The MacNeil/Lehrer Report; Interview with Howard Putnam

[Tease]

HOWARD PUTNAM, president, Braniff Airlines: We had the chance to succeed, and we had the chance to fail. We had the chance to come in and try to turn this thing around. We weren't able to, but we had the chance.

ROBERT MacNEIL [voice-over]: The man who tried to save an airline and failed.

[Titles]

MacNEIL: Good evening. One year ago this week Braniff International became the first major airline in history to go bankrupt. Its staff was fired and its planes grounded. For the past year a skeleton staff has tried to salvage the crippled company, either as a smaller airline or in some other form. Last month they came up with a reorganization plan to make Braniff a ground service and maintenance facility for other airlines. Anyone interested still had a month to come up with money and a plan to get the airline flying again. So far, no one's come forward with an acceptable scheme. The deadline for any such bailout is May 16th. [voice-over] Braniff has had one of the most colorful histories of any modern airline. It was founded by Tom Braniff in the 1930s as a small regional carrier serving Texas and the Southwest. In 1965 Harding Lawrence took over Braniff's reins and began an era of aggressive expansion and flamboyance. Braniff commercials flaunted its new designer image with its Pucci-clad stewardesses and rainbow-colored fleet.

COMMERCIAL ANNOUNCER: Braniff painted its planes seven different colors and had Pucci dress the hostesses.

MacNEIL [voice-over]: In 1978 the airline industry was deregulated and Braniff seized the moment to fly its colors worldwide. In one day alone it started service to 15 new cities. But also in 1978 the economy began to recede. Fuel prices started to climb and competition became fierce, and the expanded Braniff got caught in the crosswinds. Lawrence was ousted in 1980. The next president lasted only a year, unable to slow down Braniff's tailspin. In 1981, in came this man, Howard Putnam, former president of Southwest Airlines. In efforts to save Braniff, Putnam cut back on routes and airfares and campaigned to attract new passengers.

HOWARD PUTNAM: Good morning, ladies and gentlemen. My name's Howard Putnam, and I'm the president of Braniff. We have been going through a lot in our company in the last few weeks, and it's encouraging to stand up here and see all of you looking this way. Thanks a lot for flying with us.

MacNEIL [voice-over]: But Braniff's major competitor, American Airlines, matched Braniff tooth for tooth and fare for fare.

RUBERT W. BAKER, American Airlines vice president: We believe that it is ill-advised for Braniff and for the industry, and it borders on being irresponsible. We know that you cannot exist in that kind of a competitive environment by allowing another participant to have lower prices than yourself. As long as they continue to compete with us in schedules, we will be competitive in prices.

MacNEIL [voice-over]: Soon it became evident that Braniff's chances were slim, yet the employees rallied around Putnam and didn't give up hope.

NEWSCASTER: Good evening, everyone. It was more like a pep rally for the Cowboys than the arrival of the man in charge of a nearly bankrupt airline.

Mr. PUTNAM: And it says, "On behalf of all the employees' signatures below, please let it be known that we, the employees of Braniff, have not and will not give up without a fight. Therefore, world, take notice. Braniff will continue to strike back and will not go down until the very last dollar is gone, and then watch out, we just might be back." [cheers]

MacNEIL [voice-over]: When the bitter end came, Putnam's feelings for his staff were evident at a press conference when he announced the bankruptcy.

Mr. PUTNAM [May 13, 1982]: You've heard me compliment the Braniff employees before. They fought a very tough battle; they're a very dedicated group. They have gone through pay cuts and pay deferrals. They've supported us. They've worked as volunteers. And what we had to do last night was very difficult, not only for us but for them. It's a shock to them, I know. And there is no payroll. They were taken off the payroll as of last night. The payroll -- the checks that are out there now will not go through. There is no cash to support them.

MacNEIL [voice-over]: The sprawling Braniff headquarters now houses only 150 of the once 7,000 employees. Recently, in Dallas, Jim Lehrer talked with Howard Putnam aboard the last unsold 747 of Braniff's flying fleet.

JIM LEHRER: Mr. Putnam, what are the realistic chances that Braniff's ever going to fly again?

Mr. PUTNAM: Well, I can't give you a probability, but we've got until May 16th of this year to find a deal -- a third-party investor. And if we can do that, and it's properly capitalized, and we can convince all the creditors and the court, we've got a chance to fly.

LEHRER: Why should anybody care whether Braniff flies again?

