The Interview

Michael Manning has built a significant portfolio of newspaper, magazine, radio and television interviews featuring guests from stage, screen, television, journalism, music, sports, business and more!

What distinguishes “The Interview” online from many Television and Radio programs of the same genre is that Michael chooses to casually “visit” with each guest as if they were having coffee at a café and sharing conversation casually. "In this setting, my guests are much more relaxed and encouraged to be themselves, and the result is the privilege of spending some quality time with someone in a more reflective mood", said Michael. "I have been on both sides of the table, and that experience has allowed me to pose questions with the utmost respect and care to my guests. This allows my audience to gain a sense of their personality. In comes the warmth and often humor resulting in a meaningful experience that really stays with you for some time. And that's what the experience should be!" he said.


Please join Michael for his feature, "The Interview".

Thursday, December 12, 2013

The Interview: Hollis Harris, former president and Chief Operating Officer, Delta Air Lines (Part 2 of 2)

(Photo Courtesy of Air Canada)
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Resuscitating one airline is impressive enough. But Hollis Harris managed to save three. In our conclusion, we are taken "behind the scenes" during his tenure at Air Canada. We also learn how the world's most famous airline alliance was created. Colleagues and successors can be both "smart alec's" and brilliant leaders. We'll learn about this too, as I wrap up my visit. During Delta's Chapter 11 bankruptcy, there were calls from employees to bring Harris back to the airline. Today, at 81, he is modest, and insists that what has made Delta great is its employees.   
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Manning: What was the situation when you joined Air Canada?
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Harris: Well, when I got to Air Canada and we had taken an ownership in Continental, we knew that we had to lock into the big traffic east of the Mississippi to get our share of the marketplace. In doing that, we would have to make a bunch of changes. The first thing that I had to do at Air Canada, we had about 23,000 employees and 3,000 of them were managers. We were very much top-heavy, and we had to eliminate some of these positions.
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(Photo Courtesy of Delta Air Lines)
Hollis L. Harris
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When I went in the door we were losing about $1.5 million dollars ($2.4 million today) a week, so we had to get some cash. Air Canada had three Boeing 747-400 combi’s sitting in the desert. They had been bought when the (Canadian) government owned Air Canada. We had three airplanes in the desert that were paid for. We were going to have to go into bankruptcy if we couldn't raise some cash. At Continental we had the headache of putting that carrier into bankruptcy. I said, ‘We’re going to take those airplanes out of the desert’, and others said, “That isn’t going to work. We can’t afford it and they can’t make any money”. I said, 'You sure can’t money with them sitting in the desert!' So, we went to GE Capital and we sold those airplanes to them for $150 million dollars ($240 million today) each. And that $450 million gave us the cash to do some of the things we were going to have to do. We then leased them back and made money with them.
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Manning: When you were still with Air Canada, British Airways was denied a larger ownership stake in US Air. Should foreign carriers be allowed to invest more heavily in U.S. carriers?
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Harris: I didn’t think so at the time. But I was willing to get involved in it myself. Because I talked to British Airways about being a partner and also I talked to US Air to see what they were going to do. They were trying to partner with British Airways. But I think the twenty five percent rule was okay.  (In 1993, BA purchased a 24.6 percent stake and had planned to acquire as much as a 44% share in US Air. However, after a lack of approval from the US government, relations soured between the two carriers, and BA sold its stake in 1996).  

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Manning: One of your major achievements was the creation of the Star Alliance. How did you decide to create it?

