On the Comeback Trail

By John S. DeMott

The recovery pumps life into sagging companies

Braniff Flight 200 from Dallas/Fort Worth to New Orleans last Thursday morning was by far the most important in the airline's turbulent history. After being grounded in bankruptcy for almost two years, Braniff was back in business. It took off with freshly painted red-white-and-blue jets, a new major stockholder in the Hyatt Corp., competitive fares, fewer employees and a slimmed-down route system serving 19 cities, vs. 49 before. Said William Slattery, 41, the former TWA executive who heads Braniff: "We are looking to direct ourselves in ways that are so basic that they can't be easily countered by any competing airline. We want to project a staid, comfortable, conservative image that is nothing like the freewheeling one Braniff had in the past."

The airline's new self-confidence is typical of several major companies that are bouncing back after being given up for dead. All were victims of external economic problems and their own excesses:

too much diversification or too swift expansion or poor relations with their unions. Nonetheless, they managed to find the money and talent to keep going.

They are, say Wall Street watchers, the beneficiaries of hard work, luck, a rapidly reviving economy and, above all, a will to survive.

Braniff's plight was worse than that of most U.S. airlines. Nearly all were ravaged in the late 1970s and early '80s by problems ranging from rising fuel costs to competition from upstart cut-rate carriers. Under the brash leadership of former Chairman Harding Lawrence, Braniff began to add planes and expand routes just as the economy was dropping into recession and oil prices were heading for another sharp increase.

By 1982 Braniff was $1 billion in debt and snarled in a suicidal fare war with its archrival and fellow Dallas-based carrier, American Airlines. At one point Braniff asked its employees to forgo temporarily $8 million in pay to help meet other expenses. Then in May 1982, lacking cash for food, fuel and salaries, Braniff became the first U.S. trunk airline to file for bankruptcy. Its planes were flown to Dallas and stored, while its management searched for ways to bring Braniff back to life.

The airline's savior was Chairman Jay Pritzker, 61, of Hyatt, the hotel-operating company. Pritzker and Braniff put together a deal that gave the carrier $70 million to get back into business, while Hyatt got control of 80% of the airline's stock. Everyone, it seems, gave up something. Braniff s workers saw their ranks dwindle from 9,400 to 2,200 and their pay shrivel: pilots agreed to annual salaries of $38,000, vs. an industry average of $68,900. Creditors approved the revival plan, as did most of Braniff's unions. Slattery was recruited from TWA. In December the final details were worked out, and the carrier got ready for last week's rebirth.

The new Braniff will again square off against prosperous American, which last week announced that it will begin taking delivery next year of at least 67 new McDonnell Douglas twin-jet airliners. The 142-passenger DC-9 Super 80s are part of a major American expansion drive. The carrier also plans an aggressive program to cut costs and keep ticket prices low. Renewed fare wars and an economic downturn could hurt Braniff, but owning an airline has long been one of Pritzker's ambitions and he intends to stick by the venture. Says he: "I've always flirted with airplanes. It's an exciting thing."

Other companies on the recovery list:

Pan American. C. Edward Acker, 54, once the risk-taking boss of Air Florida, was so convinced that he could turn around Pan American World Airways that he made a daring bet. If the airline failed to make money on its 1983 operations, Acker would forgo his chairman's salary of $475,000. Acker won his bet. Pan Am had a slim operating profit of $52.4 million last year, vs. a loss of $314.5 million in 1982. Predicts Acker: "We will continue to improve service by every means possible. We are going to move forward with even stronger results in the coming year."

Analysts have heard rosy projections from Pan Am before and have had reasons to discount them. Big, cumbersome and overextended, the once powerful airline seemed on the verge of crashing for a decade. As far back as 1974, when it had about $850 million in debt, the airline held preliminary meetings with bankruptcy lawyers. Everything Pan Am did to make things better only seemed to make them worse. To raise money, it was forced to sell its 59-story Manhattan office headquarters. It bought National Airlines at the exorbitant price of $450 million in 1980, after a furious bidding war with Eastern and Texas International Airlines, but then ran into difficulty meshing National's domestic routes with its own international runs.

In 1981 Pan Am's directors hired Acker, believing that his skill at turning Air Florida from a small intrastate carrier into a profitable, regional airline was just what Pan Am needed. Acker swiftly integrated the staffs of Pan Am and National and restructured the airline's routes, dropping some cities but adding 24 more. He got rid of money-losing air freighters and put fuel-efficient Boeing 737s on flights in Europe. Pan Am's remaining 28,000 employees (vs. 36,000 in 1980) were persuaded to take a 10% pay cut. Meanwhile, the airline poured $25 million into upgrading its fleet of 747s and adding other goodies to lure paying passengers: fancy wines and champagne (including Dom Perignon on some flights), caviar in first class on long hauls and better food in general. Also planned: a $20 million refurbishing of Pan Am's Worldport terminal at New York City's Kennedy Airport and $40 million for improvements at its facility at Los Angeles International.

American Motors. "First, we had to stop the bleeding," said American Motors Chairman W. Paul Tippett, 51. "Second, we had to deliver new products. Now we have to expand in the marketplace." Detroit's smallest automaker has gained ground on all three fronts. For the fourth quarter of 1983, AMC reported a $7.4 million profit, its first after nearly four years of red ink. Losses for 1983 still added up to $146.7 million, but Tippett was nonetheless pleased. "It has been a long dry spell," said he.

