The high cost of deregulation: Joblessness, bankruptcy, debt
The future was supposed to be rosy for deregulated airlines, trucking and S&Ls. Results have been disastrous.
Editor's note: The following story ran Oct. 24, 1991, on Day Five of the nine-day "America: What went wrong?" series published in the Inquirer.
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Since deregulation of the trucking industry in 1980, more than 100 once- thriving trucking companies have gone out of business. More than 150,000 workers at those companies lost their jobs.
Since deregulation of the airlines in 1978, a dozen airline companies have merged or gone out of business. More than 50,000 of their employees lost their jobs.
Since deregulation of the savings and loan industry in 1982, about 650 S&Ls have folded, with at least 400 more in serious trouble. The bailout will leave taxpayers stuck with a half-trillion-dollar tab.
Now, the people who rewrote the government rule book to deregulate airlines, trucking and savings and loans are about to rewrite the rules on banks.
They call it banking reform.
President Bush spelled out the plans in a speech on Feb. 5: "Regulatory reform is long overdue. Our banking reform proposals . . . address the reality of the modern financial marketplace by creating a U.S. financial system that protects taxpayers, serves consumers and strengthens our economy. "
Sound familiar? It should.
The arguments for deregulating banks are much the same as those that were made in the 1970s and '80s for the other industries:
Removing government restrictions on the private sector would let free and open competition rule the marketplace. Getting rid of regulations would spur the growth of new companies. Existing companies would become more efficient or perish. Competition would create jobs, drive down prices and benefit consumers and businesses alike.
That's the theory.
The gritty reality, as imposed on the daily lives of the men and women most directly affected, is a little different.
For Christopher E. Neimann of Fort Smith, Ark., deregulation meant the loss of health insurance as he was battling cancer.
Neimann, who worked for a trucking company, was diagnosed with a rare bone cancer in November 1987. He went on medical leave two months later.
In August 1988, his company, Smith's Transfer Corp., entered bankruptcy, a victim of deregulation's rate wars. Its checks began bouncing, including ones paying for Neimann's treatments at the M.D. Anderson Cancer Center in Houston.
On April 11, 1989, the hospital sent Neimann a stern letter asking him to pay his bill, which totaled $30,128.
When the bedridden, gravely ill Neimann couldn't make payments, the hospital began pressuring his wife, Billie.
"The hospital called me one night and told me they were going to dip into the estate," she said. "And he wasn't dead. He was still alive. I knew he was going to die. And they knew he was going to die.
"I just cried and I said, 'I beg your pardon. Could I ask you what estate are you talking about? ' And they said, 'Well, his estate. ' And I said, 'Ma'am, at 31 years old, you don't have an estate. You don't have anything to go into an estate. At this age, we're just starting out. ' I said, 'You can dip all you want. Dip right in and get some of the bills, too. Because there won't be anything left. ' "
After a battle of a year and a half, Neimann died on June 6, 1989, aged 31, leaving behind a young wife and an infant daughter.
The calls from M.D. Anderson's collection department continued.
"They kept calling and told me that I was still liable," said his wife, who has since remarried. "I was so upset that eventually I talked to my lawyer and he told me to give them his name. I don't know what's happened, but lately they haven't called. "
For Leslie Wagner of Flower Mound, Texas, deregulation meant seven years of relentlessly shrinking paychecks - and, ultimately, no paycheck.
At 23, she went to work as a flight attendant for Braniff International Airlines. That was in 1969, when the Dallas-based carrier was the nation's eighth largest airline.
By 1982, her base salary was $19,300 a year. That year, the fourth year of airline deregulation, Braniff asked workers to accept wage cuts and other concessions.
Even after employees agreed to reductions, Braniff still could not pay its bills and the airline was forced to seek protection in U.S. Bankruptcy Court in May 1982. The action grounded Braniff and put 9,000 employees, including Leslie Wagner, out of work.
Two years later, a scaled-down Braniff Inc., under new owners, emerged from Bankruptcy Court and resumed service. Former employees were offered jobs, but at reduced pay. When Wagner returned to work in 1985, her new base pay was $15,600 a year - 19 percent less than she earned in 1982.
By 1989, with Braniff still in financial trouble, employees were asked to take another pay cut. Wagner's base pay went down again - to $14,400.
