BAD TIMES AT BRANIFF
Harding Lawrence’s grandiose flight plan took Braniff to dizzying heights, but it ultimately put the airline into a tailspin.
THE LONDON BASH was before. It was before Harding Lawrence was forced to ask his suppliers for money. It was before Braniff’s panicked bankers tagged every plane and baggage cart to make it easier to divide the spoils in the event of an outright collapse. It was before American Airlines bought up the gems of Braniff’s 727 fleet at a half-price discount, and before Braniff stock plummeted from 19 to 4. And it was long before Harding Lawrence, chief executive officer of the nation’s eighth largest airline, was quietly ejected from the cockpit.
Those were exhilarating days in the spring of 1978, just after President Carter overruled the Civil Aeronautics Board and awarded Braniff the hotly contested gateway to Europe, the Dallas-to-London route. Lawrence and his lieutenants had fought four long years for that valuable stretch of air, watching the application yellow in the CAB’s files. But patience and persistence paid off, and Lawrence, always a man of grand gesture, was not about to let the nation’s first nonstop transatlantic flight from Dallas/Fort Worth leave the ground with only the control tower witnessing the momentous event.
So, under the guise of doing business, of trying to sell the Wild West to the prim and proper British, Lawrence staged a $2 million party to promote a single new route. He paraded out "Fat Albert," Braniff’s bright orange jumbo jet, ordered enough champagne to float the 747 to the cliffs of Dover, and flew 243 Stetson-wearing, twang-talking magnates of Texas business and politics, along with wives and children, to London for the weekend.
True to the Lawrence tradition, everything was first class, from the accommodations at the swanky Savoy Hotel to the cocktails at the American Embassy. For their departure from D/FW, Braniff even imported a British town crier to see them off. For their arrival at London’s Gatwick Airport, the British government provided a welcome from the Queen’s Windsor Barracks Regiment Band.
Exuberance and abundance were everywhere. "The inauguration of daily nonstop service between D/FW and London, which has great importance for Braniff’s long-term outlook, marks the beginning of a future so great for Braniff that at this point I think no one would put a fence around it," pronounced Lawrence soon after the March 1978 maiden voyage.
Today, less than three years later, Lawrence is gone, his company is on the financial rocks, and Braniffs future is fenced in by an iron curtain of high interest payments on long-term debt, a soaring prime rate, escalating fuel prices, plummeting passenger travel, and cutthroat competition.
This is the story of Harding Lawrence and the airline he built into what is perhaps Dallas’ best-known corporate resident, the largest carrier of passengers in and out of the Dallas/Fort Worth airport. It is the saga of a brilliant manager, an aviation pioneer, and an outspoken oracle who devoted every waking minute to transforming the sleepy, regional carrier he inherited in 1965 into a successful, streamlined trunk line competing with the major airlines in the unchartered era of airline deregulation. It chronicles the rise and fall of a man and his airline, a pair so inextricably linked that their stories are virtually inseparable.
THE EXECUTIVE. One glimpse of Harding Lawrence and you understood why it was once written that he looked like a talent agency’s version of the suave, dynamic airline executive. The thick gray hair, the overbearing eyebrows, the tailored but never flashy look - he played the part perfectly, with what one associate called "a studied flamboyance." And on some days it probably wasn’t easy.
There didn’t seem to be any-thing unusual about that Tuesday morning, December 23, when Lawrence and his obedient public relations man, Jere Cox, sat down for an interview. (Though unwelcome, Cox insists on chaperoning reporters during their interviews.) By that time, Lawrence surely knew his days were numbered, but he was utterly calm and composed. His Portuguese chauffeur and servant, An-selmo Gil, quietly entered the stark white conference room and poured the group coffee and tea. Lawrence’s pale blue eyes always focused tightly on the listener, his voice rising dramatically to make a point. It wasn’t hard to see how this man and his ideas had captivated four decades of industry executives.
Industry analysts and rival airline executives agree that Lawrence was perhaps the most savvy airline manager in the history of the industry, a totally dedicated man in possession of a mind which operates at Mach speed, able to recall the tiniest detail of any one of Braniffs hundreds of routes as fast as the readout on the reservation clerk’s computer terminal.
Lawrence, who is 60, was a willing hostage to his seven-day-a-week job, the classic workaholic. He didn’t believe in drawing a distinction between work and relaxation and told anyone who cared that his vocation was his avocation.
"The airline business totally consumes my life," he said. "I don’t do a thing that’s not related to my business. I don’t have a social life, and all my friends are business related. That’s the way I’ve lived for 40 years."
It was a life with little time for the normal American diversions. Lawrence didn’t play golf with the boys, he didn’t crack a six-pack and watch the Cowboys on Sunday, he didn’t fish or play tennis or go to the races - none of those things. He just worked, even, as he admitted, to the point of "grossly neglecting my children (three natural, two stepchildren) because of my vocation."
So wedded was Lawrence to his work that he literally lived at the office. When Braniff constructed its $75 million world head-quarters at D/FW in 1975, Lawrence had a private penthouse built for himself so that he would never be more than a few steps away from work. More than one top executive privately complained that some nights it was all but impossible to leave without running into Harding, drink in hand, wanting to discuss business.
