"Instead of thinking of reasons why it can't be done, think of ways to do it," proclaim signs in offices throughout Western Airlines' headquarters here.
The signs, ordered by Western's new chairman and chief executive officer, Neil G. Bergt, are visible through once-closed doors that he insisted be opened when he took over Dec. 8. Those changes may be symbolic, but in a short time, Bergt has put a fresh, "can-do" stamp on the 56-year-old airline he hopes to return to profitability.
A successful Anchorage businessman, the 46-year-old Bergt reportedly went through the offices like a whirlwind on his first day, seeking to clean house and begin making changes to increase productivity and improve the airline's image.
Before, there was a real morale problem at Western, with almost open hostility toward the airline's aging and lackluster management. Bumper stickers were appearing on cars in Western's parking lot saying "Enda Renda," a reference to Western's former president, 68-year-old Dominic P. Renda. He and Western Chairman Arthur F. Kelly, 69, who had been with the airline since 1937, left the company Oct. 1.
In his first four months at Western, the nation's oldest continuously operating airline, Bergt made a number of major changes:
* Nineteen of the 33 corporate officers listed in the 1980 annual report are gone, and the jobs of three others were downgraded; new decision-makers are fewer, and younger, than their predecessors. Layoffs have accelerated; Western's employment was reduced by about 350 in the first 11 months of 1981, and by almost 700 in the 3 1/2 months following Bergt's arrival. The airline employs 9,048 people now.
* Union employes have been asked to accept pay cuts of 10 percent and work-rule changes designed to improve productivity and aid in Bergt's plan to reduce costs by more than $85 million this year. Several unions have accepted the request, and negotiations continue with others.
* Western has begun a route restructuring to bring in new passengers and better utilize its fleet of aircraft, ground facilities and employes. The program, which represents a 29 percent capacity increase, includes opening routes on May 1 to 10 new cities, including New York and Baltimore; adding Dulles International to existing National Airport service; and connecting many of the cities it serves to a new hub at Salt Lake City.
* Western also embarked on a program to beef up its image, which had little identity for travelers. According to 29-year-old Craig B. Benedetti, Western's new vice president of marketing, a company survey found that travelers didn't have a good or bad image of the airline. "They tended not to have an image at all," he said.
To fix that, Western began offering two fare innovations that rewarded its coach-fare passengers with round-trip tickets on any of its routes, including Hawaii and Alaska, for just $100. Tomorrow, it starts an advertising effort around a "Western Air Force" theme designed to create an aggressive image--for employes and travelers alike.
Bergt's "survival plan" came not a moment too soon. The airline's corporate distress grew significantly in 1981. After a $29.6 million net loss in 1980, Western suffered a $73.4 million loss in 1981, $56 million in the fourth quarter alone.
In an effort to cut losses, Western's former management was cutting back on services that appeared to be unprofitable. However, it wasn't reducing adequately its labor and other operating costs at the same time. As a result, potential revenue was lost, and cost increases were outstripping revenue gains. "The system was hemorrhaging from the cost side," Benedetti says.
Western's working capital deficit at the end of 1981 was $153.1 million, up $97.7 million from 1980. Its current liabilities increased during 1981 to $302.7 million, compared with total current assets of $149.7 million, according to documents submitted to the Civil Aeronautics Board.
Frederick W. Bradley Jr., senior vice president of Citibank, Western's largest bank lender, told the CAB that in early December, Western was in a "critical cash position" and was in default on certain financial covenants under its loan agreements. Although Western had asked its lenders for additional financing, the lending group hadn't decided whether to go along, he said. "Our bank was concerned with Western's ability to return to financial health."
However, following Bergt's appointment as CEO and a presentation to the lenders on his plan for Western's future, Bradley said, they agreed to waive for the time being the covenant defaults, and some of the group, including Citibank, extended a $30 million "bridge" loan to meet Western's projected cash needs through April. Western is currently negotiating with the banks to restructure the repayment schedule on that loan.
Because Western hasn't obtained waivers of some loan covenants for a period of more than a year, and because lenders may, at their option, accelerate payments, $153.4 million of Western's long-term debt has been reclassified as current obligations. Because that debt is in technical default now, the airline's auditors have issued the qualifying statement that "the company may be unable to continue in existence." That doesn't necessarily mean that the money has to be repaid this year, Bergt noted in an interview. It means that Western continues to renegotiate with its banks.
"We're talking . . . morning, noon and night," he said. But he was optimistic. "I think the bankers feel our plan is a sound plan. I think we've convinced them of its viability, and they're willing to go down the road--closely--with us."
Bergt says his survival and recovery plan isn't very complicated. "It's to reduce operating costs and improve productivity--both employes and assets," he says. "This is a plan of expansion to return Western to a profitable airline . . . We're flying our way out of it." Based on Dec. 1981 figures and a business-as-usual attitude, it looked as if Western could lose more than $200 million in 1982, he said. "My feeling is we wouldn't have gotten to the end of 1982 . . . Either we've got to turn Western around, or we won't have Western around as an airline."
Although the route restructuring plan has been greeted with some skepticism in the industry, Vice President Benedetti says the benefits to Western are obvious. "Western needed to more effectively utilize its assets without increasing costs," he says. Overnight, Western's overall utilization of its 70 airplanes will increase 22 percent, from 7 hours and 50 minutes to 9 hours and 34 minutes.
Service to the 10 new cities also won't require a great deal of additional capital investment because gate, ticket-counter and ground-handling operations will be leased initially from other airlines, Benedetti says.
Western expects to attract some passengers going nonstop from the East to Salt Lake City; now they have to stop or connect in Denver or Chicago. But, more important, Benedetti says, Western will attract those who will find traveling through Salt Lake City to other Western cities more convenient and direct than currently available routings. On May 1, Western will increase from 29 to 59 its daily flights at its modern terminal in Salt Lake City. Times of many flights will change to make connections better. Flights from the West also will allow convenient connections at Dulles and in New York to international flights.
"When someone thinks of Western cities, we want them to think of Western Airlines," Benedetti says.
Sources say the new attitude of change and experimentation is in real contrast to Western's performance of recent years, when other airlines began to make inroads on its route system. Western had a strategy for getting along in a deregulated environment; it was to merge with another airline. During several doomed courtships, Western sat back and waited for new routes and a new identity expected to come from a merger. "Western was a nice passive merger candidate," Benedetti says. "It was a mistake . . . but it was our answer."
Next week, the CAB will begin hearings on a proposed transaction under which Eagle International Corp., wholly owned by Bergt, would acquire Wien Air Alaska from Household International for $50 million. Western then would acquire Wien from Eagle by the issuance of 5 million new series preferred stock. The new preferred would be convertible to common, or voting rights equal to 12.5 million Western common shares, giving Eagle--Bergt--control over about 42 percent of Western.
"We're taking a pretty grave risk, paying $50 million for Wien and getting securities of Western that we hope will be worth something someday," Bergt says. "And that's dependent on our survival plan."
A believer in deregulation, Bergt states succinctly his view of the role of government. "It should defend the country and print the money . . . Federal Express can carry the mail."