THE INTERVIEW: REMEMBERING MARTY SHUGRUE!

May 5, 1994 Eastern Airlines, Building 16 Executive Suite, Miami, Florida

Last Friday marked the 12th Anniversary of one of the most exciting days in my life. I managed to land my first big international magazine interview with a man who was for me and countless others "bigger than life": the late Martin R. Shugrue, Jr. Anyone worldwide who is involved in some manner within the commercial aviation industry will remember this charismatic born leader who had an indefatigable optimism, sense of humor and a supremely confident manner that led him to great career heights as a beloved and highly respected airline executive. Marty was Vice Chairman of the original Pan American World Airways, President of Continental Airlines, Trustee of Eastern Airlines and a Co-Founder, President and CEO of the second incarnation of Pan Am.

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East Coast residents in the United States will easily recall the series of dynamic television commercials featuring Marty rallying Eastern Airlines employees to fight on in a Miami International Airport hangar, with pilots on the tarmac, with passengers invited to breakfast who had avoided Eastern and aboard flights where he sought input from passengers. Marty actually made history by becoming the first Bankruptcy Court-appointed Trustee to run an airline. When The Federal Bankruptcy Court in the Southern District of New York ruled Frank Lorenzo "unfit to reorganize Eastern's estate" of what remained of the carrier, Marty was appointed to try and save the carrier.

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The son of a Rhode Island police officer, Marty was born in Providence, Rhode Island. He earned a B.A. Degree from Providence College in Economics before joining the Navy. After 6 years of flying McDonnell Douglas A-4 jet bombers on and off carriers, Marty retired as a Captain with the United States Naval Marines. In 1968, like so many, he applied to the prestigious Pan American World Airways and became a flight engineer and pilot of the majestic Boeing 707 jetliner. A furlough in 1970 led him to hang up his uniform for good and join Pan Am's highly regarded Management Training Program. At a clip of two years, Marty ascended the bloated infrastructure of "The World's Most Experienced Airline" to eventually become second in command as Vice Chairman. A retired Captain in the United States Naval Marines, 1968-1989, he coordinated the Air-Sea Recovery of NASA's Gemini 6b and Gemini 7 mission, and later the Apollo 8 splash down. Ironically, both missions carried Commander Lt. Colonel Frank Borman—the future CEO of Eastern Airlines! In 1988, Marty became President of Continental Airlines. He was later recruited to become a strategic consultant to Al Checci and Gary Wilson in their successful acquisition of Northwest Airlines. In 1989, he was appointed as Trustee of Eastern Airlines, from 1990-1995. After reorganizing Eastern's estate, he went on to become Co-Founder, President and CEO of a resuscitated Pan Am from 1996-1998. He later joined Aviation Management of Miami, Florida and was featured for several years as an Inductee in Marquis' " Who's Who in America?"

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Considered a marketing genius, his natural charismatic personality was matched only by his generosity. He donated millions of dollars in free air travel while at Pan Am to Special Olympics in memory of his late sister. He was for this author a Hero and a Role Model next to that of my late Father, Nicholas. Marty died suddenly in March, 1999.

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The following interview was an idea that I dreamed up after 4 years of corresponding with Marty. When I wrote to a magazine suggesting they were missing a silent drama that was unfolding "behind the scenes" of Eastern's liquidation and subsequent effort to become airborne again, the magazine turned the tables on me and asked if I wanted to take a shot at it! To my astonishment, Marty accepted my offer and I flew to Miami, Florida after months of research. The experience became one of the most exciting days of my life! Our three hour meeting in Miami, Florida where Eastern was headquartered forged a proud friendship with a man who made friends easily and had a heart of Gold. I hope you'll enjoy it. Here is how it unfolded.

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MANNING: In every article I've amassed on you over the years, you're given high marks from management and labor groups alike as an airline executive held in high esteem. A man who is genuinely concerned about people and the airlines that he's worked with. A man with and honorable reputation of being firm and compassionate. And able to execute tough decisions. Jack Robinson in his book, "Freefall: The Unnecessary Destruction of Eastern Airlines and the Valiant Effort to Save It", says that you're extremely intuitive at reading other people and that you invest tremendous amounts of trust in those people whose strengths lie in areas which are not necessarily your long suit.

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SHUGRUE: Yep. That's a very good observation on Jack's part. I often say to people when we’re meeting on a subject, ‘Please speak up and give me your opinion, because my ego is so large that I can't be insulted (mutual laughter). 'So, if you think I'm wrong, please tell me. And then go on and please tell me why'. Just as a way of encouraging people to be active participants, in whatever debate we happen to have underway. I am, as viewed by myself a very good operating executive. I'm a pilot. I came out of the flight crew ranks, so I understand that process, and you can't fool me. And I'm an innate good marketer. Jack's right. I'm quite intuitive. I don't enjoy going through tedious minutiae. I'm not a financial engineer, although I understand a balance sheet as well as any one does.

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MANNING: Sure, sure.

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SHUGRUE: ...And the rest of that sort of thing. So, what I tend to do is to bring in very strong people to compliment me in areas where I need the support and the help. And I'm not at all fearful of hiring very strong, very talented people to work in any organization I've ever run, because I think they add value to the organization and will make my job much easier. And I joke a lot and say 'I'm the world's laziest executive. That's why I delegate so much!' (Laughter) But in our business, we all work very hard. But I try to pick the best possible people I can lay my hands on, irrespective of size, race, creed, color, nationality, gender. I don't care. And put them to work on what they're responsible for, hold them accountable for the result. And get out of their way. I've often said the job of really good management is to give the people the tools they need to get their work done, and then get the hell out of their way. Let them do it. And that works.

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MANNING: I understand that Continental Airlines is eventually going to become an all-Boeing airline. I have a friend who is a pilot with Continental who tells me that once the various leases expire on the non-Boeing aircraft types, they'll eventually become an all-Boeing equipment operator. Do you favor that type of arrangement yourself? Are you a Boeing man, or a McDonnell Douglas guy or what?

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SHUGRUE: Well, I'm all of the above. What Continental is properly trying to do. Continental today is an amalgamation of a number of airline companies. People Express, old Continental, new Continental, New York Air, Frontier, and in the commuter division PBA (Provincetown Boston Airways), Bar Harbor and Rocky Mountain Airways. And as a result of that, they have too many different kind of airplanes. So what Bob Ferguson (now an ex-CEO of Continental) is doing is moving deliberately towards simplifying their fleet as fast as he possibly can. I'm not at all sure, in fact, I am sure that you won’t see Continental as an all Boeing airline. Clearly, their new equipment purchase announcement with Boeing is a very important contract to Boeing. And the right airplanes Continental needs for the routes that it wants to operate them on. But I see Continental as continuing to be a significant MD-80/MD-82 operator for a very, very long time. Because that's an airplane that suits their route system very well. So, as you evaluate fleets---and I'm a big fan of Boeing, but I'm a big fan of McDonnell Douglas and I've done Airbus deals. So, I've dealt personally with all of those companies and have made decisions to acquire their air fleets. And what you need to do, is you need to make sure that the aircraft you select suits the mission you're going to fly it on. And try to get into your crystal ball a little bit and see what missions you're going to be operating five, seven years down the stream to make sure the equipment decision you make today is going to be valid tomorrow. And that's one area where airline managements have been criticized in the past. For buying airplanes to fly yesterday's routes. Much like generals are often accused of being fully prepared to fight the last war, but not necessarily the next one. So, I think you have to pay careful attention to that and don't narrow your focus to simply one company or one plane type unnecessarily. Clearly Southwest, for example, has been enormously successful in part, because they fly one kind of airplane. They fly an all 737 fleet.

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MANNING: Yes.

