Cash Landing

Looking for Mr. Goodwin, United Airlines' three-million-dollar man.

In the middle of October, James Goodwin, a 34-year veteran of United Airlines who'd spent the last two years as chairman and CEO, sat down and composed a letter to his troops. As a rallying cry and a sign of confidence in this country, it was only slightly less inspiring than the mass exodus from Washington, D.C., just days earlier, as the entire House of Representatives took a powder in the midst of the anthrax scare.

Addressed to "Fellow United Employee," Goodwin's scare-tactic missive warned that the airline company -- which is responsible for two-thirds of the flights at Denver International Airport, not to mention that fraction of DIA's budget -- was in serious trouble and would soon "perish" if the financial bleeding didn't stop.

Flowing even faster than the red ink was the leaking of this scarlet letter to just about every major media outlet in the country. Faster still was the subsequent plummet of United's stock, which plunged 25 percent in less than two weeks.

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On Sunday, after days of testy board meetings, Goodwin resigned his United post. But he's landed far more gently than most passengers on his airline: Because Goodwin left with "good reason," under his employment contract he'll continue to collect three years of pay at an annual salary of $900,000, plus bonuses.

And maybe that was the plan all along. Perhaps what looked like the ultimate corporate blunder was really a brilliant pull on the cord of Goodwin's golden parachute. In retrospect, all the signs were there in Goodwin's ransom note of October 16, reproduced here in italic, with just a few editorial comments added.

This is the first of a series of letters to keep you abreast of what's happening at United and our evolving financial situation.

Prior to September 11, all of the major U.S. airlines were having financial difficulties as a result of the weakening economy. The economic pain was worse for us -- generally speaking, of course, since "fellow" United employees don't collect a million a year -- because we rely more heavily on frequent business travelers for our business than they do. And that's because those business travelers have no choice, since we have a stranglehold on many markets, such as Denver. But, while things were difficult, we were putting in place the cornerstones of a strategic plan to improve our revenue and profitability.

Then came September 11th. A tragedy, sure, but also a convenient scapegoat for the blockheaded decisions I've been making since I became CEO back in July 1999, like my ludicrous proposal to take over US Airways, a scheme detested by everyone from my chickenshit fellow employees to the Justice Department.

In the wake of that day's horrific events, we are in nothing less than a fight for our life. Never in our 75-year history have we faced an economic challenge of this magnitude, where the drop-off in air travel has been so unexpected and prolonged. Not even back in the summer of 2000, when that nasty situation with the pilots' union and increasingly poor service turned United into a national joke as we canceled thousands of flights and delayed thousands more -- in the process giving our communications employees valuable experience in stonewalling the press that would come in so handy after September 11.

Our number one priority now is to get United into a financial position that will allow us to continue operating. We are not there yet. To get there, we must focus on break-even cash flow. That means being in the position where we have as much money coming into our bank account as we have streaming out of it. (With a grasp of economics like that, no wonder I make the big bucks.) In the past, we struggled to make a profit. Now we're in a struggle just to survive.

So getting ourselves back to a break-even cash flow -- whatever it takes -- is job one of the foreseeable future. Because if we don't succeed we'll eventually run out of money -- it's that simple and that painful. And then my stock options will be worthless.

Let me illustrate the financial hole we're in. Before September 11th, we were not in a comfortable financial state, with costs exceeding our revenue on a daily basis. Today, the situation is exacerbated with costs exceeding revenues at four times the pre-September 11 rate. Today, we are literally hemorrhaging money. And rather than staunch the flow, I'm going to go ahead and buy new business jets -- and let the pilots announce that we're retiring those economical old 727s.

Clearly, this bleeding has to be stopped -- and soon -- or United will perish sometime next year. We need to get this loss rate down to zero.... That will give us the breather we need to regain our bearings and start crawling back to profitability and begin to rebuild our balance sheet. Which by then will have a much smaller line item for union costs (see below).

While we do have a cushion from borrowing, government-guaranteed loans and other sources available to us, this leaves absolutely no room for complacency. Or diplomacy. We recognize that loans are merely crutches, not cures. That's why United pushed for that big bailout package from the feds, so that we could collect $800 million free and clear.

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