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Mar242008

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The Status Quo Is the Issue; Not Firing CEOs

Today I received a comment from Carmen on my latest blog post. Carmen is a frequent reader here, student of the industry and a person that is not afraid to say and write what he believes. Even if it means that he is not the first person other pilots seek out in the crew room when he checks in for his trip. He suggests that invoking force majeure might incite a revolution – and I paraphrase.

Carmen is not a current member of his union and his philosophical differences with his union have been written here and on multiple blog sites that cover the industry. Carmen, like others, point to the lack of a people element in the US airline business today is what stands in the way of a successful and sustainable industry when contrasted to the industry we know that perpetually teeters on the edge.

I Said I Would Not Acknowledge

Regarding Carmen’s comments, I responded in a pretty matter of fact tone. After responding, I started thinking back to Bob Reed's piece in Business week last week entitled: It's Time for United's CEO to Go; UAL should keep United Airlines in Chicago—but send Glenn Tilton, its deal-hungry CEO, packing. OK, for those that know me, you know that I have an affinity for Tilton. Do I agree with everything that has been done at United under his watch? No, I do not. Where I absolutely agree with Mr. Tilton is that the status quo does not work for any stakeholder group. Period.

So Mr. Reed, my question to you: are you singling out Tilton or are you joining hands with certain industry stakeholders that are looking for any leverage to maintain the status quo and perpetuate the self-imposed gridlock toward change which afflicts the US industry? It seems to me that any question you asked in your article could have been asked of Richard Anderson at Delta, Doug Steenland at Northwest, Doug Parker at US Airways and yes, even Larry Kellner at Continental. And I am going to include Gerard Arpey of American and I will discuss that later.

And Mr. Reed, I am sure glad you mentioned Continental and its transformation. From my read, about the only thing in your article that comes close to even describing the competitive reality that faces this industry each and every day is the fact that Continental survived the “controversial and oft-despised” Frank Lorenzo era. And I quote further: “the airline survived his tenure (along with two bankruptcies) and eventually morphed into one of the country's most successful large carriers. Now Continental is enjoying solid financial returns, improved customer satisfaction, and stronger employee relations. What's more, its CEO doesn't want to merge and is even ordering new planes”.

Pretty bold statement on the intentions of Continental’s current CEO who has done anything but rule out merger efforts should other carriers in the industry decide to join hands. Then again, it is hard to talk about joining hands when you are encumbered by a golden share that also serves as golden handcuffs. And even bolder to insinuate that other airline CEOs would not want to achieve the same thing that took Continental 10 years to begin fully realizing. And for that matter, that type of success is what CEOs want to be paid for. But the type of transformation that continues at Continental is more akin to a marathon than a sprint.

Where This Whole Post Started

Like today, the industry then was engaged in a shakeout and survival of the fittest when Continental began its transformation. For any Continental, PEOPLExpress, Frontier, New York Air, Texas International (see comment section) and Eastern (did I leave any carrier out?) employee of the time there are plenty of horror stories. But 20+ years later, we continue to witness the legacy carrier that first underwent necessary quadruple bypass surgery to transform itself to a US industry leader.

The only thing different today is that the transformation is more difficult. In the 1980s it was important to build a network, with a cost structure, that gave a carrier some form of presence/dominance within a particular US geographic region. Today it is about building an entity that maintains is preeminence in the US domestic market while spreading its reach to all world regions with a cost structure that allows it to compete where external forces are increasingly complex. Mr. Reed, airline labor, airline consumer activists and Rep. Oberstar would all have us believe that today’s airline world should remain focused on Altoona rather than Auckland; Duluth rather than Dubai.

Carmen in his comment to me mentions pandering and appeasement against a backdrop of a leadership void. Where I am stuck, is that I think there is finally leadership within the industry and there is a vision as to where this industry needs to morph to. When there is leadership and vision, there will be reasons to say no. And today’s CEOs are saying no to a return to the way things have been. They are saying very clearly and in their own way, no to the various issues that led each of their respective entities into bankruptcy or restructuring.

Definitely Not the Time for Hush Money

I asked Carmen in my response: “but isn't what labor wants is an historical return to pandering and appeasement? Throwing good money at the age old problems only makes people happy in the short term. Then the industry has to return and ask for concessions because they can no longer afford the hush money that was negotiated. I am all for saying no and trying to find a way to break this age old pattern. And I think finally this industry has a group of CEOs that can and will say no rather than push off the tough decisions that have been deferred over the past 3-4 negotiating cycles. Popularity contest -- NO. Necessary action – YES”.

