Chicago Tribune from Chicago, Illinois • 29

landau (Dutaijo (Tribune Sunday, June 14, 1981 Section 5 Airlines scramble to limit damage if controllers strike I By Sheila Tefft WHEN MIDWAY Airlines. officials realized their new service to Philadelphia may not survive under the Federal Aviation Administration's contigency plan for an air traffic controllers strike, they went to the federal agency hoping to salvage some of the flights. "We thought we had kind of a unique situation here," recounts Gordon Linkon, president of the budget carrier that began serving Philadelphia out of Chicago's Midway Airport just last month. "But the FAA just laughed at us," he continued, "and told us to get at the end of the line." The looming threat of a strike by the Professional Air Traffic Controllers Organization (PATCO) and growing fears that the controllers will walk off the job June 22 have sent the airline industry scrambling to block the stoppage and to buffer itself if those attempts fail. OUTWARDLY, the airlines still are assuming a business-as-usual attitude and hoping for a resolution.

But internally, they are readying their own contingency plans in case of a strike that would mean mass confusion for the air traveler and severe consequences for a depressed industry already into its busiest season. Under its contingency plan, the FAA proposes to operate up to 50 per cent of the 14,000 domestically scheduled flights with supervisory personnel. However, airline officials say that, realistically, two-thirds of the system could shut down, saddling the industry with as much as $80 million a day in lost revenues. The situation would be similar to what happened In 1966 when machinists struck five major carriers, stopping about 70 per cent of the scheduled air travel in the United States. FINANCIALLY, it would be worse for the carriers.

A shutdown would hit them at a time of depressed earnings instead of a highly profitably period. In 1980, the major U.S. carriers suffered a record $400 million loss. "A strike could delay the Industry's (financial) recovery, assuming that it goes on for more than a day or two," said George James, the economist for the Air Transport Association (ATA), an industry trade group. Still, most executives say they do not expect the controllers actually to walk out.

Others say they anticipate the federal employes will disrupt traffic with a slowdown. "We're not counting on a strike," said Monte Lazarus, who handles government-related matters for United Airlines, of Chicago. "We're planning normal operations now." THE CONTROLLERS, who as federal employes are prohibited from striking, have vowed to walk out if the FAA fails to make an acceptable proposal. They have been working without a contract since March. Officials of the federal agency say they cannot legally meet the demands, including a $10,000 across-the-board pay increase, i The airlines are seeking to avert the strike through the courts.

Joined by the FAA, the ATA wants enforcement of a Continued on page 2 rt -F- i Um' i 1 i-VUV7 Mi H.mim Jkjftr 1 i JP-H i 't '-4 1 1 in ii i iniiTri Willi By James Mateja Lighte Tribune graphic by Tom Heinz photo by Charles Osgood cars a burden to some Fed moves to attract foreign banking units industries' nrnHnrtinn h. r. niitnmnrivm if i 9-f Birchill said. And while losing car frame business, A.O. Smith won contracts to supply Ford with frames for its new 1982 Ranger truck and Econolihe vans.

But truck frame volume never will reach that of car frames in the early '70s, when GM was selling 4 million to 5 million cars annually, the majority relying on frames. SNAP-ON-TOOLS Corp. of Racine, is a good news bad news case. The bad news is that Snap-on is a major supplier of tools and diagnostic equipment to auto dealership mechanics. "Business has been affected by dealership closings, not knowing from one day to the next if a dealer will be in business next month," said Charles Nieml, company spokesman.

The good news is that many new engines are being introduced, each requiring new tools to work on them. Plus, Snap-on took a risk. For years the federal government dragged its feet on diesel engine exhaust emissions. Some feared the engine would have to be abandoned. Snap-on went ahead and developed a diagnostic machine to speed the mechanic's ability to set diesel engine timing.

Detroit now has the go-ahead to develop and market more diesels, and Snap-on will market the machine in six months. AT CHERRY ELECTRIC Co. in Waukegan, automotive business accounts for about 10 per cent of sales. But Walter Cherry, chairman and president, sees that rising to 15 per cent in a few years. Cherry makes electrical snaps, switches, keyboards and semi-conductors used in specialized products such as power window lift switches, windshield washer pulse systems, and power door locks.

