The Brancatelli File
THE AXIS OF EXCESS
BY JOE BRANCATELLI
April 24, 2003 -- You can't watch the unfolding saga of corporate greed and malfeasance in the executive suites of the Big Six airlines without immediately thinking of snappy joke lines.
You know, stuff like Monkey See, Monkey Steal. Flying Pigs at the Trough. Or, my personal favorite: Barbarians at the Boarding Gate.
But this is not funny. While the greedy, amoral men who run the nation's largest carriers are looting their airlines, shareholder equity is being destroyed, good jobs are being lost, surviving rank-and-filers must bear draconian pay cuts, taxpayer dollars are being squandered and the nation is watching a huge portion of its airline infrastructure disintegrate.
It is a disgusting display. The buccaneers who run the nation's Big Six carriers are the American equivalent of the street mobs who looted the Baghdad Museum of its cultural treasures.
There's no difference between Delta chief executive Leo Mullin, who paid himself $100,000 in cash bonuses for every $100 million the carrier lost last year, and a street thug who stole a priceless Sumarian pot from the Baghdad Museum. United chief executive Glenn Tilton, who lived in an $18,000-a-month condo on the company tab while the airline was hemorrhaging $20 million a day during the winter, is no less reprehensible than the looter who carried Babylonian treasures out of the broken front doors of the Baghdad Museum.
Mullin, Tilton, Continental bully-in-chief Gordon Bethune, the current roster of fools who run Northwest and US Airways and even American chairman Don Carty, who these days looks more like a lost soul than a master corporate schemer, are all the same. They dress better than Baghdad street looters, but their mentality is the same. They are thieves.
The men who are running the Big Six into the corporate grave form a repugnant Axis of Excess. Nothing matters to them except lining their pockets and their retirement portfolios. The Axis of Excess has no sense of personal shame, no sense of fiduciary responsibility and absolutely no agenda except cashing out.
In case your attention has been diverted by the war in Iraq or the spreading SARS epidemic, let me give you a brief carrier-by-carrier recap of what has been learned as the Big Six have filed their proxy statements, 10-Ks, annual reports and other required Securities and Exchange Commission (SEC) documents.
AMERICAN AIRLINES American's parent, AMR, lost $3.5 billion last year and yesterday it reported a $1 billion first-quarter loss. After weeks of negotiations, promises that executives would share in sacrifices and threats of a bankruptcy filing, the airline secured $1.8 billion in annual concessions from pilots, mechanics and flight attendants. Then the agreements imploded when American admitted in delayed SEC filings that it had shielded some of the pensions of the airline's top 45 executives from the effects of a bankruptcy filing. The top six executives were also offered "retention bonuses" of nearly twice their base pay to stay with the airline. Earlier this week, Carty cancelled the retention-bonus plan and apologized for misleading the unions, but he didn't repeal the trust that protects the executive pensions nor did he apologize for allowing the executive booty in the first place. Ironically, American has traditionally paid its top executives less than most other airlines and the newly disclosed perks pale in comparison to the lush programs offered to top officials of the other carriers.
CONTINENTAL AIRLINES After rashly promising that Continental would be in the black by last year's second quarter, the airline reported losses in excess of $450 million in 2002. Last week it reported a first-quarter loss of $221 million, sharply higher than last year's first-quarter loss of $166 million. The airline now admits there is no chance for profit this year or 2004, either. How has Continental management reacted to the huge--and, to them, unexpected--losses? Well, Bethune gave himself a pay package of about $7.6 million last year, more than 82 percent above his 2001 compensation. Along with stock options and other perks, Bethune's 2002 compensation was $11.9 million. The airline's other top executives were proportionately rewarded.