It seems that the Northwest employees were more than willing to vote Steenland out in the event of a Northwest – Delta deal. And apparently he was willing to drop his “ego” and step aside in the event of a transaction that he and his board deemed in the best interests of all stakeholders.

My bet is Mr. Tilton and others would/will do the same in return for a deal that satisfies a vision. United has been out front in the consolidation view to be sure. But, United has been out in front suggesting they would put down capacity in the event of high oil prices also. And that simply sounds like managing the business to me. Mr. Reed pleads with United’s Board to “give Tilton his due, provide him fair compensation for time served—and begin the hunt for an executive who can build on his accomplishments and take an independent airline to greater heights”.

But Tilton’s work at United is not yet done and therefore the United Board should no more pay Tilton his hush money to walk today anymore than the prior United administration should have paid the United pilots the hush money to end the dreaded “Summer of 2000” that ultimately landed the carrier in bankruptcy. And certainly Mr. Arpey should not be paying his pilots, flight attendants or any other employees the amounts of hush money they are seeking over an executive compensation plan designed by American's Board. A compensation plan that could have been altered by the Board, not by Mr. Arpey and his management team.

Breaking the boom-bust cycle is much more important than perpetuating the status quo. Maybe we should invoke the force majeure clause on the self-imposed gridlock toward change which afflicts our industry …

To call for one CEO's head when an entire group of industry CEOs recognize that the status quo just does not work is well.......unfortunate.

More to come.

Reader Comments (12)

Yes you forgot the Dark Lord’s very first victim, Texas International Airlines.

03.25.2008 | Unregistered CommenterChitragupta

Thank you C for that oversight. I knew I had left one out.

03.25.2008 | Unregistered CommenterSwelbar

Bill,

I would have responded sooner, but I was doing what you had mentioned the other day -- a 24 hour LA turn. As the captain of the flight, I had to focus on flying so I couldn't spend time on composing a response. :-)

In response to your question, let me first point out that my previous post did not single out CEO's. Also, if I agreed with the way union officials at APA approached and formulated labor contracts, I would not have resigned.

Our agreement centers on the need for change in the airline industry. We diverge in how to best achieve it. I believe the key lies in determining what the problem is versus the challenges that confront it.

Your point about labor's approach in contract negotiations is on point. However, let's look at what little the executives at AMR have done. They have put forth nothing of substance when it was them who sought to open negotiations early. Since September 2006, they still have put NOTHING forth in any comprehensive manner. They have conveyed NO vision, just mere steps in an attempt to survive, not thrive.

In my view, anything less than a comprehensive proposal is a deliberate delay in negotiations and a violation of the Railway Labor Act. In essence Bill, they have taken the same path as before. A path, by the way, that contributed to where we are today.

One key statement you made is the following: "They are saying very clearly and in their own way, no to the various issues that led each of their respective entities into bankruptcy or restructuring." In my view, the main "issue" has been their ineptitude in dealing with labor. What you need to understand Bill is that if they can't say it in a way that employees buy into, then they achieve little, if anything. Then there is their actions - hardly the example of leadership.

I have seen too many fine people leave this industry and come to totally distrust the executives Bill. Until they start listening to those of us who understand how to deal with people, you will continue to see this industry fail to achieve its potential. I could go on but it is past my bedtime.:-)

03.26.2008 | Unregistered CommenterCarmen

Carmen

It has been a long time since I have done the early morning departure to LA and then caught the redeye home. What I do know is that I do not want a steady diet of those trips. One thing at 30, another thing at 50.

I continue to stumble over your request for a comprehensive proposal. How does AA make a comprehensive proposal given the APA's comprehensive proposal that is on the table? No matter what AA does, it will be rejected to be sure.

Further, you suggest that negotiations have been ongoing since September 2006. While true from a technical perspective, but in my mind the negotiations have been ongoing Since November or so given the change in leadership at APA. And the amendable date has not ever been changed.

While I am confident that there are alot of things I need to understand, I do understand that the industry cannot afford to repay the gives in 2003. Every airline will have their own ability to pay and only the airline and the respective Boards of Directors can make that determination.

