LET 'EM DIE--OR LET'S BUY 'EM AND FIX 'EM
By Joe Brancatelli
July 17, 2008 -- As if we didn't hate the Big Six enough, last week they spammed us. Multiple times. With the same idiotic message: Help us stop the evil oil speculators who are using the free market to do what we can't: make money.
Forget for the moment that smart airlines--okay, Southwest Airlines--have hedged oil and used the free market to improve their competitive position. Instead, focus on the content of the spam and its related Web site.
First, notice that the airlines are suddenly begging for government intervention in a free market. That is stupefying when you consider that they have spent the last two decades demanding the government stay out of the airline business because it is a free market. Passenger's rights? How dare the federal government think of such a thing in a free market. Truth in scheduling? Absurd in a free market. Rules to make frequent flyer programs more fair and more transparent? Never.
And then there's this: All of that spam, the Web site and the plaintive appeals for our help, yet the Big Six wasn't even smart enough to offer us an incentive to render assistance. We should just stop what we're doing and leap to their aid. But was there a promise from them to help us? Of course not. No pledge to improve service or rationalize fare structures or even run clean, well-maintained, on-time planes. Nothing at all. The Big Six think we owe them.
In fact, we owe these airheads nothing. Not our help. Not our loyalty. Not our fare dollars. What we should do is step back, urge our government officials to let the markets work and watch the Big Six carcasses rot. We've already bailed them out several times this decade with cash grants, tax breaks, tax holidays, loan guarantees, bond deals and the assumption of pension liabilities and security costs. They've responded by ripping off employees and shareholders, treating us like cargo and upstreaming cash to self-aggrandizing bosses.
Time to die, boys. Badly managed companies that produce bad products and services at inexplicable prices should go out of business. If they all perish--a word former American Airlines chief executive Don Carty once used to such great effect--we frequent flyers would be better off. Smarter, stronger, leaner, more responsive airlines will crop up to take their places.
Since none of these fools planned for oil at $100 a barrel--not to mention $120 or $130 or $140--they are all on the road to bankruptcy. Simultaneously. Or maybe outright liquidation. With the banks in crisis and very little investment capital around, airlines considering another run into bankruptcy have nowhere to go for DIP financing and no logical expectation of exit financing. All six could be out of cash in a quarter or two. Several could collapse within weeks of each other.
This all-fall-down scenario would be disastrous, especially for us as taxpayers. Faced with a "crisis" such as the entire Big Six disappearing at once, the politicians will go wild. They'll start handing the Big Six billions and billions of dollars of tax revenue. And a new president couldn't allow such a "disaster" to strike just as he is finishing his first 100 days in office.
And, to be fair, the all-fall-down scenario would have ghoulish financial implications. The Big Six still have billions of pension liability and they owe billions more to municipalities around the nation for the airport improvements we made at their behest. They owe money to everyone from the airport pizza joint that accepts an airline lunch voucher to the hotels that house the weary flight crews. Hundreds of thousands of jobs could be lost simultaneously.
So what are we going to do? Bail them out again? Listen to the whispers of some airline executives who now want to be re-regulated--so long as that re-regulation privatizes their profits and socializes their losses?
I think there's a better way. Six years ago, I wrote a column that suggested we nationalize the Big Six, pay off the shareholders at market value, then reorganize and refloat them as public companies in some new and rational configurations. The price then would have been less than $4 billion at prevailing market-capitalization values. It wouldn't cost that much more now. It was barely $5.5 billion ten days ago. And even after a remarkable two-day rally fuelled by the declining price of oil, the Big Six had a combined market cap of just $7.6 billion today.
I still think buying up and reconfiguring the Big Six makes sense. And the concept is not as crazy or as foolhardy as it sounds.
Rather than bail out the Big Six in a panic and on their terms, let's just buy them up. And if you think that shareholders wouldn't bite, consider this: That two bucks and change that US Airways is worth will be wiped out if US Airways tumbles back into bankruptcy. And if you bought high, when the airline was selling north of $60 just 18 months ago, a sale at current market value at least salvages a few bucks of your foolhardy investment. If I were a Continental shareholder and watched my shares skid to today's $9.95 from north of $49 just 18 months ago, I'd get out now. And if I am a Northwest shareholder, do I really want 1.25 shares of Delta in a merger? Or would I consider it a victory to get bought out for $8.30 a share in cash?
Once we owned the Big Six, what would we do with them?
For starters, we'd pull them off the money-losing routes or anywhere they are involved in suicidal competition. Do we really need four of the Big Six in the Transcontinental Triangle along with JetBlue and Virgin America? Do we really need Delta, Continental and US Airways clogging the East Coast skies with hourly shuttles? Do we really want American Eagle running crappy regional jets on routes where there is already hefty competition among other airlines?
Then we'd go about remaking the erstwhile Big Six. We'd rationalize their fleets, simplify their in-flight services and create new fare structures that would enhance revenue, not depress it. We'd get a clean sheet of paper and create airlines that make sense for today's market.
When they emerged, the Big Six might only be the Big Three. But they would be strong--with right-sized and decently paid rank-and-filers, streamlined management, logical fleets and understandable, reasonable fares and services. Then we could take them public, reclaim our investment and leave the airlines free to compete like normal businesses. It might take a year or two and we might have to press some of the nation's best minds into service to rework the erstwhile Big Six, but it could work.
I understand that this idea is radical. I freely admit that there would be obstacles, unknowns, a few setbacks and, with an economy in tatters, a perilous short-term outlook.
But what other choice do we have? We tried letting the Big Six merge and purge in the 1980s. That didn't work. We tried letting buccaneers plunder and mismanage them in the 1990s. That didn't work. We tried a bailout in 2001 and that didn't work. In the post 9/11 world, we've let them beat their employees down to starvation levels and depress flight service to third-world levels and that hasn't worked. Four of them have been in Chapter 11 in this decade and that didn't work, either.
Now that they are at the precipice again, you know they'll be banging on our door for another bailout. Last week's spam campaign was just the opening gambit.
Before we let them rob us blind again, I say we buy them out and get on with the job of fixing the mess ourselves.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT All of the opinions and material in this column are the sole property and responsibility of Joe Brancatelli. This material may not be reproduced in any form without his express written permission.
This column is Copyright © 2008 by Joe Brancatelli. JoeSentMe.com is Copyright © 2008 by Joe Brancatelli. All rights reserved.