On Sept. 28, 1989, Braniff was forced into Bankruptcy Court for the second time in seven years. Its assets were auctioned off to pay creditors, and the airline's remaining 4,800 employees were let go.
After absorbing a pay cut of 25 percent during the years when the cost of living rose 28 percent, Leslie Wagner was out of work.
The company resumed limited service in July 1991, but Wagner was not recalled. It didn't matter. Braniff was back in Bankruptcy Court a month later, for the third time in a decade.
For Joyce D. Heyl of Sioux Falls, S. D., deregulation also meant the loss of a job.
Heyl worked 19 years in the accounting department of an interstate trucking company, American Freight System Inc., until it went out of business in August 1988.
"When you work for a company a long time and you like your job, you always think it's going to be there and then suddenly one day it's not," she said. ''I loved my job. I was very upset when the company went down. "
Her standard of living went down with it.
"I'm 59 years old and I thought to go back into the job market with a lot of young people was something I wouldn't be able to do," she said.
To supplement the family income she works part time at various jobs. At American Freight, she earned $410 a week, or $21,320 a year. Now she's lucky if she earns half that.
For Barbara Joy Whitehouse of Salt Lake City, deregulation meant a devastating financial blow, on top of a personal one.
Her husband was killed in a 1986 Montana highway accident while driving a truck for a company called P-I-E Nationwide Inc. After his death, Barbara Whitehouse, 54, began receiving $299 a week under Montana's workers' compensation law, which makes payments to spouses of workers killed on the job.
Because P-I-E was a large company and appeared to have considerable assets, Montana authorities permitted it to pay claimants directly, rather than contribute to the state's workers' compensation fund, which disburses benefits in most cases.
That was a mistake. P-I-E was not as solid as Montana officials thought. Deregulation was helping drive it, like many other interstate trucking companies, out of business. After huge losses, P-I-E filed for bankruptcy in October 1990 and is now being liquidated.
After the bankruptcy filing, the company ran out of cash and Whitehouse's biweekly checks stopped. P-I-E's last check to her, on Oct. 10, 1990, bounced.
Whitehouse has filed a claim with the Bankruptcy Court for $466,440 - the amount due her under Montana law if she lived to be 84 and didn't remarry.
But Whitehouse will see little, if any, of that money. Hers is one of more than 7,000 unsecured claims against P-I-E - meaning she'll collect, at best, a few cents on each dollar owed.
"P-I-E knew they owed me $299 per week for life and should have put aside a safe fund to meet this debt," Whitehouse wrote to the Bankruptcy Court.
"They didn't, so now the court wants me to go at the bottom of the list to see if they can offer me what's left after the big guys get their fair share. I am as important as any big company. . . . This is wrong. My husband dies, the law says they pay me for life and now I have nothing. "
And finally, for you, the American taxpayer and consumer, deregulation has meant fewer airlines and higher air fares, more unsafe trucks on the highways, and your tax money diverted to pay for the S&L debacle.
That last one is going to cost you for years to come.
For this, and all the other costs associated with deregulation, you can thank the people in Washington who wrote the government rule book - the sprawling, often contradictory collection of laws and regulations that provide the framework for the U.S. economy.
It is that rule book, as The Inquirer has reported the last four days, that a succession of Congresses and presidents have skewed to favor special interests, the powerful and influential, at the expense of everyone else.
The results: There are more rich people than ever before. There are more poor people than ever before. And the ranks of those in between are shrinking, their standard of living falling.
One reason is that the ever-changing rules are propelling federal, state and local taxes ever higher while middle-class jobholders are being forced into lower-paying jobs.
So it is with deregulation, which has meant lost jobs or paycuts for employees in the airline and trucking industries, and, ultimately, higher taxes for everyone to rescue the savings and loan industry.
Backers, to be sure, predicted a rosy future for airlines and trucking when those industries were deregulated. Few of the benefits they foresaw have come about.
Advocates of airline deregulation claimed that it would stimulate competition, reduce fares, open up air travel to more Americans.
Instead, air fares went up, not down. Competition became destructive, not productive. The increase in air travelers was lower in the decade after deregulation than in the decade before it. Cities once served by multiple carriers are now served by one or none. And the airline industry is in shambles.
