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Hogs and Sharks

While I agree with Nick Will’s premise in “The All
Too Visible Hand” that Washington’s $15 billion bailout of the airline industry was largely unnecessary, I feel the need to at least partially defend my former employer, Continental Airlines.

First, Will points out that Continental reported third quarter earnings last year with the help of its share of the $5 billion direct federal payment. Continental’s net income was $3 million on a revenue base of $2.3 billion-a rounding error.

More importantly, the third quarter earnings cited included less than three weeks of impact from the 9/11 events. Continental reported a massive loss in the fourth quarter and now hopes to return to the black by the second quarter of 2002. This is a company that has been consistently profitable since 1995.

The $5 billion bailout, moreover, was designed to compensate the airlines for the direct expenses incurred from the three-day shutdown of the US airspace. In the short-term most airline expenses (including labor) are fixed. Thus, all airlines continued to make lease payments and pay employees at the same time that future bookings dried up and customers were lining up for refunds. Furthermore, insurance companies swiftly cancelled their policies and refused to price coverage related to acts of war and terror. These costs were borne by airlines and cargo carriers alike, which is the reason FedEx also received payments.
The state of the airline industry was-and is-quite fragile in the wake of 9/11. The truth is the industry has recovered faster than most predicted, but business travel numbers remain weak. While I believe a strong case can be made to support the $5 billion direct payments, the $10 billion loan guarantees (from which America West has already received backing) are much more dubious.

The US airline industry would be healthier if the weakest companies are allowed to fail. The $10 billion loan guarantees will merely postpone the inevitable bankruptcies and consolidation.
-Charles Duncan (OH)

I disagree strongly with the perspective that John
LeBoutillier’s assertions [“Outspoken Alumnus Blames HBS for Enron Debacle, 1/24/02] are grossly misleading. LVDM was not an ethics course. It was an introduction to the fact that some values are important in decision-making but that’s it. And three weeks hardly gives students anything substantive to take away and also sends a signal that these issues are far less important than TOM.

A real business ethics course would introduce different concepts of how to think about what good vs. bad is, how to evaluate these things, what other major ethics thinkers have concluded about these things, and how, as a decision-maker, one might analyze an ethical problem. LVDM did none of this. I took a course on ethics at the Harvard Kennedy School of Government and LVDM does not compare.

Also, I think you greatly overestimate the extent to which ethical issues are brought up and discussed in class. They are brought up very little, if at all. When they are brought up they are treated as peripheral to the discussion at hand. And third, they are brought up in the presence of professors who have no formal training in ethical issues and feel uncomfortable talking about these issues (by their own admission!).
I recommend a book titled Can Ethics Be Taught? by Tom Piper that discusses the teaching of ethics at Harvard Business School. It acknowledges a serious problem and the solutions discussed in the book go far beyond what is currently in place. My point: there is a serious lack of ethics understanding, teaching, discussion, and writing at

HBS-especially in the RC year-and I think your article creates the impression that things are relatively alright when I (and a good many others I know) feel differently. It’s a great piece, it really is…but I just disagree with the thrust of it.

January 28, 2002
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