In many cases

In many cases, when airlines exit bankruptcy, their executives exit, too

By TERRY MAXONStaff
[email protected]
Published: 22 December 2012 04:19 PM

Tom Horton can only hope that his future at American Airlines Inc. is better than Ed Beauvais, Hollis Harris and Bruce Lakefield enjoyed at their own carriers.

Beauvais, Harris and Lakefield all led their carriers — America West Airlines Inc., Continental Airlines Inc. and US Airways Group Inc. — into Chapter 11 bankruptcy. But they weren’t at the controls when their airlines exited.

In fact, the history of airlines and bankruptcies over the past quarter-century suggests that those high-profile cases are the norm, not the exception.

And even if they do survive the difficult trip through bankruptcy court, they frequently don’t last long at the top as continuing problems force their boards of directors to try to improve their companies’ fortunes by finding new management.

Bob Ferguson led Continental out of bankruptcy in April 1993. But by late October 1994, he was gone, and Gordon Bethune took over as the carrier’s CEO as it was about to run out of money.

In his book From Worst to First, Bethune described a drastic change in Continental’s executive ranks in the first few years after he replaced Ferguson.

“Of the 61 Continental vice presidents working here when I took over, about half quit or were asked to leave. We really never had a purge — but we kept turning over rocks, and if we found people who weren’t doing their jobs or weren’t team players, they didn’t stay,” Bethune wrote.

“And those who did seem to be doing all right didn’t always want to stick with us when they saw how we did things,” he said.
In a 1998 Harvard Business Review article, then-Continental chief operating officer Greg Brenneman, who helped engineer Continental’s rise from its near return to bankruptcy court at the end of 1994, said one key to a turnaround is to “clean house.”

“I have never seen the team that managed a company into a crisis get it back on track. Oh, I’m sure it has happened some time in the history of business, but I can’t believe it has happened very often,” Brenneman wrote.

“Instead, managers who have gotten a company into a mess are usually mired in a puddle of overbrained solutions. They can’t see any way out either. In fact, they have many ways of saying, ‘If the solution were simple, we would have already thought of it,’” he wrote.

“On top of that, they usually have trouble accepting responsibility for and reversing the poor decisions they made in the past. It’s an ego thing.”

In a recent interview, Horton — chairman and CEO of American and parent AMR Corp. — said that American’s executive ranks have already changed significantly since American and AMR filed for bankruptcy on Nov. 29, 2011.

“There was a pretty dramatic change in the management team. We changed the CEO and changed a number of the senior officers not too long after the restructuring took root,” Horton said.

“When I took the job, there were a lot of changes made. It is a very different team. If you just look at the results of the restructuring and our performance on the revenue side and the speed of the restructuring, I think it suggests that the team here has done a pretty good job,” Horton said.

In fact, in most cases, American Airlines veterans were replaced by other longtime American executives, some who had been at the airline longer than the people they replaced.

Jeff Brundage, a 13-year-employee who was senior vice president of human resources, was replaced by Denise Lynn, a 23-year employee.

Jim Ream, senior vice president of operations, started at American in 1987 and has worked there 10 years in two stints. He replaced Bob Reding, an executive vice president who was a 12-year American employee.

The chief information officer, 18-year employee Maya Leibman, replaced Monte Ford, an 11-year employee.

Horton, who held the title of president, added the titles of chairman and CEO after his predecessor, Gerard Arpey, decided to retire Nov. 28, 2011. Arpey left as the AMR board of directors was deciding to file for bankruptcy.

Horton has spent the past 27 years at American except for a four-year stint at AT&T Corp. The chief financial officer, Bella Goren, who succeeded Horton as CFO in 2010, is a 26-year American employee.

While the new executives may or may not be better than the ones they replaced, they come from the same managerial gene pool.

A look at airline bankruptcies since 1990

Here is what has happened with some major airline bankruptcies since 1990.

America West Airlines

Ed Beauvais and Michael J. Conway co-founded America West in 1981.

Beauvais was chairman and CEO, and Conway was president when they put the carrier into bankruptcy court in June 1991. Two months later, Conway replaced Beauvais as CEO, then as chairman in July 1992. But Conway soon found himself on the way out as well.

In September 1992, Arizona businessman Bill Franke, who helped put together $53 million in loans to keep America West afloat, was installed as chairman, replacing Conway. The loser of a power struggle, Conway was ousted on Dec. 31, 1993, and Franke added the CEO title. Maurice Meyers took Conway’s title of president.

Trans World Airlines

TWA filed twice in the 1990s. At the time of the first filing on Jan. 31, 1992, the airline was very much under the control of financier Carl Icahn, its chairman and CEO. In September 1992, the TWA board named as co-chief operating officers Robin Wilson and Glenn R. Zander, who had been chief financial officer. Icahn left the airline in January 1993.