Lawrence calls the compound Braniff’s "campus," but it is more like a country club. On the grounds are a par three, nine-hole golf course with perfectly manicured greens, and a lake stocked with fish. There’s an indoor swimming pool, an outdoor swimming pool, and a private pool on Lawrence’s penthouse terrace. The complex comes complete with a football Held, tennis and racketball courts, and a baseball diamond. The indoor gym could double as an airplane hangar.
When Lawrence wasn’t talking, he could almost always be found reading. He was a voracious consumer of information, reading at least six daily newspapers and as many business reports as he could fit into a 24-hour day. A Braniff vice president who worked alongside Lawrence for 13 years remarked that during that time he never once saw his boss reading anything not related to the airline industry. When asked which of the papers in the Dallas/Fort Worth area he most enjoyed reading, Lawrence seemed to be genuinely puzzled for a moment. "I don’t read papers for enjoyment," he said. "I never thought of it that way."
Lawrence was a chief executive officer who ran his behemoth like a small business, an anomaly in corporate America. One former manager says his initials were often on even the smallest of purchases. "Everything stopped when Harding was out of town. You couldn’t hire, fire, or buy equipment until he got back," he said.
Camaraderie was not a common characteristic at Braniff. Lawrence could put his arm around an executive, make him feel wanted and important, then send him back to the salt mines, shovel in hand, but the chief executive officer never let anyone get close to him.
There were few real team decisions at Braniff. When Lawrence made up his mind, you either got on board or you kept quiet. Those who pushed him too far got to see his volatile temper, the darker side of his sophisticated personality. In the biography of Continental chairman Robert Six, noted aviation writer Robert Serling wrote of Lawrence, "During his days in Denver, particularly when he was struggling over budget problems, his secretary had to close the door of the office so the entire building wouldn’t hear his profanity."
Lawrence was not above dirty dealing if the outcome helped Braniff. In 1972, he flew to Washington bearing two legal $5000 checks, contributions from him and Braniff president Edwin Acker to Nixon’s Committee for the Reelection of the President. According to SEC documents, Maurice Stans, head of the finance committee, said in no uncertain terms that $10,000 was not enough. Lawrence, concerned about Braniff’s future if he didn’t ante up, returned to Dallas to put together an additional, illegal $40,000. Within days, Braniff began generating of f-the-books revenue from unrecorded ticket sales in South America. Braniff sent the re-election committee eight stacks of crisp $100 bills totaling $40,000; the Braniff slush fund eventually grew to $750,000. In 1973 Lawrence pleaded guilty and was fined $1000 - the maximum for the misdemeanor.
And when small, no-frills Southwest Airlines wanted to enter the profitable Texas commuter market with cheap and convenient service from close-in airports, Lawrence, with no love lost, did his damndest to keep the interloper grounded. Joining hands with Texas International, he applied economic pressure to South west’s suppliers, stalled takeoffs with costly court battles, and tried to prevent his passengers from switching to Southwest flights, even when Braniff’s own flights were canceled. Late in 1978 Braniff finally pleaded no contest to the charges. A federal judge levied the maximum $100,000 fine.
THE BEGINNING. The birth of Braniff took place rather in-auspiciously on January 20, 1928. Harding Lawrence had just turned eight years old when an Oklahoma financier named Thomas E. Braniff became inspired by Charles Lindbergh’s solo transatlantic flight and intrigued with the future of air transport. Braniff and a few friends pooled their resources and purchased a five-passenger, fabric-covered Stinson "Detroiter." Paul Braniff, Tom’s younger brother, became the airline’s first pilot, taking off from Oklahoma City bound for Tulsa, 116 miles away. An airline was born.
By 1931, Wichita Falls, Kansas City, St. Louis, and even Chicago were added to the fledgling airline’s schedule. But, as with most American businesses, the Great Depression hit Braniff hard, and by 1934, the airline was on the brink of bankruptcy. Fortunately, the federal government was in need of someone to carry its air mail - "Route 9" - from Chicago to Dallas, and Braniff was saved by the contract. That same year, propped up by government support, Braniff moved its maintenance and operations office to Love Field, the rest of the corporation to follow from Oklahoma in 1942.
By the outbreak of World War II, the airline was flying 10,000 miles a day "from the Great Lakes to the Gulf." After the signing of the peace treaty at Yalta, Braniff convinced the CAB it had gained enough experience overseas to merit international routes. The regulatory agency agreed and responded with 7719 miles of routes to South America, the same routes which are now Braniff’s trump cards as it searches for a merger partner to save it from extinction.
The company, with about 8 per cent of the domestic market, was growing judiciously when Thomas Braniff left on a duck hunting trip in January 1954. His private plane crashed near Shreveport, killing the 70-year-old president and plunging the growing airline into a long period of complacency and stagnation. Domestic market share fell to a mere 2 per cent, and the airline didn’t add a single new route for 10 successive years. Braniff clearly needed someone dynamic in its cockpit. Enter Harding Luther Lawrence.
Born of poor means in Perkins, Oklahoma, Harding Lawrence grew up in Glade-water, Texas, where his father was a minister. Since his early years, Harding had wanted to fly, and in 1940, flight bag in hand, he arrived in Dallas to learn to pilot a plane at the Dallas Aviation School. From that point on, flying and the airline industry became Lawrence’s life. He trained British pilots at Terrell during World War II and afterward, at age 26, joined Pioneer Airlines in Houston as an assistant to the vice president.
