"We're Not in Turnaround Mode Anymore"

Why departing Continental President Gregory Brenneman considers his trip completed at the twice-bankrupt airline

After helping to craft one of the most successful airline turnarounds in history, Continental Airlines President Gregory D. Brenneman announced his resignation on May 2. Brenneman, 39, insists that reported tensions between him and CEO Gordon Bethune played no part in his decision to return to his private-equity firm, TurnWorks Inc., to focus on dealmaking and investments.

The hyperactive Brenneman, a former Bain & Co. consultant, joined Houston-based Continental (CAL ) in November, 1994, and was named chief operating officer in May, 1995, and president in September, 1996. He was a key player in returning twice-bankrupt Continental to operational and financial health, while vastly improving employee morale. Among major airlines, only Continental and Southwest turned a profit in the first quarter of 2001, when others were pummeled by slowing traffic, soaring fuel costs, and labor disruptions.

Brenneman, taking a break from his golf game, talked to BusinessWeek Dallas Bureau Chief Wendy Zellner after the resignation announcement about the airline business and his future plans. Here are edited excerpts of their conversation:

Q: Why are you leaving Continental now?


I think the company is positioned pretty well.... When I came in for the turnaround, there was just a ton of stuff to do, and things were moving real quick, and we got her turned. I tell everybody, I feel a little bit like John Elway after the second Super Bowl. The management team has grown and is unbelievably talented. We're not in a turnaround mode any more. We're in kind of a maintenance mode.... I think the business is in great shape. It's actually what makes this so nice and so easy.

Q: What are some of the key projects you led at Continental?


The Newark [N.J.] global gateway [a major construction effort at Continental's hub] is almost done. It's ahead of schedule, ahead of budget. In September, train service will start from the airport to midtown Manhattan. That has been a dream of mine from conception through putting it in place. It will change the way travel happens in New York for the next 50 years.

I set a goal a while back of getting our distribution costs down from 21% of revenue to 7%, 8%, 9% of revenue. We're at about 12.5%, but we're well on the way to doing that. What that allows us to do is bring our employees up to industry-standard wages for the new industry contracts, with the money to cover it coming from reduced distribution expenses.

The company is in great shape. There's a great plan to manage both the revenue and the cost side.... It was just a great time to make a transition.

Q: What about the tension that reportedly exists between you and CEO Gordon Bethune? How much tension has there been, and how much was that a factor in your decision to go?


Not at all a factor. Gordon and I have had an unbelievable partnership for six years. A partnership is kind of like a marriage. You go through your ups and downs, but we've always had, and always will have, a real fundamental respect for each other.

Q: What will TurnWorks be focusing on, and what kind of investments do you plan to make?


TurnWorks is a private equity company I set up myself before I came here. The first contract TurnWorks had was actually the turnaround of Continental Airlines. Then, I left to come here full time. Since then, I started and sold Benny's Bagels. Three of my buddies ran the company, and I was the primary equity provider. Some of the guys here invested, and we did very nicely on that.... Because I had a day job, mainly what TurnWorks has been is a general partner for investing in other LBO funds.... I've been looking at a couple of different deals, not hard because I've been working.

Q: Will you be investing in technology companies? Is the tech downturn over?


I'm not smart enough to do technology. What I'll likely do is look for companies in which the fundamental challenge is really a management challenge -- either bringing resources to get something started, like I did with Benny's, or companies that are having some problems and, with some focus, can be turned around. Who knows what will happen out of that? I started doing that out of Bain and ended up as COO of an airline.

Q: Would you invest in any startup airlines?


No way. That's a fast way to turn a small fortune into no fortune. Would I invest in my buddies at Continental? You betcha. I think there's a great future for the company.... It's been a magical six years here, and it's just time for new challenges.

Q: You haven't ruled out taking another CEO spot. [Brenneman was recruited in the past to lead Waste Management and Compaq.] What criteria would you have for taking the CEO job at some other major company?


It would have to be something I looked at and said, "This would be a lot of fun." I love the turnaround aspect of it. The business would have to be exciting.... I think there was an opportunity [at Waste Management]. But I just couldn't get excited about being a garbage guy.

Q: Are you considering any CEO spots now?



Q: What will it take for the airlines in general to get the higher stock-price multiples they've always aspired to? They've shown once again that when the economy goes down, they're not making money, except Continental and Southwest in the first quarter.


There are two airlines that ought to make a great multiple, and one of the two [Southwest] does, so I'm gaming for the other one. The big difference between Southwest and Continental [and other airlines] is just the atmosphere and the attitude of the employees and the way management treats employees. That, in this business, is everything. You can see it every day on every flight, and you can see it drive revenue like you can't believe.

Q: Can it be changed at other airlines?


One of the key points for turnarounds is to clean house. Can you do it with the same attitudes and the same management? I'm not sure.

Q: American Airlines recently won a big victory when a court threw out the federal government's predatory-pricing case. Do you see that decision as a particularly big blow for startup airlines or consumers?


I don't, because I don't think American did anything wrong.... The airline industry is getting very mature, where you have big airlines with big hubs and it's a lot of investment. It's just like the rail business. How many new railroads have you seen started?

Edited by Beth Belton

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