Estudiante

STUART C. GILSON SAM J. KARAM

Continental Airlines—1992 (Abridged)
This business is intensely, vigorously, bitterly, savagely competitive.

On the evening of Thursday, November 5, 1992, Bob Ferguson, president and CEO of Continental Airlines Holdings, Inc. (henceforth “Continental”), sat in his Houston office and reflected on recent events.1 Since December 1990, the airline had beenoperating under Chapter 11 of the U.S. Bankruptcy Code. In 1990 the company had reported a record loss of $2.3 billion, following three years of losses. Financial problems were rampant throughout the U.S. commercial airline industry, with almost a third of airline capacity operating in Chapter 11. Ferguson was greatly concerned about the negative impact that the bankruptcy was having on Continental’sfinancial resources and competitive position.

Do

No

The Company

The company that would eventually become known as Continental Airlines was established in 1934 to provide mail service between Colorado and western Texas. Over the next forty years, the company grew to become one of the world’s largest carriers, flying to hundreds of destinations in the U.S. and abroad, and operating a fleetof several hundred aircraft. In late 1980, a financially weakened Continental became the object of a hostile tender offer by Texas Air Corp., an airline holding company controlled by Frank Lorenzo. Over the bitter objections

1 Continental Airlines Holdings, Inc. was a publicly traded holding company. Its principal operating subsidiary was Continental Airlines.________________________________________________________________________________________________________________ This is an abridged version of an earlier case written by Professor Stuart C. Gilson and Research Associate Sam J. Karam. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.Copyright © 1993 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic,mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use only by Juan Avila Bustos at Universidad Javeriana until March 2013. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

tC

Just as its options seemed to be running out, the company received five proposals fromoutside investors during the summer of 1992 to infuse it with new capital. Now, only three days remained until the company had to go before the bankruptcy judge and present a reorganization plan. Any outside investment in Continental would have to be included as part of the plan and obtain the approval of the company’s creditors.

op yo

rP os t
9-294-058
REV: APRIL 17, 2007

— RobertCrandall CEO of American Airlines, 1992

294-058

Continental Airlines—1992 (Abridged)

of Continental’s unionized employees, Texas Air ended up acquiring a 51% interest in the company. About three years later, on September 24, 1983, Continental filed for Chapter 11 bankruptcy protection. Within days, the airline abrogated its union contracts, shed 65% of its workforce, and resumed flying on amuch-reduced network of routes. Continental returned to profitability within a year and emerged from bankruptcy in 1986.

In the latter half of the 1980s, Texas Air embarked on an ambitious growth strategy that involved buying up other airlines. By the end of the decade, Continental Airlines had become the fifth-largest U.S. carrier (after American, United, Delta, and Northwest). Exhibit 1...