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SHUGRUE: And Herb Kelleher (now Chairman of Southwest) has said they will never fly anything but an all 737 fleet (Southwest has recently placed an order with Embraer, the Brazilian manufacturer of regional jets). And that clearly works for them. Because the 737 is really suited to their route system. But if a Continental wanted to say, 'We're going to have an all 757 fleet, there are many routes in Continental's route system where MD-80's are better airplanes. And, of course, because they're an international carrier, they need long-range wide-bodies as well. So, you've gotta have a mix to suite your route system.

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MANNING: You were a Flight Engineer and Pilot on the Boeing 707.

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SHUGRUE: Right.

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MANNING: And I couldn't help but notice years ago, when I first read about you that you joined Pan Am in 1968, coincidentally the year that Harold Gray and Najeeb Halaby (father of Jordan's former Queen Noor) took over from Juan Trippe (Pan Am'ss visionary founder). Did you know Juan Trippe?

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SHUGRUE: I met Juan Trippe a number of times. I can't say that I knew him. He was a grand visionary in our business and a wonderful fellow. And I had he great pleasure of spending a little time with him before he finally retired. You know, when he retired, he didn’t really retire.

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MANNING: So I hear, yeah.

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SHUGRUE: And stayed on the board as quite an active director. And we would see him in the halls of our executive suites on a regular basis.

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MANNING: Interesting guy.

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SHUGRUE: Yes. Very much so.

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MANNING: Ultimately, I've got to ask you a Mike Wallace type of question.

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SHUGRUE: Sure. Go right ahead.

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MANNING: You've been hit with this before and it concerns Frank Lorenzo.

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SHUGRUE: Mmm-hmm.

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MANNING: He's not one to compromise. He is uh, I guess you could best say a more single-minded empire builder couldn't be found anywhere. He's vilified by a number of groups.

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SHUGRUE: Right.

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MANNING: ALPA (Airline Pilots Association), the IAM (International Association of Machinists and Aerospace Workers), the TWU (Transport Workers Union), one-hundred and twenty members of Congress. He's encountering a great deal of difficulty right now in ramping up ATX (Air Texas. And just from what I've read about both of you in the press, I can't think of two business executives more different. One who seems to be totally insensitive to the human element. The other: quite the opposite. Just remarkably well-liked by labor and fellow executive staff as well. What is your current relationship with Frank Lorenzo?

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SHUGRUE: Well, I've always enjoyed a very cordial relationship with Frank. And I was a great respecter of what Frank was truly trying to achieve as the era of deregulation unfolded. Everyone had to come to grips with what deregulation really meant. And Continental Airlines at that time was a regional carrier like Western, like National and others.

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MANNING: Yes.

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SHUGRUE:Llike Piedmont, like PSA (Pacific Southwest Airlines (both merged into U.S. Airways), like Air Cal (merged into American Airlines) and you notice from that list of names I just read off that none of them exist anymore.

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MANNING: Exactly.

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SHUGRUE: They were all amalgamated into larger carriers in one form or other. So, what Lorenzo set out to do with Continental was rather than to be acquired, Continental became an acquirer. And in order to do that, Continental needed to get its cost structure under control. And that's where Frank ran afoul, initially of organized labor. And one can question, and I think even Frank himself would. The tactics employed to get organized labor back to the table back in 1983 when Continental went into bankruptcy the first time. Frankly, that set the stage for Franks later relationships with organized labor when he made an effort to acquire TWA (Trans World Airlines 1925-2001-acquired by American Airlines), which was stymied by labor, which led to the acquisition of Eastern Airlines, which was enabled by labor. Had it not been for the IAM-Frank Borman (CEO of Eastern 1975-1986) fight in the Eastern Airlines boardroom, Texas Air would not have been able to acquire Eastern Airlines. So, it is a long, long story. Yes, we're very different people. Yes, we have very different strengths and yes, we have very different weaknesses. And I think that's the best way I can describe it.

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MANNING: Can you give us a typical day in the life of the Trustee for Eastern Airlines? Your role has been, up to this point one of a Liquidating Trustee.

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SHUGRUE: Right. Right.

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MANNING: And now you're building. You're a Trustee who is building an airline again.

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SHUGRUE: Well, we're attempting to build one. But there is no typical day’ in the life of a Trustee anymore than there is a...only because I'm a rather unique Trustee. I was appointed by the bankruptcy court at Eastern to try and save the airline. And that was the objective of the judge and most of the players on the equation. We made a very valiant effort to do that. We had eighteen thousand of the best employees in the entire world working day and night, literally without days off trying to accomplish that. And The Gulf War came along at the wrong time for us. Fuel prices quadrupled overnight and we didnÂ’t have the money to pay for the gas. And in a nutshell, that's why Eastern had to shut down. So, I went from being the Operating Trustee working hard with our folks to save a company overnight to the role of a Liquidating Trustee, which is a job I never wanted to take on and the mission changed. The mission became one of preserving the assets of the estate and liquefying them in an orderly liquidation mode so as to enhance the values to out creditors, who are the economic stakeholders here. And we've been doing that. The current effort, for example, to move back into an attempt-to-build mode is driven by the same impulse in that we have concluded that the best way to liquify the remaining assets of the estate are to put them into a flying airline of some sort, so as to better the return to our creditor constituency. And our creditor constituency agrees with that. So, we have jointly gone to the courthouse and gotten the Judge's approval to retain some financial advisors and see if a new Eastern can be financed. And, we're cautiously optimistic.

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MANNING: It seems promising though!

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SHUGRUE: Well, it's a brilliant idea if I may be immodest! Uh, it is. Yeah.

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MANNING: It is. The equation has changed.

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SHUGRIUE: Absolutely!

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MANNING: And you've adapted to it.

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SHUGRUE: Absolutely.

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MANNING: Rather quickly.

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SHUGRUE: Yeah, to go back to your question. When we had to shut down and begin the liquidation, our strategic objectives have been absolutely consistent. And that is the job of a Bankruptcy Trustee, to act on behalf of the economic stakeholders. The economic stakeholders are the people to whom Eastern Airlines owed money.

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MANNING: Yes.

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SHUGRUE: And I felt strongly, initially, that if we were able to save the airline that was the best way to serve the creditor interests. When that became impossible, the only option available to us was liquidating the airline to serve creditor interests. And we're now at a point where we think putting the old Eastern assets into a new Eastern again is the best way to protect creditor interests and move forward. So, that part of the process is a lot more satisfying than the liquidating part.

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MANNING: You must have some sort of Anniversary Reaction or feelings whenever the 18th of January rolls around (The latter date is the night Eastern was grounded in 1991).

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SHUGRUE: Right.

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MANNING: And it must not be pleasant; it must be painful as hell.

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SHUGRUE: Well, the hardest decision I've ever had to make was the 18th of January decision. Twenty-five years in this business plus my six years of carrier flying for the Navy, I never had to make a decision that would directly impact so many lives in such a dramatic way. And it was a very, very painful decision to make. It wasn't a hard decision to make. And I say that because there was no other decision to make. When you're presented...when a decision maker is presented with no alternatives then decision making becomes easy. Not less painful. But you do what you have to do. And one of the things I hope people will remember me for is the willingness to make the difficult decisions, explain to people why it was made. But yet make it. I'm not one to duck responsibility. And I'm not one to evade responsibility in any way, shape or form. We made the decision based upon the fact that we had before us. It hurt an enormous number of people. I won't insult them by saying, 'I share your pain, like some others are fond of saying these days. But it was my pain; I can assure you of that. It was not a good day.

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MANNING: I want to ask you what the first year was like for you at Eastern. I think it's fair to say our readers will enjoy hearing about this. Because you had such an unusual position. You were, in effect, the de-facto CEO, Chairman...