Nonetheless, the people in Washington have a different view. Transportation Secretary Samuel K. Skinner offered this assessment in January:
"Airline deregulation . . . ushered in a decade of competition and consumer savings unsurpassed in the history of the industry. With deregulation having accomplished so much throughout the 1980s, we must stay the course in the coming decade as the industry continues to restructure. Every credible analysis of airline competition in the 1980s has declared deregulation a success. "
Judge for yourself.
Last year was the worst financial year in the history of American aviation as airline losses soared to $3.9 billion.
Pan American, the flagship of U. S. carriers, founded in 1927, is in Bankruptcy Court. Eastern Air Lines, founded in 1927, is in Bankruptcy Court and is being liquidated. Braniff, founded in 1934, is in Bankruptcy Court for the third time. Continental Air Lines, founded in 1937, is in Bankruptcy Court. Midway Airlines, founded in 1979, is in Bankruptcy Court. Trans World Airlines, founded in 1928, can't pay its bills and is on the edge of bankruptcy.
And then there's America West Airlines of Phoenix - once considered deregulation's success story. From a modest regional carrier with three jets and 280 employees in 1983, it grew into a nationwide airline with 92 planes and 12,000 employees. With revenues of $1 billion, it moved onto the list of the nation's top 10 airlines last year.
In June, it moved into Bankruptcy Court.
If all the news from the skies appears bleak, the authors of the government rule book - the people who brought you airline deregulation - have another solution:
They already have invited foreign airlines to invest in the remaining U. S. carriers. And they are thinking about opening the U. S. domestic market to foreign carriers, so that Air Japan, for example, might one day fly between Philadelphia and Pittsburgh.
So it is that the government, which revised the rule book to spur competition among U. S. airlines, is now contemplating encouraging foreign airlines - many of which are subsidized by their governments - to compete against the few remaining U. S. carriers.
In trucking, it's been a similar story. Rather than making the industry stronger, as congressional backers predicted, deregulation triggered price wars and cutthroat discounting that have destroyed many of the largest companies and weakened others.
More trucking companies failed in the 1980s than in the entire 45 previous years that the Interstate Commerce Commission (ICC) regulated the industry.
Part of the reason, of course, was that there were now many more companies, all scrambling for business.
In 1979, the year before deregulation, 186 companies went out of business. Eleven years later, in 1990, the number had soared to 1,581, the most trucking failures ever recorded in a single year. For the decade, a total of 11,496 failed.
Of the 30 largest motor carriers of 1979, only nine are still in business. The others either went bankrupt or were broken up and their pieces acquired by one of the surviving companies.
A decade into deregulation, trucking appears to be following a variation on the airline-industry pattern.
That is, after an initial burst of competition has come a shakeout, with widespread failures that eventually could leave control of the industry in fewer hands. Meanwhile, though, small, mom-and-pop operators continue to come in, keeping the pressure on.
Trucking industry data show that consolidation already is under way.
Before deregulation, the three largest trucking companies accounted for one-third of the operating revenue of the top 25 companies. Now, those three - Roadway Express, Consolidated Freightways and Yellow Freight System Inc. - account for about one-half.
Nevertheless, advocates of trucking deregulation, like their airline counterparts, contend that it has been an unqualified success.
"The trucking industry has saved billions of dollars through more efficient operations allowed and stimulated by deregulation. . . . The benefits to consumers from deregulation exceeded our fondest dreams," Darius W. Gaskins Jr., former chairman of the ICC, told a House committee in 1989.
A 1990 study by the Brookings Institution, a Washington, D.C., think tank, echoed this view: "Surface freight deregulation (trucking and rail) has been extremely beneficial to shippers and to their customers. Total annual benefits from rate and service changes amount to $20 billion. "
While companies that hire truckers have profited from lower rates, there is no evidence that the cost savings have been passed along to consumers.
Neither have workers in the industry benefited - in fact, gains that shippers have realized have come at workers' expense.
Indeed, what has happened to those workers provides a glimpse into the future for employees in other industries, where restructuring and downsizing are leading to pay cuts, layoffs and elimination of benefits.
Consider the pay of flight attendants.
In 1983, according to data compiled by the Association of Flight Attendants, the average annual salary was $28,847. Six years later, in 1989, it had declined to $27,160.