Lawrence rose quickly through the ranks of Pioneer until 1955, when it merged with Continental Airlines, and he became not only vice president of the larger entity but the right-hand man of Continental chairman Robert Six, one of the industry’s last remaining entrepreneurs. Six was grooming Lawrence as his handpicked heir to the Continental throne, but in 1965, when Lawrence was offered the top spot at the ailing Braniff - president and chief operating officer - he couldn’t turn it down. Lawrence was 45; his airline was 37.
THE BOOM YEARS. When Harding Lawrence took control of Braniff, he set out immediately to change its humdrum image into something more daring, something to shake up a basically straight-laced industry. He turned to the advertising agency of Jack Tinker and Partners and one of its talented copywriters, Mary Wells. Both she and Braniff became known for her "end of the plain plane" campaign.
Lawrence was hooked, both on the campaign and on the lady who conceived it. He ordered Braniff’s jets be painted shocking orange and blue and green - nine colors in all.
Management thought he was mad. Charles Matthews, director of purchasing who got his first paycheck when founder Tom Braniff was at the helm, says, "I was scared to death. I thought Braniff would never survive this." But the kaleidoscopic gamble worked. Score one for the grand gesture.
Two years later - in Paris, of course - Lawrence married the lady who had come up with the idea, Mary Wells (who now heads her own New York advertising agency. Wells Rich Greene Inc., and lives in both Dallas and New York City).
Next came the Pucci-de-signed stewardess uniforms, 18-piece outfits which were peeled off layer by layer as a flight progressed, a performance dubbed the "Braniff air strip" by those in the business. Clearly, with Lawrence at the controls, it was not business as usual at Braniff.
But if Lawrence possessed a flair for the dramatic, he also had a deep-seated quest for greatness and growth, a course he charted for his airline from the day he arrived until the day his bankers forced him to cut back. In his first interview after becoming president, he told the papers that if one word could sum up his dream for Braniff, it was "growth."
And grow the airline did. During Lawrence’s first year the company expanded its revenues 35 per cent. The following year, 1967, Lawrence merged Braniff with a South American carrier, Panagra, adding four new metropolises to his burgeoning map.
"At the time of the merger I was severely criticized," recalls Lawrence. "We were barely in South America when I took over. My advisors told me to dispose of those routes. They were losing money. But I wanted to aggressively grow. So I became an overnight expert. I traveled there for 10 days. I decided South American was a valuable franchise. We bought Panagra for $30 million. Today those routes are adding $500 million a year in revenues." He pauses a minute, lights another Benson and Hedges cigarette, loosens the knot of his tie, cocks his eyebrows, and pronounces in a voice grown husky with cigarettes, "Managers are put in their jobs to take certain business risks. That’s the only way to grow."
Adding new routes meant buying new aircraft. Braniff’s debt-to-equity ratio soared, but the president got his planes. The bills would come in later. By 1969, the carrier had sent its last turboprop to the old plane hangar and began booking only jets. Even today, Braniff f has one of the youngest fleets - second only to Delta - in the air.
Braniff was buying jets all right, but not wide-bodied ones. Lawrence was not afraid to do something different.
In the late Sixties all his confreres were stampeding to their suppliers for the industry’s newest toy, the wide-bodied 747. Lawrence only ordered one token 747 - the orange "super carrot" for the trip to Honolulu, one of Braniff’s new routes. "I said to myself, ’The customer wants frequency. He doesn’t want to be bothered with 300 other people. I’ll buy two conventional airplanes instead of one jumbo,’ " Lawrence recalls.
It took a couple of years, but, as Lawrence points out, "History proved us right." Traffic slumped under the crush of the 1973-74 recession; all the other carriers were hit with a glut of overcapacity. Braniff, however, flew through the storm with its flying colors. It had the busiest 747 in the sky. "The seats never got cold," observes an FAA official. Lawrence, believing his instincts, had bet the company’s future and had won handsomely. Score one for the big gamble.
When the economic recovery took hold, the earnings picture brightened for all the domestic trunk airlines. 1978 was the best year in industry history. The airlines racked up a record $1.4 billion in operating profits, almost doubling those of the previous year. (By contrast, 1980 operating losses could top $400 million, the first operating deficit since 1947.) It was the year Braniff boosted revenues 23 per cent and increased traffic 28 per cent. It was the year of the London bash and the year the carrier, the first bearing an American flag, started flying the Concorde. And it was the year-on October 24, to be exact-President Carter signed into law the Airline Deregulation Act.
Lawrence had fought long and hard against deregulation. He feared the five largest carriers would squeeze the middle-sized trunks like Braniff out of the 38 per cent of the market they flew. Under the beneficent despotism of the CAB, each trunk had its bread-and-butter routes which were untouchable to the other carriers. In other words, the CAB kept a paternal eye on the industry’s smaller airlines. But under deregulation every route would be up for grabs by Only economic muscle could keep the bounty hunters from moving in. Lawrence understood the bottom line: You had to be big to survive.
Lawrence’s creed had always been growth: planned growth, sensible growth, and growth through merger. But after deregulation came frantic, frenzied growth, growth he believed necessary to compete in the new unregulated environment.
Or, as Lawrence puts it, "Under deregulation, all airlines were not created equal. I wanted to get Braniff postured early on. I wanted to take advantage of those growth opportunities. I was worried if I didn’t act then, the routes wouldn’t be available later."
