Airline Biz Crisis: Not Difficult To Predict

"Reef Fish" wrote in message
oups.com...

Whether you believed it or not, Delta and other airlines WERE
making profits. Eastern went belly up for reasons of incompetent
Management!

Maybe, but I think one of the biggest factors was the disgraceful actions of
Charlie Bryan and the International Association of Machinist and Aerospace
Workers (IAM). You look at how Bryan acted over the company's final years
and it really looks like he make his decisions based more on the chip on his
shoulder towards management than for the well being of the workers. He
forced Frank Borman to resign and when Frank Lorenzo took over they went on
a strike that made the airline bleed money. After Eastern went belly-up IAM
claimed it as a victory!
http://www.airlinesafety.com/Unions/...yAtEastern.htm

"Reef Fish" wrote:

James Robinson wrote:

"Reef Fish" wrote:

Eastern went belly up for reasons of incompetent Management!

There was more to the issue than simply the effectiveness or
ineffectiveness of management. Yes, there were many things the
management could have done better, but they were caught by a basic
change of rules (deregulation) and a legacy of high interest rates,
along with intransigent unions.

That change affected all the OTHER airlines as well. It's not as
if someone was picking on Eastern.

No question that it affected other airlines, but you seem to be picking
on Eastern over the others. Over 100 airlines have gone bankrupt or been
liquidated since deregulation. Twelve of them major airlines. Did all
of them have incompetant management?

The reality was that the major carriers had been sitting fat, dumb, and
happy under CAB regulation, and had cost structures that fit with the
rates they could charge. They had relatively high labor rates,
restrictive work rules, generous fringe benefits, and inefficient route
structures. They were just getting over the first period of energy
uncertainty, and were entering a period of high inflation.

The economic structure of the airline industry had evolved over many
years, and was encumbered by severe institutional momentum and lethargy.
Suddenly, the rules of the game were changed out from under them. They
could not react quickly enough, since the necessary changes to labor
agreements simply cannot be negotiated under the normal adversarial
system. The base cost and makeup of their fleet cannot be changed
overnight.

PanAm was pretty well left in the lurch, since they had to domestic
route structure. They attempted to buy into National to both get cash
and to gain friendly domestic feeder, but it was too little too late.
Was that bad management?

Braniff decided to attempt to retrench, several times, and shed much of
their route structure, including the formerly profitable South American
services. That didn't work for them. Was that bad management?

Eastern decided that their only hope was to greatly expand services out
of the east coast, since they were being eaten alive on their
bread-and-butter services between the mid-Atlantic states and Florida,
and felt their only hope was to grow to a critical mass. Unfortunately
for them, the interest rates took off, and they ended up acquiring a
very expensive fleet.

Was that "incompetent management?" Not really any worse than the other
choices, they were all victims of bad timing, and fell for a number of
different reasons.

The common thread is that they were all unable to react quickly enough
to the new realities of the industry. The other legacy carriers have
eventually fallen for the same reason, they were just lucky in some
cases, or were better at delaying the inevitable, but they have all seen
the same end result.

The Management WASN'T good, which was why they put themselves into
that BAD position. If half the businesses decisions are based on
hindsight, the bankrupcy courts would be sitting nearly idle.

The only loser would be the guy that lost on a bet in a game, and
bet and lost again on TV replay. :0)

You are criticising the management using hindsight. At the time, their
gamble was reasonable, given their particular circumstances. They were
one of the first airlines to have a frontal assault from low cost
carriers, and they could not meet that attack with their existing
structure. They were essentially doomed if they tried to directly
compete with no changes, and as it played out, doomed when they tried to
expand outside of their traditional markets. Had interest rates not
taken off when they were implementing their strategy, they might have
held on longer. As it was, no management, good or bad, could have
changed the inevitable.

James Robinson wrote:
"Reef Fish" wrote:

James Robinson wrote:

"Reef Fish" wrote:

Eastern went belly up for reasons of incompetent Management!

There was more to the issue than simply the effectiveness or
ineffectiveness of management. Yes, there were many things the
management could have done better, but they were caught by a basic
change of rules (deregulation) and a legacy of high interest rates,
along with intransigent unions.

That change affected all the OTHER airlines as well. It's not as
if someone was picking on Eastern.

No question that it affected other airlines, but you seem to be picking
on Eastern over the others.

You need to learn to read in CONTEXT.

I didn't pick on Eastern at all. The OP of this thread Cohen gave
his reasons why it was easy to predict Eastern's bankrupcy. I
disagreed, and blamed in on Management.


