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Revamped Braniff stands good chance of getting off the ground

By Morten S. BeyerSpecial to The Christian Science Monitor / July 20, 1983



The proposed $70 million revitalization of Braniff Airways by Hyatt Corporation has a reasonable prospect of being a success. It will bring back into operation an airline that historically had low labor costs. It will have good facilities, a modern fleet, and a greater acceptance factor from the recognition of the Hyatt name in the business community.

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What's more, it will have the advantage of operating a full-service airline, a position that Braniff's management had retreated from in its waning days. And last, but not least, it will have the strength of Hyatt's management going for it, as well as Jay Pritzker's reputation for success in turnaround situations.

The important thing is that it not repeat the mistakes that caused the carrier to cease operations in May of 1982.

Braniff's failure has been blamed variously on deregulation, on ex-chairman Harding Lawrence's helter-skelter expansion spree, on expensive new planes, on the noncooperation of labor leaders who would rather see the airline go broke than give a red cent in concessions, and on the rate war with American and alleged ''dirty tricks'' that resulted in travel agents ''booking away'' from Braniff.

No doubt these factors contributed somewhat to the demise of Braniff. Deregulation created an atmosphere that made Mr. Lawrence's adventurism possible , as well as the ruinous rate wars that finally brought the carrier down.

By early 1982, employees had been reduced by 4,500 from a high of 15,000 in 1981, and although wages per employee ($27,239) averaged 10 percent below that of the industry as a whole, they still took 35.3 percent of each revenue dollar, compared to 22.7 percent at a nearby competitor, Southwest.

And loss of travel agent confidence no doubt contributed to falling load factors - in its last 45 days they fell 7.7 points below the previous year to a disastrous 49.6 percent.

Despite these influences, we cannot accept the premise that Braniff could not have been saved. In the final analysis, the responsibility must be laid at the doorstep of the members of its management team at the time, who have since become more adept at conjuring up reasons for the company's failure than they were in taking preventive steps that could have saved it.

What went wrong at Braniff was a series of errors of judgment which failed to exploit the company's strengths and eliminate its weaknesses, which brought down the hammer of retribution, and which finally enveloped Braniff in an atmosphere of impending demise.

Major contributing factors in the unnecessary bankruptcy include:

* Failure to work out a believable financial plan. Braniff's lenders forgave some $72 million in interest in '81 and '82 and were terrified at the prospect of bankruptcy. Given the chance, additional funds and financial aid probably would have been forthcoming.

* Failure to stretch the unsecured creditors to the limit. On March 31, 1982, Braniff had over $29.2 million in cash and current assets of $198.5 million, including $141.3 million in accounts receivable. This is the equivalent of over two months operating expenses.

Total current liabilities were $361.4 million, of which $82.6 million was for current maturity of long-term debt and capital leases. Trade account liabilities just about equaled current assets at $199.1 million, and the ratio of current assets to liabilities was 0.55 to 1. At Western, which survived, it was 0.43 to 1, and at Air Florida, which was then beginning to feel the pinch, it was 0.34 to 1 - all as of March 31, 1982.

* The decision to go to 146 all-coach seats in the 727 was a disaster when coupled with the fare cuts that took place. Braniff simply replaced first-class seats with coach, counting on additional ''Texas class'' leg room to lure passengers.

If it had increased seats to the 172 used by PSA (Pacific Southwest Airlines) , seat miles would have risen by 300 million a month and revenues by $12.6 million at only a 40 percent load factor on the added seats. This alone would have come close to erasing the first-quarter deficit of $41.3 million.

* The all-coach decision and lower ''simplified'' fares dropped yield from 12 .29 cents in the 1981 third quarter to only 10.10 cents in the first quarter of 1982, causing a loss of $48.9 million, cash the company could ill afford to lose.

* Braniff's move to improve market share by fare cuts blew up in its face. Competitors, American and Delta, ruthlessly matched cut for cut, leaving Braniff's load factor in the mid-50 range, about five points below the previous year.

Meanwhile, its break-even load factor soared from the 60- to the 70-percent range. Although Delta and American also wallowed in red ink with overall yields down 1.0 cents, they had the muscle to stand the losses - Braniff did not.

* Although employment shrank 8.5 percent from 1981 first quarter, average wages were up 1.5 percent despite rollbacks and executive cuts. Revenue ton-miles per employee were up 5.2 percent to 23,820 - but American at 24,798 was 4 percent higher, and Northwest at 38,225 was 60 percent higher.

The staff at Braniff simply did not get the word. While the unions must share some blame, it is still up to management to make a convincing case. They didn't.

In short, Braniff should not have gone broke. Its cost per available seat miles in its final weeks was only 7.01 cents, below both American's and Delta's. With the strongest hub in Dallas-Ft. Worth and an opportunity to cut seat-mile costs and increase capacity, it did not have to start and then prolong its rate war to the bitter end.

Its irrational moves first confused, then alienated the public and the financial community, and it was only when the bankers and travel agents gave up on Braniff that it slipped over the brink into bankruptcy.