That represented a pay cut of 6 percent at a time when living costs shot up 24 percent.
During those same years, the people who write the government rule book - and who revised the laws that, ultimately, led to lower salaries for airline employees - increased their own salaries 48 percent.
The pay of members of Congress went from $60,662 in 1983 to $89,500 in 1989. The $28,838 increase alone exceeded the full salary of flight attendants. Today, congressional salaries are $125,100 a year.
For truckers, the 1980s were a dismal time, even though government statistics suggest that all is well.
According to the Bureau of Labor Statistics, employment and wages in the trucking industry are up since 1980. Between 1980 and 1990, the number of employees increased 248,000, rising from 1.242 million to 1.490 million.
Average yearly earnings went from $18,400 to $23,400, the government says.
What those figures fail to disclose: During the years when total employment rose, more than 100 of the big, established trucking companies folded. With them went more than 150,000 jobs.
These were the higher-paying trucking jobs - drivers with seniority and company-paid benefits, such as health insurance and pensions. Many of those truckers earned solid, middle-class wages - $30,000 or more in recent years.
Deregulation brought an influx of one-owner shoestring trucking operations, which cut into the business of those established companies. Jobs at these small operations paid less.
So it was that deregulation eliminated two jobs that paid, say, $30,000, and created three jobs that paid $20,000 or less.
Just as misleading are the earnings reported by the government.
In 1990, trucking industry workers earned, on average, $23,400 a year, according to the Bureau of Labor Statistics (BLS).
But the government excludes one major category of truckers from its figures - self-employed drivers. And their earnings generally are lower than those for drivers employed by major companies.
"We don't really have any data on how many there are," said a BLS official. "An individual in business for himself is technically not covered by our study. "
A spokesman for the ICC said that the agency does not know how many owner- operators exist. "I'm not sure we have ever had an accurate count," he said.
The Owner-Operators Independent Drivers Association, the largest trade group representing individual drivers, estimates there are 350,000 to 400,000 owner-operators.
Based on surveys by its magazine, Landline, the association estimates the annual income, after expenses, of owner-operators at $20,000 a year, or $385 a week, according to Sandi Laxson of the drivers' group.
"Deregulation has been a nightmare for our people," said Laxson. "I remember my uncle was a truck driver 20 years ago and, wow, he made a lot of money. He was on the road all the time. But his wife drove a nice car and they had a nice house.
"Now, drivers are struggling to survive."
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The source of the upheaval in the trucking industry is the Motor Carrier Act of 1980, which changed the rules that had governed trucking for half a century.
Responding to criticism that the ICC's rules had frustrated competition and discouraged new companies from entering the business, Congress scaled back the agency's powers, making entry easier and giving truckers more freedom to set rates.
President Jimmy Carter summed up the high hopes when he signed the law in July 1980: "The Motor Carrier Act of 1980 will eliminate the red tape and the senseless overregulation that have hampered the free growth and development of the American trucking industry. "
No one was prepared for what followed.
As promised, the law unleashed new competition - on a scale unforeseen and with an intensity that became destructive.
New trucking companies surged into the industry by the thousands.
But most were one-person operations.
By 1979, the year before deregulation, the ICC had granted operating licenses to 17,000 interstate carriers. By 1990, that number stood at 45,000.
The ICC granted more operating certificates in the 1980s than in the previous 45 years it regulated the industry.
From being an agency that exercised tight control over truck licensing, the ICC essentially rubber-stamped applications.
But while the number of companies more than doubled, there was no corresponding increase in the volume of freight hauled.
Too many trucks were suddenly chasing too little freight.
Total inter-city tonnage increased just 11 percent, from 2.26 billion tons in 1980 to 2.5 billion tons in 1989. Thus, more than twice as many ICC- approved companies were competing for roughly the same amount of freight.
The trucking glut led to desperate rate wars as truckers scrambled to survive. With each round of rate cuts, many longtime companies found themselves awash in red ink.
As losses mounted, companies whose trucks had long been familiar names on American highways began to vanish. Even companies that initially thought they would benefit from deregulation were, in the end, destroyed by it.
When the parent corporation of American Freight System Inc., one of the nation's largest trucking companies, based in Overland Park, Kan., acquired Smith's Transfer Corp. of Staunton, Va., in 1987, it sought to allay concerns of Smith employees about being absorbed by another company.
