Strategy

wts54

Senior
Sep 16, 2002
374
0
Here is a letter sent to me today.
Hey folks,
This letter was forwarded to me by a staff person in the AFA
International
Offices. I found it particularly interesting.
-Rodney
From: me
Date: Mon, 10 Feb 2003 08:53:34 -0700
Subject: Poker...and how to play the Chapter 11 version of the game.
Final revision
Thursdsay 16 January 2003
To all concerned,
The author holds a degree in economics from Stanford University (BA
-1969)and has managed, developed and financed large real estate
projects in
major cities of the western United States. He additionally has hands-on
experience with airline finance (and non-airline ESOPS) as a former
banker
with Wells Fargo (commercial banking group in San Francisco and Silicon
Valley). He is a former Navy pilot and Vietnam veteran of nearly 100
combat
missions. As a current B-777 Captain for United Airlines, he is also a
veteran of three years'' furlough and of the labor, management and
financial
combat at that carrier in 1985. He subsequently served both ALPA and
flight
ops management at various times during periods of other economic
skirmishes
at UAL, all of which hallmark a typical career in commercial aviation
for
pilots of his professional generation. He is 55 years old and is
putting his
kids through college.
I enjoy winning...and not losing...in life, career and poker. My
adulthood
has been a reflection of that fact, having bet both my life and my
career a
number of times...and having played a little less risky poker on the
side.
And while this odd curriculum vitae is somewhat eclectic, it has been
ideal
preparation for life in our industry. My view of management, labor and
financial issues therefore reflects a balance that I KNOW is more in
perspective with reality than many of our colleagues...in either
management
or labor. It is neither benign nor malign, just pragmatic and
experience-driven.
As we all now agree, this career is certainly not one for the faint of
heart.
To the extent that my experience and views may be helpful to those in
our
profession who seek to guide us through this rough patch of our
history,
then please read on.
We now find ourselves in the economic poker game of our lives, and how
we
play that game determines what lifestyle we will have for the rest of
our
careers...and into our retirements...no matter what seniority
demographic we
populate. It is going to take both brass balls and the wisdom which
experience brings to play at this table.
My frame of reference has always been to evaluate the order of battle
(in
this case from an economically quantitative as well as qualitative
standpoint)...then devise tactics for successful strategic goals and
launch
those sorties. Minimize risk, maximize effect. Strike boldly when most
advantageous. Withdraw strategically when necessary to minimize losses
and
casualties. Preserve your assets to fight wisely on better terms. Such
is
warfare, whether military or economic. Call it chess, poker or labor
negotiations in Chapter 11, the principles are the same. (Reference,
Sun
Tzsu''s The Art of War.)
What then is the order of battle, what are our strengths &
weaknesses...and
what are those of our adversaries ? Finally, how do we play the game to
maximum effect in that environment ?
First the facts:
- We want UAL to survive, prosper and thrive, for if it does not, we do
not.
- Balance...in all things...is essential.
- Just for reference, UAL''s total labor costs per available seat mile
(ASM)are less, repeat LESS, than American''s (UAL 4.60 vs AMR 4.61 cents
per
ASM). That was BEFORE the 1/1/2003 wage concessions, so those costs are
now
far lower at UAL.
- UAL revenues are down about $5BB per year (from $18BB pre-9/11 to
$13BB
now). At the higher figure we were profitable, at the lower one we are
not.
Revenues, not costs, are the real, long term issue here. Such is the
nature
of revenue levels in the fixed versus variable operating cost
structure. Our
Chairman, Glenn Tilton, said so himself. (Not to mention mega-assets
pissed
away in colossal blunders which he inherited.) But we are where we are:
them''s the cards we were dealt. Costs are therefore only the short term
issue for our present circumstances (which are extraordinary in the
entire
history of aviation).
- Since we are short of cash in the corporate piggy bank, we must
TEMPORARILY make up the revenue shortfall through cost reductions and
loan
funding...UNTIL the industry recovers from this revenue slump.
Correction,
DEPRESSION.
- We at last have a good leader, but his management team will take you
to
the cleaners if they can.
- Linkage of TEMPORARY CONCESSIONS to a broad industry benchmark of
revenue
recovery is therefore CRITICALLY important. A mechanism for ratcheting
back
out of those concessions must be attached to the pile of concessionary
poker
chips we advance on the table to induce the lenders to play. They will
scream & holler...but they WILL lend, because they prefer not to
liquidate.
Our job is to get them to lend into those temporary concessions...or
dare
them to liquidate. LEND or LIQUIDATE: that is our poker bet and we
must
have the poker face to play that hand.
- Our lenders DO NOT WANT to liquidate in a Chapter 7 proceeding. Clear
evidence of this are the significant refis already accomplished...both
pre
and post 11 filing. (READ THE CARDS ALREADY PLAYED !!!)
- The reasons they don''t want to liquidate are threefold:
- (1) Labor is now demonstrably cooperative in UAL''s recovery.
