In the late 1980s, both Eastern Air Lines and Pan Am operated air shuttle services in the Northeastern United States, which were highly profitable even though the two airlines, as a whole, were not.[4] As the financial outlook for Eastern became more pessimistic in the late 1980s, the carrier began to sell its routes and aircraft. It organized its profitable shuttle operation into a separate company, headed by Bruce Nobles, with the intent of selling it to raise cash.
Eastern chairman Frank Lorenzo met Donald Trump at a party, and subsequently negotiated the sale of the shuttle to Trump for $365 million, more than the projected cost to start up a similar airline, but justifiable if the airline achieved a high market share.[5] For that price, Trump got a fleet of 17 Boeing 727s, landing facilities in each of the three cities that the shuttle flew to, and the right to put his name on the company and its airplanes.[6] The shuttle had previously been a no frills operation for business travelers, but Trump announced that he would convert it into a luxury airline.[7]
After reaching an agreement with Trump in October 1988, Eastern filed for Chapter 11 bankruptcy protection. Many passengers switched to the competing Pan Am Shuttle, and the previously profitable Eastern Shuttle began losing money. Trump attempted to use the situation to negotiate a lower price and to acquire additional aircraft from Eastern. America West Airlines submitted a more attractive competing offer on May 10, but failed as its financing was not in place. Trump's offer was approved by the bankruptcy court in May 1989.[7] In June 1989 the deal was completed, financed through a loan from a syndicate of banks led by Citibank.[8]
The new Trump Shuttle operation launched on June 8, 1989, and by the end of August had returned to a strong market share of 40–50%. Trump pushed to make the new shuttle a luxury service and a marketing vehicle for the Trump name. Its aircraft were newly painted in white livery and the interiors redecorated with such features as maple wood veneer, chrome seat belt latches, and gold colored lavatory fixtures. The airline also was a leader in the adoption of advanced technologies: It introduced some of the first passenger self-service check-in kiosks, in coordination with Kinetics, at its LaGuardia base; and partnered with LapStop, a startup firm that rented laptop computers to passengers. The airline was also an early adopter of the GTE Airfone in-flight telephone system.[5][7] Flights offered free meals, including chicken and steak on some flights, as well as complimentary champagne, beer, and wine.[9] Both Trump and Pan Am spent millions on advertising campaigns around this time in an attempt to maintain strong competitive positions.[4]
Financial difficulties
The company was never profitable.[6] Passenger traffic on the shuttle began to decline in November 1989. In late 1989, the Northeastern United States entered an economic recession which depressed demand, while the August 1990 Iraqi invasion of Kuwait caused jet fuel prices to double.[5] While costs of running the airline rose, many of the corporate customers using the shuttle were cutting travel budgets. Trump's casino business was simultaneously encountering serious difficulties, and Trump was forced to cede control over several business holdings to his bankers in June 1990 in order to avoid personal bankruptcy. The airline ran out of cash and defaulted on its debt in September 1990.[7]
Trump Shuttle conducted some charter operations around this time to monetize the shuttle's spare aircraft. In June 1990, the airline carried Nelson Mandela on his eight-city tour of the United States.[12] During the Gulf War of 1990–91, the airline received a government contract to ferry U.S. military personnel between the key domestic bases of
Sale
Trump had personally guaranteed $135 million of the shuttle's debt. Following the default, Citibank made arrangements for Northwest Airlines to take control of the shuttle in exchange for relieving Trump's personal liability on its debt, and all sides were reportedly close to an agreement by April 1991.[8] Delta Air Lines agreed to buy the competing Pan Am Shuttle in July, and Northwest announced that its acquisition of the Trump Shuttle was cancelled in August, reportedly due to the Trump Shuttle's unions demanding parity with Northwest employees and Trump refusing to discount the price to reflect this.[7] USAir ultimately reached an agreement in December 1991 to take operational control of Trump Shuttle for up to ten years, with an option to buy it after five years.[13][14] Bankers involved in the negotiations said that Trump would be relieved of at least $100 million of his guarantee, and possibly as much as $110 million, leaving him owing between $25 and $35 million in the closing out of his ownership of the company.[13]
