February 20, 1999
ALPA, Intl
Committees
“Yes, I run around my Biltmore
neighborhood with my dog.” “What kind of dog?” “A Doberman. His
name is Tigre” (Spanish for tiger – Franke is bilingual). “Why do you ask?”
“I might try to humanize you in this piece.” “Good luck,” he laughed.
Dozens of unkind adjectives have been tossed at him in his seven years as CEO of
America West, but naive isn’t one of them. Franke knows that many of his employees
regard him as hardhearted as well as tightfisted, and that many people presume he cares
not a whit about the community in considering whether to sell the airline. Franke’s a
dealmaker, they say, not an airline guy. As soon as the money suits him, bye-bye America
West. He’s not happy wearing a black hat.
“Look, I’m human. I live here, and I like to be liked just as anybody
does,” he said Friday. “But I’m committed to doing my job as well as
possible, and that means making tough decisions. I try to do what’s right and
what’s in the best interest of our shareholders. If it’s the right thing to sell
the airline, we will do it.” The “we” refers to the company’s
10-member board of directors. It has a legal obligation to consider carefully any bid to
acquire the airline, such as the one made this week by United Airlines. In its
evaluations, the board must weigh the facts, obtain and consider the views of
knowledgeable outside advisers, and then exercise “reasonable business judgment”
about whether a deal would be best for stockholders.
As CEO and board chairman, Franke is the group’s most influential voice, but he
insists the board “is not a rubber stamp” and has disagreed with him in the
past. While shareholder value comes first in weighing a sale, Franke said any decision
would also take the company’s strategic position into account. If, for example,
United were to offer $28 a share for America West stock (it closed at $22.75 Friday), the
board could decide that the offer isn’t good enough in light of the company’s
record profit last year and robust financial outlook. The board might conclude that by not
selling and posting another year or two of strong earnings, the company’s value is
likely to go much higher. He cautioned, however, that many large shareholders would be
inclined to take a short-term view. “Over 80 percent of our shares are held by
institutions,” he said. “They might say, ‘Give me the money, don’t
give me all that long-term baloney.’” The board can consider the negative impact
a sale could have on the community, he said, but the company shouldn’t be expected to
turn down a lucrative offer just because Phoenix wants to keep a hometown airline.
Franke bristled when asked about a ‘Republic’ editorial last month that
criticized him for hanging a “For Sale” sign on the airline. The editorial said
Phoenix businesses didn’t lend $7 million to help the airline survive in 1992
“with the expectation that it would be put on the auction block when some of its
owners thought enough time had passed to cash out.” The premise that he was shopping
the airline around was wrong, he said. “I was very disappointed that the newspaper
would think that trashing management would help keep America West in town,” said
Franke, who sits on the board of ‘The Republic’s’ parent company. “The
only conversations I’ve had with CEOs of other airlines have been about marketing
alliances, or about us acquiring them.” So he didn’t speak with United before
its offer came Wednesday? “United sent me a fax that day,” he said. “That
was it.”
Franke acknowledges that loans from businesses and the state helped save America West.
But the loans were fully repaid with interest, he said, and the airline has been a good
corporate citizen, contributing $2.5 million to 400 organizations last year alone. “I
can’t agree with the view that helping us seven years ago gives anyone a special
right to help manage our future. The way you influence this company is through owning
shares, and very few people in Phoenix have our stock.”
It’s worth noting that among the company’s 10 board members, only four
(Franke, America West President Richard Goodmanson, Richard Kraemer and John Goolsby) live
in Arizona. While securities laws limit what Franke can say about any acquisition
proposal, he agreed that a deal with United might not pass muster with the U.S. Justice
Department. “Joel Klein (chief of the department’s antitrust division) has
commented that the country needs healthy competition between airlines,” Franke said.
“We’re well aware of his concerns.” He thinks the airline industry will
consolidate further in the next few years, but he expects to see more marketing alliances
– such as the one between America West and Continental Airlines – than acquisitions.
Industry analysts say Franke is well-suited for the current environment. He’s
regarded as an excellent negotiator who will get the best possible terms for his company
in any merger or alliance. His negotiating skills have been less apparent, however, in his
dealings with employee unions. America West flight attendants have threatened to disrupt
the airline next month with intermittent walkouts, a campaign dubbed CHAOS (Create Havoc
Around Our System).
In his defense, Franke said labor problems have been common ever since airlines were
deregulated two decades ago. “Before then, management gave unions pretty much
whatever they wanted,” he said. “We’re in a much different era now. Every
increment of cost is extremely important to our success or failure. I have no problem
paying people good money for work performed, but we can’t make it in this highly
competitive market without high productivity.”
Franke said he’s had some labor success, such as the contract with pilots signed
four years ago. “They got good pay increases, I got good work rules,” he said.
The failure of talks with flight attendants has frustrated him. He points to low turnover
among attendants and the fact that America West gets five applications for every opening
as signs that attendants are treated better than union leaders contend. But I heard no
optimism about a settlement.
As if Franke didn’t have enough going on, he found time to throw a spitball at
Phoenix Mayor Skip Rimsza on Thursday. He accused him of delaying an airport parking
garage project and suggested that the chauffeured mayor might be indifferent to the need
for a garage expansion. He also voiced irritation about Rimsza’s intention to see
what the city could do to stop America West from being sold.
With so much else to do, why get into a feud with the mayor of Phoenix? He shrugged and
said dismissively, “I wonder if Skip will invite me over anymore.” It was
vintage Franke. He prides himself on being his own man and not mincing words. A
Stanford-educated lawyer, he’s very bright and very quick. He’s had a highly
successful business career and made a lot of money. If he rubbed Rimsza the wrong way, big
deal. My sense is that Franke has more interest in keeping America West independent than
his critics think, though not a lot more. If United’s offer is rich enough, he
won’t resist, even though the Justice Department probably will. As he’s shown
throughout his career, Franke will be guided by financial value, and not fuzzy civic
feelings. He’s a CEO, not a public official. He will take good care of the
shareholders, and the hometown doesn’t hold any stock.
| If the Price is Right, AmWest’s Franke is All Business The Arizona Republic |
||
| After talking to Bill Franke about his prickly reputation, about the future of America West Airlines and about the strike threat by flight attendants, I asked the airline’s CEO about his health. “Still running two miles a day?” |