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SHUGRUE: Board.

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MANNING: Board. The board of directors and the president's position were essentially dissolved upon your appointment.

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SHUGRUE: Well, yeah, yeah. What happened is a Trustee, in effect, there are legal qualifications to all of this, obviously, and I am not a lawyer. But a Trustee, in effect, assumes the responsibilities of the chief executive officer and the board of directors when appointed. Now, you might say, 'My God! That leaves you absolute rule!' And in certain respects, that's true. And those of us who pretend to be corporate executives love that idea! But you substitute a board...a board's oversight of a management with the court's oversight of the management. And you have, in fact, under bankruptcy; you have more oversight over what your decisions are and what you're doing than a normal operating company does. Normally, a chief executive officer reports to the board of directors, who in turn, are answerable to shareholders. And that's a pretty long-distance relationship between the CEO and an individual shareholder for large public companies.

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MANNING: Yes.

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SHUGRUE: Looking at every single thing that either the debtor in possession, or in my case, the Trustee does. And all of that gets played out in The Wall Street Journal every morning. So, on the one hand, you have a lot of authority, you have a lot of power as a Trustee. But on the other hand, every single thing you do is conducted in the public arena. And there’s no such thing as a quiet board meeting where strategies are discussed privately and confidentially and then employed. In bankruptcy, your strategies are discussed in the Federal courthouse in front of a Judge with whatever media wishes to be there and whatever parties wish to be there.

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MANNING: I know that shortly after you grounded the airline, to my understanding from a speech you gave two or here weeks later in New York that you continued to pursue an offshore partner.

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SHUGRUE: Yes.

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MANNING: To get the airline flying again?

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SHUGRUE: Yes.

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MANNING: And I just have to wonder, with what Eastern had to bring to the table in terms of a domestic network that could be tailored to an offshore partner, do you think it's a possibility that with events occurring at the time of the Gulf War and so forth may have blinded some of these potential offshore partners from seeing the viability inherent in such a plan?

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SHUGRUE: It didn't so much blind them. It's just that the environment that we were in at the time made it impossible for potential offshore partners to divert their energy from saving their company to helping us save ours. So, the same pressures that were on that caused Eastern's ultimate demise were being applied to everyone. I called around to my colleagues, fellow airline CEO's in January and February and I mean none of us had ever seen a phenomenon like this before. As that Gulf War scenario played out, Americans and Europeans' and to a certain degree, Asians stopped traveling! It was shocking!

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MANNING: You had said in December that you had never seen in all of your years advance bookings drop...it was so...

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SHUGRUE: It was like somebody had just dropped off a cliff! It was UN-believable! And we weren't the only ones. We were the only ones without any money. But we weren't the only ones seeing that kind of catastrophic traffic fall off. So, in fact, one of our potential partners--a European carrier called me personally. The CEO called me personally just to say, 'Marty, we would love to pursue this. We simply can't right now. We are bleeding from every pore; we have our own problems. We simply can't contemplate the kind of investment you'rere asking us to consider’. So, the idea was a good idea, then. It's 'good idea now. If the new Eastern is successful in getting up and operating, it too will carefully examine foreign partnerships later to see where they might make sense. We know that we need...the new Eastern needs to have a demonstrable track record of some stability and ability to gather traffic etcetera, before you can offer a deal to an offshore partner. But that's not a dead idea.

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MANNING: Two years ago (1992) I asked Frank Borman (ex NASA Astronaut/Commander Gemini 7 and Apollo 8 and ex-CEO at Eastern) what he thought about the possibility of duplicating the blueprint of Southwest Airlines along some of Eastern's old routes along the Eastern seaboard using exclusively, Boeing 737 equipment. And he told me that he had a hard time seeing how that would work, because the amount of capital required for such a plan was astronomical. And yet, as I say, the equation has changed now.

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SHUGRUE: That's right.

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MANNING: I understand that capitalization is far easier than it was, say eighteen months ago.

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SHUGRUE: Well, it clearly is you know. And one might say, 'What's changed?' What's changed is the industry itself has changed. You see everyday that the large integrated carriers whose cost structures have gotten to a point where they can no longer support marginal flying opportunities are withdrawing from markets. Delta announcing very recently that they're going to reduce their workforce by twenty percent--15,000 jobs. Theyre going to have to stop serving some places n order to do that. You see U.S. Air (now U.S. Airways) retrenching—not growing. So, you see market opportunities beginning to open up east of the Mississippi River that weren't there two years ago that are there today, either underserved or overpriced. Or both. And we have identified a significant number of those markets that could take some added competition. And if a low cost carrier could be put together ---which is what the new Eastern contemplates, we could go in with a very aggressive pricing structure and stimulate traffic much like Southwest did. Southwest's early success in Texas, for example, was getting people out of cars, off buses and onto airplanes. And that's where their early success came. I think that opportunity still exists in the East. No one's really done it effectively. Never mind big city pairs: Atlanta to Philadelphia, for example where the scheduled service is all provided by U.S. Air and Delta. Two very high cost carriers. There's no low fare operator in the market. There's no low fare option for consumers. And I think if we come in with a good product, we can not only attract business flyers to the front cabin at an economy are or full economy fare, but I think we can acquire a significant number of new flyers to the economy cabin with a simple unrestricted fare structure.

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MANNING: What assets are you going to be using?

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SHUGRUE: Well, this project uses DC-9's and 757's. Why those aircraft? The 757's we're going to deploy are presently owned by the estate of Eastern. And we're seeking to fly them as part of this deal. The DC-9 assets are all owned by Etern bondholders. These were airplanes that were dedicated as collateral to a debt issue that Eastern issued some years ago. Those are the planes parked out in the desert. And they're readily available at very attractive prices.

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MANNING: And good aircraft.

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SHUGRUE: And good airplanes.

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MANNING: Good, solid straightforward...has to be one of my favorite planes (the DC-9's). What is your favorite plane?

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SHUGRUE: Um, well, my favorite, favorite plane is the (Boeing) 707, cause I flew it. (Laughter).

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MANNING: Dumb question. (Laughter).

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SHUGRUE: But, I'll tell you…and then later for a domestic application from a cost of operation and customer convenience perspective, it's hard to beat the 757 today.

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MANNING: Yeah.

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SHUGRUE: And I describe the 757 to people as: 'It really is a 707 with two new engines. It has the same fuselage dimension as the old 707 did.

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MANNING: I have to bring up "The Corporate Rate" (featured on TV commercials). Because as a marketer myself, I have never seen a complete makeover of a company the likes of which we saw with Eastern with "The Corporate Rate". And I know that you were beating the daylights out of Delta at Atlanta Hartsfield (International Airport).

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SHUGRUE: Yep.

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MANNING: And assuming that Easter had been able to survive and "The Corporate Rate" program would have remained intact, would Delta have gone to the enormous expense of retrofitting a majority of their fleet, or at least, or at where they competed with Eastern directly (An interesting present day point: Delta is shutting down it's "SONG" unit within two weeks of this BLOG)?

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SHUGRUE: I don't think so. I mean, in order...Delta's fleet flies all over its route system. It's very hard to carve out a dedicated fleet of aircraft to put on specific groups and city pairs. That's not impossible. It's a very difficult thing to do and Delta would have had to do that. Eventually, I think what Delta might have done, had we been able to keep that in effect, and we may see, if new Eastern is successful, what Delta's reaction is going to be. Because the new Eastern is going to steal that concept from the old Eastern.

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MANNING: Okay.