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HarrisThe way we got that started was that Steve Wolf was chairman of United and he and I were friends. I talked to him about establishing an alliance between United and Air Canada. We started down that road, and Wolf then went to Lufthansa to talk with CEO Jürgen Weber. I said to Lufthansa, 'Look, you’re a big partner with United and I want you to be a big partner with us. But you now are a big partner with the airline out in Calgary' (Canadian Airlines International). And we finally convinced them that they should come aboard with Air Canada and United. About the time that I had made the commitment to work for five years, I wanted Lamar Durrett to become CEO when I left. We worked out a plan among ourselves, and when I left they put two more airlines in it. That's how we got to 'five stars'. The first the thing they did over the airport in Frankfurt was to have a fly by with one airplane of each of the alliance members flying wing tip to wing tip.  
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Manning: In general, what do you think of the current airline CEO’s in the United States? Are there any that you admire?
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(Photo Courtesy: ACE)
Robert Milton
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(Photo Courtesy: CAL)
Gordon Bethune
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(Photo Courtesy: SWA)
Herb Kelleher
Three of Harris's most admired airline CEO's
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Harris: I turned Air Canada over to Lamar Durrett and he stayed in it for three years. Then he retired. But the guy that I had behind him, Robert Milton, went on to become CEO of the holding company of Air Canada (ACE Aviation Holdings, which recently relinquished its interest). And in my opinion, he is the best airline CEO in the whole world right now. And then Gordon Bethune at Continental came in from the West Coast and stayed in there through their turnaround. Gordon was a smart guy, but he was a smart alec too (laughter). But he established himself as one of the top airline CEO’s in the world.
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Manning: What are your thoughts on the low-cost carriers of today?
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Harris: I think the one that is doing the best is Southwest. Going back to Herb Kelleher --who has always been one of my friends – he and the team that he built up was one of the most outstanding ones in the airline business. Kelleher – he was something!
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Manning: You’ve received a great deal of credit for turning around Continental, Air Canada and World Airways. What are the major challenges facing these companies as they attempt to survive and thrive?
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Harris I prided myself in being a people-person. And I listened to all the people in the company. But I think that some of the people (in management) today are thinking too much of themselves, instead of other people in the airline. One of my basic objectives was that I always tried to hire a person that I needed to work in a certain area that was smarter than me. We would work together, and not to overcome one another, but to be good partners and I think that worked.
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Manning: What is your proudest achievement in commercial aviation?
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Harris: I think it was being able to work with Delta and spent 36 years there. When I started out, it was on the ticket counter. As I said before, it was the people of Delta that made it successful. I was proud to be a part of that team, and then when I had the opportunity to go to Continental, they too were people-oriented. I believe that I was hired by the board at Continental because of what I was doing at Delta for customer service. So, they wanted me to help them with their customer service, and maybe some of that rubbed off on them. When we decided to buy Continental when I got over to Air Canada, everybody I think in the airline world thought I was crazy. But it meant that Air Canada and Continental were both able to survive. And so that saved a lot of people’s careers and lives. We had to make some tough decisions. But in the end those tough decisions worked out. 
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Manning: Do you miss the airline industry?
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Harris: I would love to be with a major airline. They probably would fire me because I couldn’t do what I used to do. But I would like to get the smartest guys around and try to help that airline out.
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The author wishes to thank Hollis Harris for making this interview possible.
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Monday, December 09, 2013

The Interview: Hollis Harris, former president and Chief Operating Officer of Delta Air Lines (Part 1 of 2)

(Photo Courtesy of Delta Air Lines)
Hollis L. Harris
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In the rough and tumble world of commercial aviation, Hollis Harris is revered as a solid leader with a passion for serving the customer. I read about his outstanding reputation, for years, as a man who cared as much about his employees at Delta Air Lines as he did his customers. As the 1980's came to a close, Delta Air Lines lost a great leader when Harris was recruited to Continental. After our visit in Airways magazine was published, I received a phone call during breakfast. Hollis Harris had just read our interview, enjoyed it, and was curious to ask why I chose to interview him. I told him that in today's world, there are many egos in business, but few legends. Hollis Harris is a legend. Here's my report: 
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It's hard to imagine the landscape of the commercial aviation industry as we know it today, both in the United States and Canada, without the influence of Hollis L. Harris. Over the course of his amazing 51-year career, Harris established himself as a problem solver specialized in customer service. Armed with a degree in aeronautical engineering from Georgia Tech in 1961, Harris began working at Delta Air Lines as an agent and gradually worked up the corporate ladder to head Delta’s aircraft engineering department. He continued to excel through key management roles in the facilities department, in-flight services, passenger service and operations. By 1987 he was appointed as Delta’s president, Chief Operating Officer, and a member of the airline’s board of directors.

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On August 10, 1990, Hollis Harris was recruited by the board of directors of Continental Airlines to succeed Texas Air Corporation Chairman Frank Lorenzo. As a condition of this succession, Lorenzo sold the majority of his stock in Continental, Continental Holdings and Jet Capital Corporation to Scandinavian Air Systems (SAS). Jan Carlzon, then president and chief executive of SAS, stated Lorenzo's agreement to step down from Continental was critical to the deal. ''Without that in the picture, we wouldn't have done it,'' he said. SAS agreed to buy 2.25 million Continental Holdings shares for $31.4 million and $21 million for all of the outstanding stock in Jet Capital, which owned 2.1 million shares of special Continental Holdings voting stock. These terms gave SAS 16.8 percent of Continental Holdings’ common stock and 18.4 percent of its voting stock, along with three of the company’s 15 board seats.