DELTA AIR LINES I detailed the lavish awards made to Delta's top five executives in a column posted last month. But just to recap: The carrier has lost $2.5 billion in the last two fiscal years, including $1.3 billion last year, when Mullin paid himself a $1.4 million cash bonus. The excesses at Delta led Congress to write some minimal rules about executive payouts into its latest airline bailout package, but Mullin and crew seem blind to the rebuke. After taking a cosmetic pay cut last month, Mullin defended the airline's egregious pay packets and "retention" bonuses, claiming he needed to keep the executive team together. In other words, an airline that lost $466 million in this year's first quarter--or the equivalent of more than $5 million a day--just can't afford to lose the crack executives who are responsible for the carrier's alarming cash burn.
NORTHWEST AIRLINES Northwest was long ago looted by the departed Al Cheechi and by current chairman Gary Wilson. During the 1990s, they funneled tens of millions annually out of Northwest to their private companies, claiming the payments were personal management fees. New management is no less abusive, however. The carrier lost $798 million last year, yet chief executive Richard Anderson paid himself a cash bonus of 50 percent of his annual salary of $500,000. He also received a retention bonus of stock worth almost $2 million more. Northwest also paid out millions in retention bonuses to dozens of other top managers. This week, a Northwest filing with the SEC revealed that former Northwest chief financial officer Mickey Foret has been hired as a consultant. Foret was paid an up-front fee of $240,000 and he draws a monthly stipend of $80,000 through December, 2004. By the way, last week Northwest reported a first-quarter loss of $396 million, more than double last year's first-quarter loss of $171 million. It is also negotiating with its labor unions and rank-and-file workers, demanding almost $1 billion a year in concessions.
UNITED AIRLINES United Airlines paid new chief executive Glenn Tilton nearly $12 million to join the sinking ship last fall. He promptly ensconced himself in an $18,000-a-month condo on the company expense account. Since his arrival, the airline has filed for bankruptcy and reported a 2002 loss of more than $3 billion. His recovery plan for the carrier has been ridiculed by the government agency that administered the 2001 loan-guarantee program, United's bankruptcy-court judge and virtually any analyst that has examined it. He is also paying the McKinsey consulting firm a monthly fee of about $1 million to help him develop a carrier-within-a-carrier even though United has already failed with an earlier attempt to create a low-fare unit. Meanwhile, United employees, who once owned 55 percent of the carrier in exchange for massive wage and benefit concessions granted in the 1990s, have lost all their equity. They have also been forced to accept billions more in concessions as United used the shield of bankruptcy court to break or renegotiate their contracts. Of course, all this comes against the backdrop of the tens of millions former United boss Steve Wolf paid himself while he ran the company.
US AIRWAYS US Airways was driven into bankruptcy by the aforementioned Wolf and his team of cronies. They paid themselves hundreds of millions of dollars during their disastrous six-year regime. They subsequently retired, but not before the airline paid out $35 million in lump-sum retirement benefits to Wolf, former chief executive Rakesh Gangwal and Larry Nagin, the airline's former top legal official. After declaring bankruptcy, the airline terminated its pilot's pension fund. Retired US Airways pilots now face pension cuts in the neighborhood of 70 percent. Meanwhile, the new management team continues to reward itself lavishly. The current chief executive, David Siegel, received 2002 compensation of $533,000 in salary, a cash bonus of $750,000 and more than $160,000 in other compensation. Other notable figures in the airline's SEC filings: US Airways paid Siegel $68,000 in moving expenses last year. The new chief financial officer, Neil Cohen, received $40,640 in moving expenses. That's about the same amount a senior flight attendant at US Airways now earns.
One final note. Remember that 2001 taxpayer-funded airline bailout of $4.5 billion? Hawaiian Airlines received about $30 million of it, but that didn't help the carrier avoid a bankruptcy filing last month. Boeing, which is one of Hawaiian's biggest creditors, wants the carrier's management removed. Boeing claims Hawaiian's management paid out more than $25 million via a tender offer last year as a "reward" to shareholders. In a filing with the bankruptcy court, Boeing adds that members of Hawaiian's management and their affiliates received more than 69 percent of the $25 million tender. In other words, Boeing believes Hawaiian's management personally pocketed more than half of the $30 million in taxpayer grants.
This column originally appeared at JoeSentMe.com
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