Milton's pretty amazing after all!

[Guest Airmail]

The following article is from the Saturday, issue of the Globe and Mail.

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Milton faces fight-or-flight dilemna

By JACQUIE McNISH and KEITH McARTHUR

Saturday, April 5, 2003 - Page B1

Robert Milton wrestled with a big decision last Christmas.

Air Canada's chief executive officer had just been offered what one person close to him called a "lottery-sized" pay increase by the airline's board of directors. The bonanza, according to sources, was part of a five-year contract aimed at tying down Mr. Milton after two U.S. airlines tried to recruit him last year.

After a brief Christmas vacation with his wife and two young children, Mr. Milton, 42, told the board he was sticking with the embattled airline, but he had two reservations. He would not sign a contract because he wanted to keep his options open. He also took a pass on the pay increase. Mr. Milton, who earned $1.2-million in 2001, told directors it would be foolhardy to accept a raise when Air Canada's survival hinged on demanding $650-million in wage and productivity concessions from its 40,000 employees.

"Robert was very principled," said David O'Brien, an Air Canada director and chairman of Calgary-based EnCana Corp.

"He was not going to take a sweetheart deal when he was about to ask the unions to make painful cuts."

Now that Air Canada has become entangled in a court-supervised bankruptcy restructuring, a step Mr. Milton resisted until the last minute, many wonder if the executive will soon hit the eject button.

He is unshackled by a contract; it is often difficult for executives to survive court restructurings; increasingly irate union leaders are calling for his ouster; and, according to sources, admiring airlines south of the border continue to court the U.S.-born executive.

Not even Mr. Milton's closest associates can say for sure whether he will stay.

"It will be a watching brief," said Calin Rovinescu, Air Canada's chief restructuring officer. "I think that he has many alternatives. But he will give it a good shot and we will see how quickly we get out of the starting blocks on the restructuring."

The debate over Mr. Milton's management prowess is as polarized as public opinion over the war in Iraq. Depending whom you talk to, Mr. Milton is either an arrogant megalomaniac who resists any form of compromise, or one of the most visionary CEOs in the industry who is transforming a lumbering national carrier into a nimble modern airline.

At one end of the spectrum, the Canadian Union of Public Employees is so furious with Mr. Milton's management that it issued a press release last year calling him "arrogant, insensitive and unable to deal with passengers, the government and employees."

On the other side of the fence, investors, even those who will lose heavily as a result of Air Canada's restructuring, say Mr. Milton's tough medicine is crucial to the airline's long-term survival.

"I think it would be madness to change management," said Jeremy Hosking, co-founder and partner of Marathon Asset Management, believed to be Air Canada's largest shareholder, which will likely see most of its investment evaporate under the airline's planned restructuring.

"The only people who understood that Air Canada had a very serious problem seems to be the management of Air Canada. So getting rid of them for correctly analyzing, diagnosing and trying to execute a solution seems to be a bit peculiar. You might as well shoot your doctor."

The real Robert Milton is probably somewhere in between these opposing viewpoints.

"I think the Air Canada management team under Robert Milton, in terms of running an airline, [is] probably better than most," said Buzz Hargrove, president of the Canadian Auto Workers union, which represents Air Canada's customer sales and service agents.

"There's just this incredible lack of credibility in dealing with the workers and the unions."

If Mr. Milton keeps his seat belt fastened at Air Canada, he is headed for some bone-jarring turbulence. Having set an ambitious goal of lifting out of bankruptcy proceedings within six months, Air Canada's management team must juggle high-stakes negotiations with labour, creditor, government and investor groups to cajole them into swallowing more than $1-billion in wage concessions, debt and lease cuts and more favourable supplier terms.

This won't be easy for a man whose aggressive and often abrasive push to reinvent the broken airline has made him something of a national punching bag since he was named CEO of Air Canada in 1999. Indeed, Mr. Milton's public image has taken such a beating that the airline's board of directors advised him in late 2001 to restrict his public and media appearances.

"He had become such a beacon that everyone was taking a shot at him," said one Air Canada director who preferred not to be identified. "It was no longer a sensible thing to have him in the limelight."