Mr. PUTNAM: Well, we care. We're called the debtor in possession -- management is.The DIP. And it's our job to maximize the value of the estate, in bankruptcy terms, and to try to help the creditors all we can. And we can get them more of a return for what they've had invested and we owe them with a flying operation than any other way.

LEHRER: But it wouldn't make any difference really to the average consumer, would it?

Mr. PUTNAM: I think it would. Since Braniff went into bankruptcy, American and Delta have pretty much monopolized DFW airport. Fares have gone up, almost doubled to some destinations. Of course, they've gone down to others with the bargain fares. But the consumer would benefit with another competitor in here who might bring them a lower price.

LEHRER: And you would think that Braniff would fly people at a lower price than American or Delta now does it?

Mr. PUTNAM: That would be my idea of it. I probably won't be here to run it. Whomever comes in will probably bring their own management team, but we can put an airline back in the air that will have a cost structure probably lower than any other airlinein the country. And when you have a cost structure that is hare you have a tremendous amount of flexibility as to what you do with your prices.

LEHRER: Why would your cost structure be so low?

Mr. PUTNAM: Well, we have aircraft that have been sitting here for 11 months that the security creditors haven't been able to sell or lease to anyone else. There has been no demand. So we can probably get a lease rate that is very reasonable. We have people out of work, and the five unions have already committed to labor rates that are probably 40 to 50 percent lower than what they were a year ago. And much higher productivity. So you really have put together a cost operation that's fixed for five years that is better than any competitor has.

LEHRER: But would you visualize a Braniff flying the same route structure it was flying before it shut down a year ago?

Mr. PUTNAM: Well, it would be a much smaller airline. We're talking 30 airplanes versus -- I guess we had about 80 at the time of the bankruptcy. You're talking all 727s. and we're talking about a hub here at DFW.We're not saying what cities we're going to fly to for competitive reasons, but some of them would be similar, yes.

LEHRER: Look, you've had 11 months to do a lot of things, I would guess, but particularly to look back and see what happened to Braniff. Why did Braniff go under? What's your analysis now?

Mr. PUTNAM: Well, Braniff took deregulation to heart, and expanded extremely rapidly in early 1979. In fact, they opened 16 cities in one day. There was a fear, I understand, on the part of management that re-regulation might occur. So, "We better get our flagpoles dug up in as many places as we can, as quick as we can, and hopefully grandfather rights will apply." That gigantic expansion caused the company to incur tremendous costs in new aircraft, in ground facilities, in union contracts that were signed very rapidly just to be certain they had people that could work in places.That cost structure got in there and got in place. And then fuel prices went up out of sight; interest rates went out of sight; and the economy began to fall back and the amount of traffic fell off. So now you had a very large airline implanted, and you had to shrink it real quick. It couldn't be shrunk fast enough and get the costs out if we just ran out of cash.

LEHRER: When you were brought in in 1981, as chief executive officer of the airline. what were you told to do? What did they want you to do?

Mr. PUTNAM: The board of directors brought -- asked me to come here from Southwest Airlines, where I had been president, across town for three years. I said I would come if I could bring Phil Guthrie with me, and Phil was our chief financial officer at Southwest, and an outstanding young man. And they simply said, "We need someone to come in and turn this airline around, get it financially restructured, and put in a marketing strategy that regains consumer and public confidence. After that, go to it."

LEHRER: And then why weren't you able to do it?

Mr. PUTNAM: We ran out of time and we ran out of cash. There were two things we didn't know before we got here. One was not public information, and that was that we only had 10 days of cash -- which well scare anybody when you have a billion-dollar-a-year company in revenue but you've only got enough cash to keep it alive for 10 days. So we were put on the razor's edge from day one to find quick ways to get the cost down and also quick ways to get the revenue up.

LEHRER: Now, you've been criticized for opting for the wrong strategy because you lowered the fares dramatically, but you didn't get the costs down at the same time. And, looking back, did you make a mistake?

