Flying And The Bottom Line
By ANN Senior Editor Pete Combs
(This is the second in a series about Harry Stonecipher and
the legacy he leaves the aviation industry after a 50-year career.
-- ed.)
Read Part One
Harry Stonecipher, the Boeing president and CEO ousted earlier
this month in an embarrassing sex scandal involving another Boeing
executive, is undeterred in his criticism of the airline industry
-- and his suggestions about what that industry needs to fix
itself.
In short, he says, airlines need to cut the costs associated
with their workforces.
Speaking to the Naples Forum, a Florida civic organization made
up of both active and retired business executives, Stonecipher
Friday put them on the spot.
"How many people own stock in an airline?" he asked. The crowd
broke out into snickers. Airline stock has been notoriously
volatile over the past two decades, since the federal government
deregulated the industry.
Of more than 300 people, only a couple raised their hands.
"Everybody's got rotator cup problems here?" He joked amid the
laughter. "It's hard to get a lot of people to admit they own stock
in an airline today." No one airline, he said, is immune to the
financial woes that have seen one airline after another collapse --
some in the US, some in Europe.
"You know what the
problem is?" he asked. "Cost."
That's a little different than the line we've been getting from
Wall Street and the airlines themselves lately. "It's not fuel,"
Stonecipher said, referring to the macro-jumps in fuel prices over
the last 18 months. "Everybody says, 'oh, it's oil causing all
this.' Well, oil doesn't cause that.... If you're in the plastics
molding business, [the rising cost of] oil probably affects you
more than it does the airlines."
If it's not oil, or 9/11 or the outbreak of SARS that grounded
travelers a couple of years ago, then what is it?
"Right now," Stonecipher said, "if you look at the majors in
this country... Delta, United, Northwest, American, US Air... you
have a cost up here that 47-percent of is labor cost."
That's the kind of talk that will make Machinists, SPEEA and
ALPA members mad. But Stonecipher was perseverant in his argument.
"All the airplanes are the same anymore. You can go buy yourself a
good airplane. Fuel is the same, depending on how you hedge it.
It's labor.
"Forty-seven percent up here," Stonecipher said, gesturing
around his own neck. "That's where United was [before
bankruptcy].... And you've got JetBlue, Southwest, [AirTran} --
those guys are down to 27-percent of their cost. If you're going to
succeed, you have to get that cost down there."
That, said Stonecipher,
is why airlines are so eager to shed their high-flying pilot
salaries and the even more costly pensions for all sorts of
workers. "If you're sitting there as a high-cost producer, you're
not going to survive forever."
Even as Stonecipher was speaking, the company he once led was shedding 9,300 jobs
and three manufacturing plants in the Midwest, having sold those
facilities to a Canadian investment firm called
Onex. Many of the laid off workers will probably
be hired back -- but there's a chance they'll be back at
much-reduced wages.