The economic structure of the airline industry had evolved over many
years, and was encumbered by severe institutional momentum and lethargy.
Suddenly, the rules of the game were changed out from under them.

You are just repeating yourself on what you had already posted. It
was Eastern's Management that made a poor bet and lost, while the
other Managements of other airlines survived.


PanAm was pretty well left in the lurch, since they had to domestic
route structure. They attempted to buy into National to both get cash
and to gain friendly domestic feeder, but it was too little too late.
Was that bad management?

Yes. What got them into the "too little too late" condition.


Braniff decided to attempt to retrench, several times, and shed much of
their route structure, including the formerly profitable South American
services. That didn't work for them. Was that bad management?

Yes. Bad Management in choosing something that didn't work for them.


Eastern decided that their only hope was to greatly expand services

Deja vu reason about how it got caught by interest rate rise.

Was that "incompetent management?" Not really any worse than the other
choices, they were all victims of bad timing, and fell for a number of
different reasons.

Of course that was "incompetent management", to have put all its eggs
into one basket that was inelastic to economic change. Good management
would have considered "fall back" position when something didn't
work out as rosy as it had thought -- rather than placing themselves
in a belly-up position as soon as interest rates rose.

That was what I said befo

The Management WASN'T good, which was why they put themselves into
that BAD position. If half the businesses decisions are based on
hindsight, the bankrupcy courts would be sitting nearly idle.

The only loser would be the guy that lost on a bet in a game, and
bet and lost again on TV replay. :0)

You are criticising the management using hindsight. At the time, their
gamble was reasonable, given their particular circumstances.

One key element of economics and finance that escaped you is that
ALL businesses are GAMBLES. If any Management of a businesses takes
in irrevocable "bad gamble" (of course it's hindsight, how else can
you tell if a gamble worked or not?), then the buck stops THERE.
They miscalculated. They screwed up. They took a bad gamble that
caused the company's bankrupcy.

It's that simple.

As it was, no management, good or bad, could have changed the
inevitable.

********! If Eastern hadn't gotten greedy by ordering a large new
fleet and got caught by the interest squeeze, there would have been
no bankrupcy proceedings caused by that bad gamble.

-- Bob.

"james_anatidae" wrote in message
...
"Reef Fish" wrote in message
oups.com...

Whether you believed it or not, Delta and other airlines WERE
making profits. Eastern went belly up for reasons of incompetent
Management!

Maybe, but I think one of the biggest factors was the disgraceful actions
of
Charlie Bryan and the International Association of Machinist and Aerospace
Workers (IAM). You look at how Bryan acted over the company's final years
and it really looks like he make his decisions based more on the chip on
his
shoulder towards management than for the well being of the workers. He
forced Frank Borman to resign and when Frank Lorenzo took over they went
on
a strike that made the airline bleed money. After Eastern went belly-up
IAM
claimed it as a victory!
http://www.airlinesafety.com/Unions/...yAtEastern.htm


How very accurate you are. Eastern had a long history of labor issues, with
Bryan and the IAM basically daring managemen to sell out to Lorenzo.

"Reef Fish" wrote:


James Robinson wrote:
"Reef Fish" wrote:

James Robinson wrote:

"Reef Fish" wrote:

Eastern went belly up for reasons of incompetent Management!

There was more to the issue than simply the effectiveness or
ineffectiveness of management. Yes, there were many things the
management could have done better, but they were caught by a basic
change of rules (deregulation) and a legacy of high interest
rates, along with intransigent unions.

That change affected all the OTHER airlines as well. It's not as
if someone was picking on Eastern.

No question that it affected other airlines, but you seem to be
picking on Eastern over the others.

You need to learn to read in CONTEXT.

I didn't pick on Eastern at all. The OP of this thread Cohen gave
his reasons why it was easy to predict Eastern's bankrupcy. I
disagreed, and blamed in on Management.

And I said you were too critical of their management.

The economic structure of the airline industry had evolved over many
years, and was encumbered by severe institutional momentum and
lethargy.
Suddenly, the rules of the game were changed out from under them.

You are just repeating yourself on what you had already posted. It
was Eastern's Management that made a poor bet and lost, while the
other Managements of other airlines survived.

Name just one eastern-based major airline that survived without
bankruptcy. There isn't one. Eastern tried an approach that might have
saved them. It didn't work because of how things evolved. It might
have.

