What the New Jersey bridge scandal has to do with an airline CEO

Read the Full Transcript

• GWEN IFILL:

  The announcement took the airline industry and the business world by surprise. The CEO of United Airlines resigned after the markets closed yesterday amid a federal investigation.

  The inquiry focuses on potential favors he may have granted for the former head of the New York and New Jersey Port Authority.

  Jeffrey Brown picks up the story from there.

• JEFFREY BROWN:

  The investigation reportedly was looking into whether United had restored flights from Newark, New Jersey, to Columbia, South Carolina, even though those flights were losing money and had been discontinued.

  Columbia is near the weekend home of David Samson, former chairman of the Port Authority. United, in return, allegedly wanted improvements done at Newark Airport, which was overseen by Samson.

  United's CEO, Jeff Smisek, had led the airline since it merged with Continental in 2010, but that merger has been anything but smooth. Yesterday, amid the new turmoil, Smisek and two other United officials resigned.

  Scott Mayerowitz covers this for the AP, and George Hamlin is an airline industry analyst and consultant.

  Welcome to both of you.

  Scott Mayerowitz, let me start with you.

• SCOTT MAYEROWITZ, Associated Press:

  Trading favors, cronyism, inside dealings, it's quite a tale. Tell us a little bit about the alleged dealings here. I think this is one of those scandals that started with the closing of a few lanes on a bridge and has now led to the toppling of the CEO of the second largest airline in the world.

  We look at this and, basically, as you mentioned, the flights were one of the issues. United wanted more improvements to its airports and also wanted to get a direct rail link from Wall Street to Newark. And it appears, allegedly, that executives were willing to do whatever it took to make the Port Authority officials happy so they would approve these changes.

• JEFFREY BROWN:

  And all of this is flowing from this prior investigation that our viewers will remember from a couple of years ago involving Governor Chris Christie and some of his — or at least some of his aides. SCOTT MAYEROWITZ: Yes. And this all goes to the Port Authority of New York and New Jersey. It doesn't just operate the three airports. But they pretty much control all the bridges, tunnels and many of the roads in the region.

  And there were political allies of Governor Christie who allegedly shut down some ramps to the George Washington Bridge, one of the busiest bridges in the region, if not the nation, and a whole investigation was started around that and has now led to questions about what the interactions were between United and the officials at the Port Authority. And who knows where this is going to go next.

• JEFFREY BROWN:

  Well, where are we in this investigation? Because these resignations came yesterday before anything had really been made public, right, certainly before any action by the federal authorities.

• SCOTT MAYEROWITZ:

  That's right.

  Back in February, United disclosed that some of its executives had received subpoenas from the federal government. They went ahead at the same time and said they were starting their own internal investigation. And then, yesterday, they abruptly announced the dismissal of their CEO, plus two senior executives in the government affairs division of the airline.

  They didn't say what their investigation turned up exactly, but just said, because of the results of that investigation, these three executives, including the CEO, were leaving the airline.

  So the real question is, what did they find out, and what does the federal government have that they're looking at also?

• JEFFREY BROWN:

  Now, George Hamlin, there had already been calls for Jeff Smisek to resign, but for a completely different reason, right, because of the aftermath of the merger with Continental.

• GEORGE HAMLIN, Airline Industry Analyst:

  Well, yesterday, lost in all this noise was the fact the computer system had another meltdown. I think that's the third of this year and the fifth overall.

  Yes, there has been discussion of this. It's been five years. Why isn't it fixed?

• JEFFREY BROWN:

  Tell us about it. What have been the problems that — because there was a lot of hope originally, right, that there might be a good mix between United and Continental.

• GEORGE HAMLIN:

  Yes, this is one of the mergers that has created the U.S. big three legacy carrier array.

• JEFFREY BROWN:

  And I, for one, thought the Smisek team had gone a good job at Continental. We all expected good things at United. Now, masking that to some degree, United went through a bankruptcy, it was very lengthy, took several years. And my opinion is, they didn't get the costs down as much as they needed to. Cost in terms of?

• GEORGE HAMLIN:

  Operating costs.

• JEFFREY BROWN:

  Operating, labor. GEORGE HAMLIN: Personnel — personnel in particular.

  The previous management basically also didn't order any new aircraft. They didn't invest in the business, so that to some extent, the new team may have been walking into something where, fine, it was kept alive and in working order, but may not have been the best acquisition in that respect.

• JEFFREY BROWN:

  Now, you mentioned even yesterday yet another computer glitch.

• GEORGE HAMLIN:

  And some of that of course is trying to merge computer systems, but it's five years.

• JEFFREY BROWN:

  So now there's a new CEO who has been named, Oscar Munoz. And he's been a member of the United board to this point. What's the challenge for him? What would be next?

• GEORGE HAMLIN:

  Well, the challenge for him, he has pretty diverse experience. I think he had been in organizations that worked with consumer finance. He was with Sea-Land in the freight transportation business, which led to the CSX railroad.

• JEFFREY BROWN:

  I don't see in his background a lot of public contact, person-to-person type of experience, but he has got good solid experience running a very large, heavily unionized transportation company. And people I talked to in the industry, nobody has anything bad to say about him, and I have heard some very good things as well. Scott Mayerowitz, you cover the industry. What do you hear about him? What do you think is the big challenge for United now?

• SCOTT MAYEROWITZ:

  I think the biggest challenge for United is getting some of those loyal passengers back.

  If you look at Delta, for instance, they are right now boasting about having the best on-time performance out there in the industry of the big three airlines. And United has been lagging behind there. And they have really annoyed many of these frequent flyers who spend tens of thousands of dollars a year with the airline. And they need to come down and stop having those computer outages, have flights on time, and have flight attendants and gate agents who are happy and interact with passengers.

  That is going to be a very big challenge for him coming in. But as George said, he does have a great experience in the transportation and logistics industry. And if there's anything about airlines, they are very complicated logistical organizations, so hopefully he will be able to come in and try to figure some things out there.

• JEFFREY BROWN:

  And, Scott, do you hear anything yet about how any of this may affect Governor Christie, whether — any speculation that you're picking up already?

• SCOTT MAYEROWITZ:

  That's been one of the questions I think from day one in this investigation, was, how high up does it go? So far, no one has linked anything directly to the governor.

• JEFFREY BROWN:

  It's probably not going to help his political career right now, but, as everybody has been saying, his poll numbers have nowhere to go but up at this point. All right, Scott Mayerowitz and George Hamlin, thank you very much. GEORGE HAMLIN: Thank you.

• SCOTT MAYEROWITZ:

  Thank you.