Mr. PUTNAM: In our judgment, no. Of course that's easy for me to say. But I'll tell you why I think that. When we got here the cost per available seat-mile -- and each empty seat on an airplane that's flown one mile is called in our measurement terms an available seat-mile.The cost per seat-mile was about 8" when we got here. Our goal was -- it was a little over eight. Our goal was to get it down to about 6.9, just under seven cents. And a penny a mile, at the size Braniff was in those days, was over $100 million a year in cost savings. We were moving in that direction. By the time of the bankruptcy we were down to 7.2" available seat-mile. We were getting there. We had gotten that far in seven months. At the same time, on the revenue side, Braniff didn't have a strategy. They had some of their airplanes in first class and coach; they had some in all express. And it was starting to foul up the scheduling mechanism. Airplanes were being terminated; the crews had to change. So we made a judgment from our experience at Southwest Airlines, that if you can keep things simple and if you can keep the quality in it and if you can keep the fares to where people can afford to fly, and you have your costs in line, you have the makings of a most profitable airline. So we called it "Texas class"; we simplified the

LEHRER: Just one class, right?

Mr. PUTNAM: One class. We had nearly 600 different fares when we got here, and we cut that to 15 different fares. And, in addition to lowering the fares, we simplified it so much that even the consumer could now understand what the price was. It saved us on computer time; it saved us on the length of calls in reservations; and it's exactly what other airlines are now trying to do today, a year and a half later -- simplify the fare structure. In our judgment the strategy was right, and we went from having absolutely no advance bookings in October and November of '81 to having the highest load factor in the airline industry of a major carrier, of over 60%, in December of '81. So it worked.We just ran out of time and cash.

LEHRER: You also ran up against what you have considered to be a villain, and that was American Airlines. You really think they set out to do you in?

Mr. PUTNAM: In management's judgment, yes. And we have so stated that over a year ago, and we still believe it. Whether it will ever be proven in court is going to be up to all the creditors and the attorneys to decide, if they want to proceed with it. When we filed our plan of reorganization a couple of weeks ago, we included a million dollars in legal fees as a fund to go after the American Airlines situation, but it won't be our call. It will be up to the creditors now and the court.

LEHRER: Of all the things you think American did. What galls you the most or upsets you the most?

Mr. PUTNAM: Well, first of all, I do believe in free enterprise, and I do believe in deregulation. But in our country we have something called the Sherman Antitrust Act, which is the law of the land. And there are really two basic areas in there which is price-fixing and monopolization. And it would be under those two broad areas that we believe American went further than just good old plain Texas competition.

LEHRER: Do you think there are going to be other bankruptcies?

Mr. PUTNAM: Either bankruptcies or some combinations of carriers within the next two to three years.

LEHRER: Mergers, you mean, between existing --

Mr. PUTNAM: "Merger" probably is a very kind word because some airlines will simply have some assets left that will be just placed into another company.

LEHRER: What's going to decide who survives and who doesn't, in your opinion?

Mr. PUTNAM: Well, the leverage is on the cost side. And I say this over and over and over, and people keep saying, "But you forget about what the prices are." Well, my answer is, if you have your costs in line then you can charge any price you want and you'll make -- you'll make money. So the carriers that are going to survive will be the ones who have their costs in line, who have a good relationship with their unions and their people, who have a profit-sharing program so you have everybody pulling together versus contention. And you're going to have to have some new management thinking in this industry that's not quite as traditional and as fixed as what we're seeing today.

LEHRER: Explain what you mean by that.

Mr. PUTNAM: Well, we've got some airline managements, in my judgment, who still think they're in a regulated environment. If you look in the first quarter of 1983, the airline industry lost hundreds of millions of dollars. I'm not sure I even know the number. But they were able to raise more than that amount of money in new equity and pour it right back into the industry. Why? Because some of the analysts said, "Fuel prices are going down and traffic's coming back; it looks like it's a good buy." What did those airlines do who went out and raised new equity? Most of them did not clean up their balance sheet and try to present a better product for their investor. They turned right around with all those dollars and went out and bought more airplanes and added more capacity to the fleet, and them go back and cut the fares in order to try to fill the seats they've just generated. That can't continue on. Boards of directors are not going to let that happen forever.

LEHRER: Under your thesis, are the big airlines like American. Delta, United -- are those the ones that stand to get hurt the most if they don't square themselves away?

Mr. PUTNAM: Oh, yeah, definitely. And they're going to have to change their cost structures and get their airline size to where it's manageable and profitable or the little guys are just going to keep eating away at them and take a finger, a leg and an arm at a time.

LEHRER: Your friends at American have recently suggested that fares be based on a mileage formula and cut out this business of disparity: if you fly a short distance sometimes they're going to cost you more than if you travel twice as far. You favor that?

