This Houston Business Journal article is reporting that former Continental Airlines CEO Gordon Bethune is leading one of the investor consortiums that the United Airlines’ Creditors’ Committee is touting as one of the groups that is interested in investing in a plan of reorganization in United’s chapter 11 case. Mr. Bethune stepped down as Continental’s CEO this past December 31, and is widely credited with managing Continental in a manner that avoided a third chapter 11 case for the Houston-based airline.
It’s yet another reflection of the abysmal nature of the airline business that a CEO’s success in that business is defined by whether he can manage around a chapter 11 filing.

In the face of an exodus of key employees and an embarrassing $1.45 billion jury verdict in the Perelman case, Philip J. Purcell and the Morgan Stanley board jointly announced yesterday that Mr. Purcell was resigning as CEO of the venerable financial services firm.
Although some characterized the fight that Mr. Purcell faced at Morgan as a dispute between Morgan’s financial bluebloods with Mr. Purcell’s more modest banking types, that’s really a gross over-simplification of the reason for the infighting. Rather, Mr. Purcell represented the dubious concept of the “financial supermarket,” which prompted Morgan’s 1997 merger with Dean Witter. The theory of that merger was that bringing together a top investment bank creating stocks and bonds with the business of advising retail investors which stocks and bonds to buy was a sure-fire winner.
Geez, what a doozy of a miscalculation that was.
The carnage at Morgan over the past couple of years was borne of the resentment by the Morgan investment banker-types over just how badly Dean Witter’s Mr. Purcell had taken them to the cleaners over that merger. Dean Witter’s Discover credit card unit accounted for just 5% of the market eight years ago and still accounts for 5% of the market. Similarly, Dean Witter’s mutual funds were mediocre performers then and remain mediocre performers now. Finally, Morgan Stanley paid a $50 million civil penalty a couple of years ago because former Dean Witter brokers had been highly compensated for steering customers to inferior mutual funds. So, it’s not exactly like Dean Witter added much to Morgan Stanley’s reputation.
However, Mr. Purcell continually outmanuevered Morgan Stanley’s investment bankers in taking control of the combined company. Mr. Purcell refined his management skills as a McKinsey consultant who advised Sears on its financial diversification, then spun off his Dean Witter unit while Sears spit the bit on his financial diversification model.
In the merger with Morgan Stanley, Mr. Purcell allegedly arranged to have himself named initially as chairman and CEO, but agreed to have Morgan’s John Mack takover after the merger had stabilized. Regardless of whether such a promise was really made, Mr. Purcell quickly stacked the board in his favor and Mr. Mack eventually left Morgan in a huff in 2001.
Accordingly, over the past several years, many key traders, bankers and rainmakers exited Morgan as it became clear that loyalty to Mr. Purcell was a condition for advancement. Meanwhile, a growing contingent of former Morgan executives began a campaign to oust Mr. Purcell, most of whom were embarrassed by the way Mr. Purcell orchestrated the 1997 merger and all of whom believed that Dean Witter and Mr. Purcell had kidnapped the firm’s formerly sterling investment banking reputation. It simply grates the old-time Morgan executives to no end that Mr. Purcell and his Dean Witter allies control Morgan’s name while the Morgan investment bankers still contribute most of the firm’s profits. Meanwhile, the Dean Witter businesses that Mr. Purcell brought to the table continue to contribute relatively little to Morgan’s bottom line.
At any rate, Mr. Purcell’s resignation is not particularly surprising, given the recent exodus of top executives, the Perelman mess and the fact that has stated repeatedly that he would retire in three years, anyway. Any bitterness on Mr. Purcell’s part over his earlier-than-expected exit will be softened by the fact that he will likely walk away with a total of at least $62.3 million in restricted stock, stock options, pension benefits, deferred compensation and other retirement savings.
One can only wonder what he would have earned had the 1997 merger gone well?

It’s a bit difficult to keep up with the different perspectives regarding the airline business these days.
On one hand, this NY Sunday Times article laments just how close some of the major airline companies are to breaking even on an operations basis. It is perhaps the best reflection of the state of the airline industry that breaking even on an operational basis is viewed as a breakthrough achievement for many airlines.
On the other hand, this Wall Street Journal ($) article on Monday reports that Northwest Airlines appears headed toward chapter 11. The company’s stock has lost 42% of its value this year and its largest individual shareholder is bailing out. Rating agencies recently downgraded the company’s senior unsecured debt to junk while citing unsustainably high labor costs and pension-plan obligations.
Professor Ribstein continues to tout the right idea for beginning to solve the financial problems of the airline industry, but it remains difficult to put an airline company out of its misery.