Lessons for Struggling Businesses from American Airlines’ Bankruptcy

 

Nov. 29, 2011

Financially challenged businesses can learn lessons from the American Airlines bankruptcy.

Ironically, AA is part of one my favorite childhood memories a half century ago in a recessionary time. As a 10-year-old with my younger brother in Oklahoma, our first airplane ride was aboard an AA propeller-driven plane to Los Angeles, where we rejoined our single mother.

We had been separated from her for months, as she had left a financially troubled company to take a job in Palm Springs. We were left behind to finish the school year while living with relatives.

It was an uneasy period for us, but the flight was exciting and fun. The stewardesses, as they were then called, gave the two of us exemplary service with beguiling charm. They made it a pleasant trip in our uncertain time.

A half century later, AA faces uncertainty. But it’s important for such businesses to alleviate uncertainty. For many, bankruptcy plays a role.

My sense is that the bankruptcy filing by AA’s parent company, AMR Corp., is an example of proper business planning to alleviate uncertainty. All struggling businesses and individuals might study AA’s plight to see if it’s applicable.

At this writing, investors are fleeing – the company’s stock is barely above water at 32 cents per share. The company lost $471 million last year on top of $1.5 billion in 2009 and $2.1 billion in 2008. That’s an indicator the company probably exhausted all options before its court filing – an honorable approach.

Propriety in Chapter 11

Chapter 11 filing helps the company to manage risk for stakeholders – passengers, vendors, shareholders and employees. It’s the proper flight plan to restructure debt and expenses.

AA flew a notable 9 million passengers last month. With 88,000 employees to service a complex route system, the company is an important part of the nation’s and global economies.

From the perspective of the Federal Aviation Administration, a flight plan is required for safety. A plane must have enough fuel to reach its destination and it must meet air traffic control requirements for routing and attaining the right height and speed to avert a collision with another aircraft.

A properly handled bankruptcy serves the same purpose. Under federal protection, AA will be able to continue to operate to serve passengers well on its 3,300 daily flights.

The bankruptcy filing means the company will be required strategize more – to come up with management strategies for a successful turnaround.

That probably means a restructuring of flights in the tepid sector. AA has been coping with an uncertain economy, heavy competition, and explosive prices for fuel. Here’s how a Northwest partnership leads to solutions for high jet fuel costs.

Pivotal key – human resources

Like most airlines, AA is challenged in passenger service. Airline travel was once a special event for passengers. But no longer with a perception of uncaring service, lost baggage and flight delays on many airlines.

AA will need motivated employees – to provide exemplary service with beguiling charm – like it did five decades ago. Let’s hope the 88,000 workers get the message. Poor customer service and internal operations constitute at least 50 percent of a company’s profits or problems. Employees can be part of the solutions or problems.

That includes hope the venerable airline comes up with a strategic plan to succeed. Stakeholders deserve a sound plan with step-by-step solutions for a company turnaround.

FYI, if you’re struggling, too, there’s no stigma in bankruptcy for an honorable company.

From the Coach’s Corner, if your business has financial headaches, consider these related resource links:

12 Tips for Profits to Keep Your Business Dreams Alive

The 22 Do’s and Don’ts for Successful Negotiations

Budgeting Basics for a Micro Business

In Any Economy, What Drives Your Profit, Really?

Accounting / Finance – Why and How to Determine Your Break-Even Point

Embezzlement – Tips to Protect Your Nonprofit or Company Assets

11 Strategies to Keep your Small Business Floating above Water

Link between Financial Performance and Succession Planning

Are Accounts Receivables a Problem? 

“Bankruptcy is a serious decision that people have to make.”
-Herb Kohl

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Columnist Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?

Washington State Senators Claim Income Tax Is ‘Fiscal Reform’

 

Updated Jan. 5, 2009

Not to be facetious, but a pre-filed Washington State Senate bill calling for “fiscal reform” reads like an April Fool’s joke. It’s such a preposterous idea, it’s got to be a joke, right?

In reality, it’s not a joke. To solve a multi-billion dollar deficit, two state senate leaders want voters to approve changing the state’s Constitution to pave the way for a new income tax.

That’s right. No joke here. Their idea of fiscal reform is not cutting waste to balance the state’s red-inked budget. And there is waste (click for more on the subject).

Their idea is to keep taxing and spending in the face of plummeting tax revenue, and skyrocketing payouts for the unemployed with 12.8 percent of state residents reportedly surviving on food stamps (“Food-stamp use takes record jump in Washington”).

Then, there’s this headline: “Big year for bankruptcies: up 32% in US, up 45% in Washington state‎.”

And it’s not a joke that the sponsoring public servants are leaders. Senator Rosa Franklin (D-29) is Senate President Pro Tempore.  Joe McDermott (D-34) is the Majority Assistant Floor Leader.

Instead of doing what every Washington family and business are doing to survive within the constraints of existing dollars – the state senators want to amend the state’s Constitution to hit state residents with a new income tax.

Fiscal reform?

Here’s how SB 6250 starts in the first paragraph: “AN ACT Relating to fiscal reform…”

SJR 8219 is their resolution calling for more waste – a statewide election. It’s a controversial proposal that’s been historically rejected by voters.

You can click on the preceding links to see the bills’ wording for yourself.

“No session would be complete without the obligatory income tax proposal,” writes Jason Mercier in an email. Mr. Mercier is the director at the Center for Government Reform, which is part of Washington Policy Center (www.washingtonpolicy.org).

“It will be interesting to hear how this income tax proposal will be able to fulfill this intent and succeed where other income taxes have failed,” he added. “I’m sure other income tax states such as California will be eager to learn how to make income tax revenue recession proof.”

If you like the Senators’ joke, here is a dubious economic indicator to ponder: Allied Van Lines says last year it moved more people out of Washington than the number of people who relocated to Washington. The Puget Sound Business Journal quoted a release from the moving company, which states it made 1,913 moves out-of-state and only 1,907 moves inbound.

It is impossible to tax our way to success out of the Great Recession. And transferring any remaining wealth to the state does not create more wealth for taxpayers. Nor does it create jobs for the unemployed. If the state senators truly want a long-term balanced budget, it’s recommended that the state senators start reading here – “Analysis: Steps for Economic Success in Washington State.”

Otherwise, they will fail as leaders by chasing ill health. Surely, they don’t to make a bigger joke of the state’s budget situation. Or do they?

From the Coach’s Corner, to express your opposition to the proposed tinkering with the state’s Constitution to pave the way for an income tax, tell your three state legislators.

The 60-day 2010 legislative session starts Jan. 11.