Braniff decided to attempt to retrench, several times, and shed much
of their route structure, including the formerly profitable South
American services. That didn't work for them. Was that bad
management?

Yes. Bad Management in choosing something that didn't work for them.

They chose the best of a bunch of bad options. There were no miracles
available for management to choose. The remaining major carriers are
now seeing what airlines like Braniff and Eastern had to contend with 20
years ago. They aren't surviving any better. Do they all have "bad
management?"

Eastern decided that their only hope was to greatly expand services

Deja vu reason about how it got caught by interest rate rise.

It was still their only hope.

Was that "incompetent management?" Not really any worse than the
other choices, they were all victims of bad timing, and fell for a
number of different reasons.

Of course that was "incompetent management", to have put all its eggs
into one basket that was inelastic to economic change. Good
management would have considered "fall back" position when something
didn't work out as rosy as it had thought -- rather than placing
themselves in a belly-up position as soon as interest rates rose.

That was what I said befo

There was no fall-back position other than inevitable bankruptcy. They
were in a situation where the only option they had was to grow. They
tried to make a go of it and lost. They couldn't reshape themselves
quickly enough with the legacy of union agreements and their existing
route structure.

The Management WASN'T good, which was why they put themselves into
that BAD position. If half the businesses decisions are based on
hindsight, the bankrupcy courts would be sitting nearly idle.

The only loser would be the guy that lost on a bet in a game, and
bet and lost again on TV replay. :0)

You are criticising the management using hindsight. At the time,
their gamble was reasonable, given their particular circumstances.

One key element of economics and finance that escaped you is that
ALL businesses are GAMBLES. If any Management of a businesses takes
in irrevocable "bad gamble" (of course it's hindsight, how else can
you tell if a gamble worked or not?), then the buck stops THERE.
They miscalculated. They screwed up. They took a bad gamble that
caused the company's bankrupcy.

It's that simple.

I didn't miss that. Eastern HAD to gamble, whether it turned out good
or bad. The conservative approach simply wouldn't have worked. Name one
other major Eastern-based carrier that has survived without entering
bankruptcy since deregulation. Eastern was no different. Other factors
conspired against Eastern to sink them, where they might have had a
formula that were have deferred bankruptcy, but not really avoided it.

As it was, no management, good or bad, could have changed the
inevitable.

********! If Eastern hadn't gotten greedy by ordering a large new
fleet and got caught by the interest squeeze, there would have been
no bankrupcy proceedings caused by that bad gamble.

Had they not ordered aircraft for expansion, they were doomed. They
were simply too small to compete as they were, with the low cost
carriers chasing them on their most profitable routes.

And had the interest rates not shot up, Eastern might have looked like
the hero instead, and lasted as long as some of the other majors. Much
of it was simply bad luck.

"James Robinson" wrote in message
. 97.142...

ALL SNIPPED.

I find it interesting that US Air(ways)'s route structure is not all
that different from Eastern's ... with the additon of a few European
flights and without the Caribbean dominance.

"James Robinson" wrote in message
. 97.142...
"Reef Fish" wrote:


James Robinson wrote:
"Reef Fish" wrote:

James Robinson wrote:

"Reef Fish" wrote:

Eastern went belly up for reasons of incompetent Management!

There was more to the issue than simply the effectiveness or
ineffectiveness of management. Yes, there were many things the
management could have done better, but they were caught by a basic
change of rules (deregulation) and a legacy of high interest
rates, along with intransigent unions.

That change affected all the OTHER airlines as well. It's not as
if someone was picking on Eastern.

No question that it affected other airlines, but you seem to be
picking on Eastern over the others.

You need to learn to read in CONTEXT.

I didn't pick on Eastern at all. The OP of this thread Cohen gave
his reasons why it was easy to predict Eastern's bankrupcy. I
disagreed, and blamed in on Management.

And I said you were too critical of their management.

The economic structure of the airline industry had evolved over many
years, and was encumbered by severe institutional momentum and
lethargy.
Suddenly, the rules of the game were changed out from under them.

You are just repeating yourself on what you had already posted. It
was Eastern's Management that made a poor bet and lost, while the
other Managements of other airlines survived.

Name just one eastern-based major airline that survived without
bankruptcy. There isn't one. Eastern tried an approach that might have
saved them. It didn't work because of how things evolved. It might
have.

Braniff decided to attempt to retrench, several times, and shed much
of their route structure, including the formerly profitable South
American services. That didn't work for them. Was that bad
management?

Yes. Bad Management in choosing something that didn't work for them.