- (2) UAL is right NOW worth more as an operating entity in the whole
than
it is broken up for asset sales. This is the unanimous opinion of the
investment banking community...those mergers and acquisitions folk who
do
nothing but LBO''s & large corporate refis. (Thank gawd for these tough
times
in our industry...when individual assets are at minimum value: it
serves our
purpose at the lend or liquidate poker table.)
- (3) They can''t readily reinvest the diminished loan funds (returned
to
them from a liquidated UAL) without a larger downside risk than lending
into
a restructured UAL. The debt is simply too large for quick & easy
placement
into major credits of equal or better risk. Size and risk: they work in
our
favor. Lenders do not want to risk those funds becoming a
non-performing
asset (banker''s lingo for the loan turning from an income-producing
loan
asset into a costly deposit liability...for which they must pay
interest
expense themselves until they can find another home for their
depositors''
funds. Large chunks of debt are much harder to place than smaller ones.
But the lenders (and management) want to make us think otherwise...and
that''s why we want to get them ALL into this tough game of five card
stud
poker. So we can call the bet and induce them to lend (while daring
them to
liquidate).
We actually hold the cards to play this game (of concessions reasonably
linked to revenue recovery).
This is where I respectfully take issue with SEA 747-400 F/O Mark N.
Hilsen''s scholarly analysis of bankruptcy liquidation proceedings (from
his
perspective as a former bankruptcy attorney). It is clear he has not
handled
large corporate filings, such as ours...and certainly not ones where
individual debt/credit facilities start at a minimum of $100MM and go
rapidly north from there to the $BB range. Sorry, but his perspective
was
limited in scope to the law, not banking, and to smaller financial
restructurings and liquidations, not large ones. He therefore drew
erroneous
conclusions.
These are REALLY BIG poker chips we are talking about...and the rules
of
negotiation for lending as an alternative to liquidation get VERY
different
in that atmosphere. Just as in a high stakes poker game, the behavior
of the
players changes radically with the size of the minimum and maximum
bets.
This is not to say that some of the lenders, (especially the ones owed
smaller amounts in the short term) would not want to force us to sell
some
assets to pay THEM off in the short term. Of course they would. That is
one
of the reasons why we filed 11: to get the court to say no to those
who
are of that singularly selfish notion...while we take a little longer
to get
our house in order. Then, when INDUSTRY REVENUE RECOVERS, everyone can
be
paid off...with the burden being shared proportionately by all
creditors
until better times resume. But the short-term greed heads lobby for
their
best interests, not caring what happens to the rest. That''s where Judge
Wedoff comes in: to see to the best collective result for ALL
creditors:
that''s the law he must follow.
So we need to understand those lenders...and what cards they hold. That
way
we can play our cards against them with strategic vision to effect our
own
best end game.
- There are three classes of lenders sitting at our poker table:
SHORT TERM - creditors due repayment now and in the next 12 months, as
well
as those who have extended debtor-in-possession (DIP) financing.
MEDIUM TERM - those due repayments beyond the next year and those who
will
step up to the plate to complete the rounds of financings necessary to
carry
us through Ch 11 (which may also include a successful reapplication for
an
ATSB loan guaranty...once the court approves the reorganization plan).
and LONG TERM - those who will provide exit financing as we emerge from
bankruptcy, as well as those who have had long term standing credit
facilities in place with us.
- UAL management finds it convenient to let the lenders wear the black
hat
while management attempts to wear the white hat: The lenders require
this
of us (draconian employee concessions of permanent nature)...it''s the
only
way they will lend us the funds we need.
BULL****: they are in cahoots with each other to PERMANENTLY alter your
compensation, benefits and work rules. (And by domino effect, that of
the
rest of the industry.) That''s why management says we can''t talk
directly to
the lenders. That UAL management must be the only intermediary.
Au contraire: invite them ALL to the poker table...and absolutely don''t
take
the word of management, investment bankers, lawyers or well-meaning
(but
inexperienced and misguided) LEC/MEC reps who are saying otherwise.
I cannot stress this enough: our reps (plural, not just the MEC
chairman)with OUR lawyers & investment bankers QUIETLY in the
background...to advise, not direct...need to be at the table with the
lenders.
Perhaps, at times, even without management. Divide and conquer works
both
ways...Them''s the facts. Now for opinion:
If we''re gonna play poker, we need a strong horse, unblinking eye and
steady
hand to play the cards we''ve been dealt (the order of battle
mentioned
earlier).
We need a membership willing to give our MEC an overwhelmingly decisive
strike vote...to strengthen their hand. The threat of a unified pilot
group
willing to use that tool...against the alternative of a demonstrably
cooperative, helpful and cohesive group...are just the stick and carrot
needed to get this game going more fairly our way. Before you choke on
that
notion, please recall a recent example where this worked to great
effect for
us and, amazingly, not to the corporation''s disadvantage.
A strike vote now is kinda like what the membership did with the first
ESOP
interim pay raise agreement. With that 95% no vote on Tentative I, it
gave
our MEC reps and MEC chairman newfound courage: the ammunition to go
get
what was both reasonable and possible (a 5% pay raise versus 2.5%).