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SHUGRUE: And make it part of its product offer. Delta may be able to internally reconfigure the airplanes that would be competing with the new Eastern, but I really doubt it. It's very hard to do, it is enormously expensive. And I think Delta has other...and let's take them as a competitor. And U.S. Air, who would be another competitor of the new Eastern, and in fact were major competitors of the old Eastern. They have other strengths they bring to the marketplace. They've got much larger route systems. They have much fancier frequent flyer programs. U.S. Air has British Airways as a partner (Note: This was dissolved in 1996). So, they have a worldwide international network that they're selling. We're not going to sell the passenger that is going to start in Indianapolis and go to Philadelphia. And get on a flight to England. That passenger is not going to fly on Eastern between Indianapolis and Philadelphia. We're going to sell the person that's going from Philadelphia to Indianapolis and back. That's

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MANNING: Short-haul?

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SHUGRUE: Yeah, short-haul.

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MANNING: Primarily.

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SHUGRUE: Yeah, primarily short-haul. Because that's where the void is.

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MANNING: Transcon (Transcontinental) at all?

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SHUGRUE: Uh, no. Not even on the horizon. Strictly a linear route system, point to point service oriented towards the local requirements. That's a different customer base than other customer bases like the international customer base or the Transcon customer base. So, I guess my point is that I think there's plenty of opportunity and plenty of room in the market for these multiplicity of products. And I think the wave of the future in the marketing business is going to be for that frequent business flyer. Product differentiation is the key. You've got to make your product a little bit more attractive than the guy next door. And if you're a domestic A point-to-point flyer, the new Eastern product, I-U, in fact, the old Eastern product was clearly better than our competitors product was, and will be in the future. But we donÂ’t have that international connecting bank. We don't have the sexy frequent flyer program and all those other things. So, there are many ways to market this thing.

MANNING: And we're talking not single-class as we saw with original Braniff in their final days offering "Texas Class"?

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SHUGRUE: Right. Again differentiating...

MANNING: First Class and Coach...

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SHUGRUE:..what you're doing from the other people. This, the new airline will have a front cabin and a rear cabin. And the front cabin will be "The Corporate Rate" program for the business flyer, expanded cabins. We'll have enough seats to accommodate the demand. So, in essence, the flyer that pays the all year Y-fare on Eastern gets a First Class seat. Period. In the back, it'll be a simple, no frills, no interlining, simple point A to point B with fewer restrictions on the fare for that leisure traveler, that price-sensitive traveler. The group of travelers, for example the bulk of Southwest customers are the leisure travelers. And what stimulates leisure travelers is a five letter word: P-R-I-C-E!

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MANNING: Ah! That's what Gordon Bethune (ex-CEO of Continental) was saying in an article recently. That for ten bucks you can steal someone else's customer.

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SHUGRUE: You can steal them for five! (Laughter).

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MANNING: One of the more ludicrous, well, certainly one of the more incredulous I think is the best way to put it (Laughter) aspects of your tenure here had to be the enormous drain on your time to provide information.

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SHUGRUE: Yep.

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MANNING: At a time when you were trying to focus on fixing the operational problems of the company.

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SHUGRUE: Right.

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MANNING: And the Creditors Committee seemed to be asking incessantly for information.

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SHUGRUE: Right.

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MANNING: True or False?

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SHUGRUE: Oh, well yeah. But it's really part of the process, and that's one of the extreme negatives one must deal with in a bankrupt situation. As I described to you earlier, all these constituencies with all of their own agendas and their own obligations.

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MANNING: Yes.

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SHUGRUE: And their constant thirst for data information and you can never seem to supply enough, because the process builds this huge information-consuming machine called Creditors Committees and Shareholder Committees. And in court hearings everything you do has to be documented nine times, fourteen justifications. Anybody can second, third, fourth-guess anybody else, I think at any moment in time. But it's the process itself that breeds this kind of situation. How I was able to cope with it here was, frankly, we brought in a staff of professionals. And by professionals I mean a new accounting firm, a new financial advisor, a new law firm, a new public relations firm, a new advertising agency as well as our own internal resources to augment that and in order to deal with that. And we had terrific people and were able to, frustratingly at times, but were able to keep up with the avalanche of not only information but the criticism that comes with it, as we went through the process.

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MANNING: Are some of those people back with you?

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SHUGRUE: Oh, yeah, yeah. Some of them are.

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MANNING: Jack Robinson (ex-Vice President of Corporate Development at Eastern and President of Eastern Express)?

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SHUGRUE: Uh, no. Jack's off on another adventure (Laughter).

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MANNING: How about Tom Conway (former head of public relations at Eastern)?

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SHUGRUE: Conway's in Russia doing deals. But no, the team's available, the legal talent's available, the professional talent's available. We've got' some good financial advisors involved in this transaction. So, I think we're beginning just fine.

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MANNING: Every Monday afternoon, I know you have a meeting here with the staff.

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SHUGRUE: Right.

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MANNING: And if you were to take us along to that meeting, what would that entail? What would we be seeing and hearing? What happens in the Monday afternoon hearings here?

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SHUGRUE: Well, in many respects, it's a typical Marty Shugrue meeting. It's large. I deal with a very flat organization structure. I joke, or they joke at me, you know. There's one king and 75 serfs. But we literally sit around the table in the old Eastern Board Room and each functional department head is either there or represented. And there are probably 25 people in the room at any given moment in time, all involved with various aspects of what is going on. The meeting involves first, me briefing the staff on what's happened from the Trustee's perspective in the prior week and what's going to happen the following week, whether it's a court appearance or a negotiating session with the bond holder group or group of unsecured creditors. And then from that I go around the table. Each functional department head is required to make a very brief report on the same areas, what's gone on the last week in their department or their area of responsibility, what they anticipate coming in the next week. And we do the go around and do encourage cross-commentary and encouraging inter-departmental dialogue.

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MANNING: Mmm. Hmm.

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SHUGRUE: If the Human Resources group is working on settling some employee claims there may be some implications for the marketing group that settling consumer claims. And so I encourage a lot of cross talk across the tables. That part of the meeting is really not only for me to get up to speed quickly on what's going on around the estate, but for other department heads to know what the other guys are up to at all times. And we go around and cover every unit. And then we'll sum up and I'll give some orders, because out of that comes action. Various action items are tabled. As they're tabled, we assign them to someone. We have a full time note taker for me who keeps track of all these assignments so that we're'ble to follow up and make sure they're done.

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MANNING: I have to go back to "The Corporate Rate" television commercials because there was one thing that stuck out in my mind. In one of the spots you say, "I don't think you cut yourself back to profitability. I think you build yourself to profitability. And I think we can do that. And that's the plan. When I first hard that I have to tell you, I thought, 'Could this be a direct reference to Lorenzo having reduced the airline by a third, shutting down the Kansas City hub, selling the Eastern Shuttle and all the rest? Were you sending a clear signal that the nightmare was over and the rebuilding had begun?

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SHUGRUE: Yeah. Clearly, part of our communications objective, and the reason our communications program worked as well as it did was our message was consistent no matter which public we were talking to. Whether we were talking to the employee public of the consumer public, or the regulatory public, or the political public, the financial public, our message was the same. What happened yesterday is no consequence today. And all of us here have to stop talking about that, and worrying about that and re-living that. Let's consign all that to the trash heap of history where it belongs. We have to look forward if we're going to survive, if we're going to be successful. The way you look forward in our business is you build. We need to rebuild our product. We need to rebuild our route system. We need to rebuild our customer base. And that was the message.

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MANNING: With this new rebuilding effort, I imagine that we can look forward to some really dramatic changes in the whole perception of the new Eastern, the whole look, the visual image: colors, a new paint scheme and so forth?

