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After nearly six years at Continental Airlines Inc., 39-year-old Jennifer Vogel was promoted to general counsel in May. It was just in time to sweat countless summer nights and weekends preparing a proposed $320 million spinoff of Continental Express, the company’s regional air carrier. Finally, the week of Sept. 10, the prospectus for the offering was ready — and the company’s top brass gathered in New York City to start the road show. All Vogel’s hard work seemed about to pay off. Except that it didn’t. Instead, on Sept. 11, a blue-skied Tuesday morning, terrorists crashed planes into the World Trade Center, a field in Pennsylvania and the Pentagon. Plans for the Continental Express IPO were shelved. The Federal Aviation Administration temporarily suspended all U.S. air traffic. A strange lull stalled the nation as everyone tried to grasp the meaning of what had just happened. And when the airports reopened, fear of flying meant that planes took off half full. Airlines, already struggling financially before the attacks, lost billions. On Sept. 14, Continental Chief Executive Officer Gordon Bethune announced that the company would furlough 12,000 employees, or 20 percent of its workforce. The mass layoff had not been planned pre-attack, says Vogel. And the decision to let so many go, she adds, was heartbreaking — because it meant hardship for the workers and because of Continental’s history on this sensitive issue. The company tried to soften the blow by offering severance to all its laid-off employees, even though a clause in its union contracts let it off the hook for severance during emergencies. Continental has made enormous strides since the bad old 1980s, when Frank Lorenzo was CEO and labor relations got very nasty. For the past three years the company has earned a coveted spot on Fortunemagazine’s “100 Best Companies to Work For” list. Then, after the terrorist attacks, Continental was the first airline to slash its staff. A number of other major carriers soon did the same. But Southwest Airlines Co., albeit much smaller, vowed not to lay anyone off, and, at press time, hadn’t. Vogel, on speakerphone from her office at Continental’s Houston headquarters, says that the company acted quickly because it had investors’ interests — and workers’ well-being — in mind. “Continental has a very open and honest communication policy with our employees,” she says. Glenn Engel, an airline industry analyst at The Goldman Sachs Group Inc., who covers the company, sees it differently. Continental’s swift response, he says, was a “political move to show the government that there was an urgency” — the airlines would need a bailout to save them from the disastrous financial impact of Sept. 11. Whatever Continental’s reasoning, the U.S. government came through. It pledged $15 billion in direct aid and loans to the airline industry. Of that, Continental is entitled to $430 million, Engel says. None of that money was earmarked by Congress to protect employees. Continental says it needs to use the aid to stay afloat so it won’t have to file for bankruptcy and lay off thousands more. Jim Corridore, an airline analyst with Standard & Poor’s, says that the airline’s decision not to use any of the federal funds to “save a soul,” has disappointed many in the industry — not to mention the employees. Continental did, however, decide not to invoke a force majeure clause — a clause in contracts which allows parties to break certain terms of an agreement in the event of an emergency — in its union contracts. Invoking the clause would have relieved Continental of its obligation to pay severance to unionized workers. The company estimates that the decision to pay both union and nonunion employee severance will cost a total of $60 million. The outlay was enough to persuade unions of Continental’s goodwill, despite the layoffs. Rob Black, spokesman for the International Brotherhood of Teamsters, says that the decision to pay severance made Continental stand out. Immediately after the Sept. 11 attacks, other airlines were not feeling as generous. American Airlines at first announced that it would invoke the force majeure clause, but — after coming under heavy fire from the unions — retreated and agreed to pay the severance. Continental CEO Bethune announced the mass layoff, then headed to Washington, D.C., to lobby for financial support from Congress. In Houston, Vogel and Michael Campbell, head of human resources and labor relations, went to work on the layoff plan. Pressured by the unions, they raced to identify as quickly as possible the employees to be furloughed. They also put together a program that would offer financial incentives for employees willing to leave the company voluntarily. And they devised an “early out” retirement program. The goal: to whittle away at the 12,000 workers Continental needed to cut. At press time, 3,500 employees had opted to leave the company voluntarily. Vogel and Campbell also started talks with representatives from the Airline Pilots Association, Teamsters and the International Association of Machinists and Aerospace Workers. Together these unions represent roughly 35 percent to 45 percent of Continental’s ranks. Although negotiations are ongoing, Carla Winkler of the machinists and aerospace workers union — which represents Continental’s flight attendants — says that the airline seems ready to comply with its contractual obligations. Clearly, Continental is different today than in 1983. Back then former CEO Lorenzo provoked a strike by cutting wages. He also ruffled feathers by declaring bankruptcy and breaking all of the company’s union contracts. By the time Lorenzo left Continental in 1990, his reputation for bad labor relations was the stuff of legend. Even after his departure, the company went through rough times, narrowly escaping a second bankruptcy. In 1994, Bethune arrived and set out to create a team-oriented company culture. He earned the trust of the airline’s 56,000 employees (before September’s layoffs) and their union representatives. “[Bethune's] dealing with the Teamsters has been fair and aboveboard and certainly shows the respect the unions and the workers deserve,” says the Teamsters spokesman, Black. Bethune began a profit-sharing program for employees, and rewarded workers for attaining companywide goals, including on-time arrivals and departures. Those efforts paid off in a number of ways. Customer service improved dramatically. Passengers started coming back. The results for the airline’s bottom line were impressive. This year, before Sept. 11, Continental was poised to be one of only three airlines to make a profit, says Standard & Poor’s Corridore. Of course, all that has changed now. On the first day of trading after the attacks, Continental’s shares fell by $19.69, effectively slicing its stock price in half. It has since sunk even lower, trading at $16.88 on Oct. 22. But Continental execs promise they won’t return to the wage-slashing ways of Lorenzo in order to survive. “We’re looking to cut costs [overall], not just heads,” says Vogel. Continental’s CEO Bethune and President Lawrence Kellner have pledged to forgo their pay for the rest of the year. In 2000 Bethune and Kellner took home $5.5 million and $3.7 million respectively, according to the company. As for Vogel: She is still getting paid, but she’s taken what she calls a “dramatic” cut. And she’s back to working nights and weekends. This time, though, she’s busy, as she puts it, “dealing with issues, from a purely legal perspective, that no one has ever dealt with.” That includes figuring out how much information about her customers is appropriate to share with the FBI, CIA and other officials searching for terrorists. Nothing in her background prepared her for this, says Vogel. The same goes for the rest of us.
Continental Airlines Inc. Headquarters: Houston 2000 Revenue: $9.9 billion 2001 Revenue (first half): $4.7 billion Chairman and CEO: Gordon Bethune President: Larry Kellner VP Legal and General Counsel: Jennifer Vogel Employees: 44,000 (as of Sept. 15) Law Department: 17 attorneys Outside Employment Counsel: Various

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