But remember, we are today talking about a preposterous life sentence
of
concessions...versus a REASONABLE temporary linkage of concessions to a
temporarily poor revenue climate.
We must link recovery of concessions to recovery of
revenue...INDUSTRYWIDE
revenue recovery. Industrywide revenue benchmarks versus narrower UAL
revenue benchmarks...which are riskier for us by the mismanagement
factor
here that we are all familiar with. (What the press is just now is so
mincingly calling management missteps. We know them to have been
colossal:
in the billyuns and billyuns, as Carl Sagan would have said.)
This linkage to larger revenue recovery benchmarks (outside the narrow
focus
of UAL benchmarks) forces UAL management to truly manage our resources
efficiently under the fierce scrutiny of competition with other airline
managements. It also means we would not be the eternal concessionary
pariahs
to the piloting profession that non-linkage would guarantee. We could
save
both our company and our profession. Simple as that. LINKAGE. LINKAGE.
LINKAGE.
But it takes serious poker players, both among the membership and its
leadership.
Right now we have neither, and that, too, is a fact...a card we have
been
dealt. But we can change that card. The other guys can''t change theirs.
So what can you do ? What can WE do to strengthen our hand ?
UNITY is truly our strength. Has been in the past, will be in the
future...and needs to be right NOW.
(1) If you see & agree with my analysis, then forward this to everyone
in
your network. Immediately. Copy and post it prominently...everywhere.
Get
the word out that you want to play poker. NOW. We need to build grass
roots
support for our leadership to take a new, firmer direction. They may
never
be more receptive than now...after getting the shock of their
professional
lives with the company''s newly proposed term sheet (which would gut our
CBA).
(2) Take the hit in current pay...temporarily. It is so tempting to go
the
route of productivity, but nearly impossible to recover in a lifetime.
Some
productivity/efficiency aspects may be worthy of a serious look, but
beware
that sultry siren''s song. This is your future we are talking
about...all the
way through retirement.
(3) Those few of you who are operating as ad hoc committees of one,
writing
letters to Tilton saying that you''d do this, that or anything else to
help
the company...if only you can keep your job and not get
furloughed...STOP
NOW. Doing so is pathetic and only degrades unit strength and strength
from
unity.
You have regressed from a strategic withdrawal to pell-mell retreat and
outright desertion. Tolerate no one in your circle of acquaintances or
crewmembers doing this. It is today''s equivalent of being a scab
because it
weakens our play at the table during perhaps the most critical juncture
of
our careers. Ask the hard questions directly and demand candid answers.
Bring social pressure to bear upon those who just don''t get it. Don''t
shrink
from this hard but necessary duty. Quit *****ing and DO something
instead:
bring solutions, not problems. And don''t float stupid resolutions that
send
the wrong message to a management intent on exploiting the situation
beyond
what is necessary or required. If you initiate a recall, have a better
solution in hand. Strength from unity is our strongest card. Never
forget
that. Observe the chain of command and representation, and do your
grass
rooting with ALPA, not UAL.
(4) Do everything in your power to stop a war with Iraq. Lobby like
hell.
(There are other ways to get at Saddam''s weapons of mass destruction.
As a
combat veteran of Vietnam, even I can recognize a stupid war.)
The ONE single thing that would really unravel our Ch. 11
reorganization
plan (into a Chapter 7 liquidation) would be the ugly quadruple whammy
that
a nasty, protracted conflict in the Mideast would bring, to wit:
(A) fuel costs rise dramatically
(B) interest rates rise to increase our added debt expense
astronomically
© revenues fall precipitously
(D) Al Q''aeda is more energized than ever to attack US air
divisions...the
commercial ones, like CRAF carriers such as UAL. Do you have a plan for
a
Stinger missile up your tailpipe on departure ? It''s a real threat,
folks.
But please don''t take my word blindly on this scenario: check the
history of
what happened to our industry during Desert Shield/Storm for
corroboration.
The difference now is that we (our company and industry) are in a much
weaker position. (You don''t want to go into heart surgery with
pneumonia...)
(5) Call your LEC/MEC reps TODAY: the Maui MEC meeting during the week
of
Jan 20-24 is a CRITICAL policy formulation moment in our history.
PLEASE......DO IT NOW. And keep up the pressure constantly. Tell them
you
want to play hard poker. Offer your support, time and energy. It''s
NOW...or never: the rest of your career depends on it. All of our
careers
depend on it. Have a Nike moment: JUST DO IT.
(6) Do not rest until this most difficult mission is complete.
As Ben Franklin once famously said, If we do not hang together now, we
shall most certainly hang separately later...
Good luck, Godspeed and good hunting...it''s the combat pilot''s
traditional
mantra before a really tough mission...from an old war horse to the new
ones.
Remember: tough times never last...but tough people do. You have the
right
stuff...we all have the right stuff, but we must act quickly and
decisively.
THE TIME IS NOW.
All the best,
Cap''n Z
Mark Zenner
B-777 Cap - SFOFO (& Denver resident)
 
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