To help ease the tensions with Air Canada's regulators and unions, its board of directors recently elected former Bombardier Inc. CEO Robert Brown as a director. Mr. Brown's résumé includes a decade as a senior federal bureaucrat, and sources said the gracious and reserved executive is slated to succeed Air Canada chairman John Fraser, who plans to retire this year.

"Bob is there to help soften Milton's sharp edges," said one person close to the airline's board.

Critics, most notably in labour and government circles, are so inflamed by the take-it-or-leave-it demands made by Mr. Milton and his chief lieutenant, Mr. Rovinescu, that some have dubbed them Milton the Milker and Calin Roving Barbecue.

Indeed, some union leaders were so offended by Mr. Milton's unsuccessful 11th-hour ultimatum for 22-per-cent wage cuts on Monday night -- and his anti-union rant the next day -- that one union is formally calling for his resignation.

"The workers have no trust in him, and certainly the unions have no trust in him," said Dave Ritchie, general vice-president of the Canadian national office of the International Association of Machinists, which is asking for Mr. Milton's removal.

Unions don't have much leverage to oust Mr. Milton, but the Machinists' move underscores the deep divide between labour and management that must be bridged if the airline's restructuring is to succeed.

Complicating matters are Mr. Milton's often fractious relations with Ottawa. The view in Ottawa, especially among back-bench MPs, is that Mr. Milton has never been willing to accept that his airline's dominant domestic market share comes with certain responsibilities. He has declined invitations to appear before parliamentary committees and he has challenged federal efforts to protect Air Canada's smaller rivals.

Despite these shortcomings, Joe Comuzzi, chairman of the House of Commons transport committee, said officials in Ottawa would like nothing more than to see Mr. Milton turn Air Canada back into an airline Canadians can be proud of.

"I think there would be great happiness in Ottawa if he was to come up with a formula in a year or two from now, if he still led the ship, that proved us all wrong. We would be ecstatic."

Mr. Milton is as respected in business circles as he is loathed by labour groups. His supporters applaud his gritty determination to whittle down Air Canada's crushing labour costs and his prescient creation of small, flexible airline units, an initiative now being copied by major competitors.

"We are very impressed," said Nigel Wright, vice-president of Air Canada's former takeover foe Onex Corp.

Onex is so taken with Mr. Milton's strategy that it is seeking to acquire a stake in Air Canada's frequent-flier program, Aeroplan.

"Ahead of most airline CEOs he's actually understood where the incumbent airlines need to get in order to survive. . . . He has done this through numerous trials, while maintaining a high level of morale and dedication in his management team," Mr. Wright said.

The trials have indeed been numerous. Weeks after he was named CEO in 1999, Mr. Milton was caught off guard by a hostile takeover bid from Onex and American Airlines Inc. The bid failed, but the consolation prize was a costly merger with its bankrupt competitor Canadian Airlines.

The marriage was stormy from the beginning. Feuding unions at the two airlines disagreed over seniority lists and service deteriorated sharply during the prolonged integration of the airlines' incompatible ticket and scheduling systems.

Just as the integration was completed, airline traffic nosedived following the Sept. 11 terrorist attacks, global economic downturn and international tensions over the war in Iraq.

Despite these challenges, Air Canada was the only major airline in North America to report two consecutive quarters of profit last year and it was one of the first major carriers to break itself up into different brands. For example, Air Canada now operates two discount operations, Zip and Tango, designed to compete with low-cost carriers such as Calgary-based WestJet Airlines Ltd.

"I think Robert Milton is a genius," said Stanley Hartt, chairman of one of Air Canada's financial advisers, Salomon Smith Barney Canada, and former chief of staff in the Mulroney government. "He has pursued a brilliant and innovative strategy. If there is any criticism it is that he hasn't been tough enough with unions," Mr. Hartt said.

To be fair, Mr. Milton's rocky relations with labour are rooted in Air Canada's former life as a protected, government-owned carrier. Historically, Air Canada's unions enjoyed unusual leverage during contract negotiations because few governments wanted to risk a politically damaging national strike. When Mr. Milton took the helm in 1999, a full decade after its privatization, Air Canada was still overstaffed, heavy with debt and stricken with a bureaucratic Crown corporation mentality.

