Blue Skies At Northwest Airlines

January 1 1996 by Joseph L. Mccarthy


Individuals who face death frequently report that it changes their perspective on life. On the corporate side, Northwest Airlines President and CEO John H. Dasburg had his own confrontation with the Grim Reaper in 1993, when the carrier came within hours of filing for Chapter 11. Flush with debt from one of the last large, leveraged buyouts of the 1980s, the Eagan, MN-based carrier was unable to meet a $1 billion debt payment. At the 11th hour, Dasburg convinced his unions to take a pay cut in exchange for 30 percent ownership of Northwest. Lenders were persuaded to reschedule the airline’s payments. Staving off disaster, Northwest rebounded to emerge as perhaps the industry’s most striking turnaround story.

Seems simple in retrospect. But for Dasburg, 53, the near-death experience complicated a strategic shift begun the year before, when he moved to refocus the airline on its core markets. The move defied conventional wisdom, which held an airline had to serve markets across the board to survive. The detractors of downsizing, in fact, attributed the carrier’s financial woes partly to Dasburg’s decision. But the CEO, an accountant by training who joined the airline from Marriott Corp. in 1990, says the brush with oblivion taught him to stick to his guns-or in this case to his numbers.

“Some old-line air executives told me it was virtually impossible to shrink an airline, that at minimum you had to be a national carrier,” Dasburg says. Even inside Northwest, the world’s fourth-largest airline, some argued, “‘we don’t want to be the American Motors of the airline industry,’” he says. But “mathematics” indicated that a tighter focus would re-energize the struggling company, and Dasburg plodded ahead, closing unprofitable hubs in Milwaukee, Washington, and Seoul, Korea; ending point-to-point service on the East and West Coasts Detroit, Minneapolis, and Tokyo; and returning Northwest to public ownership with a 1994 stock offering.

“Looking back,” Dasburg concludes of the makeover, “it’s safe to say we were vindicated.” And how. While Northwest lost $1.8 billion from 1990 through 1993, the carrier reported record net income of $295.5 million in 1994 on revenues of $9.1 billion. In the nine months ended September 30, net income jumped 30.4 percent to $338.5 million. According to airline consultant Avitas, Northwest’s revenues on domestic routes, at 10.88 cents per available seat mile, is second among major carriers to industry leader USAir, which weighs in at 12.52 cents per ASM.

“Dasburg forced through rationalization at a time when it was unpopular,” says Tom Longman, an analyst and senior vice president at Lehman Brothers in New York. “The approach sub-sequently was adopted by most other major airlines. But his biggest impact is a strong relationship with employees, even union employees, in a business not exactly known for cordiality.” Lehman rates Northwest as “outperform,” the second-highest mark on a five-point scale. Dasburg is hell-bent on maintaining the momentum, an effort that sometimes leads him into uncharted territory: He underscores the attempt to cut costs and boost revenues with the “Dasburg salute,” a gesture thrusting both arms forward, one angling toward the ceiling and the other toward the floor. He’s even captured the salute on celluloid: In a Northwest motivational video, “Walk Like an Egyptian,” Das burg and employees strut their stuff like ersatz sleepwalkers to the beat of a song by the Bangles, an all-female rock band.

Unconventional, perhaps, but Dasburg, tanned, silver-haired, with rugged, movie-star good looks, is fashioning an organization that mirrors his own, full-tilt personality. Early on, the CEO was overshadowed by Co-Chairmen Alfred Checchi and Gary Wilson, the Los Angeles investors who took Northwest private in 1989 and ran through three corporate presidents in short order.

But the pair backed away from day-to-day operations in the wake of the restructuring with their stake pared to around 22 percent of common stock. These days, “Dial Das” phone-in sessions solicit suggestions from employees, chalking up $100 million in cost savings and revenue enhancements. Indeed, Dasburg takes employee relations seriously:

With Northwest unions on edge after the wage givebacks three years ago, Dasburg passed up a $750,000 bonus.

The spit shine obscures an intellectual streak, marked by a taste for chess, Shakespeare, and Western political philosophy, particularly John Locke. (Talk about Thomas Hobbes and Machiavelli might get a modern-day CEO in trouble, Dasburg quips.) Disdaining television, Dasburg reads five or six books at a clip. He currently is plowing through “Witches and Jesuits,” by Gary Wills, which reckons with the metaphysics of “Macbeth.”

In the meantime, Dasburg has his hands full trying to smooth over a rough spot in Northwest’s alliance with KLM Royal Dutch Airlines, which links it with Europe, Africa, and the Middle East through a hub in Amsterdam. The two partners are struggling over the issue of voting rights of individual shareholders. Northwest wants to limit the voting shares to 19 percent; KLM owns 18.8 percent of Northwest’s voting shares. KLM recently filed suit against Northwest, contending that the U.S. carrier breached an agreement between the two companies when it adopted a “poison pill” plan in November.

Some 40 percent of Northwest revenues come from transnational routes. The airline’s Tokyo hub links it with the high-growth Pacific Rim market, and a bilateral airlines agreement between the U.S. and Canada should nourish cross-border traffic.

Stateside, the picture is less certain. Employee wages are slated to increase in August at a time other major competitors are feverishly hacking at their own cost structures. Analysts fear that fare increases at U.S. airlines may put a damper on domestic travel. Moreover, with a relative lack of competition in its own backyard-Northwest accounts for 75 percent of the traffic at the Minneapolis-St. Paul International Airport, for example, compared with No. 2 United’s 3.7 percent-speculation persists that a no-frills operator will crash the party. ValuJet, Atlanta and Northwest’s Detroit hub. Dasburg expects a degree of immunity from the cut-rate phenomenon: He argues that discounters generally prefer high-traffic, point-to-point service shorter than 750 miles, a description that fits few of Northwest’s current routes.

In an industry struggling to pick itself up from the canvas, Dasburg says his job will be to keep Northwest growing slowly, at 2.5 percent a year on the domestic side, a tad more overseas. Perhaps paradoxically, restraint is a quality the high-energy CEO also brings to bear on his chess game. “I always use a king-pawn opening, and you can usually predict my first five moves,” he says. “I like to control the center of the board and let others have their extravagant soirees.”

Just about describes his first five years at the stick of Northwest. And just about what shareholders would like to see as the airline cruises into the 21st century.

JOHN H. DASBURG

President and Chief Executive

NORTHWEST AIRLINES

 Born: New York, NY.

Age: 53. Education: Master of Business Administration, law degree, University of Florida.

Military service: Three years U.S. Navy with one year in Vietnam.

Family: Wife, Mary Lou; children, J.P., 14, Katie, 6.

Boards: St. Paul Cos., Riverwood International.

Industry affiliations: Delegate to the White House Conference on Travel and Tourism.

Interests: Reading; Western political philosophy; chess.

Most recent book read: Gary Wills’ “Witches and Jesuits,” on the metaphysical implications of Shakespeare’s “Macbeth.”

Mentors: Marriott Corp. Chairman and CEO Bill Marriott; Northwest Co-Chairman Gary Wilson.

Car: Jeep with four-wheel drive.

Pet peeves: Television; wasting time.

Favorite airline food: Salad.