In an Oct. 2, 1987, letter, American Freight welcomed the Smith workers into the new company, citing numerous fringe benefits - profit-sharing, pension and health and welfare plans - to which they would be entitled.
"Your economic security has been made more certain," the letter said. ''American Freight System is a financially viable carrier with a secure future in the deregulated motor carrier industry. "
Nine months later, American Freight filed for Bankruptcy Court protection.
The action threw 9,300 people out of work, closed 258 trucking terminals across the nation and idled 17,000 trucks and trailers. The company has since been liquidated.
For trucking companies still in business, the outlook is grim. Many that have survived are just getting by. Profit margins have been squeezed. Equipment is neglected or pushed to the limit.
So many carriers are entering and leaving the industry that the Federal Highway Administration has been unable to keep pace with safety inspections of interstate carriers. The inspections are required by the Motor Carrier Safety Act of 1984, which was aimed at reducing trucking accidents.
A January 1991 report of the General Accounting Office noted: Federal Highway Administration "workload data show that the number of carriers entering the marketplace in any one month can exceed the number that underwent safety reviews. "
For those vehicles that the highway agency did inspect, the GAO said, "70 percent . . . received a less-than-satisfactory rating. "
That comes as little surprise to DeWayne Snow.
The owner of Snow's Welding & Truck Repair Inc. in Tyler, Texas, 100 miles east of Dallas, Snow does repair work for both large and small trucking companies.
"It's real tough on them right now," Snow said. "They don't fix anything they don't have to. . . . They'll bargain over everything. They even say to you, 'Can I bring in some used parts? ' "
As companies fought to stay in business after deregulation, they struggled to cut costs. Usually that meant reducing the wages and benefits of workers.
This sometimes was accomplished, curiously enough, through a program intended to broaden ownership - Employee Stock Ownership Plans, or ESOPs.
Created by Congress in 1974, ESOPs have become more and more popular with a wide spectrum of American corporations.
Proponents say that ESOPs give workers a voice in their company's operations and make them feel committed to its success.
In the trucking industry, though, ESOPs were used as a device to persuade employees to accept pay cuts.
In return for wage reductions of up to 15 percent, workers received stock in the company. If the firm prospered, they were told, their stock would appreciate in value and they would earn back what they had given up. That was the theory, anyway.
Contrary to the image of American labor as uncompromising on bread-and-butter issues, trucking industry workers went along - usually overwhelmingly so - with virtually every request of financially strapped employers for wage cuts in exchange for ESOPs.
Since 1980, more than two dozen ESOPs financed by worker wage cuts have been adopted by large trucking companies.
With few exceptions, the companies failed anyway.
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The first major trucking company to adopt an ESOP was Transcon Lines Inc. of Los Angeles, a carrier with terminals in 45 states. The plan, approved at Transcon in 1983, was widely hailed as an example of labor and management cooperation.
A remarkable 88 percent of Transcon's 4,000 employees agreed to reduce their wages by 12 percent for five years in return for 49 percent of the company's stock.
Financial analysts loved the deal.
Said William H. Legg, a transportation analyst with Alex Brown & Sons Inc. of Baltimore: "Without the ESOP, Transcon wouldn't have been able to put enough capital into the company to stay even with the more well-heeled carriers. "
The Transcon example soon spread through trucking, as one carrier after another secured wage cutbacks from workers in return for stock in the company.
In the spring of 1989, amid much fanfare, Transcon distributed 2.5 million shares of stock to its workers, signaling the successful conclusion of the plan.
Calling the ESOP an "unqualified success," Orin Neiman, Transcon's chairman, paid tribute to the workers who now owned almost half of the company's stock.
"The ESOP helped the company through years of fierce price competition and saved Transcon and 4,000 jobs that otherwise would have been lost," Neiman said.
One year later, Transcon was out of business.
With the ICC's approval, the company was sold in the spring of 1990 to a Florida-based real estate company. Three weeks later, Transcon closed its doors and entered federal Bankruptcy Court in Los Angeles. It is now being liquidated.
Virginia Oates, who worked for Transcon in Charlotte, N.C., remembers the last day.
