Bill Usery or it will have little chance of succeeding.

BARRETT: I take it that having worked with Bill on a few occasions, it isn't necessary for him to completely understand the details of things. And I imagine that some of the stuff that was going on here is beyond anybody's understanding.

YEOMAN: Yeah, but he understands the process of cooperative effort. And he understands how to get people who don't agree at all to sit down and talk until they can finally find some basis for agreement and some basis for cooperative 01:25:00effort. And that was his big contribution, and let me tell you, there are some real adversaries in this process at Eastern. And I'm sure there are some real adversaries in any old unionized company where for years and years the process has really worked on the basis of adversaries sitting down and negotiating their way through very difficult positions. The thing that was different here is we had a competitive situation that was just changing day by day by day. And we went from being Florida Power and Light to being a Mom and Pop grocery store, you know, in a matter of 4 or 5 years. And that exerted tremendous pressure on all of the employees at Eastern Airlines.

BARRETT: Over the years that you've been here -- this is my last question -- have you noticed a good bit of change in the style of Frank Borman, in terms of the way he's managed?

YEOMAN: I've got a problem with the conventional wisdom about Frank because I've known him for a long time and I admire the guy more than I admire anybody in this company. And so I never did have a problem with Frank the way some people had problems. You know, you hear people say, well he wants to dominate everything and he wants to run Eastern Airlines totally and completely. And that's just not the guy I've been working with. I could not have asked for a 01:27:00more cooperative and helpful chief executive than he has been. Now, he is very, very smart and he understands finances. And we have a very complex financial structure at Eastern Airlines and he understands this field as well as any chief executive I have ever been around. But he has not tried to dominate the decision-making process at all. He is just always there to help in any way that he can. And Frank Borman has brought things to Eastern Airlines that nobody else could have brought to us. He has brought a presence that has brought Eastern a lot of business. People know this guy all over the world and that's been worth a 01:28:00lot to us. I don't think Eastern Airlines would have survived the seventies without Frank Borman, let alone surviving 'til 1986. We just simply would not have done it. This was, when he took the company in late '75, a real basket case. We were a basket case financially. We had an old beat-up fleet of airplanes, and by energy and dedication and probably being a little bull-headed, he just willed this company to survive. Now, he is a strong guy. He is an energetic guy and maybe if you're trying to introduce participatory management, 01:29:00there are times when you ought to sit back a little and just let things bubble. And he has a problem sitting and watching things bubble. That doesn't bother me, but it might bother some people. But I am absolutely certain that he gave this company at least 10 years of life that it would not have had otherwise.

BARRETT: Someone suggested to me that it might be the aura that sort of comes around who he is that places greater expectations on him. So that if I were CEO, 01:30:00no one would expect me to walk on water whereas he's expected to do that without getting his feet wet. Do you think there's any truth to that, that higher expectations are really placed on him and so some of the analysis you hear now in the popular media is saying well, he struck out?

YEOMAN: Well, I think you can always say that somebody like Frank Borman ought to be able to do absolutely anything. You know, General Lee should have been able to win the Civil War for the South because he was such an extraordinary person. But that's not terribly realistic. I think what Frank Borman faced at Eastern Airlines was taking a company that was in very bad financial condition; that had to incur debt to buy airplanes; that was back on its feet in the late 01:31:00seventies and then got hit right in the mouth with a lot of deregulation; was unfortunate enough to have labor leaders that either would not understand the realities or we somehow failed in convincing them of the new realities. I think we moved heaven and earth to do that but we never did convince Charlie that the world was different. We didn't convince the ALPA leadership, not at least the ones that are in there now, that the world is dramatically different. The TWU was in many respects the most cooperative of the groups, but they were also the 01:32:00smallest variable in this whole thing because their compensation package is smaller than the other groups. But we never were able to bring the new realities to these 2 labor groups, in particular ALPA and the IAM. And that made Frank's job impossible because there is no way in the world that you are going to run an airline with seat-mile costs of 8.7 or 8.8 cent and compete with somebody producing essentially the same product for the 6 cent seat-mile cost. I don't care if you're Frank Borman, St. Peter, Jesus Christ or whoever. You're just not going to do that. And so Frank became a convenient target to blame for problems 01:33:00that really were inherent in deregulation. And if you're employed at Eastern Airlines and you say Frank ought to be to do —

[Break]

BARRETT: Okay, we're back on.

YEOMAN: But if you want to argue that Frank ought to be able to take 8.8 cent seat mile and compete with the people who are producing them for 6, you can do that. I think that's unrealistic and expecting more than any human can deliver. But I think he got some of that. But he was a victim of the times. And you can look at people in other trunk airlines and the problem is a very general one. It's just impossible to operate in this environment without adjusting your 01:34:00expense base. It's not going to be done and have a successful company. And we still have a big challenge ahead of us in that respect because deregulation just goes grinding on and the marketplace is still out there and its demands are not diminishing.

BARRETT: It's an interesting story, isn't it?

YEOMAN: Oh, it is a really interesting story. And it took somebody with Frank's strength and energy to allow us to play the game for as long as we did. Otherwise we would have been blown away. We wouldn't have been a problem of the eighties because we wouldn't have existed, I'm serious. The Eastern Airlines 01:35:00that exists now is more efficient by — I started to say orders of magnitude, it's not that much, but we're running now an airline that is twice as big as it was 10 years ago with 20% percent more people. So this is a much better company by any measure than it was 10 years ago. But the demands from the outside are that it be even better than it is. And we'll have to make it better or it will be in trouble again.

BARRETT: You said that it's twice as big as it was 10 years ago and you have 20% percent —

YEOMAN: More people.

BARRETT: Only 20% percent more people?

YEOMAN: Yea. To run twice as big an airline.

BARRETT: That's pretty startling.

YEOMAN: Sure it is, oh yeah. This industry has really changed and all the companies in it have changed.

BARRETT: And basically it's changing daily in the sense of rates.

YEOMAN: Oh, we're really getting underway with this thing now. The last 12 months have been among the wildest 12 months that we've experienced. So this little saga has several more cycles to run.

BARRETT: Yea, it would seem so, it would certainly seem so. Well, this has been really enjoyable. I appreciate your taking so much of your time to chat with me.

YEOMAN: Happy to do it. It's been a very interesting 14 years at Eastern Airlines and the last 3 or 4 have been the most interesting of all.

BARRETT: I sometimes ask that question at the end, whether you have any regrets. But I asked you at the beginning —

YEOMAN: Oh, absolutely not. I am sorry that we were not able to successfully conclude an experiment that was very important to this company; to the whole 01:37:00labor movement; to the whole managerial structure in the U.S. We came close and just missed.

BARRETT: Um hmm. OK. Thank you very much.

YEOMAN: Alright, bye.