AMC is striving to diversify beyond what it was for so long: a supplier of so-called niche cars for a limited market. Best known: the Jeep, which AMC bought from Kaiser Industries in 1969. Sales of the profitable four-wheel-drive vehicle are phenomenal. They more than doubled, to 16,500 through mid-February, from the same period a year ago.

Tippett believes AMC's future is in its connection with Renault. That link began in 1979, when the French automaker acquired a small interest in AMC. It now owns 46.1%. The companies together brought out the subcompact Alliance in 1982. It was an instant success, and 126,008 were sold last year, or 65% of AMC's total. That helped pull AMC back from losses of $645 million from 1980 through the first nine months of 1983. As Tippett candidly told last year's shareholder gathering, "If it wasn't for Renault, there probably wouldn't be an annual meeting."

Together, the Jeep, the Alliance and a new sister car, the Encore, are finally giving AMC a broader appeal. Previous offerings, like the gremlin-plagued Gremlin and the Pacer, consistently missed that target. The well-built Alliance is also countering the legacy of another AMC albatross: poor quality. Indeed, the company's total sales could rise from last year's $3.3 billion to $4 billion in 1984, a lofty height never attained by AMC.

International Harvester. The second-largest maker of farm implements in the U.S., after Deere, was all but plowed out of business in 1980 and 1981. Sales were erratic down on the farm, and losses piled up; by 1981 Harvester had an accumulated debt of $3.5 billion. Recalls Chief Financial Officer James Cotting, 50: "The most difficult time was when I had to go tell the banks, 'I know x million is due tomorrow, and we're not going to be able to pay.' " Says he of his company's ensuing comeback: "In my heart, I always thought we would pull it off."

Name an economic problem, and Harvester had it: labor troubles, skyrocketing interest rates, tough competition from firms with lower costs, and poor management. In 1977 Harvester brought in former Xerox Executive Archie McCardell, and then made him chairman in 1979, to pull it out of its slump; instead, things got worse. McCardell was ousted in the spring of 1982. Donald Lennox, another Xerox alumnus, became boss in 1983.

Lennox, 65, smoothed relations with the United Auto Workers, whom McCardell had infuriated during a six-month strike, and got them to accept a 29-month contract that saved the company $200 million. Lennox also consolidated many plant operations, concentrating manufacturing muscle on Harvester's most profitable products, especially trucks. Staff cuts lowered the worldwide work force to 32,455 at the end of 1983, from 65,640 two years earlier. Even office space at the company's Chicago headquarters was slashed from twelve floors to 7 1/2, while the corporate staff withered to 600, from 1,200.

So far, the shrinking act seems to be working. Losses for 1983 were $485 million, vs. $1.74 billion the year before. Truck sales are strong, and the farm equipment business is sprouting healthily. The best part came in January, when Lennox told shareholders that Harvester's creditors had agreed to refinance its multibillion-dollar debt. Without that understanding, the company would undoubtedly have been forced into bankruptcy.

Wickes. It was plainly a job for Ming the Merciless, a.k.a. Sanford Sigoloff, 53. He earned his Flash Gordon nickname the hard way: turning around ailing companies by ruthlessly cutting, cutting, cutting.

Among those he has saved: Republic, the Los Angeles manufacturing and service company and Daylin, the West Coast retail chain, which he led into bankruptcy and then out again. In Wickes, a diversified seller of almost everything from furniture to apparel to gifts, Sigoloff confronted another bona fide disaster, and his largest rescue mission ever. It had little merchandise, not enough employees to sell what there was, hardly any credit and no cash.

Sigoloff s first move after taking over Wickes in 1982 was to file bankruptcy papers and thus protect the firm's modest assets. To Sigoloff, there seemed to be no other choice: in the 15 previous months, Wickes had lost more than $400 million.

Its list of hungry creditors filled 3,000 pages with 250,000 claims.

Ming the Merciless fired nearly a quarter of Wickes' 40,000 employees. He sold off 15 money-losing operations, such as North American Video and Wickes Leasing, which had been added during the fat growth years of the 1960s and '70s.

The toughest move was closing Aldens, the fifth-largest U.S. catalogue-showroom operator, and breaking the news to its 2,600 employees, many of whom had worked at Aldens all their lives. Sigoloff had sought a buyer for the business, but none could be found. Fearing reprisals for the shutdown, he hired bodyguards for Aldens executives, who even suspected that their food might be poisoned. Said Sigoloff of the closings: "You're paid to make those calls. You're a professional, and you don't fall in love with businesses."

At Wickes, Sigoloff blossomed into a star of television commercials.

"Sure, they call me the toughest retailer in America," he says in one ad, blue-gray eyes lasing into the camera.

"But you've got to be tough."

Like other heads of revitalized companies, Sigoloff is nervous about the future. "We have put a Band-Aid on," he says. "But all of a sudden, if the economy stumbles, the customers may disappear."

So far, though, so good. Sigoloffs goal was to pay off the company's $1.6 billion debt by the third anniversary of the bankruptcy filing, or April 1985. He may beat that deadline handily. Wickes directors last month announced that an agreement to pay back creditors had been reached; the company is expected to emerge from bankruptcy by the end of the year. Said Sigoloff, now riding annual sales of $3 billion from a leaner Wickes, which focuses mainly on the home-improvement market: "Considering the size of the case and the complexity, it's probably a world's record." --By John S. DeMott. Reported by Allen Pusey/Dallas and Adam Zagorin/New York, with other bureaus

With reporting by Allen Pusey, Adam Zagorin