"The company I worked for, Transcon Lines, was involved in a hostile takeover on April 20, 1990," she wrote the ICC. "The takeover transpired at 4:50 p.m., Friday, April 20, 1990, without any advance notice to the employees of Transcon Lines from anyone. All personnel, except the salesmen, were advised to take all their personal things with them as they left that day. "
A Transcon employee for 15 years, Oates - and 4,000 Transcon workers nationwide - were suddenly out of work. The stock they had bought with $50 million of their wages was virtually worthless.
"It is hard for me to believe that the ICC has done their public duty in this case," wrote Oates.
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Trucking deregulation was the product of a broad-based political movement for regulatory reform that gathered steam in the 1970s.
While the perception exists that deregulation was Ronald Reagan's idea, it actually predated his arrival in the White House. In fact, airline and trucking deregulation were pushed through by Jimmy Carter.
The legislative coalition that brought about those changes and the subsequent deregulation of the savings and loan industry in 1982 had broad support in both parties.
Such political opposites as Sen. Jake Garn, the conservative Utah Republican, and Sen. Edward M. Kennedy, the liberal Massachusetts Democrat, were both on the deregulation bandwagon.
And it was Kennedy, more than any other senator, who led the charge for passage of the airline and trucking deregulation bills.
When Carter signed the Motor Carrier Reform Act on July 1, 1980, at a ceremony in the White House Rose Garden, he singled out Kennedy for special attention: "It's particularly gratifying to me to welcome Sen. Kennedy . . . because he's done such a tremendous job . . . in helping the whole nation understand the advantages to be derived from this trucking deregulation bill. "
Using language that sounded very much like the speeches that Reagan administration officials would make later in the 1980s, Kennedy described the Motor Carrier Act as "a significant victory" in the "ongoing battle to . . . reform and reduce needless federal regulation of business. . . . It means less government interference with industry . . . and more freedom for individual firms to conduct their business in the way they think best. It'll mean new opportunities, new jobs. "
Kennedy was half right.
New jobs were created - at low wages.
But many jobs that paid middle-class wages were eliminated.
Ask Charles D. Wright Jr.
For 12 years, Wright was a dock worker at a sprawling truck terminal in Hagerstown, Md., a distribution hub that received and rerouted freight across America.
After completing high school in Hagerstown, Wright went to work at the terminal, on a plain north of the city where he had hunted groundhogs as a boy.
He felt fortunate.
"Trucking was a good job in those days," he said. "The pay was good. It was steady work. "
And Ryder Truck Lines, which owned the terminal, was a good company, he said.
"I was proud to work there," he said. "People would ask you where you worked. I'd tell them, 'Ryder Truck Lines. ' Big smile. "
Ryder was one of the nation's oldest trucking companies. Founded in the 1930s, it was owned by IU International Inc., a Philadelphia-based conglomerate that had diversified into the interstate trucking business.
In addition to Ryder, IU owned another old-line trucking company, Pacific Intermountain Express Inc. (P-I-E), based in the West.
As separate divisions of IU, Ryder and P-I-E long were profitable operations.
Deregulation turned the profits into losses.
To try to stem the losses, IU merged Ryder and P-I-E in 1983, creating Ryder/P-I-E Nationwide. But the red ink still flowed. The trucking operations lost $42.5 million in 1984.
Another change was also beginning. Charles Wright and fellow workers at the Hagerstown terminal watched the company, once a solid, well-run organization, gradually deteriorate into a chaotic operation.
"They kept on hiring more management, more supervisors," he said. "When it was Ryder, there were just two supervisors a shift, and some nights only one. And then after deregulation, we had more superintendents and more managers than we ever had before. There was a lot of turnover among those guys. When it was Ryder, the same guys were supervisors for years. "
The Ryder/P-I-E merger didn't work. In 1985, the company lost $86.4 million - the largest one-year loss ever recorded by any trucking company.
In the fall of 1985, to keep afloat, the company proposed an Employee Stock Ownership Plan. In exchange for giving up 15 percent of their wages for the ESOP, employees would receive stock in P-I-E.
A prospectus spelling out the benefits was mailed to employees: "The purpose of the plan is to enable employees . . . to acquire stock ownership in (P-I-E) and thereby to share in the future of (P-I-E) and to provide employees who participate with an opportunity to accumulate capital for their future economic security. "
Over the five-year life of the ESOP, employees would give up about $250 million in wages in exchange for 49 percent of the company's stock.
