Lehman Brothers Collection - Contemporary Business Archives

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Lehman Brothers Collection

Twentieth-Century Business Archives

Eastern Air Lines Incorporated - Lehman Brothers Collection

Eastern Air Lines Incorporated

List of Deals

Eastern Airlines was founded by Harold Pitcairn. He designed an airplane called the "Pitcairn Mailwing," built six of them, and assembled a team of barnstormers and World War I pilots to fly them. Pitcairn bid on an airmail route and won the route from New York to Atlanta in 1928. He acquired an extension to Miami later that year. Pitcairn then increased his fleet to sixteen, with improved versions of his open-cockpit single-engine airplanes. In 1929 Pitcairn sold Pitcairn Aviation to North American Aviation, who then changed the company's name to Eastern Air Transport. Airmail continued to be the company's primary business until passenger business became more profitable.

As airlines began transporting more passengers, Eastern introduced a daily-except-Sunday route between New York and Richmond, via Newark, Philadelphia, and Baltimore, using the new Ford tri-motor airplane. Over the next few years, the company expanded its fleet and route system while maintaining an excellent safety record. In 1933 General Motors acquired a controlling interest in North American Aviation, Eastern's parent company. The company began losing a considerable amount of money during that decade, and Eastern was in need of new and more effective management. To meet this need, General Motors hired Eddie Rickenbacker in 1935 to head Eastern. Over the next three years, Rickenbacker revised the company's management structure, reduced costs, and updated the airline fleet with Douglas DC-2s.

In 1938 General Motors was forced to divest itself of Eastern's manufacturing partners due to the Black-McKeller Law, which decreed that airplane manufacturers must divest themselves of controlling interests in airline subsidiaries. General Motors was tempted to sell Eastern as well, but held on to the company for some time. By 1938 Eastern was doing so well that a Wall Street investment group threatened to acquire it. At that time, General Motors gave Rickenbacker the option of purchasing Eastern for himself if he could match the $3.5 million bid. Rickenbacker succeeded in raising the funds and purchased the company that year.

Eastern became involved in the war effort during World War II. It was assigned the duty of transporting men to Brazil for the trans-Atlantic ferry in addition to shuttling priority passengers and cargo along the east coast. Under the authority of the Military Transport Division, Eastern operated over 7,000 miles of supply routes across the South Atlantic.

The airline thrived during the 1950s. Profits had risen to $14.7 million by 1956. That same year, Eastern merged with Colonial Airlines, which added nearly 3,000 route miles and numerous "authorities," or destinations, to its network. Eastern continued to generate a steady profit, maintain a modern fleet, and expand. During this time, Rickenbacker accepted the unionization of his workers and also became the first airline president to introduce a standard forty-hour work week. Despite such success, Eastern was gaining a reputation for poor customer service. Due to its service monopoly on many of its destinations, the airline was free to operate at its own convenience and at the expense of customers. Furthermore, Eastern decided to purchase only a minimal number of the new passenger jetliners. Eastern's competitors, especially Delta, invested heavily in jets; consequently, Delta soon dominated every market involving the two companies.

Rickenbacker stepped down from his presidency of the company at the end of the 1950s. The early years of the 1960s were tumultuous for Eastern. The Civil Aeronautics Board opposed regulated long-haul monopolies, which denied Eastern the large profits it could have made from the establishment of exclusive rights to certain airlines on specific routes. Eastern's main airplane, the Electra, crashed several times, thereby decreasing public confidence in the airline. Additionally, two consecutive labor strikes dramatically affected the company's record of profitability. Other factors affecting the company's operations in the early 1960s included the competitive disadvantage resulting from the relatively small proportion of turbine-powered to piston-powered equipment used by the company and the high proportion of small cities and short-haul routes among those served by the company. During this time the company did institute a successful shuttle service linking Washington, D.C., New York, and Boston.

Eastern began to recover in 1963 when Floyd Hall was appointed to head the company. Hall began a program of revitalization, which he dubbed "operation bootstrap." This program involved the following four goals: generating more revenue, improving on-time performance, reducing passenger complaints, and increasing compliments. To meet these goals, Hall offered $100 in green stamps to employees who contributed to any of the objectives. The program was so successful that the company turned a $30 million profit in 1965. However, by 1967 the company was again headed for bankruptcy. The plane that was to revive the airline in the 1970s, the wide-body Lockheed 1011 tri-star, proved to be a financial disaster, with engines prone to breakdown, and ultimately cost millions of dollars in cancelled or delayed flights. Results of operations for the first eight months of 1968 were favorably affected by the company's new hotels. Operations were adversely affected by, among other things, increased competition along certain of the company's major routes, especially between the Northeast and Florida; off-schedule delivery of aircraft, necessitating revision of the company's operating plans; the excess of the company's developmental costs over initial revenues derived from the increased cargo capacity provided by the company's new Boeing 727 QC fleet; in-flight delays related to congestion in the air traffic patterns around major airports; and increased operating expenses, including those resulting from new collective bargaining agreements and increased fuel costs.

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