THE DEMISE OF FRONTIER
It is very difficult to cover the 8 turbulent years experienced by FL starting with deregulation in 1978 and its subsequent demise in 1986.
I am not in the best of health but will attempt to give you some facts and opinions attendant to that period to the best of my recollection. After reading my recollections of that period, I will be glad to try to answer any questions generated.
The story has to start with the advent of deregulation. That action was to have the most significant impact in the industry's history. It sent a loud and clear message that change was to be the order of the day and to survive new strategies were essential.
Headed by Al Feldman, we had a management that understood the scope of the change and he was able and willing to meet the challengee. His performance at Frontier was widely recognized in the industry so it wasn't surprising that he would be recruited by another carrier with whatever inducement was required. I think there was an almost universal agreement in the Frontier family that his departure created an obstacle tantamount to deregulation itself.
Glen Ryland succeeded Feldman and now faced the same challenge. In my opinion his management style was quite different froom Feldman's and while he embraced some of the elements of the Feldman style his approach was more autocratic and diluted the successful democratic Management By Commitment installed and enforced by Feldman. Since I found my management views in conflict with Ryland's, I accepted an offer from Feldman to become a senior officer at Continental This triggered the implementation of an officer pension plan that had been under consideration to stop the depletion of the officer ranks. Feldman relieved me of the contract obligation and urged me to stay to since I was only a few years from retirement age. Two officers had already left FL, Love - Future Planning. and Rawls - Finance, and it would not look good to the Board and other interested parties to observe another officer departure.
Deregulation was having a severe impact on Frontier as we attempted to compete with UA and CO in this new environment. I was loyal, but could not support the new management style and some of the decision making. Finding myself in this conflict I offered to take early retirement. At that time the Board acting upon Ryland's recommendation decided to create two subsidiaries . Frontier Services’ mission was to acquire or start up aviation related activities and the other subsidiary was to engage in non-aviation related activities. Ryland suggested that rather than take early retirement that I become head of the new Frontier Services. Seeing this as a possible revenue center in an environment I would enjoy, I accepted the offer. During a relatively short time our new company acquired one agent training school, one aviation maintenance training school, started a new aviation training school in Wyoming and started a maintenance service base in Denver. We also negotiated a million dollar contract with Saudi Arabia to train their commercial pilots . We were off to a good start.
When a year or so later it was decided to activate a plan calling for the establishment of a sister non-union airline to deliver and receive traffic to and from six new markets to retain traffic being turned over to competing carriers. I was asked to become president of this new airline and accepted. Frontier Horizon became the new airline and was successfully started with five 727's. The unions strongly objected to this concept and a dispute with ALPA was resolved by FL making concessions with inadequate reciprocity from ALPA which would ultimately be Frontier Horizon's albatross. The management of Horizon was not involved or consulted in this negotiation and we strongly objected when the results of the negotiation were revealed to us. If Frontier did not have the will to battle for the right that they assumed they had for this new airline it should never have been started.
Meanwhile at Frontier, agggressive, if not desperate, measures were being taken to fight for survival. While I was gone managing subsidiaries Frontier management was working with and financing an attempt by the unions to acquire Frontier through an Employee Stock Ownership Plan. There was considerable flight scheduling activity which ultimately resulted in the shrinking of the size of the operation. It is questionable that the airline could be shrunk into a profit mode but all possible solutions were being evaluated. I was not involved in either of these activities until later when I became president of Frontier.
Starting two subsidiary companies and a sister airline were questionable decisions. The former because it required assigning key management personnel to these new efforts and the latter because it created many union and personnel problems that could not be effectively resolved. I cannot overemphasize the negative impact on the Holding Company caused by the deployment of key management personnel and the use of scarce fianancial resources available for those purposes.