The 2000 acquisition of Canadian Airlines only made matters worse, adding billions of dollars of debt and thousands of new employees that Mr. Milton promised the federal government he wouldn't lay off.

Now that the airline has filed for a court-supervised restructuring, Mr. Milton has to win the support of the unions before he can roll back wages or break the airline's promise to preserve jobs.

It won't be easy. Unlike the U.S. Bankruptcy Code, which has allowed some of Air Canada's U.S. competitors to shred labour contracts and roll back wages, court restructurings in Canada seldom fly without union support.

That means Mr. Milton and his management team will have to win over the very union officials he has alienated. So far, Air Canada's management has had little interest in softening its tough stand with employees.

Mr. Milton publicly blamed union intransigence this week for the company's decision to seek court protection. Senior managers still huff that they intend to "take on the unions" to break the "culture of entitlement" that has thwarted their efforts to run a more efficient airline.

For all the harsh talk, there was a glimmer of hope this week when Mr. Milton launched a final attempt to bring the unions on side. During discussions with the pilots' union, he agreed to lop his pay 33 per cent if their members approved a 22-per-cent wage cut.

But any chance of a deal fell through when Mr. Milton balked at the union's request that all the airline's managers slash their pay by 22 per cent.

Such an across-the-board cut of executive pay, Mr. Milton told the union, would trigger an exodus of his best people.

By showing a willingness to make a personal sacrifice, Mr. Milton may have taken a first tentative step toward repairing strained relations with union officials. It is this Mr. Milton who may have a shot at saving the airline, rather than the one who lashed out against workers Tuesday.

"You can be the best technical person in running something, but if you don't have a sense of how you . . . build on the strength of your people -- how to bring them together, instead of divide them -- then you can't be successful," said the CAW's Mr. Hargrove.

[Guest Airmail]

"I think Robert Milton is a genius," said Stanley Hartt, chairman of one of Air Canada's financial advisers, Salomon Smith Barney Canada, and former chief of staff in the Mulroney government. "He has pursued a brilliant and innovative strategy. If there is any criticism it is that he hasn't been tough enough with unions," Mr. Hartt said.

To be fair, Mr. Milton's rocky relations with labour are rooted in Air Canada's former life as a protected, government-owned carrier. Historically, Air Canada's unions enjoyed unusual leverage during contract negotiations because few governments wanted to risk a politically damaging national strike. When Mr. Milton took the helm in 1999, a full decade after its privatization, Air Canada was still overstaffed, heavy with debt and stricken with a bureaucratic Crown corporation mentality.

The 2000 acquisition of Canadian Airlines only made matters worse, adding billions of dollars of debt and thousands of new employees that Mr. Milton promised the federal government he wouldn't lay off.

Now that the airline has filed for a court-supervised restructuring, Mr. Milton has to win the support of the unions before he can roll back wages or break the airline's promise to preserve jobs.

It won't be easy. Unlike the U.S. Bankruptcy Code, which has allowed some of Air Canada's U.S. competitors to shred labour contracts and roll back wages, court restructurings in Canada seldom fly without union support.

That means Mr. Milton and his management team will have to win over the very union officials he has alienated. So far, Air Canada's management has had little interest in softening its tough stand with employees.

Mr. Milton publicly blamed union intransigence this week for the company's decision to seek court protection. Senior managers still huff that they intend to "take on the unions" to break the "culture of entitlement" that has thwarted their efforts to run a more efficient airline.

For all the harsh talk, there was a glimmer of hope this week when Mr. Milton launched a final attempt to bring the unions on side. During discussions with the pilots' union, he agreed to lop his pay 33 per cent if their members approved a 22-per-cent wage cut.

But any chance of a deal fell through when Mr. Milton balked at the union's request that all the airline's managers slash their pay by 22 per cent.

Such an across-the-board cut of executive pay, Mr. Milton told the union, would trigger an exodus of his best people.

By showing a willingness to make a personal sacrifice, Mr. Milton may have taken a first tentative step toward repairing strained relations with union officials. It is this Mr. Milton who may have a shot at saving the airline, rather than the one who lashed out against workers Tuesday.