Actually, at least with Braniff, the situation is a bit more complicated.
In 1978, with deregulation, Braniff management made the decision that to
grow, and to be able to compete with American (which had come into its back
yard at Dallas by moving headquarters from New York and literally overlaying
their route system, they had no choice. They were well poised to grow,
operating an efficient (by 1978 standards) fleet of 727-200's except for
South America where they flew DC8-62's. Unfortunately, the Iran situation
in 1979 caused a major recession in the U.S., and under President Carter
inflation and interest rates were extremely high, which limited (or
eliminated) their ability to shed airplanes (including the very valuable
727's) or otherwise retrench fast enough. The banks basically took over,
bringing in Putnam as president, and the unions refused to cooperate saying
that if they did so, they risked their other airline union groups ending up
with give-backs (sort of like today). There were a number of factors, some
of which were beyond management's abilities, some of which were not (Braniff
had a dearth of quality mid-level managers).

And on at least three of the major bankruptcies, Braniff, Eastern, and Pan
Am, American Airlines played a major role by what many consider to be
unreasonable competiton (i.e., at DFW using the runways that Braniff used in
order to cause Braniff to burn more fuel when they were already on a cash
basis with suppliers).

They chose the best of a bunch of bad options. There were no miracles
available for management to choose. The remaining major carriers are
now seeing what airlines like Braniff and Eastern had to contend with 20
years ago. They aren't surviving any better. Do they all have "bad
management?"

Eastern decided that their only hope was to greatly expand services

Deja vu reason about how it got caught by interest rate rise.

It was still their only hope.

Was that "incompetent management?" Not really any worse than the
other choices, they were all victims of bad timing, and fell for a
number of different reasons.

Of course that was "incompetent management", to have put all its eggs
into one basket that was inelastic to economic change. Good
management would have considered "fall back" position when something
didn't work out as rosy as it had thought -- rather than placing
themselves in a belly-up position as soon as interest rates ros

Absolutely, but, again, the "fall back" was to retrench. Because of various
factors, they couldn't.

That was what I said befo

There was no fall-back position other than inevitable bankruptcy. They
were in a situation where the only option they had was to grow. They
tried to make a go of it and lost. They couldn't reshape themselves
quickly enough with the legacy of union agreements and their existing
route structure.

The Management WASN'T good, which was why they put themselves into
that BAD position. If half the businesses decisions are based on
hindsight, the bankrupcy courts would be sitting nearly idle.

The only loser would be the guy that lost on a bet in a game, and
bet and lost again on TV replay. :0)

You are criticising the management using hindsight. At the time,
their gamble was reasonable, given their particular circumstances.

One key element of economics and finance that escaped you is that
ALL businesses are GAMBLES. If any Management of a businesses takes
in irrevocable "bad gamble" (of course it's hindsight, how else can
you tell if a gamble worked or not?), then the buck stops THERE.
They miscalculated. They screwed up. They took a bad gamble that
caused the company's bankrupcy.

It's that simple.

I didn't miss that. Eastern HAD to gamble, whether it turned out good
or bad. The conservative approach simply wouldn't have worked. Name one
other major Eastern-based carrier that has survived without entering
bankruptcy since deregulation. Eastern was no different. Other factors
conspired against Eastern to sink them, where they might have had a
formula that were have deferred bankruptcy, but not really avoided it.

As it was, no management, good or bad, could have changed the
inevitable.

********! If Eastern hadn't gotten greedy by ordering a large new
fleet and got caught by the interest squeeze, there would have been
no bankrupcy proceedings caused by that bad gamble.

Eastern had a very favorable deal from Airbus for A300's (basically free, in
order to get a U.S. carrier to buy some and enter the North American market)
and for 757's (Eastern was a launch customer along with British Airways).
They were able to reduce their L1011 fleet and replace them with more fuel
efficient A300's at minmal cost. The rest of their fleet was largely DC9's,
which were good for their route network at the time.

Had they not ordered aircraft for expansion, they were doomed. They
were simply too small to compete as they were, with the low cost
carriers chasing them on their most profitable routes.

And had the interest rates not shot up, Eastern might have looked like
the hero instead, and lasted as long as some of the other majors. Much
of it was simply bad luck.

Jeff Hacker wrote:
"James Robinson" wrote in message
. 97.142...
"Reef Fish" wrote:


James Robinson wrote:
"Reef Fish" wrote:

James Robinson wrote:

"Reef Fish" wrote:

Eastern went belly up for reasons of incompetent Management!

