THE INTERVIEW: AIRLINE CEO GORDON BETHUNE (CONCLUSION)

Airbus A380: "The airplane won't sell in this country at all".

Bethune's Last Project at Boeing: The 737-800

Author's Note: This morning Gordon and I talk about the controversial Airbus A380 jet aircraft and a comment by Robert Crandall, former chief of American Airlines. Years ago, I was asked to Emcee a ceremony at a Flight Museum to present awards to Arizona Senator Barry Goldwater and then-American Airlines Chief Robert Crandall for their "contributions to commercial aviation". While I was humbled by their request, I declined. I explained in a letter to the museum officials that I liked Barry Goldwater, but my principles prevented me from showing up to hand an award to Bob Crandall. His acrimonious relationship with labor and flagrant abuse of the rules of competition in the business world just put me off. Now that's just my opinion. To be fair, Bob's innovative practice of computerized yield management with Tom Plaskett's "Super Saver" fares is laudable.

-

Gordon and I tackle the issue of flat-learning in this country and wind up talking about his future. Recently Gordon returned to his offices in Houston after spending so much time shuttling between Delta's Atlanta based headquarters and Northwest's former headquarters in Eagen, Minnesota. Gordon needed no prompting from me. We discussed my late friend Martin R. Shugrue, Jr. and how prophetic his views were about the Airbus A380 and so many consumer issues that nobody is addressing. We picked it up from there. Make sure your seat belts are securely fastened. And again, if bad language offends you just remember. It didn't come from me...

-

Bethune: Michael, you asked a question earlier about how other airlines are getting off-track. I think sometimes they measure the wrong stuff. I noticed that the (Airbus) A380 was here (in the United States on a press tour).

-

Manning: Well, and I told you about a 1997 conversation Marty (Shugrue) and I held where he said the only place you can fly that plane successfully is in the Asian market---and then for only a limited window--about 6 months out of the year. Unless that is, they plan on building an airport out in the ocean somewhere. Well, look! They did build an airport in the middle of the ocean---and it's sinking! (Kai Tak Airport was replaced in 1998 by Hong Kong International Chek Lap Kok). He had an uncommon foresight---with all due respect to you, Gordon!

-

Bethune: Marty---(shaking his head)--such a loss. I knew him and I liked Marty. We lived fairly close to each other in the same neighborhood.

-

Manning: It's not the same anymore without him in the industry, I'll tell ya that. But talk to me about the Airbus A380?

-

Bethune: Well, I asked myself. 'Who do you think decided that bigger was better?' Some engineer or some government official who wanted to crow about how their airplane was bigger than your airplane. But did they ask people who buy tickets, 'What's in it for you to wait in line with 600 people waiting to get on board? To get off with 600 people? To wait for your bag with 600 people? If you're flying internationally, will you have to wait in customs and immigration with 600 other people? How does that help you? The answer is it doesn't!

_

Manning: How will Flight Attendants handle 600 people who panic in an emergency?

-

Bethune: That's another consideration. They measured the wrong thing and got the wrong stuff. The argument is that the skies are too crowded with 757's and regional jets. So, they're trying to sell this thing by telling you when you can fly and how often. People don't want to be told when they can fly. They want frequencies that accommodate their schedules with clean, safe, comfortable planes to fly them to where they want to go when they want to go! (Leans into the table again and lowers his voice): You fill three of those son of a bitches from Los Angeles to New York on any given day and ya know what I'll do? I'll schedule (Boeing) 757's to leave at 6 AM, 8 AM , 10 AM, 12 PM, 2 PM, 4 PM, 6 PM and BAM! I'll steal the goddamn business away from you! The airplane won't sell in this country at all. None! Not one American airline has ordered it and they never will. It doesn't fit our markets! You take American wanting to be the biggest airline in the world. They buy TWA (Trans World Airlines). Remember TWA?

-

Manning: I interviewed Jeff Erickson (former TWA CEO) twice in downtown St. Louis. I knew that company inside-out. Hell of a success story back in 2000. That was sad.

-

Bethune: Yeah. How did that work out for them?

-

Manning: Oh, horrible. American unemployed some 20,000 people and sold off the assets, never invested in Lambert (St. Louis Lambert International Airport). In fact, I remember them closing Terminal D. All the Flight Attendants' jobs were lost. They kept around 500 pilots, if that. Parked perfectly good (Boeing) 767's in the desert because the cockpit panel switches were reversed. Sold off the brand new (Boeing) 717's and cancelled the rest of the orders as I recall. They now hold all those worldwide dormant route authorities throughout Europe and Africa and Asia and The Middle East that they'll never fly. A disaster. Stupid. That was a pre-emptive strike, assuming that the United-US Airways deal would have made it. When it didn't, they looked like the dumbest guys on earth. But they wanted to be the biggest...

-

Bethune: And Michael, nobody gives a shit whether you're the biggest airline in the world. You either make money or you don't. You never saw Herb Kelleher (former Chairman and CEO of Southwest Airlines) worrying about being the biggest airline n the world. Flying to all 50 states---that was United's big claim. I think they went to North Dakota just so they could say that. How good is that for you? I think when Continental put in a flight from Newark to Hong Kong, United put in a flight from JFK to Hong Kong so it could be longer than our flight---58 miles or so. But they didn't have the (Boeing) 777. They had to use the (Boeing) 747 and they could only carry like 60 people on it because of payload restrictions, where we had an unrestricted payload because we had the right equipment on the proper routing. So, wanting to be the longest flight? How did measuring success like that work out for you? I noticed they went bankrupt. Maybe because of too much of that type of thinking. I think that most failures, and I mean the mediocrity you see, is people measuring the wrong stuff. I got a bigger airplane than you got! That's god, that's really smart.