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The Continental Airlines that Hollis Harris inherited was saddled with junk bond debt. After years of acquisitions, the airline was on the verge of bankruptcy. The differences between the well run Delta Air Lines and Continental were staggering. “When I went to Continental it was a different management challenge”, said Harris at the time. “I learned more about people and crisis management in one year than during my entire time at Delta.”

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With the onset of The Gulf War, world oil markets caused jet fuel prices to double, forcing Continental to file for a second Chapter 11 bankruptcy on December 10, 1990. In a rebranding effort to signal to the public that Continental was reorganizing from the inside-out, a new blue and gray livery and “globe” logo was introduced on February 12, 1991. However, a disagreement between Continental’s board and Harris’ management team centered on moving the carrier forward with a strategy that supported Continental’s employees. Unable to overcome significant differences of opinion on this matter, Hollis Harris and R. Lamar Durrett, Executive Vice President for Personnel resigned from Continental on August 22, 1991. Interestingly, Continental’s fortunes would prominently resurface with an intervention led by Harris after assuming the leadership at another carrier.

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Harris returned to Georgia to start the aviation consulting firm, Air Eagle Holdings. In 1992, he was recruited by Air Canada to reverse its financial decline--the previous year $218 million (now $360 million) had been lost. As vice chairman, president and CEO, Harris embarked on a three-year plan to restructure the airline's operations, also moving the corporate headquarters from downtown Montreal to Dorval International Airport (renamed Pierre Elliott Trudeau International Airport).

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On October 25, 1992, Harris along with Stephen M. Wolf, then CEO of United Airlines, created and signed a "strategic agreement" between Air Canada and United that became The Star Alliance. Execution of The Star Alliance in May, 1997 involved the five founding airlines of Air Canada, United, Lufthansa, Scandinavian Airlines and Thai Airways International. Today, The Star Alliance has 28 member airlines with more than 21,100 daily departures combined. These flights reach 1,356 airports in 193 countries, with 678.5 million annual passengers.

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A case of poetic justice was served on November 9, 1992, when Harris successfully led a group comprised of Air Canada and Fort Worth, Texas-based Air Partners in a bidding war for Continental Airlines Holdings. The $450 million (now $721 million) offer initially gave each group a 27.5 percent stake in the carrier.

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By 1994, Air Canada had returned to profitability and won authority to fly to Osaka Kansai, Japan. The following year, Air Canada added 30 new trans-border routes. His mission at Air Canada completed, Harris returned to the USA in 1996. His 'semi-retirement' was short-lived.

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In 1999, Hollis Harris was appointed chairman, president and CEO of World Airways. He moved the airline's headquarters from Virginia to Peachtree City, Georgia, and led a the restructuring to profitability before retiring in May 2004. On April 23, 2005 Harris was inducted into the Georgia Tech College of Engineering Hall of Fame. Now 81 years old, Hollis Harris is on the advisory board of Propeller Investments. A true Southern gentleman, I enjoyed an informal discussion with him about the airline industry in the months leading up to the recent merger announcement of American Airlines and US Airways.

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Manning: What are your thoughts of the Delta Air Lines of today? They’ve been through a Chapter 11 bankruptcy, and emerged to absorb Northwest Airlines. Surely, you must have some objective observations today as you look at Delta?

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Harris: I think Delta is an outstanding airline right now. It’s based upon what the people have done to develop it over the years, and especially as we acquired other airlines, and then made them all -- as a package – a successful airline -- even after going through bankruptcy, of course, as you mentioned. But I think that Delta is a great airline, and the people that built the customer service package over the years, is what made Delta Air Lines famous.

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Manning: Speaking of Delta, what are your thoughts on the mega-mergers of today involving Delta and Northwest, and later Continental becoming part of United?

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Harris: Well, I think it is necessary for the present times. You know, I started working right out of school with Southern Airways, which was based in Atlanta, Georgia. It was a little airline. We never did get it. We acquired Northeast Airlines and we acquired Western Airlines and later Delta got Northwest Airlines. And so I think that the basic answer to your question is that there has to be consolidation, and you’ve got to have significantly stronger management capability than if you tried to operate with just the airlines that were independent – Delta and later United and Continental. But at Delta, I very much respect Richard Anderson and think he’s a good leader. When I went to Continental, he was a lawyer there.

