Cash Landing

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.

We've already done much to cut costs. We've immediately reduced our flying schedule by 20 to 25 percent; shut down non-aircraft capital projects (including JFK Terminal 6 and Dulles Tier 2 and, not incidentally, all those planned expansions we were promising for Denver International Airport, which is still paying off that disastrous automated baggage system we forced on them); reduced supplier and discretionary spending, and -- most difficult of all -- decided to furlough 20,000 United employees. None of them me.

I wish I could report that work in this area is completed. It isn't. We are continuing to look at all aspects of our business -- from payroll and operations to examining the costs under our labor contracts. Which are up for renegotiation right now -- and those union leaders won't be driving a hard bargain after getting a load of this letter. Nothing is sacred or off-limits. Not even the general rules of business, as evidenced by same.

We also are working hard to generate revenue. The first step is to get people comfortable about flying again. We and the rest of the industry -- along with the U.S. President, other elected officials and government agencies -- are doing everything we can. When we aren't fleeing Washington, that is.

To get passengers back on our planes, we also need to convince them that airline travel is safe. We are joining with the rest of the industry and the government to implement a number of measures, including reinforced cockpit doors and placing responsibility for security under federal jurisdiction. Lord knows, we've proven time and time again with our abysmal performance at DIA -- where we contracted with Argenbright Security to do the screening -- that we're incapable of being responsible for it ourselves. We're also issuing special fares, Mileage Plus offers and new ads that will feature United employees encouraging our customers to return to the skies and guilt-tripping every person in America into thinking it's their patriotic duty to stand in line for four hours just to be crammed into one of our flying tin cans.

However, much of our success in generating revenue will depend upon you. Once we bring customers back to our ticket counters, gate areas and airplane cabins, it will be up to you to make them comfortable and provide them with the service they've come to expect from United. And just listen to the cheers when they realize we're discontinuing those dismal meals on most flights!

I'm very proud of the work you're doing, in the wake of the September 11th tragedies. I've seen a renewed spirit at United. People are giving more of themselves to this company than I've ever witnessed in the 35 years I've been here. This is the true fabric of United. Let 'er rip!

Thank you for your loyalty, for your hard work and for your service on behalf of our customers in these, the most difficult of times. Let's keep it up. The sooner we get to break even, the sooner we'll remove the doubts about our future.

My future, of course, will be settled much sooner than that. Happy landings! -- J.G.


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