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The Honolulu Advertiser
Posted on: Sunday, May 9, 2010

Airline's leader enjoys risk

By Mary Schlangenstein
Bloomberg News Service

Hawaii news photo - The Honolulu Advertiser

Jeff Smisek, left, who will lead the new United Airlines after the merger, is known for his blunt, straightforward approach.

JIN LEE | Bloomberg News Service

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DALLAS The future chief executive officer of the world's biggest airline once surprised his old boss on a Houston highway by pulling alongside in his Infiniti as they were each doing about 130 mph.

"The passenger window goes down, and there's Jeff, a big grin on his face," former Continental Airlines Inc. CEO Gordon Bethune, 68, said in recalling the late-1990s episode involving Jeff Smisek, then the carrier's general counsel. "He waves at me and takes off. Who else would do that?"

Smisek "likes a challenge" and taking risks, Bethune said, whether it's racing on a darkened highway or running Continental and UAL Corp.'s United Airlines after they merge. Smisek, a 55-year-old Harvard Law School graduate, has been leading Houston-based Continental only since January.

"We fully expect that Smisek and his chosen team will be successful in combining the best of each organization," said Douglas Runte, director of Piper Jaffray & Co. in New York. "But the immensity of the challenges should not be underestimated. U.S. aviation history is littered with the debris of airline mergers."

Smisek will have to engineer profits at the combined carrier after annual losses at UAL and Continental in each of the past two years; navigate a U.S. antitrust review for the airline that will be the largest in the industry by traffic; and work with unions that have demanded the ouster of United CEO Glenn Tilton, who is staying on as nonexecutive chairman.

A Continental spokeswoman, Julie King, said an incident such as the 130 mph toll-road drive described by Bethune "wouldn't be unusual" for Smisek, who was hired by the ex-CEO in 1995.

"He's very blunt and straightforward, which I admire," said Bethune, who retired at the end of 2004. "He tells you the truth and tells it to your face."

Smisek displayed those qualities in comments at a March 9 JPMorgan Chase & Co. conference in New York. Former alliance partner Delta Air Lines Inc. "wanted to kill us," Smisek said in explaining Continental's decision to quit Delta's SkyTeam and join the Star Alliance with United.

A U.S. standard on tarmac waiting times is a "very stupid rule," he told analysts, and the day he looks to the government to help the industry, "you should make sure I get fired."

He also signaled his view on mergers, saying he was poised to "bulk up defensively" if Continental felt competitive pressure. That stance was put to the test less than a month later, after press reports that United had renewed talks with US Airways Group Inc. Smisek reached out to Tilton on April 9, the United chief's birthday, to reopen merger conversations.

"I gave Glenn a call and told him I was a much prettier girl," Smisek said in an interview.

Smisek voted with then-CEO Larry Kellner to end merger talks with United two years ago. At that time, Continental said the risks outweighed the potential rewards. Smisek has since said the decision was the correct one "at that point in time."

One of his immediate tasks will be integrating labor groups. The Air Line Pilots Association represents both carriers' pilots, whose leaders have kept in contact since the failed 2008 merger talks.

While Bethune's collaboration with unions helped smooth relations, those ties have frayed at United, with a Machinists union local denouncing a "canyon of distrust" with management. The union represents Continental flight attendants and seven United work groups, all in contract negotiations.

"We definitely want to be brought in early in the process," said Joseph Tiberi, a Machinists spokesman. "That's one way to avoid the kind of problems that have hurt other mergers."

US Airways still hasn't reaped all the planned savings from its 2005 merger with America West Holdings Corp. because pilots and attendants haven't agreed on unified contracts, leaving them under two sets of work rules.

Continental was emerging from the overhang of its second bankruptcy in a decade when Smisek joined the carrier. The son of an Air Force officer, he was born in Washington and grew up in California, Germany and Texas. He graduated from Princeton University with an economics degree and then from Harvard Law, and was working in corporate and securities law for Vinson & Elkins LLP in Houston when Bethune recruited him as general counsel.

"My main problem was to convince him to quit a really good, lucrative law practice and join a failing company," Bethune said.

Smisek led Continental's battle in 2001 to buy back a majority stake in the carrier from Northwest Airlines Corp. and settle a U.S. Justice Department antitrust lawsuit against the two carriers. He later served as president and chief operating officer before being named CEO, chairman and president when Kellner left at the end of 2009 to start a private-equity firm.

Among the changes Smisek has pushed is a March plan to end free meal service in coach cabins on almost all domestic flights. That month, Continental said it would join other airlines in charging to reserve seats that offered more legroom.

"The same skills that made him a good lawyer made him good at other things conviction, integrity, smarts and communication skills," ex-CEO Kellner said. "He just happened to be in law for awhile."

Smisek owns a Porsche Turbo 911, which carries a list price of $132,800, and declined to join Kellner in switching to a Toyota Camry hybrid to set the pace for Continental's "green" efforts.

"In classic Jeff style, he went out and found a BMW Diesel 3 green car," Kellner said. "He loves fast cars, but he always seems to find a way to fit the company's goals, too. He just wasn't willing to get a Camry hybrid."