"You can be the best technical person in running something, but if you don't have a sense of how you . . . build on the strength of your people -- how to bring them together, instead of divide them -- then you can't be successful," said the CAW's Mr. Hargrove.

--end of article--

[Guest Airmail]

Unlike Carty, Mullen, Tilton et al Milton turned down a "lottery-sized" compensation package to do the right thing on a matter of PRINCIPLE.

He offered to take a personal 33% pay cut while, the unions kept on doing absolutely NOTHING and calling for more studies and due diligence.

Milton did this without any external pressure (like Mullen and Tilton) and without making it a public relations exercise a la Don Carty by sending out a release to trumpet his offer.

All Air Canada employees had better wake up before it's too late yet again! Unfortuntely this time, it's not just a PRINCIPLED Robert Milton you're dealing with, it's a bunch of unnamed creditors and &%$@! off bondholders.

Before people like Dave Ritchie start calling for Milton's resignation, they'd better realize what they're asking for...don't forget, the unions asked for CCAA too! See following the public quotes from the union leadership, quotes that the union leaders would rather you forget:

"If CCAA is inevitable for this company, it probably is to our advantage not to do anything until we get there. Because then everyone takes a hit.”
- Don Johnson, President of ACPA, National Post, March 23, 2003

“There is no incentive for employees to agree to concessions until a bankruptcy filing happens, which could force creditors and shareholders to share the pain of a restructuring."
- Pamela Sachs, president of CUPE, National Post, March 23, 2003

“ You'd better put it into bankruptcy protection before you ask us to give it any money.”
- Gary Fane, CAW Transportation Director, National Post, March 23, 2003

“Thank you for your ‘genuine’ concern for our members well being. Forgive us if we don’t share your opinion on the pitfalls of CCAA versus the process that you refer to as ‘negotiating in good faith. Selling off our work areas to make us non-airline employees, demanding huge pay & benefit cuts to make this sale easier and more profitable, and job losses like the 3,500 just announced in the press, really make CCAA sound more appealing. More importantly, in the CCAA process the real facts are revealed for all to see.”
- The Editors of Contact, the newsletter of the IAMAW Airline Central Lodge 2323, in response to a letter from Kevin Smith, Director, Labour Relations – Technical Services, Air Canada, which raised concerns management’s concerns on the impact of CCAA on Air Canada’s employees in the March 2003 issue of the newsletter

[Guest GDR]

I've never made any secret of the fact that I believe Robert Milton was, and is, the best person available to lead AC, but I have gained a great deal of admiration for him after reading this article.

When so of the employees and the media were asking for him to show leadership and telling him to go first he had done just that.

Unlike Carty however he does it quietly and without a lot of fan fare. I've never met the man but I have always been impressed by his airline knowledge and his strategic planning. In reading this article today I have become impressed with his loyalty and tenacity as well.

There is no doubt in my mind that if we are going to move our company ahead we had better start looking at Milton as somebody who has the vision and the smarts to make something of Air Canada.

Nobody is saying that you have to like the man, but if we don't get behind him and start realizing that he is by far and away the best, and maybe only hope of getting this company back on it's feet, we are toast.

I am grateful that he stuck with us when it would have been so easy to chuck all the governmental, merger, union problems, and a whole lot less aggravation in general, and head down south for more money and less snow.

Greg Robinson

[Guest neo]

Mr. Milton is an outstanding airline executive; forward-thinking, creative and principled. There isn't his like in the ranks of airline CEO's anywhere, that I'm aware of.

If employees don't learn to distinguish between Mr. Milton's ability and character, and the harsh and unfair image that has been projected on him by union leaders and politicians alike, then we stand to lose a remarkable leader.

Our unions have painted the employees right into the bankruptcy corner; let's hope they don't compound the error by contributing to the departure of the one man best able to get us out of this mess.

Richard Roskell

[Guest neo]

When the _least_ intransigent union leader at AC is Buzz Hargrove, then it really makes you wonder.

I am astounded, literally, that our unions ignored Mr. Milton's call for action. Think of the missed opportunities to avoid this situation, and thereby gain negotiating leverage for the employees.

And of course, now that AC has filed, the unions are attempting to sluff off their share of the responsibility for it happening.