So when the deregulation gun went off, Braniff was first out of the gate. Of the 1300 dormant routes the CAB handed out on a first-come, first-serve basis (like waiting to buy Rolling Stones tickets, Braniff officials had to camp out in front of the CAB in chilly October weather for three days protecting their position in line), Braniff flew home with the lion’s share: 67 new routes. Hughes Air West also had a hearty appetite, but it took home less than half: only 27. Air California won 22, North Central received 20, and TWA, 18. United, having the luxury of taking a wait-and-see attitude, took one sole route out of the CAB’s grab bag.
And Braniff kept sprinting. The act required all new routes to be activated by January 20, 1979, just 45 days after the November 9 pronouncements. The president of one regional carrier told Fortune, "Hell, you can’t even get your schedule into the Official Airline Guide in 45 days." Yet on December 15, Braniff flew inaugural flights to 16 new cities, adding 32 new routes to its system: the "largest single-day increase by any airline in history," proclaimed the annual report.
All told, Braniff added 18 new cities, competing in 57 of the top 60 airline markets,including Los Angeles, Orlando, Boston, Paris, Amsterdam, and Frankfurt. It began flights to the Middle East and the Orient. Braniff moved up the ranks from ninth largest to sixth largest trunk carrier in the country. As Russell Thayer, former Braniff president and Lawrence’s number two man, pointed out, "We’ve been able to telescope 20 years of growth into the spring of 1979."
New routes require more airplanes to serve them, more pilots to fly them, more fuel to power them, and more ticket agents to book them. And more money to do all of the above. By March 1979, the company had ordered 41 planes from Boeing for delivery over the following three years with options to purchase an additional 44. Matthews, the retired director of purchasing, says Braniff had almost $1 billion worth of aircraft on order.
Industry analysts agree in theory the expansion move was an appropriate one. "Braniff did the right thing right after deregulation. Harding Lawrence was afraid his small carrier would be eaten alive by the industry leaders," observes Eliot Fried, an airline analyst for Shearson Loeb Rhodes Inc. in New York.
Adds Sim Trotter, vice president and director of research for Rauscher Pierce Refsnes Inc., a Dallas brokerage firm, "If deregulation had been enacted by the 92nd Congress instead of the 94th, Harding’s strategy would have been a brilliant one. As it turned out, his expansion was like the Roman Empire. His reach exceeded his grasp. And his timing was poor."
THE BUST YEARS. As 1979 wore on, the booming economy slumped and the airlines, always a cyclical business, were hurt. The sting was worse for Braniff because its no-holds-barred expansion geometrically increased its exposure. In addition, Braniff’s arrogance, and its apparent disregard for airline safety and passenger comfort, compounded its problem. Travelers turned elsewhere.
In Lawrence’s eyes, fuel was the biggest villain. The Iranians cut off oil imports, and Bran-iff, like the other trunks, was held hostage. When Lawrence first bought jet fuel (kerosene) in 1969, it cost a mere eight cents a gallon. In 1970, jet fuel still cost only 10 cents a gallon. Eight years later, when the deregulation act became reality, the price had climbed to 40.61 cents per gallon at the pumps. Braniff, based on previous price history, plugged a 10 per cent price increase into its 1979 budget forecasts for fuel. By the end of the year kerosene was selling for 77.64 cents a gallon, a 91.2 per cent increase that left a huge gap in operating expenses. (Today, kerosene is up to $1.10 per gallon.)
Even worse, Braniff’s supplier, Texaco, charged seven cents more per gallon than other contractors because it got its oil from headstrong Iraq and Nigeria instead of the conservative Saudis. (Airplane fuel contracts are written in blood. There is no shopping around.) Each additional penny added $6 million per year in expenses.
Then Texaco cut back allocations 15 per cent just when the burgeoning Braniff needed an additional 15 per cent to keep all its new planes airborne. That’s a 30 per cent shortfall.
While other airlines were grounding their flights, Lawrence was determined to keep his planes in the air. He ventured into the spot market for 124 million additional gallons of fuel, over one quarter of Braniff’s total fuel needs. Lawrence admitted he "paid through the nose" for it-averaging 76.75 cents a gallon, 20.42 cents per gallon over the contract price. Fuel accounted for 29.8 per cent of 1979 operating expenses instead of 1978’s 23.8 per cent. Strike one.
The higher cost of fuel meant Braniff had to fill 10 per cent more seats for a flight to break even. Under what Lawrence calls "the new math," Braniff’s load factor - the percentage of seats occupied - had to reach 60 per cent. In the good old days, Braniff broke even at 46 per cent. But in May 1979, just in time for the crucial summer travel season, the economy crashed. According to Charles Han-neman, an investment analyst for Argus, air traffic historically dropped about 3 per cent during past recessions. But in 1979 traffic slid 12 per cent. Strike two for Braniff.
Soaring interest rates added to Braniff’s problems. As each new Braniff plane came off the line at Boeing, Braniff had to go back to the bank. Currently, 30 per cent of Braniff’s loans are pegged to the prime rate, now hovering in the 20 per cent range.