In July 1993, TWA picked William Howard, former Piedmont Airlines chairman, to take over as chairman and CEO, and Wilson and Zander became vice chairmen. The carrier emerged from bankruptcy on Nov. 3, 1993.

On Jan. 4, 1994, just two months later, Howard and Zander both quit, and insurance executive Donald F. Craib replaced Howard as chairman.

Jeffrey H. Erickson was named president of TWA on April 5, 1994, and Erickson added the CEO title on Aug. 9, 1994.

Erickson was still in those jobs when TWA again filed for bankruptcy protection on June 30, 1995. But Craib was gone by that time, replaced as chairman by John C. Cahill in February 1995. Cahill was chairman when the airline exited bankruptcy court a second time on Aug. 23, 1995, but was gone less than three months later when Thomas F. Meagher was named chairman.

Continental Airlines

Hollis Harris, a longtime Delta Air Lines executive, took over as Continental’s chairman and CEO in August 1990, part of a deal that had Continental’s boss, Frank Lorenzo, sell out his ownership and step aside. Two months later, Harris added the title of president.

He was running the airline when it filed for bankruptcy in December 1990. But in August 1991, Harris was removed in another major shake-up, and the Continental board installed Bob Ferguson as vice chairman and CEO of Continental.

Ferguson was president and CEO when Continental emerged from bankruptcy in April 1993, with David Bonderman, an Air Partners principal, as non-executive chairman.

Although Ferguson survived bankruptcy, he was gone in 1 years. In late 1994, the company announced he was being replaced by Gordon Bethune, who had joined the airline that February.

US Airways Group

US Airways Group Inc. was in bankruptcy twice in the last decade, first from Aug. 11, 2002, to March 31, 2003, and then from Sept. 12, 2004, to Sept. 27, 2005.

Stephen M. Wolf, non-executive chairman when US Airways filed the first time, was replaced on April 1, 2003, the day after the first exit from bankruptcy. His replacement, David G. Bronner, headed the Retirement Systems of Alabama, which had invested in US Airways’ reorganization.

David Siegel had taken over as US Airways president and CEO in March 2002, prior to the first filing, and he was still running the airline when it exited in March 2003. But he stepped down in April 2004 and was replaced by Bruce Lakefield.

When the second filing happened in September 2004, Bronner and Lakefield were still running the airline. However, US Airways’ exit from the second bankruptcy came through a merger with America West, and America West’s top executive — chairman, president and CEO Doug Parker — took over control of the merged airline, which kept the US Airways name.

Northwest Airlines

Northwest changed chairmen in bankruptcy, from Gary L. Wilson at the Sept. 14, 2005, filing, to Roy J. Bostock upon emergence on May 31, 2007. However, the president and CEO, Doug Steenland, was there at the beginning and end, as was CFO Neal Cohen.

Although they survived the bankruptcy, Steenland and Cohen didn’t land jobs at Delta when Northwest and Delta merged in 2008. Steenland and Bostock joined the Delta board, and Bostock was named non-executive vice chairman. Steenland didn’t run for re-election to the board in 2011.

Delta Air Lines

When Delta filed for bankruptcy the same day as Northwest on Sept. 14, 2005, Delta’s top executives hadn’t been in their jobs long. Gerald Grinstein took over as CEO less than two years earlier, on Jan. 1, 2004, replacing Leo Mullin at the struggling carrier. John F. Smith Jr. replaced Mullin, who was retiring, as non-executive chairman in April 2004.

Smith was replaced by former Kodak chief Daniel Carp on April 30, 2007, as Delta exited bankruptcy protection. On Sept. 1, 2007, four months after Delta emerged from bankruptcy, Grinstein turned over the CEO’s job to a Delta board member. But that board member had a past with Delta’s merger partner: Richard Anderson had been Northwest’s CEO from 2001 to 2004.

United Airlines

As United struggled to stay out of bankruptcy, it named ChevronTexaco vice chairman Glenn Tilton as chairman, president and CEO in September 2002. In December 2002, United and UAL filed bankruptcy papers with Tilton at the head, and he was still leading the company Feb. 1, 2006, as the companies finally exited bankruptcy court.

In 2010, UAL agreed to merge with Continental Airlines. Today the executives running United Continental Holdings Corp. come disproportionately from the Continental side of the ledger. Tilton remains as non-executive chairman but will step down Dec. 31.

Continental’s top executive at the time of the merger, Jeff Smisek, will add the chairman title to his president and CEO jobs.

The company’s CFO comes from Continental, as do two executive vice presidents. Two executive vice presidents are United holdovers. The fifth executive vice president, general counsel Brett J. Hart, joined United Continental after the merger.