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Manning: One of the most exciting events I remember from your career was the reorganization plan you started working on at Continental that continued when you took over as president and CEO of Air Canada. How did the Air Canada plan with the Air Partners Group come about?

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(Photo Courtesy of Continental Airlines)
Continental's livery was retained after the merger with United Airlines
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Harris: Well, when I went to Continental, it was just before the big jump in fuel prices. I had a successful life with Delta Air Lines, but I wanted to be a CEO. So, I went to Continental and made the deal to be the chairman, president and CEO. When we shook hands on the deal, fuel was about 57 cents (equivalent today to 98 cents) a gallon; but it was about $1.28 (today $2.20) a gallon by October. I went in there in late August (1990), and when the fuel got to $1.28 we knew immediately that we were going to have to put it into bankruptcy.

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I brought one of my big supporters with me, Lamar Durrett (executive VP of personnel). When we saw that the fuel was going to stay at that level for a while, we were blowing about $70 million dollars (now $120 million) a month in fuel. As we were looking at what we had to do, I told Lamar, ‘When we were working at Delta Air Lines, we didn’t even know how to spell the word bankruptcy!’

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Manning: Were you a supporter of deregulation? And, in your view, how has deregulation turned out for the airline business and the consumer?
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Harris: I think it has been a success for the customer. It created a bigger challenge to manage the airlines with all those things happening, and some of the airlines going out of business. It just created some viewpoints from the customer as to which was going to be the best airline, and which one they wanted to hook up with and fly. What it boiled down to was that all airlines needed to be in business in order to give the best customer service that was required of the passengers.

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Next: We conclude our visit with a story of how the Star Alliance was created, along with Hollis' pick of favorite CEO's.

Sunday, April 21, 2013

Rewind: An Interview with Marty Shugrue (Part 3 of 3)


(Photo: Jan Heekin)

MANNING: Those of us who reside in Texas, as I do, remember quite vividly the night Braniff International Airways was forced to shut down. Their load factors at the time were in the low 30 percent range. And of course, it was a different time. We're talking now 12 years ago. But today, again, I'm seeing some frightening similarities between where Eastern Airlines was toward the end of its economic life, and Trans World Airlines (TWA). With Eastern, I read in the September 1990 issue of Frequent Flyer, and I quote: "Right now, Eastern is the best airline in the country".


SHUGRUE: Mmm hmm. Right, right.


MANNING: TWA has received the prestigious J.D. Powers Award for service excellence; their load factors are about where Eastern was, in the lower 60's or so. And they do a fabulous job. I've flown them recently. Morale is sky-high. Costs are down. And yet, despite all the belt-tightening and cost slashing, they're still losing money. What does this say about today's deregulated airline industry?

(Photo: Pan Am)
Former National Airlines DC-10 repainted in Pan Am livery
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SHUGRUE: Well, you know the great industry experiment with deregulation is far from over! And this industry was forced by the...you can't repeal the laws of economics! As much as you'd like to. And the fact of the matter is in 1978 when Congress deregulated the airline industry, not everybody...it was like a poker game! But not everybody got dealt the same hand! And you had to play the hand that you were dealt.


My old buddies at Pan Am were dealt a hand that had no domestic route system. My friends at TWA were dealt a hand that had one little hub and a lot of long international routes with a lot of old airplanes. The regional carriers were dealt a hand that said, 'You don't have the market mass necessary to survive!' So, what you've seen is the regional carriers literally go out of existence in the form that we all knew them: Western's part of Delta, PSA is part of U.S. Air, National became part of Pan Am -- much to Pan Am's regret, and on and on and on. And those carriers, those companies went away. Then as the challenge changes, you've got mega-carriers coming into existence with fortress hubs. Poor Pan Am, with no domestic hub to speak of. Pan Am's traditional form of domestic traffic, the United's, U.S. Air's, the American's now have different agendas. They've got their own international aspirations. They're not going to give Pan Am their customers. They're going to give their customers to British Airways! Which they promptly did. TWA's suffering from a little of both. Coupled with a company that was, in my judgment, taken over by a financial speculator...