Victor Anderson, another Hagerstown dock worker, recalled the day the ESOP was proposed: "They took everybody off the dock and brought us down to our break room and said, 'Hey, we've got this ESOP program. We're in financial difficulty and if you all don't decide to get into this - now we can't force you to get into this - but if you don't get into this, we're going to go out of business - next week. ' "
Employees who signed up were sent buttons, proclaiming: "I'M AN OWNER," which they were urged to wear on the docks.
The more workers who supported the ESOP, the lower the company's wage costs, so IU kept up a steady drumbeat of promotions urging workers to ". . . keep those sign-up cards coming in" and to "get to 100 percent (and) top 'er off. "
Fearing that they would lose their jobs, more than 85 percent of P-I-E's 10,500 employees signed up.
Charles Wright reluctantly agreed to go along, although he was convinced it was merely a device to get him to take a wage cut from $500 to $425 a week. In truth, most workers felt they had no choice.
"When you think about it, what are you going to do," asked Anderson. ''Are you going to take a 15 percent cut in pay or are you going to go out and try to get a job when it was hard to find one? So the majority of the people decided to get into the ESOP. . . . You were under a lot of pressure. "
Eighty-five days after the stock plan was adopted, IU sold the company that it had spent months persuading employees to save by forfeiting their wages.
On Dec. 31, 1985, the truck line, now renamed P-I-E Nationwide Inc., was sold to a privately held Chicago investment partnership, Maxitron Inc., which had no experience in the trucking industry.
Many employees were embittered by the sale, coming so soon after they had agreed to 15 percent wage cuts.
Indeed, employees would later file lawsuits seeking to recover the money they had contributed to the ESOP. The lawsuits have since been settled and a fraction of the money returned.
"When they turned around and sold the company right after the ESOP, it left a bad taste in people's mouths," said Anderson. "They led us to believe that the company would not be sold, that it was going to turn around and that sometime our stock would go onto the open market. "
Such was not the case. Under Maxitron, P-I-E continued to slide.
Top management changed with each season. In the 20 months after adoption of the ESOP, P-I-E had four different chief executive officers.
The chaos at the top filtered down through the company.
"It seemed like anything that went wrong was your fault," said Wright, ''and anything that went right was their idea. "
"The equipment was neglected after deregulation," said Anderson. ''Before, they had a regular program to replace so many tractors each year. That way you replaced your fleet every few years.
"But after deregulation . . . they had to do everything to keep their customers. One of the big things that suffered was the equipment.
"One way they could cut expenses was, if the truck needed brakes or tires, to run it one more trip. Or if the clutch was slipping on a tow motor, use it another week before you fixed it. There was a lot of neglect. "
In the spring of 1990, the company changed hands yet again.
The new owner was from Miami Beach and, like Maxitron, had no experience in the trucking industry.
Olympia Holding Corp., as it was called, had the same address, 1250 Ocean Dr., Miami Beach, and many of the same officers of a company that only three weeks earlier had acquired control of another old-line trucking firm, Transcon Lines of Los Angeles.
Olympia's plan, its officers told the ICC, was to merge the troubled lines into one company. After applications were submitted, the ICC tentatively agreed to transfer the operating certificates to the new owners.
If the ICC had been guilty of overregulation in the past, its approval of the Transcon and P-I-E acquisitions showed just how far in the other direction the agency had swung.
The central figure behind Olympia Holding and the Transcon and P-I-E deals was a controversial developer, Leonard A. Pelullo, who has operated from Chester County, Pa., to Miami Beach.
About the time that the ICC approved Pelullo's control of the two trucking companies, he and his businesses were the subject of civil complaints and criminal investigations. Disgruntled investors, banks, the IRS, other government agencies, and federal grand juries were suing or probing Pelullo's business activities, from Philadelphia to Miami, from Newark to Los Angeles.
Some of his difficulties grew out of his unsuccessful attempt to restore a collection of Miami Beach's historic art deco hotels. The real estate venture was undertaken by the Royale Group Ltd., a publicly traded company that Pelullo controlled.
After the Royale Group attracted millions of dollars from investors and banks to restore the hotels, the company collapsed.
