Flying Tiger Faces Strong Head Wind on Its Course Back to Profitability
From the balcony outside his office at Los Angeles International Airport, Stephen M. Wolf watched with some satisfaction as one of Flying Tiger Line’s cargo jets rolled into a hangar from the runway below.
Burdened by heavy losses, the world’s largest air cargo carrier was threatened last year with extinction, or at least sale. But now it has returned to profitability, and Wolf, Tiger’s chairman and chief executive, said in an interview that the airline will survive--though it will not be easy.
“I believe in my heart there’s a place for Flying Tiger,” he said, “(but) God is not going to do that for us. We’re going to have to create a need for us.”
Just six months ago, Wolf put the airline up for sale when its pilots refused to take huge pay cuts to reduce the troubled airline’s costs.
But then, on the day before Thanksgiving, the pilots changed their minds and gave up more than one-third of their pay--the largest concession ever in the industry. Wolf, who joined the struggling airline last August, took it off the block.
Wolf’s progress at Flying Tiger during his eight-month tenure has been impressive. The airline earned $13 million in the first quarter--its first profit in two years. The company said the profit resulted from lower jet fuel prices and from wage concessions by all of its employees that save Flying Tiger more than $58 million yearly.
The airline recently refinanced $284 million of its $525-million long-term debt, allowing it to build up cash by deferring nearly $100 million in interest payments for five years. And it expanded its fleet in January with the acquisition of six Douglas DC-8s.
These actions have earned Wolf praise. “He’s got the airline under control. I tip my hat to him,” said John C. Emery, chairman of Emery Air Freight, a big domestic competitor of Flying Tiger.
Even Flying Tiger’s labor leaders acknowledge that Wolf is turning the airline around. “We don’t always agree, but we are happy to see the profits,” said Harold Funkhouser, vice chairman of Flying Tiger’s machinists union.
But Tiger’s troubles are not over. Its domestic service continues to lose millions, and it faces mounting competition in its overseas markets. Its parent, Tiger International, remains loaded with high-cost debt.
And the unions remain bitter about the wage cuts. “Management prides itself on taking (the wage cuts) out of our hides, but they are also taking it out of our hearts,” pilot Rick Kingston wrote in a recent pilots union newsletter.
The airline has a long way to go before it returns to full health. “I’d like to say we are out of the woods,” says Wolf. “But I can’t say that--not yet.”
Clearly, the Los Angeles-headquartered air carrier is in better shape than it was when Wolf took charge in August. The airline, founded in 1945 by a group of World War II pilots, suffered from competition by low-cost air carriers after the industry was deregulated in 1978. The company’s losses averaged $74,600 daily between 1981 and 1986.
Recently, the airline has suffered an erosion of its important U.S.-Japan cargo business because of competition from other carriers, especially Nippon Cargo Airways, a new Japanese cargo airline. Tiger’s share of that market has declined to between 15% and 18% from 35% since Nippon Cargo got started almost two years ago, according to one estimate. Revenue from the Pacific region provided 55% of Flying Tiger’s $1.07-billion revenue in 1986.
Wolf, a 46-year-old executive who turned around troubled Republic Airlines before he sold it to Northwest Airlines in January, 1986, for $884 million, said he was not sure at first that he wanted the job at Flying Tiger. “I didn’t think the company was marching down a path where it could survive, long term,” he said.
But Wolf, who earns $350,000 yearly as chairman and chief executive of both Flying Tiger and Tiger International, said he decided to join Tiger after its biggest stockholder, New York investor Saul P. Steinberg, assured him that he would have “sufficient latitude to run the airline. . . . It struck me that it would be a significant challenge.”
No doubt Flying Tiger is living up to Wolf’s expectations. Among other things, the chairman said he is taking steps to boost the company’s slipping business in Asia. The airline now flies to Japan on Saturdays, as well as Monday through Friday, and has started service to Bangkok.
Also, two weeks ago, the company filed a complaint with the U.S. Department of Transportation, charging that the Japanese government is not living up to an agreement allowing Flying Tiger to unload freight for other airlines at Tokyo International Airport at Narita. The agreement was part of a deal in which Flying Tiger’s Japanese rival, Nippon Cargo Airways, was allowed to expand its flights to the United States to nine from six daily, Wolf said.