MANNING: ...Yes!
(Image: Airways Magazine)
SHUGRUE: ...who turned everything as fast as he possibly could into cash, sold off the crown jewels. The company is a mere shadow of what it used to be. And those poor employees are doing every single thing that they've been asked to do by their managers to save it. And they've done it enthusiastically, and with a high degree of willingness. I think they have a chance; it is a long-shot. It is a very difficult equation. They need to figure out how to get some added capital into the company so they can begin to build again. That's going to be the only answer. And look at their experience in Atlanta. For TWA to go into Atlanta after Eastern's demise was a very smart thing to do. And they were doing just fine until ValuJet (later renamed AirTran) shows up and literally ran them right out of town. Why? Because TWA didn't have the financial staying power to last. So, they've got to get some equity into the company and begin to grow.


MANNING: Ironically, during your tour of duty in the Navy, you played a major role in recovering the Apollo 8 space capsule.


SHUGRUE: Yes.

(Photo: NASA)
Apollo 8 Splashdown and USS Yorktown
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MANNING: After it splashed down in the Pacific. Aboard that craft was the Commander of that mission, a man who would precede you here at Eastern Airlines before its sale to Texas Air, Colonel Frank Borman (I would later interview Borman on August 7, 2001).  
(Photo: NASA)
Borman, Lovell and Anders After Splashdown of Apollo 8
SHUGRUE: Well. It's one of those great ironic stories in life. I was a young junior-grade Lieutenant aboard the USS Wasp flying Co-Pilot for the Air Group Commander on a carrier-based anti-submarine hunter aircraft. And we were in charge of recovering Gemini 6B and Gemini 7 and that was the first space docking mission.

(Photo: NASA)
Colonel Frank Borman
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MANNING: Did you have extensive contact with him during your turnaround efforts?


SHUGRUE: Uh, no. I got to meet him on the ship. Oh, you meant here (at Eastern)? Uh, not extensive. I've known Frank for a long time, and he's a wonderful man and a genuine American Hero. And I used to joke with him after I came over here that, "Frank, if I knew then what I know now, I might very well have left you in the damn ocean" (mutual laughter).


MANNING: Has anyone purchased the Eastern Airlines logo and name at this point?


SHUGRUE: No.


MANNING: I ask that because I'm sure you realize that the Pan Am estate sold the world-famous blue globe logo and the Pan Am name for $1.34 Million (originally to Charles Cobb, former Undersecretary of Commerce for Travel and Tourism and an Ambassador to Iceland in the senior Bush Administration).
(Image: Eastern Airlines)
SHUGRUE: Right. Right. That's correct. And part of this new Eastern idea is to sell the logo and name to the new company to realize some value from it for our creditors.


MANNING: What about the Eastern Certificate?


SHUGRUE: Same thing.


MANNING: You still have it?


SHUGRUE: We do. We do have a certificate. The new ownership structure will have to go through the DOT (Department of Transportation) and FAA (Federal Aviation Administration) to muster the fitness review, management competence review---that sort of thing. But the basic ingredients to meet those criteria are all here in the form of manuals, and the form of talented people who are technically qualified to perform the various airline functions that need to be performed. So, whoever acquires this package, acquires the leg-up on the entire certification process.


MANNING: Phil Bakes (Eastern's former President appointed by Frank Lorenzo) talked a great deal about Eastern's failure to convert to jet transports in the early 1960's along with the airline's high cost structure, forcing Eastern to borrow heavily in order to stay in business. In other words, he contends that Eastern's problems predated the Texas Air takeover in 1986.
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(Photo: Eastern Airlines)
Cover of Eastern Airlines Annual Report, 1986
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SHUGRUE: Absolutely. I mean Eastern Airlines had serious financial and cost problems long before the Texas Air acquisition. In effect, it was those financial and labor problems which created an opportunity for a Texas Air takeover. And the seeds of those problems were, in fact, planted in the 1960's when Eastern was very late in getting into the jet era. And when it did get into the jet era, it highly leveraged itself to acquire the new fleet, it got a late start. And that, in large measure, led to the cost structure problems that Eastern struggled with in the deregulated environment.


MANNING: Author Jack Robinson says that the expansion program under Colonel Borman (involving a fleet update and establishing the Kansas City hub to counter seasonal North-South traffic with East-West traffic) was admittedly well-conceived but egregiously ill-timed. What do make of this remark?


SHUGRUE: Yeah, that's a perspective I'm not sure that I agree with entirely. But, I remarked earlier that when the cards were dealt, that everyone didn't get an equal hand.


MANNING: Sure.


SHUGRUE: Some airlines were better capitalized than others. Some airlines had less debt. And obviously, the well capitalized airlines, the airlines with less debt, which were the result of prudent decisions earlier in life, were better equipped to deal with the forces unleashed by deregulation. And Eastern was hamstrung.