"For the future," Cherry said, "we are making a variety of fuel sensor and mileage stretcher devices. Air conditioners, for example, take power from the engine at high speed. We are making a cutoff switch for the '82 Ford Escort and Mercury Lynx so that when you step on the accelerator, the air cuts off while you need full engine power. We also make idle sensor switches for engines to provide more or less oxygen to the engine at idle to reduce emissions. DRAMATIC CHANGES in the design of today's cars have made a big impact on the some 2,000 suppliers that feed the parts and components to the auto For some it's a bonanza; for others, a headache or worse.

In tome cars, rear side windows no longer roll down, thus eliminating the handle and related hardware. Bodyside moldings glue on there go metal clips and fasteners. Mirrors are now housed in plastic, not metal. Steel bumpers are replaced by soft, pliable rubberized plastic, and headlight lens covers are now also plastic, not glass. THE IMPACT shows up in different ways at different companies.

A.O. Smith Corp. of Milwaukee, for example, long has been General Motors major supplier of steel car frames. With the switch to smaller, lighter cars came the change to unitized construction to save weight. i In 1979, Smith's car frame business accounted for about f267 million in sales.

In 1980, that dropped to about $170 million. Not only have automakers told Smith they will stop using car frames altogether by 1983-'84, but big cars already in production that use frames aren't selling a double whammy. In less than two years, Smith has laid off 2,200 1,200 of them this year when it closed its Granite 111., car frame plant. "WE INVENTED the frame," said Jack Birchill, a Smith spokesman. "Until a couple of years ago we had convinced Detroit that a separate body and frame was best for, comfort and noise reduction.

Then came the energy crisis." Perhaps, observers now say, Smith lingered too' long and was too slow to respond to the fact frames were on their-' 'Way out. Birchill argues that frames may be declining, but that Smith has diversified and this year is supplying Chrysler Corp. with axles for its K-body compacts. The estimated $275 million in annual sales to Chrysler by 1984 will help offset car frame losses, mills 32.9 1.1 rugs 185.4 2.2 upholstery filling 70.5 1.4 fabric 949.4 10.4 trim 1,667.8 24.2 textile products 385.2 10.1 and board 21.8 .3 products 859.6 8.6 preparations 427.1 3.7 tubes i 7,336.9 103.0 hose, belts 100.0 2.1 rubber products 1,087.0 27.4 plastics 2,430.6 49.3 807.7 10.6 products 271.5 3.9 foundries 3,191.0 56.9 2,203.1 43.1 rivets, washers 179.5 3.5 9,470.3 131.9 370.6 5.4 1,322.2 15.6 machinery 188.0 4.1 heating equipment 1,562.9 25.7 pistons, rings, valves 1,082.8 26.5 generators, 458.9 91.2 223.1 3.9 663.5 14.6 receiving sets 662.1 9.7 1,458.0 19.8 equipment 2,796.8 59.7 Manufacturer Association of DotreH Chicago Darts Product ternational asked the Civil Aeronautics Board for a separate ruling on the stock purchase. The move, if successful, could block Continental employes from taking control until after the CAB decides the fate of Texas International's merger request.

The struggle for Continental has taken more twists and turns than an aerial dogfight, and there are promises of more sorties. All sides have vowed a long legal battle to achieve their Supplier annual Narrow fabric Tufted carpets Paddings Tire cord Auto and apparel Fabricated Die cut paper Paints allied Chemical Tires inner Rubber plastic Fabricated Miscellaneous Glass Asbestos Gray Iron Hardware Bolts, nuts, Stampings Steel springs Engines Metal -working Refrigeration Carburetors, Motors Electric lamps Lighting equipment Radio and TV Storage batteries Engine electrical Souroa: Motor Vehlda "The potential uses more microprocessor They buy those for electronics is great. As Detroit computers in its cars, you'll find that every they use requires Informational input. sensors to give the information from Continued on page 6 Let's buy if rallying cry of airline "IT'S LIKELY WE WILL have one, but I'm not sure yet whether it will be here or become part of our Edge Act corporation in New York," said Phillip Delaney, executive vice president of Harris Bank, which has branches in London, Singapore, and David Vitale, senior vice president of First National, said the bank "probably will go ahead" with the creation of an IBF in Chicago if the state legislation is Continental Illinois National Bank Trust Company of Chicago also would establish an IBF here. Roger E.

