In my last post, I found myself pondering the role of the US Government as the Debtor-In-Possession lender to General Motors and/or the beleaguered auto industry. In August of this year, I wrote about being concerned about industry bailouts that do nothing to unwind the leveraged inefficiencies that describe each the auto and airline industries. The bailout of Detroit captivates me as the parallels to the airline industry are many. It is my hope that we do nothing unless a radical transformation of the legacy issues that make the auto industry non-competitive are insisted upon.
The auto industry faces many of the very same issues that the airline industry faces, and faced, albeit the inherent inefficiencies were exposed by different exogenous events. Today’s credit crisis has exposed decades of leveraged inefficiencies in and around the auto industry. September 11, 2001 was the event that exposed an airline industry with cost problems created over decades and an industry with uneconomic capacity being deployed by nearly every air service provider. The airline industry is actually getting it right and will have done so by using the bankruptcy laws and management's willingness to make the hard choices no matter how unpopular. The auto industry can do the same.
President-elect Obama and a Great Quote
Last night the President-elect was interviewed on CBS’s 60 Minutes. When asked about the troubled US car companies seeking federal assistance, he said: “My hope is that over the course of the next week, between the White House and the Congress, the discussions are shaped around providing assistance but making sure that assistance is conditioned on labor, management, suppliers, lenders, all of the stakeholders coming together with a plan – what does a sustainable US auto industry look like? So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere.”
I really like that quote. Let’s remember United Airlines and the Air Transportation Stabilization Board (ATSB). On multiple occasions, United applied for an ATSB-backed loan prior to its decision to file for bankruptcy protection in late 2002. The ATSB continually found that United had failed to file a business plan that was sustainable. Ultimately United filed for bankruptcy protection and continues its restructuring today. The ATSB simply was not prepared to provide United a bridge loan to nowhere. Today, United is in a much better place as a result. Not out of the woods completely, but the prospects for tomorrow are much brighter.
I must say that I am nervous about a lame duck Congress led by Nancy Pelosi doing something for the sake of grabbing headlines on a path to nowhere. Labor helped to elect Obama. Now, one of the first pieces of business for the President-elect will be to challenge labor as to whether Roosevelt-like programs can still be afforded by the companies that have to compete in a global marketplace. And management will be forced to do the same as bankruptcy certainly preserves the rights of the debtor and their inherent self interest.
In today’s Wall Street Journal, Michael E. Levine opines on Why Bankruptcy Is the Best Option for GM. Mr. Levine was one of the airline industry’s deregulation architects and I consider this piece a must read.
Isn't it interesting that we can actually begin to talk about how the US airline industry is changing, adapting and innovating its way toward finding a sustainable platform from which to compete? Interesting indeed.
More to come.