There was more to the issue than simply the effectiveness or
ineffectiveness of management. Yes, there were many things the
management could have done better, but they were caught by a basic
change of rules (deregulation) and a legacy of high interest
rates, along with intransigent unions.

That change affected all the OTHER airlines as well. It's not as
if someone was picking on Eastern.

No question that it affected other airlines, but you seem to be
picking on Eastern over the others.

You need to learn to read in CONTEXT.

I didn't pick on Eastern at all. The OP of this thread Cohen gave
his reasons why it was easy to predict Eastern's bankrupcy. I
disagreed, and blamed in on Management.

And I said you were too critical of their management.

The economic structure of the airline industry had evolved over many
years, and was encumbered by severe institutional momentum and
lethargy.
Suddenly, the rules of the game were changed out from under them.

You are just repeating yourself on what you had already posted. It
was Eastern's Management that made a poor bet and lost, while the
other Managements of other airlines survived.

Name just one eastern-based major airline that survived without
bankruptcy. There isn't one. Eastern tried an approach that might have
saved them. It didn't work because of how things evolved. It might
have.

Braniff decided to attempt to retrench, several times, and shed much
of their route structure, including the formerly profitable South
American services. That didn't work for them. Was that bad
management?

Yes. Bad Management in choosing something that didn't work for them.

Actually, at least with Braniff, the situation is a bit more complicated.
In 1978, with deregulation, Braniff management made the decision that to
grow, and to be able to compete with American (which had come into its back
yard at Dallas by moving headquarters from New York and literally overlaying
their route system, they had no choice. They were well poised to grow,
operating an efficient (by 1978 standards) fleet of 727-200's except for
South America where they flew DC8-62's. Unfortunately, the Iran situation
in 1979 caused a major recession in the U.S., and under President Carter
inflation and interest rates were extremely high, which limited (or
eliminated) their ability to shed airplanes (including the very valuable
727's) or otherwise retrench fast enough. The banks basically took over,
bringing in Putnam as president, and the unions refused to cooperate saying
that if they did so, they risked their other airline union groups ending up
with give-backs (sort of like today). There were a number of factors, some
of which were beyond management's abilities, some of which were not (Braniff
had a dearth of quality mid-level managers).

And on at least three of the major bankruptcies, Braniff, Eastern, and Pan
Am, American Airlines played a major role by what many consider to be
unreasonable competiton (i.e., at DFW using the runways that Braniff used in
order to cause Braniff to burn more fuel when they were already on a cash
basis with suppliers).

Again, to re-iterate, Robert Cohen started this thread saying Eastern's
surmise was easy to predict because it was overpaying the pilots and a
few other extravagent spendings.

I disagreed, in general principle, on the Free Market principle that no
salary is too high, and cited examples in sports where the teams didn't
go bankrupt because they pay some players millions of dollars a year --
which *I* think is ridiculous, but that's what the market will bear.

Again, in GENERAL principle, any business that fails ultimately can be
blamed on the owner of the business (or its management).

That having said, I freely admit that I do NOT know much of the detail
provided by James Robinson and Jeff Hacker -- who are apparently in the
airline business or have much better knowledge of the nitty-gritty
details of each bankrupcies.

James blames it all on deregulation.

If it were a completely deregulated industry, then it would have been
the Free Market, and that would be the perfect business environment for
competition and survival of the fittest. Unfortunately the
deregulation
is only PARTIAL, and the airlines are subject to all kinds of
regulations
which restricted their "free" choices!

I am somewhat sympathetic to the theory of blaming it all on the change
of rules that is bring down the entire airline industry, leaving no
airline unscathed.

If that WERE the case, then the airlines themselves are to blame for
the collective stupidity of not getting OUT of competition that kills
everyone, winner and loser! There is no regulation against an airline
selling itself (while it was still profitable) and get into other
industries of better fair-competitions among large and small companies.

To me, that's the bottom line of "the buck stops at the Management".


They chose the best of a bunch of bad options. There were no miracles
available for management to choose. The remaining major carriers are
now seeing what airlines like Braniff and Eastern had to contend with 20
years ago. They aren't surviving any better. Do they all have "bad
management?"

Eastern decided that their only hope was to greatly expand services

Deja vu reason about how it got caught by interest rate rise.

It was still their only hope.

Was that "incompetent management?" Not really any worse than the
other choices, they were all victims of bad timing, and fell for a
number of different reasons.