Anderson, chairman, said "several billion" dollars in deposits and loans would be moved to a Chicago-based IBF from its London and Nassau operations. It also would mean a "modest increase" in local employment, he said. ANDERSON SAID HE prefers to make an IBF part of the parent bank rather than link such a facility with its existing Edge subsidiary offices in New York and other cities. The Edge units have a much smaller capitalization, sharply restricting their lending capability, compared with the parent bank, he explained. One unresolved question, in the minds of Chicago bankers, is whether locally based IBFs will have equal access to the Clearing House Interbank Payments System (CHIPS) in New York as institutions in that city.

Although bankers predict that the creation of onshore IBFs will attract some of the foreign banking business now done offshore, they doubt it will lead to the closing of branches outside the U.S., especially in the tax-haven areas. "FOR ONE THING, an IBF cannot issue negotiable Eurodollar certificates of deposit," said J.D. Boisi, vice chairman of Morgan Guaranty Trust Co. in New York. "And they are restricted in deposit-taking and lending to offshore foreign customers." Furthermore, branches in many Caribbean islands will continue to offer a greater assurance of confidentiality than IBFs, other bankers noted.

But the costs for U.S. banks doing business with an IBF are expected to be reduced a bit because of what bankers call the "sovereign risk." The strong economic and political stability of the U.S. "ought to be worth a few basis points" in loan returns, one banker said. Inside The homg security busi-. ness is booming.

Demand is so strong that some manufacturers are hard pressed to produce and deliver the hardware. The industry's growth during an economic slump is understandable, say experts. Page 3. Chicago and other large American cities soon may become tax havens for foreign banking transactions, competing with Cayman Islands and other offshore locations. The Federal Reserve Board moved to lure offshore banking business back to the U.

S. by permitting banks to set up international banking facilities anywhere in the country. Page 5. By William Gruber CHICAGO AND OTHER large American cities may soon become tax havens for foreign banking transactions, competing with the Cayman Islands and other offshore locations. The Federal Reserve Board moved last week to lure offshore banking business back to the United States by permitting banks to establish international banking facilities (IBFs) anywhere in the country, subject to state laws.

Bills already had been moving quietly through the Illinois legislature that would exempt foreign transactions made by IBFs here from the possibility of state taxation. One bill was passed May 17 by the House. A Senate committee approved a similar measure Thursday and sent it for a vote by the full chamber. UNDER THE FED RULING, banks could creat the facilities beginning Dec. 3.

They will be allowed to engage in foreign loan and deposit business free of the reserve requirements and interest-rate ceilings that affect domestic banking. A large number of U. S. banks have set up branches, primarily in the Caribbean and in London, during recent years to escape such regulations in their international dealings. By one estimate, deposit volume for all U.S.

banks averages $60 billion to $80 billion at their units in the Caymans and in Nassau, the Bahamas, alone. Total overseas volume has been estimated to run into the hundreds of billions of dollars. "THE ILLINOIS BILL is not intended to escape future taxes here," one Chicago banker said. "It is merely intended to parallel existing national policy, which is to make U.S. banks competitive with foreign banks.

That money isn't taxed today. It would remain offshore without the local legislation." Five other states, including New York and Florida, have enacted laws permitting the creation of IBFs. At least a half-dozen others are considering such proposals. Executives of the First National Bank of Chicago, Harris Trust St Savings Bank, and Northern Trust Co. said their institutions were interested In setting up IBFs.

But they declined to be specific until the Federal Reserve Board issues final regulations. Carl Rosen, 63-year-old chairman ot Puritan Fashions Corp. suddenly ha9 emerged as the darling of Wall Street's hot money crowd. 4 cent controlling interest in Continental. The plan would give the airline, which suffered losses for the last two years, an instant capital infusion of $185 million.