While you did not make CEOs the focus of your post, it is the CEO that sets the direction for the airline and the CEOs set the direction for the industry. To make a proposal that perpetuates the boom and bust cycle would not do anyone any good. And the current APA proposal looks and smells more like the United pilot deal in 2000 that a proposal that AA can afford. And I think even you would agree that deal did not do anyone much good.

Not really sure what to say on the survive and thrive issue other than to say that for carriers from all sectors are more in a survive mode. And with oil at these levels, and with stakeholders failing to recognize that things need to change, then we are just going play the survival game.

03.26.2008 | Unregistered CommenterSwelbar

Bill,

You and I have had differences in the past - differences of opinion, differences of philosophy. I disagree with a lot that you have written since you started this blog but I respect your opinion on our industry even when I disagree with it. What prompts me to comment today is not your thoughts on the industry but the obvious underlying disdain in which you hold those of us who work in the industry. I'm disappointed that past experiences in working with and for aviation labor has apparently left you so angry and contemptous of the people who keep this part of the U.S. economy running.

Pat

03.27.2008 | Unregistered CommenterAnonymous

Pat

And I will assume that I know which Pat this is. Disdain, no. Contemptuous, no. Yes I have had a long history with labor and the experiences have been both good and bad to be sure.

I appreciate your reading the blog. As in the past, we will disagree more than we will agree. I do hope that at some point your members can find a path that is sustainable.

Bill

03.27.2008 | Unregistered CommenterSwelbar

Sorry but the mix mashed airline that is now called Continental Airlines was almost ready to file for the third and possibly the last bankruptcy back in 1994 just before Gordon Bethune took over. According to his book “From Worst To First” he was the ninth CEO since Frank Lorenzo and the Continental employees didn’t expect him to be around any longer then the other eight. It was through Mr. Bethune’s leadership that he drug Continental Airlines from the bottom of the ranks to the top of the ranks.

The current “leadership” at both AMR and UAUA are both morally and ethnically bankrupt so don’t expect to see the workers follow such a sad example of our educational systems “finest” MBAs.

Kind of hard to charge a hill General Swelbar when you look over your shoulder and see the troops still in camp with their arms crossed and they won’t follow you because they don’t trust you. Did you read Bethune’s book?

Where do you get the idea, “an executive compensation plan designed by American's Board. A compensation plan that could have been altered by the Board, not by Mr. Arpey and his management team.”

Number one the current PUB Buck program was hatched by Carty so if Arpey had been smart he would have reigned in its scope and breath a long time ago.

Number two you are telling me the CEO can’t go to the BOD and repeal this misguided program? “Awh gosh darn guys the BOD is make’n me take this!” How stupid do you think the readership is?

The reason Continental Airlines made it to where it is today is because of the right man in the right place at the right time. If Gordon Bethune had stayed at Boeing where would Continental be today?

I can’t decide if you are writing to appease someone else or truly believe the stuff you print. If you are not writing for anyone then you reminded me of a scene from Top Gun.

Officer: [In the midst of the MIG battle] Both Catapults are broken Sir.

Stinger: How long will it take?

Officer: It'll take ten minutes.

Stinger: Bull shit ten minutes! This thing will be over in two minutes! Get on it!

By the time your Air Nirvana takes flight this battle will be over.

03.27.2008 | Unregistered CommenterChitragupta

C

I wish it could take but two minutes to extinguish this industry's legacy past. Hell I would even wish for 10.

Let us not forget Texas Pacific's role at Continental either. And Bethune had a very nice cost structure from which to work as turnarounds take time. Again, I would settle for 10 minutes.

If nothing else C, the APA could benefit from you taking the lead on many messages. But you might want to check out the Board's role in the area of executive compensation.

And I have not made any claims that something cannot and should not have been reconsidered. That is in your mind.

03.27.2008 | Unregistered CommenterSwelbar

Bill,

We use to have on our bid sheets those trips you describe in your first paragraph. Just think how you would feel after doing a couple of months of them. The good thing about it was that there was an In and Out Burger close by to the hotel. :-)

While I too have no claim on understanding everything about the airline industry, I do believe my understanding of leadership is sound. As it pertains to negotiations, you do the right thing regardless of what the other party does. It was Gerard Arpey who initiated the Turnaround Plan which has as one of its tenets, "Pull Together, Win Together." What a golden opportunity he had to demonstrate that with a comprehensive proposal when his executive team sought to open negotiations early. It was done with the 1994 contract. Instead, a “opener” is put forth amounting to little more than let’s hold hands and sing “Kum Ba Yah.”