Of course that was "incompetent management", to have put all its eggs
into one basket that was inelastic to economic change. Good
management would have considered "fall back" position when something
didn't work out as rosy as it had thought -- rather than placing
themselves in a belly-up position as soon as interest rates ros

Absolutely, but, again, the "fall back" was to retrench. Because of various
factors, they couldn't.

Whatever one chooses to call it, it was placing themselves in an
untenable
position of recovery and inevitable bankrupcy. By then, it's already
too late to retrench.

That was what I said befo

There was no fall-back position other than inevitable bankruptcy. They
were in a situation where the only option they had was to grow. They
tried to make a go of it and lost. They couldn't reshape themselves
quickly enough with the legacy of union agreements and their existing
route structure.

The Management WASN'T good, which was why they put themselves into
that BAD position. If half the businesses decisions are based on
hindsight, the bankrupcy courts would be sitting nearly idle.

The only loser would be the guy that lost on a bet in a game, and
bet and lost again on TV replay. :0)

You are criticising the management using hindsight. At the time,
their gamble was reasonable, given their particular circumstances.

One key element of economics and finance that escaped you is that
ALL businesses are GAMBLES. If any Management of a businesses takes
in irrevocable "bad gamble" (of course it's hindsight, how else can
you tell if a gamble worked or not?), then the buck stops THERE.
They miscalculated. They screwed up. They took a bad gamble that
caused the company's bankrupcy.

It's that simple.

I didn't miss that. Eastern HAD to gamble, whether it turned out good
or bad. The conservative approach simply wouldn't have worked. Name one
other major Eastern-based carrier that has survived without entering
bankruptcy since deregulation. Eastern was no different. Other factors
conspired against Eastern to sink them, where they might have had a
formula that were have deferred bankruptcy, but not really avoided it.

As it was, no management, good or bad, could have changed the
inevitable.

********! If Eastern hadn't gotten greedy by ordering a large new
fleet and got caught by the interest squeeze, there would have been
no bankrupcy proceedings caused by that bad gamble.

Eastern had a very favorable deal from Airbus for A300's (basically free, in
order to get a U.S. carrier to buy some and enter the North American market)
and for 757's (Eastern was a launch customer along with British Airways).
They were able to reduce their L1011 fleet and replace them with more fuel
efficient A300's at minmal cost. The rest of their fleet was largely DC9's,
which were good for their route network at the time.

Had they not ordered aircraft for expansion, they were doomed. They
were simply too small to compete as they were, with the low cost
carriers chasing them on their most profitable routes.

And had the interest rates not shot up, Eastern might have looked like
the hero instead, and lasted as long as some of the other majors. Much
of it was simply bad luck.

Hero or goat, the glory or blame goes to the decision maker.

That's how K-Mart, S-Mart, and other Marts all lost to the
better-managed
Wal-Mart. Walmart didn't get big (like American) overnight. It just
grew
by leaps and bounds because of better choice of products, better layout
for that kind of market, etc. It's unfair competition to other retail
store NOW -- that's for sure! But if some smaller chain decides to
expand on some "good deal" of free rental space (or some such) to
compete
against Mr. BigBoy, and failed because one thing or another didn't
quite
work out the way they had hoped/wished, they are the only ones to be
blamed for taking the bad gamble.

I am back to the Free Market principle via the same route! Every
business
has a CHOICE to compete or not, or how to compete, in an unregulated
market seemingly dominated by one BigBoy. The computer and software
industry seems to be doing quite well, with many companies going down
the tubes against Big Blue or Microshaft, while other companies are
competing successfully in the industry dominated (past or present) by
those Big Boys. Untimately the one-time Big Boy of Big Blue had to
re-evaluate its market to start as a Little Boy to compete against
Bill Gate's Big Boy.

That's the way free competition should be. The USA is hardly a perfect
Free Market, but is about as good as it gets, in practice.

-- Bob.

to correct mis-statement that I said Eastern over-paid its pilots

Please re-read what I initially posted.

And b-t-w, I still perceive that Delta senior management & its senior
pilots were highly-paid while the discounters were getting stronger by
Walmarting the marketplace, seemingly eating Delta's lunch; and so I
had utilized a cliche, "skating on thin (market) ice," to dramatize the
folly of the seeming "greed."

The "up to $500,000" pilot salary I had read/heard I've been unable to
verify; but the subsequent "$300,000" figure stands until debunked as
incorrect factually.

"Reef Fish" wrote in message
oups.com...