-

Manning: I want to run a comment past you from former American Airlines CEO Bob Crandall. He stated that airlines that cut fares below cost while they are under Chapter 11 bankruptcy harm the healthier carriers and ought to be shut down. How do you respond?

-

Bethune: Bob would be right if that were true. And I like Bob Crandall a lot. What I saw in the United, Northwest and Delta bankruptcies is that the creditors' committees put a lot of pressure on the testosterone management to knock that behavior off. They want to see profitability restored. So, you saw a huge reduction in the available seat miles; Cincinnati (a Delta hub) got pulled back. I did see them lowering costs pretty dramatically through renegotiation's of airplane leases and labor rates so they could make a profit at a lower fare. And that put pressure on the guys with higher costs. But that's the name of the game. I've often thought had I the opportunity that Southwest had, where they were smart enough to buy fuel hedges, that I would have taken the benefit and priced my product as if I was paying 70 dollars a barrel like everyone else at that time. I would have taken the profits and put it in the bank. They didn't; they priced so that they could still make some money but Delta, United and Northwest couldn't. I think that helped drive those three into bankruptcy, whereupon they used that process to get rid of their pension costs. cut costs in airplanes, cut some labor. You have to come back out now with a much lower cost basis than you have at Southwest. Southwest hedges are expiring, so now they're going to have to price to the same oil that everyone else does. But these guys are much leaner and tougher competitors. And at Southwest, the costs have gone up. I'm sure it's a tactic. But I do know that the bankruptcy process did allow those three carriers to dramatically reshape themselves and to cut a lot of crap that had built up over 60 years. And they're very, very competitive as is US Airways.

-

Manning: But do you think Chapter 11 is a band-aid or a long-term fix?

-

Bethune: We suffer from flat learning in this country. We learn the same shit over and over again. I already hear labor leaders crying out, 'Let's go back to the old ways and let's get that again'. MIchael, do you know that a walrus isn't born fat and ugly---they become that way? So, if you want a date, you gotta kinda slim down and keep yourself in shape. And you know, there's going to be a Jet Green, a Jet Yellow, a Jet Red ---I mean it's never gonna stop! So if you get fat and ugly again, some one's just going to take it away from you---just like they have taken it. Who are the big losers? The employees lost the most with the pensions and incomes. Well, don't let that happen to you again! The guy that overeats is the one that dies. Where there's a management that says, 'Fine. We have to sign this contract, that we know that if we do will put us at a very non-competitive situation and will ultimately kill us'. Don't sign it! 'If we don't sign it they're going to strike and take the company out'. Well, take it! Shit, you're going to go broke anyway! It might as well be them that causes it and not you. How do you pull a band-aid off? If you do it fast, do it quick. One hair at a time or get that goddamn thing off---it's got to come off! Get it over with. United, Delta, Northwest and others were a victim of compromise---another layer of fat, another deal they shouldn't have signed, another concession. Take your medicine now. Don't let that build up, because you're gonna die.

-

Manning: We gotta wrap this up. What are you most proud of?

-

Bethune: (hesitates to think) I'm proud of my limited role at Boeing, my personal contribution is the Next-Generation 737 (-800). Ron Woodard had really set the airplane off. I took over from Ron and the service ceiling on the three-seven was 37,000 feet. The airplanes I flew, the 757/767 (the cockpits are similar, so a rating on one gives you a rating on both) were 41,000 feet airplanes. We came out with the 737-700, the one that we sold to Southwest. Phil Condit---president at the time---told me that he wanted an 800 model, a longer one which would have the seats of a (Boeing) 727. And he wanted that airplane to fly from New York to Los Angeles; and he anted it to carry 150 people. Because the fuse-bonding with the wings was going to be the same, we had to get more fuel so we put in a bigger center wing tank. We made that standard, so we redesigned the center wing tank to make it bigger wit more fuel volume--no box tank--just a standard tank. I said, 'I want to take the airplane to 41,000 feet'. And I met a lot of resistance from engineering over the additional cots and time to strengthen the skin, because the thickness of the empennage and other parts of the pressurized body had to be changed because of the higher altitude. 'You guys get paid by the month. Just do it! Okay? But I want this airplane at four-one-zero'. Well, I was the general manager and everybody looked at me and said, 'OK'. Today, the 737-800 flies Newark to L.A. nonstop with 157 people at 41,000 feet. It's like a dog mark on a fire hydrant. The 737-800 that goes to 41,000 feet is my little posterity. And then Continental---obviously---I've been tremendously proud of the job that Larry (Kellner, Chairman & CEO) and Jeff (Smisek, president) have done. It wasn't just fixed up and burnished to look good. It's a structurally sound, good company, good product, good people, and I'm proud of that.

-

Manning: And your future?

-

Bethune: I just pick up the phone and say 'Hello'? I've got plenty of irons in the fire. But I want to do the things I really want to do. And that's kinda nice.

####