General Tire Corp, and particularly its chairman Jerry O'Neil, were becoming increasingly distressed over the continuing lack of results at Frontier. O'Neil, without informing Ryland, sent one of his Vice Presidents to interview (Bill) Wayne, (Buz) Larkin and myself to get our views on the problems at Frontier. Subsequently he sent the President of a large head hunting firm to repeat the process. After input from these two sources O'Neil, again without informing Ryland, invited each of us to his office in Akron for a final evaluation, as each of us saw the problems..
Upon my return to Denver I informed Ryland of this incident and when he inquired about the nature of the discussion I told him that I informed O’Neil that I thought a change in management was necessary and stated my reasons for feeling so.
A short time later O'Neil showed up in Denver and called a mandatory officers meeting. Much to my surprise he informed us that he had fired Ryland and was appointing Lund as the new president. I had told him during our interview that I was not seeking any job but would give him the complete unbiased picture as I saw it. After the announcement to the officer group he advised me we would meet the media in one hour to announce the change and answer questions. Not much prep time and I had been gone, but kept myself pretty well informed, as to what was transpiring at Frontier. Ryland had included me in the loop on a number of key issues.
After the press conference I got a status report from the Chief Financial Officer that the revised forecast was a $28,000,000.00 dollar loss as opposed to an original projected loss of a few million. I was stunned and so was O'Neil. Time and action became critical factors.
It was obvious that management in preparing the 1984 budget had been unreasonably sanguine. It was also obvious that the trend line indicated the hemorrhaging of cash would accelerate.
The working relationship with the ESOP representatives was excellent as we jointly tried to come up with solutions and in spite of their tireless effort the prospects were dim.
It was becoming increasingly clear to me that there were only two possible solutions. One was to negotiate severe salary reductions and even if achieved might not be sufficient for survival. The second option would be to find a "White Knight". I made several attempts in that direction, as did O'Neil, but none were successful. I opposed a proposal by O'Neil that he be given Board authority to negotiate a deal with Frank Lorenzo. The negotiation failed, fortuitously, because in the end a better result was obtained for the stockholders and the employees. I was concerned that an acquisition by Lorenzo would result in liquidation and also the deal that he offered was entirely inadequate in my opinion. My opposition to O'Neil was the beginning of the end of our relationship. I offered to resign but he rejected my offer at that time but instead waited for the Board meeting following the annual meeting to surprise me with no prior notice that my resignation was accepted. I had been with him the night before but he didn't seem to have the heart to tell me at that time.
I may have written what appears to be somewhat irrelevant information in the development of this report but it was useful to me, as I hope it will be to others, to lay the foundation for the more relevant material.
What follows may not have events in sequence and some of the comments will be informational or express an opinion unrelated to a specific event.
Some time prior to my resignation being accepted O'Neil asked me to have a liquidation plan prepared. This was a standby measure if in due course it was obvious that no survival solution had been identified. I reminded O'Neil that when I accepted the job I made it clear that I would have no part in a liquidation plan or implementation. He then assigned an outsider to work with some of the Frontier staff to develop this standby plan.
The sale of the MD 80's was a Board decision , and probably the right one considering our cash reqirements. Although myself and staff were assigned to conduct the negotiations with UA it appeared that the price had already been established by agreement with O'Neil and UA. In any event the staff and myself felt that we could have negotiated a higher sale price but in a phone call with O'Neil he determined when the negotiations would cease.
In spite of my disagreements with O'Neil I came to respect him as a tough demanding boss with integrity. I really believe he wanted to give the company adequate time for a turnaround even though the losses were mounting daily He certainly had the Board support to pull the plug whenever he wanted to. The airline didn't fail because of O'Neil in my opinion but because of factors previously mentioned and which I will further discuss.
Incidentally, having implied that had Feldman stayed we would have survived in some form how would I explain his failure to turn CO around. I think it was a situation similar to that which I faced when I became president of Frontier. The battle had been lost before essential survival steps had been taken and the losses had been accruing and continued to accrue so as to consider survivability as a very long shot.
In the case of Frontier, not facing up to reality in the 1984 plan was a form of self deception that precluded more timely action to start a turnaround. It is my opinion that this "looking to the world with rose colored glasses"syndrome was an important element in the final outcome.