It was almost two months after Mr. Milton pleaded for our unions to act "FAST" [his emphasis] that AC filed for CCAA. In the interim, the war in Iraq began and decimated our international loads. Yet our unions still couldn't seem to understand the urgency. That represents, in my view, a serious mishandling of the crisis and a failure to protect the interests of all our employees.

Richard Roskell

[dagger]

That Milton will get his concessions, or AC will be liquidated.

To put in bluntly, senior management has little to lose. Milton is a hero to investors - hell, even guys losing their shirts on this restructuring like Marathon think he is God. If AC liquidates, Milton ends up as a senior exec of a US carrier, being groomed for CEO.

Calin goes back to Stikeman Elliott as a senior partner, earning his big bucks doing what he knows best.

Monte Brewer returns to United. I have it on absolutely reliable authority that UA execs were surprised when Brewer went to AC. He was one of the younger execs viewed as top management material, perhaps COO. They will leap at the chance to get him back.

And these guys will take a few of the other senior execs back to the US with them.

So I don't see the unions having much leverage with this group. And if this management group leaves en masse, there won't be any money coming to rescusitate this airline.

LIQUIDATION FOLLOWS.

As for the unions demanding Milton's resignation, let's say that the top guys go. Let's say Paul Brotto is the next CEO. Paul's a softer kind of personality, but let's face it, he's chief cost cutter. He knows your contracts and their inefficiencies better than you do. What's his incentive to soft peddle concessions. None that I can think of. The word on Paul is that he would just as soon retire as take on a long-term burden running a money losing operation for which he would be blamed.

So, all in all, I really doubt that there is going to be a real alternative to Milton, or Milton's plan. The practical alternative is liquidation. Does help AC employees, the govenrment, Aeroplan members, the tourist industry or whatever, but my intelligence is that Milton is absolutely committed to bringing a radically different airline forward - not much smaller, somewhat more internationally focussed, but a lot more cost-effective. I don't think creditors or potential investors will buy into anything less.

[Guest neo]

While I might have said it differently, there isn't an opinion you've voiced on any of this crisis that I haven't shared word for word.

neo

[duckedy]

yes, "pretty amazing"! Pretty amazing when you read that he knew all along back at Christmas that he was going to have to ask the employees for a $650 million in concessions and yet he signs a contract with the FA's with a no lay off clause. Sounds pretty fishy to me.....pretty amazing .....

[inchman]

The parties agreed to mediation and the contract that emerged was agreed to by both parties.

If the company had then said, "Things have changed, we can't agree to the mediator's recommendations", what do you think the outcome would have been... given the rhetoric being bandied about, probably a strike, right when the company needed it least, probably resulting in immediate bankruptcy, not CCAA.

In addition, the company was wasting big bucks because the two flight attendant groups were operating with two contracts. Often a reserve Orig AC flight attendant was called in to do a flight on which perfectly qualified Former CP reserve FA's were deadheading but could not operate as a mixed crew because of differing contracts (worked VV as well).

Finally, if the contract was still open, the 22% would be from the the then-current rates and BEFORE the last pay raise and without any retroactivity. The net result is that they did better under this scenario than if the contract was still open last week.

Put yourself in Milton's shoes when he had the option of signing that contract or not. What would you have done if you were him? Now... don't stop there... play out the fallout of those actions, then second guess what he did.

[Guest Airmail]

Thinking/reading before posting may be helpful.

The article clearly said the Milton turned the Board down AFTER the Christmas holidays and Milton has publicly said that things until right before Christmas were tracking along expectations. But in the period over the holidays and post-Christmas -- when the pre-war rhetoric reached its peak, the bottom fell out.

Remember that the CUPE tentative agreement was out for ratification in the last 10 days of December -- precisely the time Milton was deciding whether or not to accept the Board's offer. It was only after the holidays (January some time) that he rejected the Board's "lottery-sized" compensation proposal -- this after he likely saw the combination of internal and external factors doing irreparable harm to the company.

You'd better be careful what you wish for -- if Milton were to go, even your wildest imaginations could not come close to what could happen to the employees of this company.

[Guest GDR]

By far the best answer I've seen to that issue. Thanks Dave

Greg