Jeff Hacker wrote:
"James Robinson" wrote in message
. 97.142...
"Reef Fish" wrote:


James Robinson wrote:
"Reef Fish" wrote:

James Robinson wrote:

"Reef Fish" wrote:

Eastern went belly up for reasons of incompetent Management!

There was more to the issue than simply the effectiveness or
ineffectiveness of management. Yes, there were many things the
management could have done better, but they were caught by a basic
change of rules (deregulation) and a legacy of high interest
rates, along with intransigent unions.

That change affected all the OTHER airlines as well. It's not as
if someone was picking on Eastern.

No question that it affected other airlines, but you seem to be
picking on Eastern over the others.

You need to learn to read in CONTEXT.

I didn't pick on Eastern at all. The OP of this thread Cohen gave
his reasons why it was easy to predict Eastern's bankrupcy. I
disagreed, and blamed in on Management.

And I said you were too critical of their management.

The economic structure of the airline industry had evolved over many
years, and was encumbered by severe institutional momentum and
lethargy.
Suddenly, the rules of the game were changed out from under them.

You are just repeating yourself on what you had already posted. It
was Eastern's Management that made a poor bet and lost, while the
other Managements of other airlines survived.

Name just one eastern-based major airline that survived without
bankruptcy. There isn't one. Eastern tried an approach that might have
saved them. It didn't work because of how things evolved. It might
have.

Braniff decided to attempt to retrench, several times, and shed much
of their route structure, including the formerly profitable South
American services. That didn't work for them. Was that bad
management?

Yes. Bad Management in choosing something that didn't work for them.

Actually, at least with Braniff, the situation is a bit more complicated.
In 1978, with deregulation, Braniff management made the decision that to
grow, and to be able to compete with American (which had come into its
back
yard at Dallas by moving headquarters from New York and literally
overlaying
their route system, they had no choice. They were well poised to grow,
operating an efficient (by 1978 standards) fleet of 727-200's except for
South America where they flew DC8-62's. Unfortunately, the Iran
situation
in 1979 caused a major recession in the U.S., and under President Carter
inflation and interest rates were extremely high, which limited (or
eliminated) their ability to shed airplanes (including the very valuable
727's) or otherwise retrench fast enough. The banks basically took over,
bringing in Putnam as president, and the unions refused to cooperate
saying
that if they did so, they risked their other airline union groups ending
up
with give-backs (sort of like today). There were a number of factors,
some
of which were beyond management's abilities, some of which were not
(Braniff
had a dearth of quality mid-level managers).

And on at least three of the major bankruptcies, Braniff, Eastern, and
Pan
Am, American Airlines played a major role by what many consider to be
unreasonable competiton (i.e., at DFW using the runways that Braniff used
in
order to cause Braniff to burn more fuel when they were already on a cash
basis with suppliers).

Again, to re-iterate, Robert Cohen started this thread saying Eastern's
surmise was easy to predict because it was overpaying the pilots and a
few other extravagent spendings.

I disagreed, in general principle, on the Free Market principle that no
salary is too high, and cited examples in sports where the teams didn't
go bankrupt because they pay some players millions of dollars a year --
which *I* think is ridiculous, but that's what the market will bear.

Again, in GENERAL principle, any business that fails ultimately can be
blamed on the owner of the business (or its management).

That having said, I freely admit that I do NOT know much of the detail
provided by James Robinson and Jeff Hacker -- who are apparently in the
airline business or have much better knowledge of the nitty-gritty
details of each bankrupcies.

James blames it all on deregulation.

I largely agree with that assessment. To me, the negatives of deregulation
have been the loss of stability in the airline business, not to mention the
reduction in livingstandards for their employees. Fares may be lower now
(sometimes) but they aren't too predictable, varying from seat to seat.and
hour to hour :-) And you're right, unfortunately I'm an ex-airline
employee, having been with both Eastern and Braniff before I got out of the
business :-(

Jeff


If it were a completely deregulated industry, then it would have been
the Free Market, and that would be the perfect business environment for
competition and survival of the fittest. Unfortunately the
deregulation
is only PARTIAL, and the airlines are subject to all kinds of
regulations
which restricted their "free" choices!

I am somewhat sympathetic to the theory of blaming it all on the change
of rules that is bring down the entire airline industry, leaving no
airline unscathed.

If that WERE the case, then the airlines themselves are to blame for
the collective stupidity of not getting OUT of competition that kills
everyone, winner and loser! There is no regulation against an airline
selling itself (while it was still profitable) and get into other
industries of better fair-competitions among large and small companies.

