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UAL, What Really Caused The Bankruptcy?  
User currently offlineHamad From United Arab Emirates, joined Apr 2000, 1161 posts, RR: 7
Posted (11 years 11 months 5 days 16 hours ago) and read 3109 times:

I am taking a business Ethics class. and it came to discussion what is going on in the airline industry right now. One of the topics was about United Airlines and how they became down to bankruptcy.

I don't know if the proffessor was right or wrong, thats why i am posting it here willing to see if it was wrong or right from people who might be involved directly or indirectly with United airlines, I.E employees or so.

the proffessor have mentioned two main reasons other than september 11 for United to go Bankrupt.

1- After september 11, when the airlines started losing money and thus lowering their fares, United Kept raising their Prices. As an example IAD-BDL in the summer would have costed $400 on United while it costed just $160 out of DCA on USairways. Bottom line, the proffessor is indicating that UAL did not pay attention to the competitive environment, there fore customers opted for other airlines for the lower fares leaving UAL behind and thus UAL losing money

2- Customer service Issue - when Airlines started looking at their customer service seriously and tried to improve them from their roots, I.E in flight services, reservation services, facilities in the airport and so on

what i have posted, does not necessary reflect my opinion as i fly United most of the time and i have a 30,000 miles on them, however, thats what was going on in class, and i really want to see if all of it was true or not

Thanks


PHX - i miss spotting
14 replies: All unread, jump to last
 
User currently offlineWadha From United Arab Emirates, joined Mar 2000, 185 posts, RR: 0
Reply 1, posted (11 years 11 months 5 days 15 hours ago) and read 3074 times:

not that i am an expert or something, but i think the reasons are beyond the competetion and 11 of september. it goes more deeply into United's managment and the way of operations.

User currently offlineLMP737 From , joined Dec 1969, posts, RR:
Reply 2, posted (11 years 11 months 5 days 15 hours ago) and read 3066 times:

You're professor should also have mentioned that UAL wasted time and money on it's business jet venture Avolar along with the failed US Air merger. Both helped contribute to UAL's troubles.

User currently offlineSpeedport From United States of America, joined Sep 2001, 284 posts, RR: 0
Reply 3, posted (11 years 11 months 5 days 14 hours ago) and read 3038 times:

Many dominos falling one on top of the other led to where we are.

The ESOP was the first domino.

It fell on the second domino which was management’s promise of a seamless contract, which didn't happen.

The third domino to fall was the pilot action over the summer of 2000, an expression of their anger for not having a seamless contract. We lost a lot of customers over that one and many will never return.

The fourth domino to fall was UAL failed attempt to merger with USAir. We wasted hundreds of millions of dollars and lost focus on our core business.

The fifth domino to fall was the boondoggle called Avolar. Our failed attempt to start a executive jet service. Again we wasted hundreds of millions and lost even more focus on our core business.

The sixth domino to fall was the millions we wasted on dot coms which were lost when the bottom dropped out of the dot com market.

The seventh domino to fall was when our former CEO James Goodwin, the same CEO responsible for dominos 3, 4, 5 and 6, said that the airline would soon "perish" if the employees didn't give substantial concessions. This further eroded customer confidence in United.

The eighth domino to fall was the hiring of an "interim" CEO, Jack Creighton, to replace Goodwin. Creighton was nearing the age where he wanted to retire and didn't have the drive to steer a huge company like United. We flew like a ship without a rudder for the year that Creighton was CEO. 2002 was not a year to go leaderless in the airline industry. Even our competitors were surprised at the obviously business opportunities we passed up.

The ninth domino to fall was the attempt by our new, and still current, CEO Glen Tilton when he spent most of his time and effort winning concessions from employees which were not sufficient, and which relied on an unrealistic business plan, to win over the ATSB for a 1.8 billion dollar loan guarantee.

The tenth, and last, domino to fall was the rejection by the ATSB of the loan guarantee, however, bankruptcy was a foregone conclusion by the eighth domino. Even if we received backing for the loan guarantee, we would have filed eventually. Just not as soon.

Are there still dominos in our way which could lead to chapter 7? You bet there are, only not as many. What are they?

1) Believing that employee concessions alone will save the airline.
2) Believing that you can shrink you way to profitability.
3) Believing that you can sacrifice customer comfort on the altar of regional jets in order to cut costs.


User currently offlineHamad From United Arab Emirates, joined Apr 2000, 1161 posts, RR: 7
Reply 4, posted (11 years 11 months 5 days 13 hours ago) and read 3008 times:

wow! so the proffessor did not really cover all the subject aspects! these two reasons are nothing compared to the post of speed port!

thankyou for the information



PHX - i miss spotting
User currently offlineMariner From New Zealand, joined Nov 2001, 25687 posts, RR: 85
Reply 5, posted (11 years 11 months 5 days 12 hours ago) and read 2991 times:
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Hamad:

Just to back it up, I can't think of much - if anything - that Speedport missed. It's as accurate a description of UAL's troubles as I've ever read.