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SHUGRUE: What current thinking is on new Eastern is, and I have to be careful here, because my job is and this is very important. My job is to organize this deal and get it done! It's going to be the new owners of the enterprise that are ultimately going to determine who runs the company and what the company is going to look like. So, my job is to get this thing done. And I'm often asked, 'Well, Marty we presume that you're going to lead the new effort'. And my response is, 'Don't make any presumptions about that. Let's deal with the reality of the here and now. The here and now is that we've got a good plan, it makes sense, it's got a good marketing plan to support it. And I believe it's going to answer those questions. Let's get it financed. Let's get some new owners in here with real equity money, and then we'll have those discussions. So, look. Having said that, what's contemplated is that, to have a fresh look at the new Eastern, have a fresh look at the new Eastern or to have the new Eastern have a fresh look, but don't break with Eastern's positive history and positive legacy. As we did market research on the new Eastern, I was quite surprised at how warmly consumers remember the old Eastern. And the old Eastern they remembered was not the Eastern where the employees and management were at war with each other, the old Eastern they remembered was the old Eastern that was trying to survive! And it really was quite surprising to me the depth of feeling. And frankly, consumers in Philadelphia or Atlanta or Miami where Eastern was a huge presence miss Eastern. Because they see the lack of competition and they see the lack of a competitive operator and the effect it has on the marketplace. So, the new Eastern will try to build on the tradition of the old Eastern, and yet present itself as quote, "the new and improved toothpaste".

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MANNING: I know you don't look back a lot.

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SHUGRUE: No.

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MANNING: But I remember the night that I picked up The Wall Street Journal and and discovered that you were appointed as Trustee. And I thought, "This guy is walking into an ambush".

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SHUGRUE: (Laughing) A lot of my friends had the same observation!

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MANNING: And I wonder if there is any regret that you weren't brought in earlier? There was talk of bringing in a Trustee as far back as March of 1989.

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SHUGRUE: Yeah. I have said. and you're right. I don't spend a lot of time looking back. I ve said, though, that I really wish we had had the opportunity to get in a little sooner than we did get in, because it's our belief that the things we put in place were the right things to put in place. And I think the marketplace reflected that. The employees certainly did. And I just had the feeling if we had only had the opportunity to get in and get started, we would have been able to build some financial strength to withstand that onslaught that the Gulf War created in terms of our costs, and might have been able to escape through it; one will never know. But with respect to taking on the assignment, I don't have any regrets at all. And not even for a minute. I love a challenge. I'm a real warrior type. I like to take things head on, really put some people together; really try to solve solvable problems. And I don't quit! Which is why I'm 'still here.

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MANNING: I want to talk about unions for just a minute. You were a member of ALPA (Air Line PilotÂ’s Association) yourself at one point. And we're seeing a great movement now with regard to the full-service airline industry as we know it perhaps changing, disappearing altogether even. Will the new Eastern be unionized?

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SHUGRUE: I don't know. And I don't know because I don't know what legal form the new Eastern will take. I haven't answered the question about what residual rights, if any, the unions which formerly represented Eastern employees will have in the future. I do know the day the new Eastern flies, it comes under the Railway Labor Act, and will be the subject of an organizing drive, presuming its non union in the first place. But with particular respect to that question, the issue is the cost structure. The issue is not unionization. Southwest is the most heavily unionized carrier in the country. And they're the only one profitable. (Note: This remains so today!) And I enjoyed good working relationships with trade unions all my life.

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MANNING: Yes.

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SHUGRUE: And all over the world! I mean, I've negotiated contracts in Japan and Italy, in the United Kingdom, France and Germany and other places as well as the United States of America. And the most frustrating thing for me when I came to Eastern in the first place was the inability to lock in labor agreements quickly. That there was so much baggage and so much history that it was an impossible task here, uh, which is the subject of another hour and a half conversation. But, with respect to the new company, the issue of unionization is not the issue. The issue is cost structure. Look at an investor, for example. It makes no difference. If the cost structure is right, what do you care if the employees are in a labor union or not? That shouldnÂ’t affect your decision. And I think that's a coherent argument to make. Now, having said that, we are keeping organized labor fully informed of what we're doing. The people who run the Transport Workers Union, which formerly represented Eastern's flight attendants and the people that run the Air Line Pilots Association, which formerly represented the airline pilots here are friends of mine. And we talk on a regular basis. So, I don't view that as a problem. The new company contemplates contracting out, because of cost reasons, all of the work that used to be performed by old Eastern's IAM employees (International Association of Machinists and Aerospace Workers). The new company, for cost reasons, again, and for efficiency reasons, will contract out its ramp service work, its mechanic work, all of the below the wing work, cabin servicing work, and the aircraft maintenance and overhaul work. The companies chosen by the new Eastern to work with will in all probability be IAM represented companies. There will be IAM mechanics working on those airplanes in the future.

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MANNING: What aircraft types currently exist in your inventory?

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SHUGRUE: Well, there are two groups of aircraft owners affiliated with the current effort to rebuild Eastern. First is the estate itself, owns three 757Â’s which are parked out in the desert. The bond holders who are major creditors of the estate own some 53 narrow-bodies. And that's the fleet you see in pictures in various publications that is also parked out in the desert. Of the 53 aircraft that the bond holders own, half of them are DC-9's and the other half are 727's. So, it's that DC-9 fleet plus augmented by the three 757's the estate itself owns that are contemplated to be put to work in the new company. (Note: Eastern's hard assets were later liquidated).

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MANNING: Okay. The pre-petition transactions. Are they settled?

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SHUGRUE: Yes, they are. All of the pre-petition, the questionable pre-petition inter-company transactions between all of the affiliated Texas Air companies have been settled among all of the entities. And that settlement has been approved by the Eastern bankruptcy court and the Continental bankruptcy court.

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MANNING: Interesting. When you bought Bar Harbor Airlines, it was the only time in history that a bankrupt company had acquired an airline (Shugrue begins laughing) and my understanding is that the plan required getting it ramped-up and operating for maximum value and then selling it, at maximum value which would have been advantageous to the estate.

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SHUGRUE: Absolutely, that was the plan from the beginning.

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MANNING: I mean, what went wrong? Was it the Creditors Committee refusal to allow Bar Harbor to diversify with a move to a different inter-Florida location for a substantially better performance?

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SHUGRUE: Yeah, there was an internal debate. I won't say dispute, debate between the creditors and the management as to the direction that Bar Harbor should go. The management felt strongly that Bar Harbor should be left to its own planning devices and grow itself and build its value either to be sold to third party investors for the benefit of the estate, or serve big Eastern's needs, each of which would have served to the benefit of the creditors. The Creditors Committee, being far more conservative by their very nature, were very hesitant to approve a growth plan for their own reasons. Creditor Committees are very risk-averse and they viewed that as a risk they didn't feel that we should be engaged in---any kind of risky endeavor. My position was sort of mediating this dispute between management and the Creditors saying, 'Look. The risk is de minimus. We're already out there'. And from my way of thinking, as a revenue opportunity, pure and simple, Bar Harbor needs cash flow just like Eastern Does. So, on the basis of that argument we did begin to modestly grow into some of these local inter-Florida markets. But just like big Eastern, we ran into a wall with the fuel pricing fiasco and the Iraq invasion already brought it to an end. (Note: Eastern purchased the East Coast portion of Bar Harbor from Continental. Continental shut down the remaining routes Eastern did not purchase).

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MANNING: Now, once more, where will we see Eastern again? Mostly on the East Coast?

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SHUGRUE: East Coast. We're contemplating three core cities North. Philadelphia in the North, Indianapolis to the West, Atlanta to the South. Linear route system around and about those core cities building into over a 24 month period to serve 13 cities with 200 flights a day and 37 aircraft, $380 million in revenue. A significant less expense and therefore profit. And building that in phases over about a 24 month period.

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MANNING: And I assume something close to a seat mile cost of Continental?

