By New Times Staff
By Stephen Lemons
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By Monica Alonzo
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By New Times Staff
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Franke joined the board of directors of mining monolith Phelps Dodge in 1980. In the next few years, saddled with high production costs and low worldwide copper prices, the company reached the point where it was losing $25 million a quarter.
In 1984 the company was forced to remake itself to survive, slashing costs and diversifying. Franke did not help draw up the restructuring plan, according to Phelps Dodge spokesman Tom Foster, although he did sit on the board of directors that approved it.
Similarly, Franke joined the board of Circle K in 1984, six years before the company filed for bankruptcy protection, and sat while the convenience-store chain undertook a highly leveraged rapid expansion that ultimately brought it down.
After the company filed for Chapter 11 protection, from which it has yet to emerge, Franke was named to head the special committee charged with reorganizing the company.
At Valley National Bank, Franke was instrumental in helping the bank hire a new president in late 1987 and early 1988. But the process was merely a change of leadership, not a restructuring as some press accounts have reported.
The bank did later hit financial troubles, its worst year coming in 1989, and Franke sat on the board as managers tried to turn the bank around. He left the Valley National Bank board in 1991.
Through his web of directorships, and as president of his own company, Franke naturally has helped himself while helping others. According to a 1990 statement of his income, Franke was earning more than $9,000 a month at the time in director's fees, in addition to a salary of more than $40,000 a month from his company, and investment income from $1.2 million in stock holdings.
Now Franke finds himself tapped by Symington to preside over another troubled company, America West. His greatest accomplishment to date has been using the personal contacts he built during the years to drum up the $8 million from Phoenix investors.
The benefit of the money Franke raised is slight given the enormity of America West's financial problems, parties to the bankruptcy agree, although the psychological payoff is helpful.
"Obviously, in terms of the dollar impact on the operations of the airline, you wouldn't call it major," says Mark Nadeau, an attorney for equity holders in the bankruptcy. "But in terms of what it signifies to other potential investors . . . it is a significant contribution."
Only with substantial investment, perhaps as much as $100 million in new money, will the airline make it out of bankruptcy, analysts say, and a show of hometown support shouldn't hurt.
(That same thinking is partially responsible for a recently launched Phoenix Chamber of Commerce campaign encouraging local businesses to book their travel on America West.)
But boosterism aside, Franke and America West president Mike Conway need to find real cash, lots of it, if the airline is to survive, and that task will not be accomplished on hoopla alone.
@body:Hanging in a frame in the reception area outside Franke's new office is a tee shirt from happier times at America West, when the company was aiming to serve places like Japan, Mexico, New York and many others. It proclaims, "We're in the Majors Now."
But they're in bankruptcy now, and have no apparent plan for getting out.
Inevitably, America West's woes lead to comparisons with Dallas-based Southwest Airlines, which piled up record profits, serving many of the same markets, while America West careened into bankruptcy.
Southwest, in fact, can even claim to have taken over America West's home base, since it now carries more passengers in and out of Phoenix Sky Harbor International Airport than America West does.
What Southwest did, analysts and observers agree, was expand intelligently. America West, meanwhile, stacked debt atop debt in the 1980s trying to become an instant mega-airline like American or Delta by continually stretching itself farther and farther across the country.
Southwest was content to stay small, when viewed in the context of national airlines, but to become dominant in the markets it did serve.
Even after filing bankruptcy, America West opened a hub in Columbus, Ohio, which has yet to make money, to some an unthinkable example of the airline's grandiose, but flawed, vision.
"Southwest is small but critical in the markets they serve," says Goldman Sacks analyst Glenn Engel. "America West seemed focused on getting bigger everywhere rather than focusing its resources on a few places and being important. It seems more like they were building an empire than a system."
Southwest, in short, had a solid business plan. America West didn't. It still doesn't.
Remarkably, critics say, even after more than a year in bankruptcy, the airline has yet to define the new mission that virtually everyone agrees is crucial to its success. Will it be a no-frills airline like Southwest, banking on profits from lots of flights with low fares? Or will it be a full-service carrier serving longer routes and offering more amenities than Southwest?
"The thing we need to put our focus on is what is the mission of this airline," Franke says. "It's grown so rapidly, and it's done so at the expense of its balance sheet. I'm not sure management and the marketplace know what we are. If you were to walk out here and ask several people what is this airline, what is its objective and its mission, I suspect you'd find some difficulty getting an answer to that question."
Now the airline is a mishmash of national and regional service, analysts say. Since entering bankruptcy it has cut some service--including the Japan junket--but added other routes. It has lowered its operating costs, including freezing and cutting salaries. It is now in the process of cutting its airline fleet from 102 planes to 86.
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