On September 30, 1980 - the most recent quarter for which figures are available - Braniff’s long-term debt hit $616 million. A year earlier it totaled only $483 million. For those first nine months of 1980, Braniff spent $63.8 million in interest charges; the year before it doled out $38.7 million. So while debt jumped 28 per cent, the interest charges went up 65 per cent. Strike three.
Just when Braniff needed to raise fares to cover costs, it was forced to offer discount fares to remain competitive; as Sim Trotter says, "Braniff began giving seats away." Lawrence says discount fares during the summer of 1979 accounted for 66 per cent of Braniff’s ticket sales, up 41 per cent from year earlier totals. Last summer Braniff entered the discount war and lowered some fares 82 per cent. A coach seat from Dallas to Los Angeles, normally $210, could be had for a mere $59. And for the business travelers whose expense accounts paid for first-class tickets, Braniff could not raise fares. No fare relief was forthcoming from the CAB.
While Braniff can lay much blame on the economy, its undisguised arrogance compounded its problems. "Braniffs holier-than-thou attitude didn’t help them," intones an FAA official. "This is an industry where you can’t live without friends."
Braniff was systematically turning friends into enemies. The airline reserva-tionists, who work in the travel industry mainly because they love to travel, were outraged when Braniff cut interline provisions. Most airlines allow employees of other carriers to travel on their planes at cost. But when Braniff load factors rose at the start of 1979, the airline "made an abrupt decision to get rid of the freeloaders," says Jeffrey Krida, vice president for sales. "The thinking was, what do we need all those other airlines for?"
What Braniff needed all those other airlines for was to book travelers onto its flights. When an incensed reservationist had the option of two connecting flights from her airline, she deliberately chose the competitor. "Don’t Book Braniff" signs appeared at reservation stations all over the country, Krida reports.
When the airline got hungry, Braniff looked more carefully at the sources of its passengers. It found its biggest competitors provided its biggest revenues in terms of passenger feed. Braniff, therefore, did a turnaround and not only reinstated interline privileges but also has begun to give even greater benefits to those airlines which regularly swing business its way.
Another example of Braniff’s shortsighted thinking was the Rio Airways fiasco. Rio, headquartered in Killeen, Texas, flies small-towners into D/FW on their way to the world. 500,000 small-towners a year, to be exact, 95 per cent of whom alight at D/FW. Until last September, Rio leased a gate in the Braniff terminal. Repeat traffic, discovering how difficult it is to catch connecting flights in other terminals on short notice, boarded Braniff flights, according to Mark Con-nell, Rio president.
But that was before Braniff decided to add onto its terminal. Construction closed one gate, so Braniff put Rio out in the middle of the airfield. Passengers had to take a bus to their planes and battle the elements. And they weren’t pleased.
Enter Delta Airlines. It offered Rio more ticket space and one-and-a-half gates. "We’ve got three times the space for less money," Connell reports. Not surprisingly, Rio packed up and moved. Most of its 500,000 passengers are now boarding Delta airplanes.
In the air or on the ground, Braniff did nothing to endear itself to its paying customers. According to the 1979-80 survey of the Airline Passengers Association, Braniff ranked number three behind Eastern and US Air as the carrier "they would most want to avoid."
The CAB also charts complaints. In its tally Braniff ranks number one of all major carriers, with 13.04 complaints per 10,000 passengers, nearly twice as many as Pan Am’s 7.08 and Northwest’s 6.53, according to recent CAB reports.
Because of poor service, business passengers - the backbone of Braniff’s customers - began booking other carriers. Laurie Taylor, an executive secretary at a Dallas management consulting firm, is responsible for booking trips for the six men in her office. "I avoid Braniff whenever possible. They’re always late, flights are canceled, the stewardesses are surly, and baggage always gets lost. There would be a palace revolt if I booked Braniff too often," she says.
Overexpansion had much to do with poor service. For the first half of 1979, Braniff had the worst on-time performance in the industry. And because of the increased demand for flight crews, Braniff’s flight attendant school was churning out graduates in three weeks instead of the standard five.
U.S. ambassadors were complaining, too. In 1974 Congress passed the "Fly American Act," which required American diplomats to fly on U.S. carriers to keep government dollars stateside. Robert White, ambassador to Paraguay, was incensed about Braniff’s inconsiderate employees, dirty planes, lost baggage, and canceled flights. He fired off a stinging cable to the U.S. State Department in August 1979, calling Braniff’s service "deplorable." Other diplomats, echoing his evaluation, told the State Department they were henceforth flying South American carriers to the Atlantic coast where they could connect with Pan Am until Braniff changed its ways.
Patt Gibbs, president of the Association of Professional Flight Attendants and an American stewardess for 20 years, explains why Braniff flight attendants don’t strive to make the customer happy. "They are the worst paid and most exploited flight attendants in the industry," she maintains. The women resented the "air strip" and being asked to wear buttons which read "Ask Me About the $5 A Night Special" when Braniff was promoting its hotels.
Of more concern was Braniff’s attitude toward maintenance and flight safety. In November 1979, the FAA charged Braniff with shoddy aircraft repair, including conducting more than 30 flights over water without emergency life rafts and improperly repairing the planes. These findings, the result of a 14-month investigation, prompted the commission to recommend a $1.5 million fine, the highest in aviation history, higher than American Airlines’ punishment for its two-step DC-10 pylon procedure which ended in tragedy at O’Hare Airport, according to John Curry, an FAA attorney. He adds, "It would be fair to say what we were looking at is not an isolated instance. There was a general, overall problem with the corporation’s approach to maintenance."