Tentatively I will identify what I think were key elements in Frontier's demise as follows:
1. In my opinion the quality of management immediately following Feldman's departure was inept.
2. Recognition of the problem and earlier appropriate action was not taken.
3. Aggressive action to find a merger partner was not taken although I believe that the record will show that opportunities existed.
4. The strategy to find a "white knight" was not timely and as our situation worsened we became less attractive as an acquisitioon or a merger partner.
5. It was a mistake to create to create two subsidy operations as previously discussed.
6. The desirability and need to capture long haul traffic was an essential strategy but a plan was not created and effectively implemented. It turned out to be just another burden on the airlines' resources.
7. A change in management was too long delayed and by the time a change was made several key officers in addtion to those who had gone to CO earlier had left or planned to leave. These included Buz Larkin and the VP of Finance. Pretty significant losses.
8. Cost reductions, including required reductions in pay scales, was not pursued in conjunction with the ESOP representatives persuasively enough.
After rereading what I had previously sent you, and after a period of having been somewhat indisposed, my mind always comes back to the issue of timing which I alluded to but probably with insufficient emphasis. I was reminded of several analagous historical situations including Winston Churchill’s historical book, “The Gathering Storm,” and the consequences of failure to confront increasingly ominous events with the resulting catastrophic events resulting in WWII. While I’m by no means trying to equate the Frontier story in terms of magnitude there is a resonating principle in this and countless other events.
At the time I assumed the office of the president of Frontier, I, or nobody else, could have prevented the demise absent a “white knight” intervention or drastic cost reductions through all aspects of the company’s costs, as I previously alluded to along with the qualifying statement that we might not be able to survive even with the drastic reductions. It was tantamount to assigning a new captain to the Titanic after it hit the iceberg.
Following my departure I stayed involved as an outsider at the request of other employee groups and, on one instance, on my own.
One employee group represented by Jim Overton called and asked me if I would consider calling Phil Bakes, president of CO to try to stimulate CO’s Texas Air Corp’s interest in spite of the previous failed negotiations between Lorenzo and O’Neil. After persevering with him he agreed to meet with FL employee groups in DEN. By this time FL’s value had continued to deteriorate but Bakes nevertheless made a proposal to the FL unions. (Overton’s letter concerning this somewhat desperate attempt is available to anyone interested.)
Jim Overton represented pilots and other employees asking me to intervene with CO, and I did as mentioned in the prior Epilogue edition. I will send you a copy of Overtons' letter which pretty much characterized the desperation so many felt.
Prior to the scheduled hearing to obtain court appproval I convened a meeting at my house with lawyers and other current or former Frontier execs. I wanted to request the court to engage an outside, independent consulting firm to advise the court with respect to the viability of such a merger. The lawyers felt if was too late in the game to interrupt the proceedings so the effort was not made. Frontier and People Express was not a good fit.. Either a merger or acquisition was foreordained to fail.
I had met with Don Burr, founder of PEX in New York and talked about providing ground services to them and exchanging traffic but under no circumstances was a merger or acquisition considered.
As history proves the PEX-FL partnership was a tragic and catastrophic failure. An arrangement with CO would have been much more sensible. I know some feathers will be ruffled by these comments and a rebuttal would be interesting.
Incidentally, before the acquisition of FL by People Express, I convened a group of legal and management people to talk about trying to get a temporary restraining order to stop that action. I was convinced that it was a merging of two completely different missions and that it was foreordained to fail. The lawyers didn’t disagree with the correctness of our position but thought it was too late to stop the action. I know this is controversial but, particularly at the point in time involving People Express, a merger with CO would have been much more desirable.
The many issues involved during the 8 year period and the related actions and reactions could easily fill a book. I have contributed what I hope is enough to shed some light on those turbulent days. Earlier action by Frontier Management and the Board might have saved the day.
-Reprinted from the FRONTIER NEWS, Summer 2004 issue
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