Such a proposal would be the instrument by which to convey to the pilot group revenue and cost analysis, how to meet the challenges that lie ahead such as open skies, enable the ability to take advantage of growth opportunities, bring our fleet into 21st century, and provide financial value to the pilot group. It is called a vision and a reflection of what a leader does. Like it or not, CEO’s are the leaders. They need to start acting as such or find some other job.

You may ask whether or not the RLA provides for such communication. Here is what a book on the RLA by Douglas Leslie has to say about it: “Thus, some courts have held that a carrier may provide its employees with either party’s bargaining proposals, MAY QUESTION THE UNION’S PROPOSAL OR NEGOTIATION STRATEGY, AND MAY EVEN STATE THAT THE UNION’S POSITION IS PREVENTING THE PARTIES FROM REACHING AN AGREEMENT, so long as the carrier does not state or imply that it is not willing to continue negotiating with the employees’ representative [emphasis added].”

Given my harsh criticisms of APA’s proposal on the Dallas Morning News blog, I think you will agree that I believe it to be baseless in economic reality. Nevertheless, it doesn’t prevent executives from taking the leadership role and putting something forth that does. To delay negotiations in the belief that by prolonging them keeps costs down for as long as possible, runs counter to being an effective leader and blind to the history of labor negotiations and the resulting fallout.

In regard to the survive versus thrive comment, I will call your attention to our Founding Fathers. They could have merely went along with British rule and survived. Instead, they embarked on a different path by taking on the World superpower in order for their generation and others to follow to have full advantage of “life, liberty, and the pursuit of happiness,” i.e., thrive. I would argue that $100+ barrel of oil pales in comparison to the many daunting challenges these men faced. With real leaders, greatness and not mere mediocrity is achievable. I demand it of myself as a captain; I expect it from CEO’s!

03.27.2008 | Unregistered CommenterCarmen

Well once again it is called leadership. Do you think Continental is where it is today because Texas Pacific left Bethune with “a very nice cost structure from which to work” or because Bethune had the leadership to lead them from the quagmire they had obtained? Oh, by the way how did that really great “cost structure” come to be, drum roll please, because Continental had filed for bankruptcy twice and the employees had be beaten down to a pulp by the courts.

You have several times alluded to a “deal” between APA union leadership and AMR management but you have yet to produce a smoking gun. Even if this “deal” was consummated, it was a “deal” done by Don Carty before he got kicked out and not by Gerard Arpey. So if Arpey had been a true leader would have said the PUP Buck Program is wrong and I’m not allowing it on my watch.

For bonus points the if this "deal" was true the “membership” wasn’t aware of your alleged “deal” so now it has come back to haunt them.

To paraphrase, “It’s not nice to screw the employees.” No matter what sob story Arpey brings to the membership in the next few months the attitude is the employee ATM machine is closed. It all gets back around to them pocketing millions and driving their Bentleys and Maybachs while the employees “eat cake.”

Now the APA membership has spoken and elected Lloyd Hill who had nothing to do with the current contract so you reap what you sow. The membership is out for blood and Arpey is in for a blood bath. DFW just yesterday elected as Domicile Chair Mathew Field who makes Hill look cessionary. By the time APA is through with Arpey his little PUP Bucks program is going to be pocket change compared to what he will spend in bankruptcy, a strike or his new contract. Pick one.

There isn’t a lot of sympathy for Arpey’s PUP Buck Program out in the real world either except for this blog here. Just what do they teach in MBA school now days?

Other than around ten senior members of AMR the rest of the 900 management lackeys couldn’t find a job sacking groceries at your local Wal-Mart. If they can do better then they should leave vs. poisoning the complete employee ranks.

Did you see yesterday AMR Managing Director for Capacity Planning and Network Development Diana Walke left to go to Virgin America? I guess the PUP Bucks wasn’t enough to keep here either since David Cush left several months ago too. Is it because they have a backbone and integrity or is it just for the money? Those PUP Bucks handcuffs must be made of velvet.