MANNING: How will the new Eastern avoid the acrimonious relationship between labor and management that was such a visible part of the old airline?


SHUGRUE: In the new Eastern philosophy is employee empowerment. The new Eastern philosophy is partnership. Partnership with the people who work in the company, partnerships with the travel agents that distribute its product, and I think everyone has learned the lessons of history here. And even as it plays out at United, for example, I mean employee/management cooperation is absolutely essential to the success of any of these companies. And I think the new Eastern has a unique opportunity to build on and improve the relationships that were established upon, prior to the shutdown, and even that have continued through the liquidation period. You know, under our stewardship, for example, and by 'our', I mean this management --  and it's not mine necessarily --  but this management's stewardship of the estate -- over $300 Million of funds have been paid out to employees or retirees since the airline shut down. With court approval, we've given a very high priority to settling employee claims sooner rather than later, unlike what's happened to my friends at other carriers like Pan Am and Midway. Those people have received nothing.


MANNING: Let me bring up Pan Am one more time. The plan that was put forth for what was dubbed "Pan Am II" under the helm of Russell Ray, Jr. with Delta holding a 55 percent stake in the downsized carrier serving Latin America routes from Miami only. Do you believe this was a viable plan?


(Photo: Pan Am)
Pan Am led the development of the Boeing 747.
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SHUGRUE: Frankly, I wasn't close enough to the numbers at that time to make an informed judgment. It seemed to me that those type of dramatic steps that Pan Am was taking were dramatic steps, clearly designed for the company to eventually survive. They got caught up in the same industry catastrophes that the rest of us got caught up in at the time. And Pan Am was like Eastern, of course. They were simply not able to survive it. There's a lot of second-guessing going on now with lawsuits flying, filling the air. And you know, not having been close to it at the time, I don't really have an opinion as to whether it would've worked, could've worked, or should've worked. We all hoped it would work, since we had so many friends over there.


MANNING: The proposed merger plan that you and Jack Robinson outlined with Pan Am. I found that to be a stroke of genius myself.


SHUGRUE: Well, we agree! (laughter)


MANNING: It made sense and it was a business plan to drool over. Substantially all of the employees would have been retained with Eastern and Pan Am. Fleet integration with the Boeing and Airbus equipment. And this is a big IF. But... IF you had had the benefit of more time, could that have worked? I realize that there were certain personalities involved here.
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 (Photo: Pan Am)
Pan Am Building, 200 Park Avenue
Manhattan, New York
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SHUGRUE: Well, there were lots of personalities involved and I don't need to get into that. But as a business plan, it was a bold stroke so-to-speak. What I was frankly pitching to the Pan Am people was, 'Look, we're both in bankruptcy'. The bankruptcy courts give each company the opportunity to restructure all of its contracts whether it's their labor contracts, their aircraft leasing contracts, terminal facility contracts, all of its obligations in a very different way that you simply can't do as an ongoing business. And my suggestion was 'let's take advantage of that, put together a coherent restructuring plan where Eastern's contribution would be its domestic route network, its staff and its resources. The Pan Am contribution would be its international network, its staff and resources and formulate a deal where Eastern would be the domestic operator and Pan Am would be the international operator, re-brand the airline as Pan Am over time because we felt that was a stronger brand name'. And I think that on the grand scale of things it was a deal which could have very well worked and didn't, in large measure because of timing and other external considerations. We just could not figure out how to come to grips with it quickly.


MANNING: Aside from deregulation issues we've discussed here, one of the other dramatic catalysts in this industry we are seeing is the change in passenger mix. The proportion of business travelers is down from 52 percent to around 40 percent today. Can we expect this figure to drop even further?


SHUGRUE: I think that business travel as a percent of total traffic will continue to decline over time. And the real opportunity and the real pressure now, the real economic pressure is coming from that leisure class of traveler, that discretionary traveler. And that's where you're growth is going to be in the future. In order to be able to service that market, you have to provide that market with what it wants. And what that market wants is price. Otherwise, they won't go. And we see this situation right here in south Florida. That traffic is down. And why is it down? Well, everyone that I know in south Florida has got a relative in the northeast. And everyone I know in the northeast has got a relative down here in Florida. And for a hundred bucks you'll go visit Aunt Mae. And for three hundred dollars, you wont! And that's what's happening. As the price rises, the leisure traveler gets to the point where the leisure traveler says 'I'm not going to pay that', they don't go! And they've got the discretion. I read a statistic in the paper just the other day that business travel costs have increased over the last five years by 43 percent. That's horrible! Some analyst is writing that this is going to be beneficial to the industry. That's going to drive away your customers! Even business flier's don't have unlimited discretionary authority these days. No one can pay first class anymore. No business flier I know has a company that will pay for a first class ticket unless they conform to some very specific rules and regulations. So, I mean the world is getting price-sensitive. But having said all that, the opportunity in the future is the leisure markets. And if you're not low cost and low price, you're not going to access those markets.


