Ayling Departure Due to Lack of People Skills; Successor Long Way Off

World Airline News, March 17, 2000

Despite media assertions, the successor to Robert Ayling, who resigned as chief executive of British Airways [BAB] March 10, will not be forthcoming for up to six months, said a senior industry analyst and a BA source this week.

Analysts are also united in the reason behind Ayling's departure - and again media speculation is accused of missing the mark.

"There is no rush for (BA) to replace Bob immediately," a BA source told World Airline News. "Anyway, whoever is appointed - and there is no hitlist at the moment - there will be at least a three-month period for that executive to work out his or her current contract."

Salomon Smith Barney analyst Andrew Light concurred with this assessment. "I don't expect a replacement for at least six months. (BA Chairman Lord) Marshall is now in control for the interim period until a successor is found. And he is more than capable of running the show," he said. Ayling succeeded Marshall four years ago as chief executive after the retirement of Lord King opened up the chairmanship position.

"Plus, Marshall has a good rapport with staff, which is essential at the moment for BA," added Light.

Low Staff morale lies at the heart of the current problem, according to analysts, and not, as widely speculated, a profit warning in the next few weeks. "Ayling had a poor relationship with staff, a fact that was well publicized," explained Light. "With BA's imminent downsizing (through a cost cutting program announced by Ayling earlier this year), and as a consequence the need to lose staff, the airline needed someone at the front to ease the process through. Ayling just wasn't that person."

Since Ayling took the helm in January 1996, Britain's flag carrier has attempted to become a leaner, more efficient company - a policy the board still intends to implement. The first attempt, in June 1996, resulted in a three-day sick out by flight attendants that cost the carrier far more than the pounds125 million (US$200 million) in lost business. The effect of management threats on the eve of the industrial action that strikers would be sacked and even sued is still felt throughout the airline. An irony of the situation is that since 1996 BA staff levels have risen about 20 percent by the end of 1999 to 63,000.

"The last attempt by Ayling and his management brought morale within BA to an all-time low. The current strategy (Ayling's recently announced pounds1 billion (US$1.6 billion) revamp of the company) stresses customer service, and you need motivated staff to achieve that," said Light. "Clearly Ayling wasn't liked by front line staff, so he had to go."

Supporters are hard to find once a ship has sunk, but Ayling had been seen as a friend of the City of London, and in turn it stood by him during his tenure as chief executive, the culmination of a 15-year career at BA. London stockbrokers stood by Ayling during his staff crisis, his embarrassing retreat on BA's tail fin redesign - a personal campaign by Ayling to curry favor with international passengers - and even the continual drop in profits. As many detractors (and there are many) point out, Ayling took command of a business recording profits of pounds500 million (US$800 million). He left an airline hemorrhaging an expected pounds250 million (US$400 million) this year.

"Ayling was a very good strategist, and the City acknowledged this," said Light. "And to Ayling's credit, revenue is up and the new strategy to reevaluate the target passenger - going for higher-end customers - is working." In a March 10 release, Lord Marshall confirmed that this strategy will be maintained by the airline.

American Foray Last Straw

Another factor in Ayling's undoing was his emphasis on an alliance with American Airlines [AMR]. Industry commentators have criticized (most with the benefit of hindsight) that BA's chief became so embroiled with the continual problems associated with the proposed alliance that he lost sight of the main purpose - to make money.

The problems associated with American Airlines was mostly BA's own doing. When first announced in 1996, the proposed alliance received plaudits from industry and government officials on both sides of the Atlantic. However, BA's refusal to accept a European Union decision to forsake 256 trans-Atlantic slots at London Heathrow Airport (almost half its North American service) in return for approval started a messy slide into what eventually would become a marketing agreement with the oneworld alliance partners, including American.

Heathrow proved to be the decisive battleground in Ayling's (and BA's) demise from potential greatness to international villain. The failure of bilateral talks between the United Kingdom and the United States to establish new, more liberalized air travel between the two countries, which stumbled from one farcical position to another, has been placed solely at BA's feet, its unwavering commitment to its slots at Heathrow, and its influence over the British government during the negotiations. The carrier was in turn punished by the U.S. government (lead critic of BA) which rejecting an antitrust application made by American and BA. A codeshare application currently under consideration by the U.S. Department of Transportation is also in jeopardy should the next round of talks fail to resolve the air accord impasse, according to comments made by Transportation Secretary Rodney Slater during a House Transportation and Infrastructure subcommittee hearing in January.