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Posted by David Reed on 12/05/2020

Trans Texas Airways

In 1944 a group of men in Houston started an air charter business called Aviation Enterprises. This charter company got CAB approval for scheduled intrastate airline service in 1947 and named themselves Trans Texas Airways. They started with a few DC-3's purchased from American Airlines. Before long they were making a profit, got approval to serve adjoining states and more DC-3's were bought. Throughout the 1950's TTA was a regional airline with a record of growth and profit. In 1961 they bought some Convair 240's from American, the first major aircraft improvement for them. Soon after, they began converting the Convair's to Convair 600's with Rolls Royce turboprops. Business was good, and in 1967 they decided to take the plunge and go all in for DC-9 jets, purchasing nine new airplanes. They also changed their name to Texas International Airlines. Within a few years, Texas International was an all-jet airline.

Texas International learned a lesson that others had also learned in the new jet age. New aircraft were expense to own and operate. Banks don't care if there is a recession or if business is slow. Every month those bank notes are due, without exception. Debts mounted and TIA was facing liquidation. The DC-9's were a blessing and a curse for TIA.

Meanwhile, a businessman by the name of Frank Lorenzo had just started Jet Capital Corporation, providing management services to airlines. Chase Manhattan Bank, who owned the loans for TIA's airplanes, wanted Jet Capital to help Texas International avoid bankruptcy. Jet Capital came up with a solution, investors were found and bankruptcy was avoided. In two years, under Jet Capital's guidance, TIA went from the brink of financial collapse to profitability. Jet Capital Corporation bought 26% of the shares of TIA and 59% of the voting for only $1.15M, and in 1972 took control of Texas International Airlines.  Lorenzo took TIA into the low cost market, bringing low fares, new marketing ideas and streamlining operations in order to compete with the majors. It worked. Their annual net income, after expenses, was up to $13 million.

Lorenzo used profitable Texas International to attempt a takeover of financially struggling National Airlines. It was a big move, for National was easily ten times larger than TIA. However, National resisted and in the end, the CAB approved PanAm's takeover of National. Frank Lorenzo learned a valuable lesson: when one airline tries to buy another airline, it requires CAB approval, and that takes political clout, which PanAm had in spades and he did not. However, Jet Capital sold their National stock to PanAm for a profit of $100 million. With the new money, Lorenzo went after struggling TWA, but Carl Icahn's New York holding company won out. Another lesson had been learned. When a non-airline business tries to buy an airline, no CAB approval is required. Frank Lorenzo created Texas Air Corporation, with TIA as a wholly owned subsidiary. Texas Air Corp was owned by Jet Capital Corp.

His next step was to start New York Air. NYA would provide low cost service in the Northeast, much as TIA had in Texas. NY Air though was non-union, and the pilots at TIA opposed it strongly. In the end though, there was nothing TIA pilots could do about it. Truth was, Lorenzo was not trying to break the union at TIA. He was trying to prove the validity of his low cost airline model, and he did.

NY Air and TIA showed airline industry shareholders that Frank Lorenzo could run an airline profitably. Using funds generated by TIA and NYA, Texas Air Corp and Jet Capital  went after another struggling major, Continental Airlines. Continental had been struggling since deregulation, and investors were unhappy with the current management. Lorenzo wanted to buy 49% of Continental shares from current shareholders. Employees and their unions attempted to block this move by making Continental employee-owned, but financing fell through. Lorenzo's company was able to buy 49% of the company stock.

Unions opposed Lorenzo, but Lorenzo told them that he felt all employees had a right to union representation if they so desired. Continental's Chairman, Alvin Feldman strongly opposed Texas Air Corp's takeover attempt, and when the employee ownership deal fell through he committed suicide.

The takeover became official in 1981 but the problems were not over. Continental's financial state was worse than expected and a national recession didn't help. Lorenzo went to the unions for concessions but they weren't having it. Instead, strikes ensued and in 1983 Continental was forced to file chapter 11 bankruptcy. As a result, all union contracts were voided. This riled the employees even more, but Lorenzo negotiated new contracts, albeit at lower rates. Management pay was also reduced to match the pilots as a sign of solidarity. This worked, and Continental came out of bankruptcy on schedule. Lorenzo was now Chairman of a major airline. In 1984 Continental's new low-cost structure made them profitable, surpassing seat miles flown prior to banckruptcy with 25% fewer employees. Employees were given profit sharing and equity incentives.  

Trans Texas Airways wanted to be a simple, regional airline making a reasonable profit. They were just that, until the jet age put them in financial straits and they became unwilling participants in a financial war of mergers and takeovers. But their model of local, low cost service became a model for other airlines, like a new upstart called Southwest Airlines. Long live Trans Texas Airways.


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