MANNING: Former Vice President Dan Quayle stated that the entire bankruptcy system needs to be overhauled if we are to remain a competitive country. And I know that you were looking at a $5 million dollar drain per month during the final year of operation.


SHUGRUE: Right!


MANNING: And with all the advisers.


SHUGRUE: Yeah!


MANNING: What are your views on this issue? It does lend credence to what the former Vice President is arguing.


SHUGRUE: Well, I would like to see some reasonable, rational, modifications to the bankruptcy statutes. The process itself is expensive because--and I'm speaking clearly as a layman. I am no legal scholar. The process is expensive because what the law tries to do is to protect the interests of the individual constituencies in a bankruptcy. And it tries to recognize---and I think we keep forgetting what the long-term objectives of our bankruptcy statutes are.


The history of the United States bankruptcy statutes goes back to the very founding of this country. And this country was founded by a bunch of people who were used to things like debtors prisons. And in that background of avoiding that phenomenon of debtors prisons and allowing bankrupt individuals and businesses to rehabilitate themselves and give them the time and wherewithal to do that to avoid locking people up in jail for the rest of their lives because they couldn't pay their debts. So, it's that background that created the United States Bankruptcy Code. And the bankruptcy code's gone through various considerations.


The fundamental objective of the bankruptcy code is to get the company out of bankruptcy. And earlier in our history, they thought Trustees were better equipped to do that. And after 10, 12, 15 -- some number of Trustees being appointed back, I thing it was 1978 - the bankruptcy code was revised significantly to rely more on a debtor-in-possession reorganization where under the thesis, the people operating the business knew most about it. And even though they got themselves into financial difficulty, the ability to organize out of that financial difficulty and deal with those creditors, was best performed by people who understood the business. Much more oriented than the legal scholars. The code now becomes more debtor-oriented as opposed to more creditor oriented. But I think keeping in mind that trying to protect and deal with creditor constituencies, preferred shareholder constituencies, common shareholder constituencies, the debtor-in-possession constituencies, the unwritten public constituency in the case of airlines in particular, creates a system which at its nature is enormously expensive because each constituency is entitled to legal representation. Each constituency is entitled to financial advisers. Each constituency forms committees, which have to have meetings, and meeting rooms have to be rented, and buffet lunches have to be served. And all of that is paid for by the estate. So, I'd like a coherent, cogent, non-emotional legal scholarly look at the bankruptcy code to see if a ways and means could be devised that would streamline it, make it simpler and make it a lot less expensive.


MANNING: And in terms of how long an airline should remain in bankruptcy?


SHUGRUE: You know, I think that's such an individual judgment on this. But a lot of hue and cry including the recent airline commission -- 'Uh, you only have a year to reorganize'. Well, everybody argues about---and it's a Red Herring argument. The debtor-in-possession has the exclusive right to present a reorganization plan to the court, and at the end of that year walks into court and says, 'We'd like a 6 month extension, Your Honor'. And some other constituent shows up and says, 'Your Honor, we have a plan', I can assure you that other constituent will be heard. So, I think all those arguments about artificially limiting the time are really Red Herring arguments. And I think that the court itself, the Judge on the case, himself or herself, having listened to all of the facts...I don't know if you've ever been to a bankruptcy proceeding?

(Photo: City of New York)
U.S. Federal Bankruptcy Court Southern District of New York
where Marty Shugrue fought to keep Eastern flying. On November 27, 1990
the Federal Court heard nine hours of testimony and ruled in favor of Eastern.
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MANNING: No, I haven't.


