For those who dont read Mike Boyd, Aviation Consultant, heres what he has to say about a UAL BK filing. I wholly agree with 100& of what he says on this.
Hot Flash - December 9, 2002
United Bankruptcy: It Might Not Fix The Problem
A World Class Airline. World Class Employees
All They Need Now Is World Class Leadership
United's rank-and-file deserve better than this.
A world-class airline. Sophisticated service delivery. A first-rate employee team. Strong brand loyalty. All directed by a Board and senior management that have behaved over the past three years like a pack of gypsies in the palace.
It gets a bit wearisome hearing the confident news stories blaming United's fall from financial grace on the carrier's employees and their pay rates. Get this: the employee concessions, as noble as they were, could not save the airline from bankruptcy. The loyalty and dedication of United's rank and file, as strong as it is, cannot fully counter-balance the mess caused by a string to inept moves inflicted over a period of years on the airline by a lack of sound strategic planning at the top.
The post-9/11 airline business is one 20% smaller, in terms of passenger revenue, than the one that existed on 9/10. Back then, all airlines faced a catastrophic situation. Today, the proof is on the balance sheet regarding which airlines had truly wartime-quality management and which did not. Last quarter, Continental, for example, was essentially at operational break-even. United lost almost a billion dollars. The core reason: United entered the post-9/11 situation less prepared at the corporate top than any other airline.
Somebody Forgot They Had An Airline To Run. We can go back and look at history. The gypsies have been in full-party mode for at least three years. In year 2000, at a time when most of United's employees had not had a meaningful salary increase since 1994, United management squandered over a hundred million dollars fooling around with an expensive and ill-conceived attempted merger with US Airways. (Which, by the way, United, not the DOJ, ultimately terminated.) Then there was the Avolar business jet fiasco - another dumb, non-airline vapor hole into which United's senior management tossed tens of millions before canceling the venture. While their competitors stopped in their tracks to re-structure after 9/11 in the face of huge losses, the Goodwin team continued on sending money to Europe to buy business jets for this non-airline business venture. Then Goodwin got his severance and United's board of directors allowed the airline to drift without a strategy or a permanent CEO for almost a year.
Finally, the Board spent $7.5 million in cash to hire a CEO with no airline experience. A fine, high-quality person with lots of great business experience, and impeccable credentials. That might have been okay in peace time, where such expertise could bring new perspectives. But this was a crisis situation, and what United needed desperately was a man with a plan. (Or woman.) United could ill-afford the luxury of having a new CEO diddling around learning the business, holding task-team meetings, and make rambling statements about bringing "stakeholders" together. United needed a CEO who would arrive with all guns blazing, and with a clear vision for United from day one.
And that becomes even more important when a company is in Chapter 11. Remember, once "chapter" is filed, there are dozens of entities that get involved, some of them absolute fruitcakes. Therefore, a strong, clearly-focused management is critical to keeping the airline on course to re-organize. If it degenerates into a "I've got a better idea" free-for-all among creditors committees, the airline is done for.
Weak Management Is More Expensive Than High Labor Rates. It's a failure of senior management that has engineered United into this quagmire, yet some people still blame labor for this circus. Actually, regardless of whether the IAM, the AFA, and ALPA were paid lavishly or with company scrip,the airline would still today be looking down the ugly barrel of bankruptcy. An airline needs tightly-focused management, and that's not exactly what's been going on at the top rungs at United over the past three years.
The ATSB Episode: Screwing Up By The Numbers. Then there was the ATSB rejection, which some still - incorrectly - say caused United to head to the bankruptcy court. But this loan-guarantee rejection was another inside job. The apparent strategy of United management (if you can call it that) was to get the guarantees for loans that would allow them to simply keep-on keeping-on. Not much else. US Airways went in with a clear plan regarding how they would do things differently. United did not. There seemed to be little explanation of how they would manage differently, and what their going-forward plan was to strategically bring the airline out of this situation. It appeared that the loan guarantee was intended mainly to buy time, and not as part of a tactical, comprehensive re-organization program. All they really offered the ATSB were the financial scalps of employees in the form of wage concessions. There is a reason they got turned down: their numbers were totally unconvincing.
Okay. Now What? Forget the comparisons with past airline bankruptcies. This one would likely be really different. United is seeking $1.5 billion in debtor-in-possession financing. Lord only knows what the terms might be. They have reportedly hired some PR firms to do programs to calm the passenger herd. And that's where the future of United will be - the consumer. If they let their front-line people loose, free of dumb rules, intrusive procedures, and service policies dreamed up by deranged MBAs in back rooms, United will be well on its way to recovery.
That is, of course, if the carrier's management decides what it really wants to be.
© 2002 The Boyd Group/ASRC, Inc.