These violations coincided with Braniff’s straining period of rapid expansion. At the time of the FAA probe, one mechanic told the Times Herald, "They put schedules ahead of safety. They bent the rules a little to meet their expanded schedules," a stance which shook the confidence of the flying public.
THE STRUGGLE TO SURVIVE. Doubled fuel bills. Expensive forays into the spot fuel market. Debt service costs soaring, air traffic falling. Even discounted fares couldn’t entice passengers angered by poor service and worried about sloppy aircraft repairs. These industry problems were exacerbated at Braniff by its overexpansion.
All the negatives began to add up. When they did, Braniff began, as Trotter puts it, "a desperate, frantic struggle to survive."
After earning $45.2 million in 1978, Braniff International lost $44.3 million in 1979, thanks to a whopping $51.4 million loss in the final quarter. Losses in 1980 could double that awesome deficit. Braniff has already lost $77.4 million in just the first three quarters.
The last 18 months were a period of ignominious financial firsts for Braniff: the first time it technically defaulted on its bank loans. The first time it omitted paying a dividend. The first time it had to cancel aircraft orders. The first time it couldn’t sell stock even in a private placement with warrants to purchase 14 per cent of the company.
Lawrence, realizing he had to retreat from Braniff’s "master plan," started "stairstepping our capacity down." The first to go were the still struggling developmental markets for which Braniff had waited three days in the cold outside the CAB. Many of Braniff’s newest routes were erased from the system’s map - proud routes like the Pacific. Even the Concorde disappeared at supersonic speed.
The airline began cutting to the bone. According to Aviation Week and Space Technology, a trade publication, Braniff cut capacity, measured in available seat miles, 37.7 per cent during the year. Average daily flight hours, which reached a peak of 928 in June 1979, plummeted to 594 last December.
With fewer routes to fly, the corporation needed fewer people to man them. All of a sudden, 700 of Braniff’s 3000 flight attendants asked for maternity or sick leaves. (That way their health insurance and other benefits would continue while they were laid off.) Eight hundred pilots and 400 Teamsters were furloughed.
Almost a quarter of the company’s management positions vanished overnight, including the positions of 30 vice presidents. One officer who had spent his entire working life at Braniff received a letter on a Wednesday announcing that he would not be needed after Friday. Early retirement became an unspoken rule. Anyone making over $27,000 a year (the salary below which federal law will not allow a corporation to retire an employee before age 70) was put on a pension the day after his 62nd birthday. At the height of its expansion, Braniff employed 14,000 workers, according to Amos Moses, vice president for personnel. Today there’s a skeleton crew of 11,500.
Personnel who survived the budget cuts were asked to accept pay cuts. Last fall the company conceived "Operation Turnaround," a six-month cutback plan to put Braniff back on a healthy financial course. The cornerstone of the plan was a 10 per cent pay cut. Harding Lawrence agreed to slash 20 per cent from his $486,794 base pay.
If the corporation’s three unions approved the plan, the 10 per cent cut would be applied across the board, saving Bran-iff an estimated $18 million. The mechanics approved the pay cut by a 2-to-l margin. The proposal also sailed through the Airline Pilots Association last October. But the Teamsters’ no-vote scuttled the entire plan.
Since there was no way to shave payroll expenses, the purchasing department began counting dimes like an old miser. According to Charles Matthews, head of purchasing, an austerity program invaded every department. "Every purchase down to pencils and erasers had to be documented," he says.
Cutting costs cut losses, but Braniff still needed cash to pay its mounting bills. By the close of 1979, Braniff began a panicked search to raise cash. It did so in two ways: borrowing cash from both banks and suppliers to pay for the airplanes it had commissioned and trying to sell stock to reduce its distressing debt-to-equity ratios which had climbed to 4-to-1 (1-to-1 is a conservative benchmark; 2-to-1 average in the airline industry), so it could qualify for a new revolving line of credit, credit Braniff bought at one to two percentage points above prime.
On October 10, 1979, according to Ed-son Beckwith, senior vice president of finance, the carrier prepared to bring $75 million of preferred stock to market. But the fates were frowning. On October 6, Federal Reserve chairman Paul Volcker and his board adopted a host of belt-tightening measures to curb the country’s rampant inflation. Money markets went berserk, forcing Braniff to shelve its prospectus.
By the spring of 1980, Braniff was desperate to come up with the money to pay for 30 planes that would soon be deposited on its doorstep. (Braniff would incur stiff penalty fees if it did not pay for the aircraft it ordered.) A private stock placement became necessary. Braniff begged insurance companies, finance companies, even its suppliers to take a chunk of its $100 million preferred stock offering.
Because Braniff was so financially pinched, it had to offer incentives to attract buyers, according to Trotter. Even though the attached warrants were convertible into 3.25 million shares of Braniff common (that translated into an ownership position of 14 per cent), only $35 million got taken down. Braniff never found takers for the remaining $65 million because the airline couldn’t meet the earnings requirements necessary to close the deal, according to Beckwith.
The carrier had counted on that cash to pay its manufacturers. The floundering corporation turned to short-term lenders for help. Last April a consortium of six banks headed by Bankers Trust put together a $100 million four-and-a-half-month financing package. The first installment of $30 million was due July 31.