Mr. PUTNAM: Well, if you were American you would favor it because here you are, a large carrier, with a higher cost structure, and if you could put in place an example that others would follow that fits your cost structure, it's certainly to your advantage. I don't think a lot of airlines, the smaller ones especially, will follow it. And, on occasion, some large airlines in a panic situation will say, "To heck with it," and they'll do what they want to do anyway. It's probably admirable, but I think what would be more significant is if somebody could try to simplify the fare structures as we tried to do so the consumer understands it, and then get their cost saving that way.

LEHRER: There seems to be a kind of fire-sale atmosphere in the airline fares now. Somebody lowers a fare and then suddenly the other airlines compete and they bring them down, then they go up and then -- you know. Is that -- you think that's good, though?

Mr. PUTNAM: Well, it's good for the consumer. Airline managements seem to feel that "Whatever the other guy does, I must do." Someday I would like to pick up the paper and find out that one airline said, "I don't care what they're doing, we're not going to do that. We're going to do this." It's another change in management's thinking that has to occur. But for the consumer that's what it's all about, and I've met people who have flown on these $99-dollar fares who could have never afforded to fly any other way. Now, if some airlines just figure out how to make money at $99, then they've got the market right where they want it.

LEHRER: How long have you been in the airline business?

Mr. PUTNAM: Twenty-eight years.

LEHRER: Where did you start and when?

Mr. PUTNAM: 1955, Midway Airport in Chicago, loading baggage for Capitol Airlines, which was later merged into United.

LEHRER: Then what happened? When did you get promoted out of handling the baggage?

Mr. PUTNAM: About one month after I started I decided --

LEHRER: You must have been great.

Mr. PUTNAM: No, I decided that winter was coming in Chicago and there must be a better way, so I got myself transferred inside to write tickets where it was warmer. Six years later, in 1961, Capitol was merged into United Airlines, and from there I worked my way up through the sales and the marketing side and eventually became the group vice president of marketing for United in 1976.

LEHRER: Then you went with Southwest here in Texas?

Mr. PUTNAM: And we were recruited in 1978 to come to Dallas as president and CEO of Southwest Airlines for three years.

LEHRER: Then from there to Braniff?

Mr. PUTNAM: Then from there the board of directors of Braniff asked us to come turn this around.

LEHRER: What's the attraction of the airline business?

Mr. PUTNAM: It's exciting. I grew up on a farm near Bedford, Iowa, and my dad had a Piper Cub after World War II, and I guess it's no different than seeing a railroad track and wondering where the train went that was on that track. There's something about things flying and all that's just -- it's exciting.

LEHRER: After you file your reorganization, or after this major decision on May the 16th, what is Howard Putnam going to do?

Mr. PUTNAM: Well, we'll probably be here for a short time longer, Phil Guthrie and I -- our financial officer. If it is a flying operation, we will have to stay a little while for the transition.And whoever the new third-party investor is will certainly want to bring in their own senior management team. If it is not a flying operation and is simply a fixed-base operation doing maintenance work for other airlines, some ground handling for other airlines and managing the estate, we'll probably be gone very rapidly because the creditors will probably want either a trustee brought in or they will want a very small management organization making less money than we do to stay here.

LEHRER: Then what's going to happen to you?What will you do then?

Mr. PUTNAM: Well, I've promised my wife we will first take a month off and play a little golf and get the cobwebs out and get our heads screwed back on.

LEHRER: Do you want to stay in the airline business?

Mr. PUTNAM: Not right now. I think I'm too tired mentally, not physically. We would like to stay here in the Dallas-Fort Worth area. It's a great community and a great business spirit.But Phil Guthrie and I would like to try some things together, probably outside of the airline industry.

LEHRER: But eventually come back.

Mr. PUTNAM: Some day it would be fun to start one. I've worked with a small one, middle-sized, large one, helped shut one down, helped try to turn one around, but never started a new one from scratch.

LEHRER: This last 11 months since Braniff went into bankruptcy, has it been real misery for you?

Mr. PUTNAM: It's been very stressful.

LEHRER: In what way?

Mr. PUTNAM: Well, it's an emotional rollercoaster. One day you're up, you think you have something going; the next day you're in court defending something that you never even dreamed was going to happen. And it's just a tremendous emotional rollercoaster of ups and downs. The stress and the pressure are on you constantly because you have so many constituencies. There are some seven different creditors' committees, and they all have different interests. And you've got the former employees out there screaming for their jobs back. You've got the banks and the insurance companies saying, "We want out airplanes back." You've got the bond holders, the ticket holders, and it goes on and on. So you're kind of in the middle like a ping-pong ball trying to serve as many of those constituencies as you can.