While the ICC was considering the transfer of P-I-E's and Transcon's operating certificates to Pelullo's companies, his business empire was reeling, as a summary of the litigation and complaints against him shows:
- His principal company, the Royale Group, and its affiliates were in Bankruptcy Court in Miami.
- A Bankruptcy Court trustee in that case reported to the judge that Pelullo had transferred assets to family-controlled entities, with the apparent intent to "deprive creditors" of assets.
- The Federal Deposit Insurance Corp. (FDIC) had filed a claim in Dade County, Fla., Circuit Court seeking to recover more than $30 million in principal and interest from a loan to a Pelullo company by a failed savings bank.
- The IRS had filed a claim of $697,000 against Royale and seized company documents in an attempt to collect unpaid federal taxes for various Pelullo corporations.
- A federal grand jury in Cincinnati had indicted Pelullo for allegedly bribing an officer of an Ohio savings and loan. A jury later acquitted him of the charge.
- A federal grand jury in Philadelphia was investigating charges that Pelullo had defrauded a savings and loan association in Stockton, Calif., from which the Royale Group had borrowed $13.5 million in 1984.
- A civil complaint filed in New Jersey accused Pelullo of raiding the pension fund of Compton Press Inc., a Morris Plains, N.J., printing company of which he acquired control in 1987, and of siphoning off millions of dollars from the company's retirement plan for his personal use. A federal judge in New Jersey later sent Pelullo to jail for three weeks when he failed to pay back the fund.
This, then, was the background of the new owner of two longtime trucking companies, whose certification the ICC approved in April 1990.
Pelullo's Growth Financial Corp. acquired Transcon for $12 on April 1, 1990.
In the next few weeks, liquid and real assets of Transcon were diverted to other Pelullo entities, according to a bankruptcy trustee. The trustee asserted in Bankruptcy Court in Los Angeles in 1990 that Growth Financial appropriated to itself $1.655 million in cash belonging to Transcon.
The trustee said that transfers were only the first of many transactions that would reduce Transcon to a "debt-ridden shell, all in an attempt to move all of Transcon's assets beyond the reach of its creditors. "
What happened to the cash that disappeared from Transcon's accounts remains a mystery, but the trustee contended that perhaps $400,000 was diverted to P- I-E, as were tractors and trailers owned by Transcon.
If they indeed were diverted to P-I-E, none of these assets helped that company either. It just prolonged the inevitable.
Victor Anderson and his fellow workers at the Hagerstown terminal saw it coming.
"It just became so obvious the last month they were going to go down," he said. "When you run out of toilet paper and soap, you know it's the end. "
On Oct. 16, 1990, P-I-E filed for protection from creditors in Bankruptcy Court in Jacksonville, Fla.
Pledging to reorganize and stay in business, the company closed terminals and slashed its workforce.
It was too late. In early December of that year, the bankruptcy reorganization was converted to a liquidation. P-I-E's few remaining assets were to be sold off.
Dec. 17 was the last work day for Charles Wright at the Hagerstown terminal.
After 12 years of steady employment, he was out of a job. To support his wife and two children, he began drawing $215 a week in unemployment compensation.
Along with his wages, Wright lost his health benefits. The Teamsters offered to provide coverage but he'd have to pay the cost. It was an offer he had to pass up.
"When we left, we were told we could pay into the health and welfare program for $432 a month," he said. "But who has $432 a month when you are laid off? How is anybody who's laid off going to afford that? So we don't have any health coverage. "
And what of Leonard Pelullo, the man the ICC approved to take over P-I-E?
In a criminal case involving events that occurred before Pelullo acquired Transcon and P-I-E, he was convicted in July of defrauding a Stockton, Calif., savings and loan and the Royale Group, the company that he controlled, of $2.2 million.
In that case, a U. S. District Court jury in Philadelphia found him guilty on 50 counts of wire fraud and racketeering. Judge Robert F. Kelly sentenced Pelullo to 24 years in prison - jailed him immediately and ordered him to pay a fine of $4.4 million and restitution of $2.2 million.
At the sentencing hearing, Kelly posed a rhetorical question concerning Pelullo's control of a public company - a question the ICC might easily have asked at the time of the P-I-E/Transcon merger:
"Why would any public corporation ask him - let him - ever get control of their assets?"