Braniff didn’t have the cash. By late July, "the vultures began to gather about," says Trotter. Braniff was frantic. On July 30, one day before the deadline, Braniff sold off 15 of its most fuel-efficient 727’s to American Airlines for $8 million each. The current market value of the planes is $16 million each. Including requisite parts, the sale raised $180 million for the cash-starved company.
One analyst told Business Week, "When a carrier gets to the point of selling off the heart of its fleet, you’ve got to believe it is in really bad shape because that’s really choice equipment." Adds Trotter, "Selling your assets to stay alive is a suicidal course."
THE FINAL DAYS. For Braniff, the bell was finally tolling. It was either "Chapter XI" (judicial relief from creditors) or merger. The banks, who wouldn’t know what to do with baggage trucks or 747’s, pushed for merger. So did Braniff’s suppliers. Boeing, whose long-term customer financing has expanded rapidly from $182 million at the end of 1978 to almost $298 million on September 30, 1980, wasn’t going to push one of its biggest customers into bankruptcy and dump all its planes on the market at discount prices.
Enter Eastern Air Lines and Frank Bor-man, the white knight charged with rescuing the distressed damsel. If the banks will agree to restructure Braniff’s loans (which they probably will) and the CAB not to parcel out Braniff’s Latin American routes (which is anybody’s guess), the merger has a good chance of consummation. (See story, page 100.)
Then, gone will be the name of Braniff International with its crisp lettering and cocky slant. Gone will be Chateaubriand and cappuccino. Gone already is Harding Lawrence, the man the banks blamed for Braniff’s financial woes, the man they wanted out.
At the end for Lawrence, there were no going-away parties, no tearful kisses or fatherly handshakes, no boardroom ovations. Lawrence left Braniff like a thief in the night.
He is probably enjoying retirement as much as he enjoyed OPEC. Wherever he is right now - hunched over his Wall Street Journal on the balcony of his lavish villa on the French Riviera, or by the pool of Braniff’s condominium in Acapulco, or riding on his ranch in Arizona - Lawrence would probably sell his birthright to be back in the cockpit, once again making the crucial decisions and taking the big gambles.
Where did Lawrence go wrong?
For one, apparently nobody was willing or able to stand up to so powerful a person as Harding Lawrence. Unlike his mentor, Robert Six, Lawrence had surrounded himself with executives and a board of directors that either did not have the courage or expertise to tell him he was wrong.
A classic Lawrence mistake, generated by his visions of bringing the world to Braniff’s doorstep, was expanding into the Orient. All the flights had to land in Guam, and Braniff never got landing rights in Tokyo, the gateway to the Pacific. "It was a catastrophic mess," said a Houston lawyer of the unprofitable flights. "It was a crummy idea, badly executed. There was no conceivable way it could have succeeded, but to my knowledge no one even challenged the decision. It was as if everyone was saying, ’What a great idea. Why hasn’t anyone else thought of this?’ Of course, the answer is, everyone else had thought of it."
So on December 22, five of Braniff’s 34 creditors - 22 banks and a number of insurance companies - signed in at the registration desk at Braniff headquarters. It was a Who’s Who of Big Money: Aetna, Mutual of New York, Prudential, Citibank, and Bankers Trust. Together they had lent Braniff more than $160 million. Taking their places at the circular marble table in the executive suite, they were joined by three outside directors, who were, according to one source, Perry Bass, Texas oil millionaire; Troy Post, Dallas investor; and Robert Stewart, former chairman of First International Bancshares, a company that had also loaned Braniff money. In a series of meetings that day, this group, answerable to their shareholders for their loans to Braniff, took actions to oust Lawrence, strip his closest associate Russell Thayer of his presidency and his power, and name John Casey, Braniff’s vice chairman and the man once passed over for Thayer’s job, as the new chief executive officer. (Casey’s brother Albert is chairman of American Airlines.)
A last interview with Lawrence, scheduled weeks in advance, took place the morning after that fateful meeting. Although Lawrence probably knew the handwriting was on the wall, it was his last chance to talk about his successes, and he talked freely. He had done a lot for the airline industry, he had built Braniff, and he damn sure wanted to be remembered for it.
"I don’t look upon my actions as mistakes and successes," he said, his pale blue eyes shimmering with quiet indignation. "I’ve just tried to be more right than wrong."
"I HAVE ALWAYS promoted mergers," said Harding Lawrence, the recently departed chairman of Braniff International. "Over the years I have always mentioned merger possibilities to almost all my competitors if I thought the two systems had potential."
At one time Lawrence had an eye on Eastern Airlines. But now that Braniff hasn’t reported an operating profit since the second quarter of 1979, the flying colors are sitting red-faced at the other side of the bargaining table.
Eastern formally made its bid for Braniff last December 15. Lawrence said he had also talked to Northwest Airlines and Continental Airlines, shunning Delta because he feared "the government wouldn’t approve the union."
They are an odd couple, these two airlines. Both Braniff and Eastern reported net losses for the first nine months of 1980, the latest figures available. And both are heavily indebted with very high debt-equity ratios. Industry analysts say the only way Eastern could buy Braniff is with a stock swap because the cash just isn’t there.