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SHUGRUE: Oh, Yeah. We'll be under Continental. The new Eastern seat mile costs will be under eight cents a mile, much more comparable to Southwest than America West. Today, they're the most attractive seat cost per mile.

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MANNING: Serving food?

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SHUGRUE: For the First Class passenger that we talked about earlier, full amenities. For the Coach passenger beer and peanuts.

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MANNING: I know we’re running out of time here.

SHUGRUE: Well, we'll keep going until that call comes through. (Note: Shortly thereafter, a Creditors Committee teleconference that was previously scheduled is taken in private by Marty Shugrue and we resume "The Interview" after about 40 minutes and a photo session).

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MANNING: Former Chrysler executive Gerald Greenwald who incidentally has no airline experience will replace Steve Wolf at United Airlines, assuming the shared ownership plan with the employees is approved by the shareholders. We have William Franke at America West, Al Checchi, whom you worked with very closely at Northwest.

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SHUGRUE: Yes, I did.

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MANNING: What are your views on these appointments in general? Must today's airline chiefs have airline industry experience to effectively manage these companies?

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SHUGRUE: I think what you're seeing is that, in the case of America West, in the case of United Airlines, ownership is changing. And clearly, the new owners have their own objectives and criteria for the selection of the Chairman and/or CEO or both. And in the America West case, Mr. Franke organized part of the financing which enabled America West to come out of bankruptcy. And the people hat put their money in were so confident in Mr. Franke's ability to (A): Put together a financing package, he's a very well respected businessman in that city (Phoenix) and a successful one. His leadership and guidance brought to bear on how the money was to be spent and deployed. And so, for those reasons he winds up as Chairman of America West. And America West, in turn, goes and recruits---is in the process of , I don't know if they've finished or not---but a Chief and active Chief Executive Officer. And Franke is a non-executive Chairman of America West. He controls the board, so he might as well be an executive chairman. But what they're looking for and already have in place is a professional airline person to be President, or CEO or both.

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In the United Case, the unions who are leading the buy-out are becoming the owners. And that's perfectly understandable. They want their guy as Chairman and Chief Executive because they want to be sure that their guy is representing their interests as owners. And that's perfectly understandable. Mr. Greenwald has developed a terrific reputation at Chrysler (as Chief Financial Officer during the turnaround and that company's exit from bankruptcy) first of all as being an expert turnaround manager. You're looking at a pretty serious financial engineer and a very competent one. But he, in turn has announced, and he, in turn is searching for and will appoint a seasoned airline executive as President and Chief Executive Officer. As clearly, you need to balance those two disciplines. And in the Checchi instance, Gary Wilson and Al Checchi organized the buyout of Northwest and became Co-Chairmen (Note: Shugrue was their advisor after leaving Continental). It was their deal (Chuckles). But then turned right around and put together a pretty top-notched senior management team who were well versed in the industry. The Chief Financial Officer is Mickey Foret, who used to work for me at Continental Airlines; you're not going to find a better CFO. Mike Levine, more recently of the Yale Business School has been an airline buff, and former President of New York Air, formerly involved with the deregulation debates...a very, very bright guy to head marketing. John Dasburg who is President of Northwest, while not an airline guy was a travel and tourism /hospitality guy---it's the same business. He came out of Marriott Corporation. And you've got Bill Slaughtery up there running their operating department. Bill's been around for 30 years. So, they've got a pretty competent management team. So, I think when you change the scene, it changes the emphasis on the investors and the owners and the kind of person that they want to see in the very visible Chairman job. Whether it's an Executive Chairman or a Non Executive Chairman's job to look out for their interest. And I think its helping.

MANNING: Those of us who reside in Texas, as I do, remember quite vividly the night Braniff International Airways was forced to shut down. And their load factors at the time were in the low 30 percent range. And of course, it was a different time. We're talking now 12 years ago. But today, again, I'm seeing some frightening similarities between where Easter Airlines was toward the end of its economic life and Trans World Airlines (TWA). With Eastern, I read in the September 1990 issue of Frequent Flyer, and I quote: "Right now, Eastern is the best airline in the country".

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SHUGRUE: Mmm Hmm. Right, right.

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MANNING: TWA has received the prestigious J.D. Powers Award for service excellence; their load factors are about where Eastern was, in the lower 60's or so. And they do a fabulous job. I've flown them recently. Morale is shy-high. Costs are down. And yet, despite all the belt-tightening and cost slashing, they're still losing money. What does this say about today's deregulated airline industry?

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SHUGRUE: Well, you know the great industry experiment with deregulation is far from over! And this industry was forced by the...you can't repeal the laws of economics! As much as you'd like to. And the fact of the matter is in 1978 when Congress deregulated the airline industry, not everybody...it was like a poker game! But not everybody got dealt the same hand! And you had to play the hand that you were dealt. My old buddies at Pan Am were dealt a hand that had no domestic route system. My friends at TWA were dealt a hand that had one little hub and a lot of long international routes with a lot of old airplanes. The regional carriers were dealt a hand that said, 'You donÂ’t have the market mass necessary to survive!' So, what you've seen is the regional carriers literally go out of existence in the form that we all knew them: Western's part of Delta, PSA is part of U.S. Air, National became part of Pan Am, much to Pan Am's regret, and on and on and on. And those carriers, those companies went away. Then as the challenge changes, you've got mega-carriers coming into existence with fortress hubs. Poor Pan Am, with no domestic hub to speak of. Pan Am's traditional form of domestic traffic, the United's, U.S. Airs, the American's now have different agendas. They've got their own international aspirations. They're not going to give Pan Am their customers. They're going top give their customers to British Airways! Which they promptly did. TWA's suffering from a little of both. Coupled with a company that was, in my judgment, taken over by a financial speculator (Carl Icahn).

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MANNING: Yes!

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SHUGRUE: Who turned everything a fast as he possibly could into cash, sold off the crown jewels. The company is a mere shadow of what it used to be. And those poor employees are doing EVERY-SINGLE-THING that they've been asked to do by their managers to save it. And they've done it enthusiastically, and with a high degree of willingness. I think they have a chance; it is a long-shot. It is a very difficult equation. They need to figure out how to get some added capital into the company so they can begin to build again. That's going to be the only answer. And look at their experience in Atlanta. For TWA to go into Atlanta after Eastern's demise was a very smart thing to do. And they were doing just fine until ValuJet (later renamed AirTran) shows up and literally ran them right out of town. Why? Because TWA didn't have the financial staying power to last. So, they've got to get some equity into the company and begin to grow.

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MANNING: Ironically, during your tour of duty in the Navy, you played a major role in recovering the Apollo 8 space capsule.

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SHUGRUE: Yes.

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MANNING: After it splashed down in the Pacific. Aboard that craft was the Commander of that mission, a man who would precede you here at Eastern Airlines before its sale to Texas Air, Colonel Frank Borman. (Note: Borman is the author's only living Mentor and I interviewed him two days before the tragic events of 9/11. Both of my interviews with Shugrue and Borman are now part of the Smithsonian's Permanent Oral Lecture Series in the Division of Commercial Flight in Washington, D.C.).

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SHUGRUE: Well. It's one of those great ironic stories in life. I was a young junior-grade Lieutenant aboard the USS Wasp flying Co-Pilot for the Air Group Commander on a carrier-based anti-submarine hunter aircraft. And we were in charge of recovering Gemini 6B and Gemini 7 and that was the first space docking mission.

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MANNING: Did you have extensive contact with him during your turnaround efforts?

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SHUGRUE: Uh, no. I got to meet him on the ship. Oh, you meant here (at Eastern)? Uh, not extensive. I've known Frank for a long time, and he's a wonderful man and a genuine American Hero. And I used to joke with him after I came over here that, "Frank, if I knew then what I know now, I might very well have left you in the damn ocean". (Laughter).