Perhaps the most important thing he states is that the trouble began long before 9/11.

cheers

mariner



aeternum nauta
User currently offlineEA CO AS From United States of America, joined Nov 2001, 13736 posts, RR: 61
Reply 6, posted (11 years 11 months 5 days 12 hours ago) and read 2991 times:
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Funny how university professors think they're experts on everything, isn't it?  Insane

I'd trust a professor's assessment of UA's woes about as much as I'd trust a preschool teacher to tell me what's wrong with my car's transmission.



"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
User currently offlineLadevale From , joined Dec 1969, posts, RR:
Reply 7, posted (11 years 11 months 5 days 12 hours ago) and read 2972 times:

It seems that for a Professor of Ethics, your Professor has a rather simplistic concept of ethics. For the Greeks who invented the word (ethos), ethics meant care of the self.

In UA's case, therefore, ethics would come to mean how they took care of their customers (customer service), how they took care of their employees (labor relations), and how they represented themselves to others (corporate branding).

To an ethics professor, whether he be in a Philosophy or Business department, I would think, therefore, that the ethical reasons for UA's failure would not be defined so much in financial terms (i.e., your Professor's reason #1), but more in the terms of your reason #2.

Your Professor's reason #2, however, doesn't fully connote the understanding of ethics that I have. To do that, it would have to be phrased in a way that associated UA's customer service failures to some fault in its corporate culture, in other words the corporation's overall concept of self.

For instance, here is how I might phrase it. The SFH (Summer from Hell) is a classic example of United's ethical failings. If ethics means everything I said above, the SFH demonstrates that in its care of its customers UA failed because it first took a paternalistic attitude towards its pilots (we management know better). That care of its employees angered its pilots who refused overtime (the largess of the father) and therefore imperiled how UA was from that point forward able to represent itself to the public (United spawned an alterego, the website Untied.com). (FYI - In Freud's thought, as in paternalistic economies in general, the failings of the father always spawn alter-egos.) From an ethical analysis of the SFH, therefore, one could conclude with a little help from Marcuse and Freud that United's corporate culture is tragically paternalistic. To find further proof of that, one need only examine how UA's own frequent flyer's treat UA employees. Over on flyertalk.com, you would learn that they call their favorite employees "angels" and that they feel obliged to give them gifts to recognize their plight. A little side reading in Freud (Totem and Taboo), Marcuse (on the concept of potlatch), and even Milton (Paradise Lost) should be enough to explain why it is that "angels" and "gifts" are associated with paternalistic cultures.

This is an interesting topic. Thanks for introducing it. And, I hope some of this helps.


User currently offlineRyanair!!! From Australia, joined Mar 2002, 4757 posts, RR: 25
Reply 8, posted (11 years 11 months 5 days 10 hours ago) and read 2941 times:

Let's not all forget that UAL was already suffering before the onset of 911.


Welcome to my starry one world alliance, a team in the sky!
User currently offlineUALPHLCS From , joined Dec 1969, posts, RR:
Reply 9, posted (11 years 11 months 5 days 9 hours ago) and read 2912 times:

Finally a thread that has come closest to the truth.

One thing I would note that while all of the points here are contributing factors we could argue endlessly on the severity of some. I think Crieghtons term was OK. I think he was a stabilizing force when employees had lost faith in management.

There is a story thats taught in management classes about when management losses the confidence of the employees. I don't remember names but the story stuck in my head so I'll tel you that much.

25 years ago a smoke jumping team jumped into a forest fire. It was a risky move due to the shifting winds and the terraine. The team soon got into trouble. The leader refused to call for help trying to figure the way out himself. He wasted valuable time. One member then got hurt, immobilizing the team. as the fire rushed towards them the leader found a solution. They would back burn a circle around them. They would be surounded by a moat of preburned forest and protected on a island in a sea of fire. If a smoke jumper team is evercaught like this again this is SOP for them now. The procedure is even named after the leader of that original team. However, noone survived the fire. The team had lost faith in the leader who got them into this mess, and refused to get them out when thier was time. When he finnaly made a good desicion noone on the team would listen to him.

My point is that Jack Crieghton came in and restored the employees faith in Management. We will follow Mr. Tilton, because Jack Crieghton layed that ground work.

As for the ATSB the stabilization Board that has yet to stabilize anything, one can debate if they had given the gaurantee would UA have need the incredibily steap DIP financing? Could UA have turned around without bankruptcy? It not a forgone conclusion, those who say it was can only point to the fact the UA DID file, therefore proving them right, this boils down to a chicken and egg argument.


User currently offlineMariner From New Zealand, joined Nov 2001, 25687 posts, RR: 85
Reply 10, posted (11 years 11 months 5 days 8 hours ago) and read 2892 times:
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UALPHLCS:

While I accept that Creighton did what you say, there is a greater question about his tenure.

Under UAL's own corporate laws, a CEO must resign at 70. Therefore, Creighton, who was 69 when he was appointed, could only be interim.

Now, it always said that he was interim, but the board did very little about finding a permanent replacement until just a very few weeks before that 70th birthday. This was a disaster for the incoming CEO, Tilton, because time was short and critical decisions had already been made.

