Mon, Sep 24, 2001 page24

• Continental's leader faces crisis

  SHOCKING ADDRESS Continental's CEO said one fifth of the company's workforce would be laid off and new security measures could push airlines into bankruptcy

  • NY TIMES NEWS SERVICE
  • • 
    • 
    • 

  As the first hijacked airliner smashed into the World Trade Center on Sept. 11, Gordon Bethune, the chief executive of Continental Airlines, was at home in Houston, getting dressed for a routine board meeting. Minutes after the attack, his chief operating officer, CD McLean, called him with the news. Bethune ran to the television, only to remember that a contractor working in the backyard had accidentally cut the cable the night before. Bethune sped to work, where he joined some board members already massed in front of a television in horror. A former aircraft mechanic for the Navy and a commercial passenger jet pilot, Bethune, 60, knew the crashes had to be terrorist acts. "There is no way a 767 could inadvertently run into the World Trade Center," he said later. As the meeting continued, he scrambled to confirm that no Continental airplanes had been involved and that three employees who worked at the World Trade Center were safe.

  Continental and its workers were spared, but Bethune's relief was brief. By commandeering and crashing four commercial jets in one day, the terrorists had hijacked the business models of not only the companies that lost aircraft -- American, a unit of AMR, and United, a unit of UAL -- but also of Continental and every other airline in the US. The outlook for much lower sales and significantly higher security costs looked certain to turn a cyclical slowdown into a catastrophe.

  

  Gordon M. Bethune, third down from left side, is the chief executive of Continental Airlines, the first major airline to announce layoffs after the terrorist attacks. Other airlines soon followed with plans for their own major cutbacks.

  PHOTO: NY TIMES

  Bethune, a plain-spoken Texas native, has long been famous for saying what others are thinking. So many people were not surprised when, four days after the attacks, he was the first airline executive to speak out about the pressures on the industry. But they were shocked by what he said.

  He announced that Continental, one of only two profitable major airlines this year (the other was Southwest), would lay off about 12,000 employees, more than one fifth of its work force, and cut 20 percent of its flights. He warned that new security requirements, along with the two-day shutdown of air travel after the attacks, could bankrupt Continental and other big airlines unless the government stepped in with a major aid package. The shutdown cost his company US$90 million and the overall industry an estimated US$1 billion.

  "We're not going to be the first ones" to reorganize, Bethune said, "but we may decide to go as early as October." Last Monday, he chose not to make US$69.4 million in aircraft financing payments, raising fears of default and leading to a downgrade of Continental's debt. The stock has lost more than 60 percent of its value since Sept. 10, closing Friday at US$14.66. Bethune said he would make the payment before the grace period was up.

  In addition to using lobbyists and layoffs to pressure Congress, Continental tried to enlist its frequent fliers. In an e-mail message last Wednesday, the company encouraged members of its OnePass program to "immediately call or e-mail your Congressman and urge them to pass vital relief legislation for the airline industry."

  To drive home the point, the message added: "Time is running out."

  "This is not a handout," Bethune said in an interview, adding that airlines were unique because the government grounded all flights after the attacks. "No other industry was denied access to the market," he said. Airlines are vital to the economy, he said, and to everyday life. "You won't have an economy that works without us," he said. "If you were coming down here to the cancer treatment center, you weren't coming. If you ordered anything from Amazon.com, you didn't get it. Nobody went to visit their grandmother."

  Bethune's sudden moves were followed by those of other airline executives, who together have announced layoffs of 79,000 workers in the last two weeks and have created a united front to seek government help.

  Together, they quickly gained the attention they were seeking. While some critics were galled to see an industry best known for fighting government control suddenly holding out a tin cup, it quickly became clear that no airline was prepared for a disaster of this scope.

  Michael J. Linenberg, an analyst at Merrill Lynch, estimated that airlines in the US would lose US$6.5 billion this year, almost three times the loss he had forecast before the attacks. Next year, the industry will lose about US$3.5 billion, he predicted, instead of posting the small profit he had estimated earlier. Continental said it had US$900 million in cash on hand and was consuming US$10 million a day since service resumed.

  "There are no other sources of liquidity," said Robert L. Crandall, the former chief executive of American Airlines. "We have a problem."

  For now, the tough talk seems to have worked. The House and Senate raced to approve as much as US$15 billion in emergency aid, loans and loan guarantees for airlines. While that is much less than the US$24 billion airlines had sought, it is likely to at least stop the hemorrhaging. "We have to give the financial institutions the signal that the government is standing shoulder to shoulder with the airlines," said Representative Tom DeLay, the House whip whose district includes Continental's headquarters in Houston.

  Not every politician showed support. Senator Ernest Hollings, questioned the airlines' cry for help. "The airlines told us they were going broke long before these attacks occurred, while at the same time giving their executives US$120 million in salaries and bonuses this year," he said.

  With passengers afraid to fly -- on Sept. 19, just 48 percent of Continental's seats were filled, near the industry average after the attacks -- Bethune and other airline executives have a long struggle ahead.

  For Bethune, who led a turnaround at Continental over the last seven years, the sudden change of events was a crushing reminder of his first days at the airline. When he was named Continental's president and chief operating officer in February 1994, the company had just emerged from its second bankruptcy reorganization in 10 years. As he took the job of chief executive in November -- he was the 10th in as many years -- it became clear that the company would run out of cash within two months. At his first board meeting, he said the US$750 million cash on hand was disappearing quickly, and he worried that he wouldn't have enough left to make a coming payroll.

  So, in a move that foreshadowed this week's events, Bethune went outside the company for help -- not to the government, but to Boeing, his previous employer. He persuaded Boeing to let it defer orders and to quickly wire back US$29 million the airline had made in deposits. Continental survived its problems and turned a profit in 1995.

  From that fast start, Bethune never looked back. He made a habit of silencing doubters, posting 25 consecutive quarters of profitability before Sept. 11. Continental earned US$42 million in the second quarter this year.

  "Gordon's done fine, but he started with a huge advantage," said Crandall, the former American Airlines chief. "He had lower costs than anyone else, because Continental had been through bankruptcy twice."

  Bankruptcy, however, created its own problems, including a resentment among employees whose union contracts were broken when the company reorganized its finances in the 1980s and early 1990s. But Bethune has managed to turn the airline into an enjoyable place to work by capitalizing on his outgoing, salty manner.

  "He is a rare mixture of intelligence and profanity," said Darryl Jenkins, director of the Aviation Institute at George Washington University in Washington.

  At the beginning of his tenure, Bethune began to offer employees cash bonuses when on-time arrivals ranked near the top of the industry. Other incentives would include new sport utility vehicles for some employees with perfect attendance, and family-friendly policies like discounted day care. Continental has been named one of Fortune magazine's "100 best companies to work for in America" the last three years.

  A happy employee base led to satisfied passengers. In an industry rife with horrendous service, Continental has stood apart, winning first or second place in the J.D. Power & Associates customer service awards the last five years. The airline was first in on-time arrivals in 2000.

  "He is a wonderful motivator of people," said Richard W. Pogue, a Continental director and a senior adviser with Dix & Eaton, a public relations firm in Cleveland. "Employees just really respect him and look up to him. I have dealt with many CEOs over my lifetime and he is one of the best I've ever seen."

  Now, however, the scale of the proposed layoffs is threatening that tight-knit culture.
• Most Popular

  • 1

    Actress Barbie Hsu dies of pneumonia at 48

  • 2

    CDC advises people to get vaccinated against flu

  • 3

    First Replicator initiative on track: US

  • 4

    Manila arrests Chinese spies posing as Taiwanese

  • 5

    KMT lawmakers could face recall votes