Since when did bankruptcy become a strategy?

Declaring Chapter 11 bankruptcy in order to solve poor business performance seems to be a growing trend, especially among the US airlines.  The recent news release of the Chapter 11 filing by American Airlines is only the most recent in a long string of such “performance improvement” actions by airlines over the past two decades.

“Reorganization under Chapter 11 of the U.S. Bankruptcy Code is a form of bankruptcy. It isn’t “liquidation”, but it’s not a joke, either — it’s the last legal step before liquidation. If they weren’t in danger of going out of business, they wouldn’t be in bankruptcy. In order to petition the bankruptcy court for protection from its creditors and reorganization under Chapter 11 of the Bankruptcy Code, a company must first certify to the court that it is insolvent: its debts exceed its assets. A bankruptcy filing protects the bankrupt company against its creditors (including people who have paid for tickets for future travel). It doesn’t “protect” passengers or customers.” – source from http://hasbrouck.org/articles/bankruptcy.html

Somehow, I can’t quite get the logic that walking away from your debts and obligations, borrowing more money and filing a “reorganisation plan” with the courts is an effective business strategy.  To my way of thinking is it just postponing the hard decisions that it takes to run a successful business enterprise.

Change is not a destination, just as hope is not a strategy.
-Rudy Giuliani

At one point in the mid-2000’s, 4 of the top 7 US Airlines were under Chapter 11 protection.  US Airways has been through Chapter 11 twice (so far).  Delta, Northwest and United all have used this “strategy” at one point, and now American Airlines.  Aloha Airlines used this technique once between 2004 and 2006, re-emerged, only to file again in 2008 and finally cease operations altogether.

Obviously, this is a technique favoured by the bean-counters and accounting types who tend to run airlines these days.  To the contrary, Continental Airlines, $2.5B in default in 1994 hired a hands-on former mechanic and pilot from Boeing, Gordon Bethune, to lead a stunning turnaround between 1994 and 1995 that put Continental at the top of customer satisfaction pools and miles ahead in industry awards for the next 15 years.

The best defense is a good offense!

Several years ago I read a great little book, Play to Win, published by personal performance guru Larry Wilson and his son, Hersch Wilson.  In essence this book lays out three strategies for success in life, and business:

• Playing to Win
• Playing Not to Lose
• Playing to Lose

Obviously, no one who takes life or business seriously would opt for the Play to Lose strategy.  That’s suicide.  But the differences in mindset and resulting behaviour between Playing to Win and Playing Not to Lose are massive.

The difference really boils down to the courage to make the hard decisions in the face of fear and uncertainty plus the courage to trust in yourself, your staff, your employees and your customers to be able to find a path through adversity to success.  Playing to Win requires the wisdom to understand that while we cannot control all the events that happen in our lives, we have a great deal of choice in how we respond to them.  And choosing to Play to Win delivers a far better outcome than Playing Not to Lose.

Playing Not to Lose is really an approach based on fear and lack of belief in self and others.  Airline leadership tends to routinely believe that their unions aren’t interested in developing win-win relationships with management and customers.  Airline leadership seems to be driven by the fear that without tight controls and punitive rules, employees and customers will take undue advantage of the situation.

In my experience it is nearly impossible to run a sustainable, thriving business without faith and belief in the capabilities and positive intentions of people.  Playing to Win is about choosing the difficult path to growth instead of the safe path of fear.  Without courage, faith and belief, the only sensible strategy is Playing Not to Lose.

I play to win, whether during practice or a real game. And I will not let anything get in the way of me and my competitive enthusiasm to win.   Michael Jordan

Tight Lines . . .

John R Childress

E | john@johnrchildress.com      T | +44 207 584 3774      M | +44 7833 493 999