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MANNING: Has anyone purchased the Eastern Airlines logo and name at this point?

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SHUGRUE: No.

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MANNING: I ask that because I'm sure you realize that the Pan Am estate sold the world-famous blue globe logo and the Pan Am name for $1.34 Million (originally to Charles Cobb, former Undersecretary of Commerce for Travel and Tourism and an Ambassador to Iceland in the senior Bush Administration).

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SHUGRUE: Right. Right. That's correct. And part of this new Eastern idea is to sell the logo and name to the new company to realize some value from it for our creditors.

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MANNING: What about the Eastern Certificate?

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SHUGRUE: Same thing.

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MANNING: You still have it?

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SHUGRUE: We do. We do have a certificate. The new ownership structure will have to go through the DOT (Department of Transportation) and FAA (Federal Aviation Administration) to muster the fitness review, management competence review---that sort of thing. But the basic ingredients to meet those criteria are all here in the form of manuals, and the form of talented people who are technically qualified to perform the various airline functions that need to be performed. So, whoever acquires this package, acquires the leg-up on the entire certification process.

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MANNING: Phil Bakes (Eastern's former President appointed by Frank Lorenzo) talked a great deal about Eastern's failure to convert to jet transports in the early 1960's along with the airline’s high l'or cost structure, forcing Eastern to borrow heavily in order to stay in business. In other words, the point I guess is that he contends that Eastern's problems predated the Texas Air takeover in 1986.

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SHUGRUE: Absolutely. I mean Eastern Airlines has serious financial and cost problems long before the Texas Air acquisition. In effect, it was those financial and labor problems which created an opportunity for a Texas Air takeover. And the seeds of those problems were, in fact, planted in the 1960's when Eastern was very late in getting into the jet era. And when it did get into the jet era, it highly leveraged itself to acquire the new fleet, it got a late start. And that in large measure led to the cost structure problems that Eastern struggled with in the deregulated environment.

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MANNING: Author Jack Robinson says that the expansion program under Colonel Borman (involving a fleet update and establishing the Kansas City hub to counter seasonal North-South traffic with East-West traffic) was admittedly well-conceived but egregiously ill-timed. What do make of this remark?

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SHUGRUE: Yeah, that's a perspective I'm not sure that I agree with entirely. But, I remarked earlier that when the cards were dealt, that everyone didn’t get an equal hand.

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MANNING: Sure.

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SHUGRUE: Some airlines were better capitalized than others. Some airlines had less debt. And obviously, the well capitalized airlines, the airlines with less debt, which were the result of prudent decisions earlier in life, were better equipped to deal with the forces unleashed by deregulation. And Eastern was hamstrung.

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MANNING: How will the new Eastern avoid the acrimonious relationship between labor and management that was such a visible part of the old airline?

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SHUGRUE: In the new Eastern philosophy is employee empowerment. The new Eastern philosophy is partnership. Partnership with the people who work in the company, partnerships with the travel agents that distribute its product, and I think everyone has learned the lessons of history here. And even as it plays out at United, for example, I mean employee/management cooperation is absolutely essential to the success of any of these companies. And I think the new Eastern has a unique opportunity to build on and improve the relationships that were established upon, prior to the shutdown, and even that have continued through the liquidation period. You know, under our stewardship, for example, and by 'our', I mean this management, and it's not mine necessarily, but this management's stewardship of the estate, over $300 Million of funds have been paid out to employees or retirees since the airline shut down. With court approval, we've given a very high priority to settling employee claims sooner rather than later, unlike what's happened to my friends at other carriers like Pan Am and Midway. Those people have received nothing.

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MANNING: Let me bring up Pan Am one more time. The plan that was put forth for what was dubbed "Pan Am II" under the helm of Russell Ray, Jr. with Delta holding a 55 percent stake in the downsized carrier serving Latin America routes from Miami only. Do you believe this was a viable plan?

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SHUGRUE: Frankly, I wasn't close enough to the numbers at that time to make an informed judgment. It seemed to me that those type of dramatic steps that Pan Am was taking were dramatic steps, clearly designed for the company to eventually survive. They got caught up in the same industry catastrophes that the rest of us got caught up in at the time. And Pan Am was like Eastern, of course. They were simply not able to survive it. There's a lot of second-guessing going on now with lawsuits flying, filling the air. And you know, not having been close to it at the time I don't really have an opinion as to whether it would've worked, could've worked, or should've worked. We all hoped it would work, since we had so many friends over there.

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MANNING: The proposed merger plan that you and Jack Robinson outlined with Pan Am. I found that to be a stroke of genius myself.

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SHUGRUE: Well, we agree! (Laughter)

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MANNING: It made sense and it was a business plan to drool over. Substantially all of the employees would have been retained with Eastern and Pan Am. Fleet integration with the Boeing and Airbus equipment. And this is a big if. Bit IF you had had the benefit of more time, could that have worked? I realize that there were certain personalities involved here.…

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SHUGRUE: Well, there were lots of personalities involved and I don't need to get into that. But as a business plan, it was a bold stroke so-to-speak. What I was frankly pitching to the Pan Am people was, 'Look, we're both in bankruptcy. The bankruptcy courts give each company the opportunity to restructure all of its contracts whether it's their labor contracts, their aircraft leasing contracts, terminal facility contracts—all of its obligations in a very different way that you simply can't do as an ongoing business. And my suggestion was let's take advantage of that, put together a coherent restructuring plan where Eastern's contribution would be its domestic route network, its staff and its resources. The Pan Am contribution would be its international network, its staff and resources and formulate a deal where Eastern would be the domestic operator and Pan Am would be the international operator, rebrand the airline as Pan Am over time because we felt that was a stronger brand name. And I think that on the grand scale of things it was a deal which could have very well worked and didn't, in large measure because of timing and other external considerations. We just could not figure out how to come to grips with it quickly.

MANNING: Aside from deregulation issues we've discussed here, one of the other dramatic catalysts in this industry we are seeing is the change in passenger mix. The proportion of business travelers is down from 52 percent in 1982 to around 40 percent today. Can we expect this figure to drop even further?

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SHUGRUE: I think that business travel as a percent of total traffic will continue to decline over time. And the real opportunity and the real pressure now, the real economic pressure is coming from that leisure class of traveler, that discretionary traveler. And that's where you're growth is going to be in the future. In order to be able to service that market, you have to provide that market with what it wants. And what that market wants is price. Otherwise, they won't go. And we see this situation right here in south Florida. That traffic is down. And why is it down? Well, everyone that I know in south Florida has got a relative in the northeast. And everyone I know in the northeast has got a relative down here in Florida. And for a hundred bucks you'll go visit Aunt Mae. And for three hundred dollars, you wont! And that's what's happening. As the price the leisure traveler gets to the point where the leisure traveler says 'I'm not going to pay that, they don't go! And they've got the discretion. I read a statistic in the paper just the other day that business travel costs have increased over the last five years by 43 percent. That's horrible! Some analyst is writing that this is going to be beneficial to the industry. That's going to drive away your customers! Even business flyers don't have unlimited discretionary authority these days. No one can pay first class anymore. No business flier I know has a company that will pay for a first class ticket unless they conform to some very specific rules and regulations. So, I mean the world is getting price-sensitive. But having said all that! The opportunity in the future is the leisure markets. And if you’re not low cost and low price, you're not going to access those markets.

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MANNING: Former Vice President Dan Quayle stated that the entire bankruptcy system needs to be overhauled if we are to remain a competitive country. And I know that you were looking at a $5 million dollar drain per month during the final year of operation.

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SHUGRUE: Right!