Lowered Prices
But Flying Tiger’s domestic business, which consistently loses money, is one of its biggest headaches. Domestic revenues declined 27% last year, from $212.9 million in 1985 to $155.6 million, because, Wolf said, the company charged above-market prices in an unsuccessful move to keep losses down.
Wolf said the airline has lowered its prices to regain some of the lost domestic business. The firm’s hub in Columbus, Ohio, was recently designated as a free-trade zone, and Wolf hopes that will make it more attractive to foreign shippers, who can fly through Columbus duty-free. Tiger also plans to add six to eight cities to its domestic routes this year. Last week, it started air freight service to San Diego and Phoenix, two cities that Tiger formerly served by truck from Los Angeles. Eventually, Wolf hopes to break even domestically.
However, experts said Flying Tiger has a long way to go before its domestic service is competitive with such heavy freight carriers as Emery, Burlington Northern and CF Air Freight. Flying Tiger still serves fewer cities by air than its competitors, they said, and it needs to overcome its reputation for lateness and lost shipments.
“Customers have memories like elephants when it comes to lost cargo,” said Robert G. Brazier, president of Airborne Freight, a Seattle freight forwarder. Brazier said some of his customers will not do business with Flying Tiger.
Wolf acknowledged that his company has a reputation for “sloppiness” but said that is changing. He pays close attention to details, such as how many minutes it takes to unload and sort a shipment.
To improve Flying Tiger’s image, Wolf needs the support of Flying Tiger’s 6,500 employees. But it is labor that could prove to be his biggest problem. The reputation Wolf earned at Republic as an executive who works well with organized labor is suffering at Flying Tiger following the massive wage and benefits concessions.
Two months ago, booklets were distributed anonymously to Flying Tiger pilots describing how they could delay flights by demanding minor mechanical repairs. The booklets also advised that pilots can have themselves grounded by taking strong medicine for colds, according to a pilot who has seen them.
Wolf acknowledged that Flying Tiger suffered from a rash of delayed flights earlier this year because so many pilots were off the job, saying they were sick. “There was an ebb in the quality of service,” Wolf said, “but those problems are behind us.”
There are other signs that labor is still unhappy. Louis R. Schroeder, president of Flying Tiger’s machinists union, complained in a letter to workers that a new company attendance policy “looked like it was written by the Ayatollah Khomeini.”
The company needed a stricter policy to crack down on a small number of employees who skipped work, Wolf said, adding, “Our policy isn’t out of line with what exists at other airlines, but it was a big change (for Flying Tiger).”
On another front, an employee group named the Coalition for Dignity is sending Flying Tiger customers letters warning that shipments are being delayed by demoralized workers. “We have nothing left but our dignity and we are prepared to lose our jobs before we allow that to be destroyed,” the letters say.
Employee Support Unclear
So far, customers seem unfazed by Flying Tiger’s labor problems. “I got one of those letters (from the Coalition for Dignity) and I threw it out,” said Brazier, the Airborne Freight president. Brazier’s company competes with Tiger in this country but uses Tiger flights to send some of his freight abroad.
Nissan, the Japanese auto maker, and Esprit, a San Francisco clothing manufacturer, say they are again doing business with Flying Tiger after switching to other air cargo carriers last November when it appeared that Tiger might close. Flying Tiger’s labor trouble “hasn’t really affected us, although it’s my impression labor is their biggest problem,” said William Tarbox, domestic traffic manager for Esprit.
It is not clear how many employees support the coalition. “We certainly don’t condone their actions,” said pilots union official Gary Duff. “But I think these actions indicate a high level of dissatisfaction among the employees.”
Wolf is trying to soothe employees’ feelings and plans to begin a round-the-world trip to 25 of the company’s bases this month to hear complaints firsthand. Even so, his efforts do not please everyone.
To celebrate the airline’s first-quarter profit, Wolf is handing out Flying Tiger baseball caps to his employees. But some workers who took big pay cuts view the gift as an insult. “A simple thank-you note would have been better,” the machinists union’s Funkhouser said.
Wolf said he expected that some employees would “throw a rock no matter what we did. . . . We did it to show our employees that, without their support, not only would there not be a profit, but there would not be a company.”