Yea Arpey wishes there was going to be some “hush money” passed around instead his day of reckoning will be coming. It might be awhile but his day will come. He might get banished to the French Rivera but at least he will be gone.

03.28.2008 | Unregistered CommenterChitragupta

C

It is my understanding that the unions were aware of deal made on executive compensation during the restructuring negotiations and that was not limited to just APA. As you will remember, better than I, there was at least one other issue that had to do with executive compensation around the same time. So something negotiated as a replacement is plausible.

It is also my understanding that the employees were offered variable compensation along the same lines that management received. But the details here are for you to investigate with those at the table. And as has been labor practice, risk associated with compensation was left behind in turn for fixed wages.

And C, it was not my deal and is not my deal today. I was not at the table. [So please do not insinuate that.] The elected representatives from each union were.

As for the students I engage with, not many head for airline jobs. Some do but only those with jet fuel in their veins. They head for Wall Street, where the compensation packages are quite lucrative and variable. With few exceptions, airline management is not where the money is.

Regarding management departures, yes they are recognized. They do occur at all airlines and just AA. Given the situation surrounding AA, and if offered something that promised growth and was blessed with a global brand name my guess is you would consider it too.

But you can't without years of sacrifice and I understand that too. C, if burning the furniture is what you and the leadership think it will take to make your point, then burn the furniture. At least your brothers and sisters in the industry will benefit from 20 points of market share being removed from the system.

03.28.2008 | Unregistered CommenterSwelbar

Yes sir your buddy Tilton is doing one bang up job at United. He should slip another couple of million in his wallet for this:

http://www.alpa.org/DesktopModules/ALPA_Documents/ALPA_DocumentsView.aspx?itemid=13422&ModuleId=12567&Tabid=73

Release #08.UAL3
April 2, 2008

FOR IMMEDIATE RELEASE

United Pilots: UAL Survey Confirms Neglect of Employees

Chicago, Ill., April 2, 2008—A recent employee survey conducted by United Airlines confirms what the airline’s pilots and other employees have been expressing to CEO Glenn Tilton and his executives over the past several years: that the airline has neglected its employees for far too long.

A record number of employees participated in this year’s biennial survey to tell United Airlines management the same thing employees tell them every day: they don’t trust, respect or have any faith in the management of United Airlines.

“The survey was called an ‘Employee Climate Survey.’ Well, the climate is cold, cloudy and frigid,” said MEC Chairman Captain Steve Wallach. “And the forecast is for more of the same or worse.”

In releasing the results of the survey, United stated, “(We want to compare ourselves to other) Fortune 500 companies whose employee experience we aspire to achieve.” The following highlights of the survey reveal that the Company has a long way to go to reach that level:

United claims that employee engagement remained “stable” from the survey conducted two years ago. In truth, engagement is low and getting lower -- 29 percent today vs. 30 percent in 2006.

Employee engagement with the company was from one to eight percentage points lower in nearly all operating divisions. United’s pilots and flight attendants had the largest decline in company engagement. Nine out of 10 pilots feel no connection with United Airlines.

United claims that employee “Pride in United” remains the highest scored item, but even those numbers dropped significantly from two years ago. This year’s survey shows that only 38 percent of United employees take pride in United, down 15 percentage points from 2006. Average Fortune 500 companies find that 84 percent of their employees express pride in the company in which they work. Put another way, 62 percent of United’s employees are not proud of their company, 70 percent are dissatisfied with their jobs, 73 percent are looking for new jobs and 77 percent do not think United is a great place to work.

“Time will tell whether United’s executives will use the results from this survey in a positive way,” said Captain Wallach. “If history is any indication, this survey was simply window dressing; management’s way of making the employees believe they are taking steps to address our concerns and our frustrations. Their slogan was ‘You speak. We listen. Together we act.’ In reality it is more like, ‘You speak. We don’t care. Get used to it.’ As long as the employees are treated as commodities, they will act as commodities -- something this management has failed to grasp. Neglecting employees is a recipe for disaster in the service industry.

“The employees’ voices have been expressed loud and clear. The message they have delivered is unmistakable: United Airlines’ management is failing the very people who make the airline fly. And their message begs the question: How will Glenn Tilton and his executives respond? The employees, our passengers and United’s investors are waiting for their answer.”

Contact:
Dave Kelly
847/292-1708

04.6.2008 | Unregistered CommenterChitragupta

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