LEHRER: How has the stress manifested itself?

Mr. PUTNAM: Mainly mentally. You become totally engrossed in this process. It's a very negative environment. You've got beautiful airplanes sitting around that don't fly, you have facilities that are empty with cobwebs coming across in them, and you have to work in that environment and try to find something positive to take out of it. And, as we've kiddingly said, we've managed to offend about everybody at one time or another during the process.

LEHRER: What has been your overriding goal these last 11 months, to get these planes flying again somehow?

Mr. PUTNAM: In bankruptcy the debtor in possession has the number-one obligation to maximize the value of the estate and to help all the creditors get more than they would through a liquidation. That's what it's all about. And in our judgment, the way you maximize that value is to put airplanes back in the air and get them flying. Then you not only get people back to work, but you make a profit and the profit comes back, at least a part of it, and goes back to the creditors, which is more than they would get any other way.

LEHRER: Do you think as a result of this you are a marked man in the airline industry?

Mr. PUTNAM: Don't know. I have been offered three other airline presidents' job in the last three or four months, which I have turned down. Probably we have offended some folks in the airline industry as we went along. But I guess they would have to answer your question better than I can.

LEHRER: You think the name Braniff is a marked name?

Mr. PUTNAM: There's varying opinions on that. The former employees, of course, have great loyalty to the name, and they want to see it fly again under the name of Braniff. I have said that I'm afraid, during the bankruptcy process, as we stranded travelers and so forth, that it might not be the best name to use when you come back for fear of that old, "Oh, that's the airline that went bankrupt." The name of Tom Braniff, the man who founded Braniff, is a very important name to preserve. And I would hope that someday one of these Braniff airplanes could have his name on the side so we all remember the guy that started this thing 50-some years ago.

LEHRER: At this particular time, when it's almost over for you -- I mean, in one way or another you're going to be leaving this [unintelligible].What is your mind full of now? sadness, bitterness? Any bitterness?

Mr. PUTNAM: No, no bitterness. Sadness in that we didn't get it turned around. Sadness that it's taken us 11 months to try to get to where we are. But the bankruptcy process is much more adversarial than any of us dreamed. We had an outstanding plan with PSA last winter, and we had the labor contracts and all right where they ought to be except that some of the unions couldn't accept the seniority entailing versus integration. And it was just absolutely astounding to all of us that 2,000 jobs, a profit-sharing and all, went away because of that one factor. I would have never bet that that would happen. And that was very depressing after that was overturned in the Fifth Circuit Court and we were back to ground zero and time running out. That's probably one of the saddest moments of all. But you can't stop there. We would have all have loved to walk away and went and hidden in the sticks in Plano at that point, but you can't. You have to stay here and find something else. And of course at that point in time everybody starts taking shots at everybody else, and your job it to try to keep law and order in this war, and still bring something out of it.

LEHRER: You feel relatively good about your own performance this last 11 months?

Mr. PUTNAM: Well, I think you have to feel good inside or you can't continue to operate. Somebody who has a tremendous conflict inside is not going to do a good job. If you went and talked to some other folks in this community today, some of the unions, a few of the creditors, they won't tell you we've done a good job because we haven't done what they wanted to do. But I think in our own hearts we know that the decisions we've made to not accept some very weak financial proposals, as some folks wanted us to accept, were the right decisions. It would have been an absolute sham to have put some people back to work falsely, and eight weeks later have an airline go back on the ground again. We just won't be a part of that. So, if we're going to get criticized, then we'll have to get criticized, but we get the right capitalization, we will stand up and say we've got the right capitalization, and then every business person and every travel agent will know there's something they can count on, and that's what we want.

LEHRER: Do you still believe with all your heart and soul in a deregulated industry?

Mr. PUTNAM: Yes, sir. We had the chance to succeed and we had the chance to fail. We had the chance to come in and try to turn this thing around. We weren't able to, but we had the chance.We did not go to Washington for a government bailout. I think that's an absolute mistake for the government to try to save companies in a free enterprise system. You can't keep propping them up with supports. Braniff wasn't strong enough to survive; it didn't deserve to. It deserved to die, and it did.

LEHRER: Thank you.

MacNEIL: That's all for tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.