And it would enable the company to halt a take-over bid by Texas International Airlines (TIA). A FEDERAL JUDGE Is preparing this week to rule on the employes' stock plan, and Continental is gearing up to issue the 15.4 million shares immediately if the decision was favorable. At the llth hour, however, Texas In By Carol Oppenheim Chicago Tribun Prats Service LOS ANGELES The bumper sticker said it all: "We built it-let us buy it!" At first, it was just an idea bandied about by a few pilots. But as word spread among Continental Airlines' 11,000 employes, it became a rallying cry. In April, with nearly 9,000 workers voting "yes" and only 359 "no," the employes adopted a plan to forego half of their future pay raises to buy a 51 per Calvin Klein makes Puritan stock sizzle dogfight All this began a year ago when Continental chairman Robert F.

Six brought in Alvin L. Feldman to be chief executive officer and president. The airline had been plagued by rising fuel prices and increased competition for its routes; new direction was needed. MEANWHILE, WESTERN Airlines had been looking for a corporate marriage. In 1979, the CAB had rejected a Continued on page 2 "You can make a case for $l0-a-share in earnings in two years," said one excited money manager, who personally bought more than 8,000 shares for $13 to $18 a share.

In the face of such exuberance, I figured my best bet was to go directly to the horse's mouth (allowing, of course, for Rosen's exuberance, as well). "WE'RE A BORN-AGAIN company." says Rosen, whose father started the business (selling skirts and dresses) In 1910. That "born-again" label refers to the elimination in the last two years of $170 million worth of traditional clothes sales, mainly dresses, in favor of strictly designer apparel. In those two years, the company got rid of every manufacturing facility (it now contracts out all work) and all Inventories of traditional clothes. In the process, it chopped its workforce from 8,000 to 800.

Aside from Calvin Klein, all that's left is a line of Diane Von Continued on page 3 Dan Dorfman t. A WHEN AN APPAREL manufacturer Puritan Fashions Corp. suddenly becomes the hottest stock on the Big Board, it's obvious that something's up. 'And "What's up, as one savvy Wall Streeter describes it, is "an old war horse (Carl Rosen) who, like a phoenix, has risen from the ashes." That's our man's view of the aging but still flamboyant Rosen, the conspicuously wrinkled and slightly paunchy 63-year-old chairman of Puritan, one of country's top apparel producers. It'l a good assessment of Rosen.

Distrusted by many investment pros for the lation at the annual meeting that Calvin Klein sales were going through the roof. That in itself was hardly a surprise. A glance at the bottoms of many women, men, and teen-agers will quickly tell you that. But Rosen went beyond that and tossed out a glowing forecast that Calvin Klein's sales would reach about $230 million this year, more than double '80's $107 million. (They were $65 million in '79 and $22 million in '78.) THAT $230 MILLION forecast conjured up all sorts of huge earnings expectations not only for '81 but beyond.

And In the current speculative environment, growing numbers of buyers rushed in. Quickly forgotten in the face of a ballooning stock price on big volume were the repeated disappointments of the past. These ranged from plans a number of years ago to become growing force in energy exploration (that business has been scrapped) to last year's dismal $3.4 million net loss, including $7.4 million write-off from discontinued operations, signer Calvin Klein. The licensing arrangement, which dates back to the spring of 1978, gives Puritan the right to produce and sell tops and bottoms (including the all-Important jeans) bearing the Calvin Klein name. Wall Street's enthusiasm can be seen in the sizzling performance of the company's shares.

Selling at around $11 a share on May 19 (the day of the firm's annual stockholder meeting), the stock bolted last week to an all-time high of $21.75. And it was selling right around that price at press time. sparKing that fast 90 per cent gain in the company's shares was Rosen's reve- company's repeated failure to live up to the grandiose expectations, that an ever-optimistic Rosen helped promote both day and night the Puritan boss has emerged as the darling of Wall Street's hot-money crowd. TIME REASON: expectations of an earnings explosion stemming from Puri-i- fcttn'i licensing dqal with hot fashion de- I.