SHUGRUE: But they are very Judicial. The Judge is at his or her bench and robed and all of that sort of thing. In many ways, it's very informal. If anyone wants to be heard in a bankruptcy proceeding and they're a party at interest, they can be heard. And in Judge (Burton) Lifland's case, and in the Eastern case, when a motion is being heard before him, and arguments are made on both sides of the motion for, in favor of, support or not, at the end of that the Judge will literally look around the courtroom and say, 'Is there anyone else who wishes to be heard?' And someone can stand up in the back and say, 'Your Honor, I'm an employee-creditor, Joe Waters and I want to know how my claim is being dealt with'. And the court will direct that query to the right office. So, I mean there's plenty of opportunity to be heard. So all of those, 'You've got to reform the process because it takes too long'.No! If we're going to get serious about bankruptcy court law reform, let's take a look at the whole bag. Let's take a look at the whole structure it creates and how expensive it is to absolutely protect all these constituents. And in particular, where a Trustee is appointed, in the Eastern case for example. I am an Officer of the Court.


MANNING: Yes.


SHUGRUE: I don't report to anybody but the court. Why do I need three investment bankers looking at what I do? Why do I need three CPA firms looking at what I do?


MANNING: I've never understo...


SHUGRUE: ...Why do I need three committees to report to? We could've eliminated literally tens of billions of dollars of expense by saying, 'The Court has a Special Advisor. And he has advisers. I have a Trustee appointed to run the business. What else do you need to protect the constituents than the Court's supervision!'


MANNING: And here's my point. I didn't really understand why Judge Lifland needed a Special Advisor in Mr. Shapiro?


SHUGRUE: Well, and that's an interesting bit of background in this case. The bankruptcy code calls for, as an added protective feature to protect constituent rights, the ability of the Judge to appoint a Special Examiner---that's a legal term in the bankruptcy code. So, there's a debtor-in-possession running the bankrupt company. And in this case it was Texas Air, and there were many questionable transactions. Questionable by a number of constituents in the case. The Court appoints an independent examiner with the full authority of the Court to go examine those transactions, write a report and make findings to the Court. And the purpose of that was to protect the interests of various economic constituents in the case. And it was a perfectly appropriate thing for Judge Lifland to do. When I came in as Trustee, neither the Judge nor I wanted to lose the expertise developed by the Examiner. We had spent a lot of time and money learning about Eastern and its problems and its issues. And neither one of us wanted to lose that expertise and thought that, in this case, David Shapiro could be helpful in our efforts to reorganize. And the Court retained his services as quote 'Special Advisor'. So, that's one instance where we thought we had added value coming into the equation. And by the way, Mr. Shapiro and I have had many disagreements, which is another normal part of the process.


MANNING: And you have a date to launch the new Eastern?


SHUGRUE: Well, no. We are devoting the next six weeks to organize the financing. We'll know by mid-June or so whether it's financeable. We think that we can get a plane in the air by October.


MANNING: Then what's next for Marty Shugrue?

SHUGRUE: Who knows? The next adventure, whatever that might be!


MANNING: The next adventure, yeah. Well, hopefully we can expect to see you then.


SHUGRUE: Hopefully. I got too many kids to educate!
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(Photo: Pan Am)
Marty Shugrue
1940 - 1999
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Post Script: Marty Shugrue passed away suddenly on March 7, 1999. For this author, and many others who championed Marty, the airline industry has never been the same.


As of this writing, many observers point to American Airlines (currently in Chapter 11 bankruptcy reorganization) and US Airways as the last big airline merger prospect remaining in the United States. US Airways is aggressively seeking to merge with American. British Airways and Iberia owner IAG  (International Airlines Group) have signed a non-disclosure agreement with American Airlines with a view towards taking a stake in the U.S. carrier. This type of posturing benefits IAG, whether fellow Oneworld Alliance partner American Airlines (which also signed a non-disclosure agreement with US Airways Group) exits Chapter 11 bankruptcy as a stand-alone entity or not. US Airways is a member of the Star Alliance. Such is the changing nature of what Marty Shugrue later told me about the airline industry. "Michael, two things that I will tell you with certainty about the airline business. One, long-range planning is for next Tuesday.  And two, every Monday morning at nine, the world will change".  


Today there are far fewer airlines in existence. Alaska Airlines remains an independent and highly regarded company. Southwest has absorbed AirTran Airways and continues to be the largest U.S. domestic airline based on the annual number of passengers carried.

  

On March 31, 2003, 14 years after Eastern's Chapter 11 filing, the estate of Eastern Airlines was finally adjudged "fully administered and terminated", ending one of the most complicated U.S. corporate bankruptcy cases. The Eastern name and logo marks were sold to an investor group in 2006, however, no  operations have commenced.



Marty Shugrue is missed by many. He left an unforgettable impression on everyone who knew and admired him as I did.