Eastern is interested for several reasons. The Miami-based carrier has its eye on Latin America; Braniff’s South American cities are the most profitable in its system. Because of the strict bilateral agreements that need to be negotiated before an airline can land in a foreign country, acquiring Braniff would be the simplest way for Eastern to start flying to Rio and Lima.
Lately, Eastern has been looking furtively over its shoulder at Delta, the industry go-getter and the one with the muscle-bound balance sheet. Delta’s greatest expansion in the last year has been at D/FW, adding 10 new cities from that airport, according to a Delta spokesman. "Eastern is very worried about Delta’s southwestern encroachment. They don’t think they can keep up the pace on their own," says Mike Derchin, an aerospace analyst at Oppenheimer & Co., which sagely took Braniff off its recommended stock list when the trunk began its rapid expansion in 1979.
The proposed merger could create economies of scale. Since both airlines fly the Boeing 727, Eastern could easily amalgamate Braniff’s aircraft and flight and ground crews into its staff. Eastern, which has some excess jumbo jet capacity, could use its jets to fly the new Latin American routes, points out Derchin. And the newer, larger entity would have more price leverage when purchasing fuel and aircraft.
"Merger is a quick way to grow. Eastern would be acquiring an established airline with an established identity and established routes," explains Sim Trotter, director of research for Rauscher Pierce Refsnes Inc. Adds Barbara Beyer, an airline analyst for AVMARK Inc., "Eastern may be motivated by fear in its bid for Braniff. Management may firmly believe size is critical for future survival. Recent mergers -Pan Am and National, Western, and Continental -have fostered that belief."
The big negative for Eastern is assuming responsibility for Braniff’s awesome debt: $616 million in long-term and $270 million in short-term debt. Eastern currently owes its creditors $1.4 billion.
Eliot Fried, an airline analyst for Shearson Loeb Rhodes Co. believes a major recapitalization is necessary before Eastern will print a prospectus. "Frank Borman (Eastern’s chairman) has been talking to financial institutions trying to make a deal that would allow Eastern to repay the debt at a different maturity schedule or turn some of that debt into stock," he says, mentioning that’s what Lockheed Corp. convinced its bankers to do when it got into financial trouble. Derchin maintains Braniff’s creditors should be agreeable because "the banks want a decent return on their investment and this is probably the only way they are going to get it."
He adds Eastern "is busily making a deal" with the CAB. "They’re saying to the board, ’We’ll take this albatross off your hands if you keep Braniff’s routes intact.’" The Latin American routes especially must be protected, he continues.
Will the merger be consummated? Only Frank Borman knows for sure. But industry analysts as of this writing are placing only 50-50 odds on success. Borman, in his December 29 annual message to employees, wrote, "We will proceed only if our study shows conclusively that the merged company will be stronger and more profitable than Eastern alone."
Even though the Braniff logo would disappear, Trottercalculates the merger, which would create the nation’s largestairline, would have "an insignificant impact" on Dallas. "SinceD/FW would remain a major hub, the employment base wouldprobably stay the same and future growth would probably bebetter."
Mistakes and Misfortune: Braniff’s Ten Terminal Blows
1. Rapid over-expansion. When deregulation became a reality, Braniff added 18 new cities, moving from ninth largest carrier to sixth in one year. Russell Thayer, Braniff president, pointed out, "We’ve been able to telescope 20 years of growth into the springof 1979."
2. Doubling of jet fuel prices. In 1978, before Braniff’s expansion, jet fuel cost 40.61 cents per gallon. In 1979 it hit 77.64 cents, a 91.2 per cent increase.1981 prices are reaching $1.10.
3. Soaring prime rate. When Braniff negotiated its loans in the late Seventies, the prime rate was 10. It has since topped 21.
4. Declining air traffic. Recession in 1979-80 caused travelers to stay at home. Air traffic fell 12 per cent at a time when Braniff needed to fill 60 per cent of its seats to break even.
5. Cutthroat competition. Under deregulation any airline could easily apply for Braniff’s profitable routes. And they did. In 1980 Delta alone added 10 new cities from D/FW.
6. Poor passenger service. The Airline Passengers Associationranks Braniff third as the carrier its members most want toavoid. Braniff historically has had the worst on-time record in the industry.
7. Fares. Braniff has discounted some fares up to 82 per cent.Almost 70 per cent of its ticket sales last summer were discounts.On the upside, the CAB will not grant higher fares to pass alongoperating expense increases.
8. Inability to sell preferred stock. Institutional investors wouldtake down only $35 million of a $100 million private placement.Braniff needed that cash to buy airplanes. The shortfall forced itto seek expensive, short-term loans.
9. Arrogance. Braniff drove Rio Airways, a Texas commuter airline, from its terminal when it forced Rio’s 500,000 passengers to board their planes in the elements from the middle of the airstrip. Rio consequently moved to the Delta Terminal. Now the majority of Rio passengers board Delta’s planes instead of Braniff’s. For a time Braniff also refused to let employees of other airlines travel on its planes at cost, a standard courtesy in the airline industry. Angry ticket clerks posted "Don’t Book Braniff" signs.
10. Poor employee relations. Braniff flight attendants did not like the "Braniff airstrip" - shedding layers of their 18-piece uniform as the flight progressed. Disgruntlement was one reason why the Teamsters voted no to a 10 per cent pay cut, effectively killing a measure which could have saved Braniff $18 million.