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MANNING: And with all the advisors.

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SHUGRUE: Yeah!

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MANNING: What are your views on this issue? It does lend credence to what the former Vice President is arguing.

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SHUGRUE: Well, I would like to see some reasonable, rational, modifications to the bankruptcy statutes. The process itself is expensive because--and I'm speaking clearly as a layman. I am no legal scholar. The process is expensive because what the law tries to do is to protect the interests of the individual constituencies in a bankruptcy. And it tries to recognize---and I think we keep forgetting what the long-term objectives of our bankruptcy statutes are. The history of the United States bankruptcy statutes goes back to the very founding of this country. And this country was founded by a bunch of people who were used to things like debtors prisons. And it that background of avoiding that phenomenon of debtors prisons and allowing bankrupt individuals and businesses to rehabilitate themselves and give them the time and wherewithal to do that to avoid locking people up in jail for the rest of their lives because they couldn't pay their debts. So, it's that background that created the United States Bankruptcy Code. And the bankruptcy code's gone through various considerations. The fundamental objective of the bankruptcy code is to get the company out of bankruptcy. And earlier in our history, they thought Trustees were better equipped to do that. And after 10, 12, 15 ---some number of Trustees being appointed back, I thing it was 1978, the bankruptcy code was revised significantly to rely more on a debtor-in-possession reorganization where under the thesis, the people operating the business knew most about it. And even though they got themselves into financial difficulty, the ability to organize out of that financial difficulty and deal with those creditors, was best performed by people who understood the business. Much more oriented than the legal scholars. The code now becomes more debtor-oriented as opposed to more creditor oriented. But I think keeping in mind that trying to protect and deal with creditor constituencies, preferred shareholder constituencies, common shareholder constituencies, the debtor-in-possession constituencies, the unwritten public constituency in the case of airlines in particular, creates a system which at its nature is enormously expensive because each constituency is entitled to legal representation. Each constituency is entitled to financial advisors. Each constituency forms committees, which have to have meetings, and meeting rooms have to be rented, and buffet lunches have to be served. And all of that is paid for by the estate. So, I'd like a coherent, cogent, non-emotional legal scholarly look at the bankruptcy code to see if a ways and means could be devised that would streamline it, make it simpler and make it a lot less expensive.

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MANNING: And in terms of how long an airline should remain in bankruptcy?

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SHUGRUE: You know, I think that's such an individual judgment on this. But a lot of hue and cry including the recent airline commission---Uh, you only have a year to reorganize. Well, everybody argues about---and it's a Red Herring argument. The debtor-in-possession has the exclusive right to present a reorganization plan to the court, and at the end of that year walks into court and says, We'd like a 6 month extension, Your Honor. And some other constituent shows up and says, 'Your Honor, we have a plan', I can assure you that other constituent will be heard. So, I think all those arguments about artificially limiting the time are really Red Herring arguments. And I think that the court itself, the Judge on the case, himself or herself, having listened to all of the facts...I don't know if you've ever been to a bankruptcy proceeding?

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MANNING: No, I haven't.

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SHUGRUE: But they are very Judicial. The Judge is at his or her bench and robed and all of that sort of thing. In many ways, it's very informal. If anyone wants to be heard in a bankruptcy proceeding and theyÂ’re a party at interest, they can be heard. And in Judge (Burton) Lifland's case, and in the Eastern case, when a motion is being heard before him, and arguments are made on both sides of the motion for, in favor of, support or not, at the end of that the Judge will literally look around the courtroom and say, 'Is there anyone else who wishes to be heard?' And someone can stand up in the back and say, 'Your Honor, I'm an employee-creditor, Joe Waters and I want to know how my claim is being dealt with'. And the court will direct that query to the right office. So, I mean there's plenty of opportunity to be heard. So all of those, 'You've got to reform the process because it takes too long'.No! If we're going to get serious about bankruptcy court law reform, let's take a look at the whole bag. Let's take a look at the whole structure it creates and how expensive it is to absolutely protect all these constituents. And in particular, where a Trustee is appointed, in the Eastern case for example. I am an Officer of the Court.

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MANNING: Yes.

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SHUGRUE: I don't report to anybody but the court. Why do I need three investment bankers looking at what I do? Why do I need three CPA firms looking at what I do?

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MANNING: I've never understo...

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SHUGRUE: Why do I need three committees to report to? We could've eliminated literally tens of billions of dollars of expense by saying, 'The Court has a Special Advisor. And he has advisors. I have a Trustee appointed to run the business. What else do you need to protect the constituents than the Court's supervision!

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MANNING: And here's my point. I didn't really understand why Judge Lifland needed a Special Advisor in Mr. Shapiro?

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SHUGRUE: Well, and that's an interesting bit of background in this case. The bankruptcy code calls for, as an added protective feature to protect constituent rights, the ability of the Judge to appoint a Special Examiner---that's a legal term in the bankruptcy code. So, there's a debtor-in-possession running the bankrupt company. And in this case it was Texas Air, and there were many questionable transactions. Questionable by a number of constituents in the case. The Court appoints an independent examiner with the full authority of the Court to go examine those transactions, write a report and make findings to the Court. And the purpose of that was to protect the interests of various economic constituents in the case. And it was a perfectly appropriate thing for Judge Lifland to do. When I came in as Trustee, neither the Judge nor I wanted to lose the expertise developed by the Examiner. We had spent a lot of time and money learning about Eastern and its problems and its issues. And neither one of us wanted to lose that expertise and thought that, in this case, David Shapiro could be helpful in our efforts to reorganize. And the Court retained his services as quote 'Special Advisor'. So, that's one where we thought we had added value coming into the equation. And by the way, Mr. Shapiro and I have had many disagreements, which is another normal part of the process.

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MANNING: And you have a date to launch the new Eastern?

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SHUGRUE: Well, no. We are devoting the next six weeks to organize the financing. We'll know by mid June or so whether it's finance able. We think that we can get a plane in the air by October.

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MANNING: Then what's next for Marty Shugrue?

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SHUGRUE: Who knows? The next adventure, whatever that might be!

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MANNING: The next adventure, yeah. Well, hopefully we can expect to see you then.

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SHUGRUE: Hopefully. I got too many kids to educate!

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Authors Note: Marty Shugrue's efforts to target $100 million to ramp up a new Eastern Airlines came close, but eventually the financing effort was abandoned in favor of pursuing a re-start of a new Pan Am, which as Shugrue indicated in our visit, is a stronger brand name. The new Pan Am was reorganized as a Low Cost/Low Fare operator of refurbished ex-Eastern Airbus Industrie A-300B4 aircraft that were all brought down to "zero time" with cockpits configured for consistency and the fleet retrofitted and repainted. The airline was a full-service carrier with meals for both Classes of travel between larger city-pairs. This author actually flew aboard the new airline dubbed "Pan Am II" and it was an excellent airline. Marty Shugrue organized the estate of Eastern Airlines and brought it out of Bankruptcy before leaving to start the new Pan Am in 1996. As previously mentioned, he passed away suddenly in March, 1999. It's interesting to note that his predictions of deregulation, the need for bankruptcy reform, the limited markets and time-window of building and flying the Airbus A380 Jumbo-Liner did materialize, as we shared later in our conversations. As for his plan for a new Eastern, AirTran Airlines is the closest example of what Marty had in mind for a Low Cost/Low Fare blueprint to re-launch Eastern. AirTran operates out of Atlanta Hartsfield International Airport with a combined fleet of brand new Boeing 717's (successor to the DC-9's) and 737 New Generation aircraft. Marty was a wonderful friend, an aviation visionary who had an instinct for reading people and who made friends easily. He possessed a heart of Gold. He is dearly missed. And this blog is dedicated to his memory.