Throughout this entire saga, as outlined by Speedport above, the role of the Board of Directors (BOD) has been largely ignored. Yet it is the BOD who must bear more than a small degree of the blame.

It is the BOD who rubber stamped the various disastrous side ventures (Avolar, etc.), the BOD who approved the pilot contract, the BOD who approved (or engineered) the dismissal of Goodwin and appointed one of their own, it is the BOD who dallied finding a permanent replacement CEO.

It is the BOD who approved the submission to the ATSB. But the ATSB is not the demon here.

The ATSB knew they faced political wrath if they denied the application. At the same time, they were entrusted with the administration of public monies. They had a charter from Congress and they stuck to it.

And they are not financial fools. Or, if they are, then since in their real jobs they variously have charge of a deal of public money and aspects of the national economy, we should be deeply worried.

The submission was deemed inadequate by the ATSB, and then, in the first bankruptcy hearing, UAL admitted that the submission was inaccurate.

It was at that same first hearing that the judge told the UAL lawyers that the financial projections for the future seemed not to be based on any reality, but were effectively pie in the sky.

And the BOD allowed all this to happen.

The role of the BOD in any corporation is grossly underestimated - or has become so.

They are not there to approve, without question, everything the CEO wants to do. They are there to protect two things: (i) the corporation with which they are entrusted, and (ii) the owners of that corporation, including the shareholders.

To my mind, the BOD of UAL has been grossly negligent on both counts. If I were a shareholder in UAL, I'd be talking to my lawyer.

cheers

mariner




aeternum nauta
User currently offlineSpeedport From United States of America, joined Sep 2001, 284 posts, RR: 0
Reply 11, posted (11 years 11 months 5 days 7 hours ago) and read 2887 times:

UALPHLCS - I agree with you. Jack Creighton was a good man, but that has nothing to do with his failure. As an interim CEO he lacked the determination to grab the bull by the horns and lead the company. Why? Because he was more focused on retirement than he was on running the world's second largest airline.

United wasted valuable time by bring in someone, anyone, who looked at the position as a temp job. Consider how much better shape would we now be in had Mr. Tilton been brought in after Goodwin, instead of wasting a year with a temporary CEO.

I liked Jack Crieghton, but grew frustrated, as many of us did, by his lack of long term leadership. The reason many of us have responded to Mr. Tilton is because he is grabbing the bull by the horns and demonstrating long term leadership, not because of anything Jack Creighton did. For we realize that he could of, and should of, done more than he did.

As to the foregone conclusion of our filing, I too had my rose colored vision of United shattered by the filing. You cannot say, however, that we would have avoided bankruptcy with a loan when, four day after we were turned down, it was revealed we had 22 billion in assets and 21 billion in debts with a burn rate of 20 million a day. Even if we were able to cut the burn rate in half, and the former negotiated cuts wouldn't have, we would still be burning 3.65 billion a year. 1.8 billion wouldn't have made any difference. Even if we got the number to 5 million a day the 1.8 billion would have bought us a year at best. What would we have done then? You can only borrow money for so long, as AMR is now finding out. Especially with no appreciable increase in traffic foreseen in 2003.

The current employee pay cuts are only saving us around 2.3 million a day, and they are almost twice as much as the former. Much more was needed. Bankruptcy was the only way to buy time to restructure and as such was unavoidable. It is time to put away the rose colored glasses and see things for what they truly are. Wishful thinking isn't going to do anybody any good at this point.


User currently offlineWadha From United Arab Emirates, joined Mar 2000, 185 posts, RR: 0
Reply 12, posted (11 years 11 months 4 days 18 hours ago) and read 2798 times:

i happen to fly them in july 2000... their customer service inflight, and the attitude of their flight attendants was way out of control. however, i knew that lightened up a bit later, but there was still some attitude. you can't ask people to smile or have a stupid funny attitude like if they were crazy, but proffessional communication away from snobby attitudes was really appreciated.

They seemed to be a great airline, but well i think many things just skrewed them


User currently offlineUALPHLCS From , joined Dec 1969, posts, RR:
Reply 13, posted (11 years 11 months 4 days 8 hours ago) and read 2737 times:

AS I said the importance one might place on each of the points is debateable till doomsday, however, one thing you must remember is that a concerted search for a new CEO was underway.

Maybe you don't recall that the CEO search was delayed by six months when early on the president of Boeing had to bow out because some ass leaked that he was being considered to Boeing and the media. Boeing went ape and the guy had to publically renounce his intentions to UAL. That delayed the process until Tilton was found.

Tilton did his job. He was picked because he had worked closely with the IAM at Werehauser (I forget how you spell that). Don't forget the IAM was still negotiating its contract w/ the Company when he took over. His mission was to get that contract and stabilize Management's credibility w/ the employees. Any vision or long term solutions would have to come from the permenant CEO. Jack Crieghton was UA's EMT, he got the Company to the hospital so that the Doctor could goto work. Mission accomplished.



User currently offlineOgseminole From United States of America, joined Oct 2001, 43 posts, RR: 0
Reply 14, posted (11 years 11 months 3 days 21 hours ago) and read 2680 times:

2 WORDS
BAD MANAGEMENT


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