To me, that's the bottom line of "the buck stops at the Management".


They chose the best of a bunch of bad options. There were no miracles
available for management to choose. The remaining major carriers are
now seeing what airlines like Braniff and Eastern had to contend with
20
years ago. They aren't surviving any better. Do they all have "bad
management?"

Eastern decided that their only hope was to greatly expand services

Deja vu reason about how it got caught by interest rate rise.

It was still their only hope.

Was that "incompetent management?" Not really any worse than the
other choices, they were all victims of bad timing, and fell for a
number of different reasons.

Of course that was "incompetent management", to have put all its eggs
into one basket that was inelastic to economic change. Good
management would have considered "fall back" position when something
didn't work out as rosy as it had thought -- rather than placing
themselves in a belly-up position as soon as interest rates ros

Absolutely, but, again, the "fall back" was to retrench. Because of
various
factors, they couldn't.

Whatever one chooses to call it, it was placing themselves in an
untenable
position of recovery and inevitable bankrupcy. By then, it's already
too late to retrench.

That was what I said befo

There was no fall-back position other than inevitable bankruptcy. They
were in a situation where the only option they had was to grow. They
tried to make a go of it and lost. They couldn't reshape themselves
quickly enough with the legacy of union agreements and their existing
route structure.

The Management WASN'T good, which was why they put themselves into
that BAD position. If half the businesses decisions are based on
hindsight, the bankrupcy courts would be sitting nearly idle.

The only loser would be the guy that lost on a bet in a game, and
bet and lost again on TV replay. :0)

You are criticising the management using hindsight. At the time,
their gamble was reasonable, given their particular circumstances.

One key element of economics and finance that escaped you is that
ALL businesses are GAMBLES. If any Management of a businesses takes
in irrevocable "bad gamble" (of course it's hindsight, how else can
you tell if a gamble worked or not?), then the buck stops THERE.
They miscalculated. They screwed up. They took a bad gamble that
caused the company's bankrupcy.

It's that simple.

I didn't miss that. Eastern HAD to gamble, whether it turned out good
or bad. The conservative approach simply wouldn't have worked. Name
one
other major Eastern-based carrier that has survived without entering
bankruptcy since deregulation. Eastern was no different. Other factors
conspired against Eastern to sink them, where they might have had a
formula that were have deferred bankruptcy, but not really avoided it.

As it was, no management, good or bad, could have changed the
inevitable.

********! If Eastern hadn't gotten greedy by ordering a large new
fleet and got caught by the interest squeeze, there would have been
no bankrupcy proceedings caused by that bad gamble.

Eastern had a very favorable deal from Airbus for A300's (basically free,
in
order to get a U.S. carrier to buy some and enter the North American
market)
and for 757's (Eastern was a launch customer along with British Airways).
They were able to reduce their L1011 fleet and replace them with more
fuel
efficient A300's at minmal cost. The rest of their fleet was largely
DC9's,
which were good for their route network at the time.

Had they not ordered aircraft for expansion, they were doomed. They
were simply too small to compete as they were, with the low cost
carriers chasing them on their most profitable routes.

And had the interest rates not shot up, Eastern might have looked like
the hero instead, and lasted as long as some of the other majors. Much
of it was simply bad luck.

Hero or goat, the glory or blame goes to the decision maker.

That's how K-Mart, S-Mart, and other Marts all lost to the
better-managed
Wal-Mart. Walmart didn't get big (like American) overnight. It just
grew
by leaps and bounds because of better choice of products, better layout
for that kind of market, etc. It's unfair competition to other retail
store NOW -- that's for sure! But if some smaller chain decides to
expand on some "good deal" of free rental space (or some such) to
compete
against Mr. BigBoy, and failed because one thing or another didn't
quite
work out the way they had hoped/wished, they are the only ones to be
blamed for taking the bad gamble.

I am back to the Free Market principle via the same route! Every
business
has a CHOICE to compete or not, or how to compete, in an unregulated
market seemingly dominated by one BigBoy. The computer and software
industry seems to be doing quite well, with many companies going down
the tubes against Big Blue or Microshaft, while other companies are
competing successfully in the industry dominated (past or present) by
those Big Boys. Untimately the one-time Big Boy of Big Blue had to
re-evaluate its market to start as a Little Boy to compete against
Bill Gate's Big Boy.

That's the way free competition should be. The USA is hardly a perfect
Free Market, but is about as good as it gets, in practice.

-- Bob.