The sight of a Scotsman sitting behind the desk once occupied by Aristotle Onassis, whose picture still dominates the chief executive's office, is striking. Yet the contrast between the Greek billionaire shipping magnate, who once owned Olympic Airways, and Rod Lynch, a former British Airways manager contracted to engineer a turnaround, gives the clearest indication of how far the airline has fallen from its pinnacle.
Like Onassis, the flag carrier has enjoyed a special place in Greek life. Olympic is seen as an ambassador and an icon, even if the perception of the airline is disproportionate to its real value to the state. It was inconceivable that despite a history of damaging political interference, a mounting debt burden and falling service standards, the airline would have been allowed to go to the wall.
Yet, after three failed restructuring plans, even more management changes and $1.5 billion in state aid, the promised revival had not been delivered and the European Commission (EC) was running out of patience. The Greek Government was left in no doubt that drastic action was required if it were to meet European competition demands. Having exhausted local resources, and under pressure from the EC, it had no choice but to look outside the country for expertise to turn round the fortunes of the flag carrier.
There was no shortage of international consultants willing to take up the challenge of managing Olympic, but in the end only AMR's Sabre and BA Speedwing were left to fight it out. The latter won and put together a formidable team, headed by Lynch.
Now at the helm of Olympic, Lynch played a major role in preparing British Airways for privatisation, and later became managing director for Air Europe. His current task is arguably his most ambitious - to turn around the state-owned carrier operationally and financially, and to oversee an eventual move into the private sector. He has been given three years to complete the job, although wisely, Speedwing has the option to extend its tenure if necessary. Initially there was deep hostility towards him when it was announced he would be in charge of Olympic: there was even rioting in the streets.
Speedwing's brief was to go over an existing recovery plan to check if it was still appropriate to Olympic. "The company suffered from too much optimism and too much theory. We were looking at a plan that was out by $100 million in its forecast for 1999,"recalls Lynch. "In the end we opted to write a new one." The significance of the new business plan is that it not only has to meet the demands of the Greek state, but must also satisfy the Commission in Brussels. The plan was submitted to the EC on 9 November.
But if Lynch and his team thought that they would have the luxury of only concentrating on evaluation and diagnostics, they had a rude awakening. "Within two weeks [from the start in May], the whole airline was in our lap. After being sworn in as civil servants, we had no option but to wade in and start doing things immediately, so in addition to evolving this plan and writing it up, we have also been running the carrier at the same time."
The team found the books in a mess. Lynch says that they still have not been sorted out completely, but are in a much better condition than they were. The lack of information technology (IT) and an outdated accounting system did not help the new team's job of assessing the airline's finances. "Until this year, Olympic accounted for revenue just once a year, six months after the year's end. So for the first few weeks we had a feeling of flying blind in thick fog with mountains all around," says Lynch. It was fairly debilitating as well, in that no matter what you do, you might be looking at a huge money pit. We have gleaned enough information now to know that this is not the case."
Lynch says Olympic has now produced its first audited result for 1998, and that a full budget is in place for the new operating year. A state-of-the art revenue management system was introduced on 1 January to allow Lynch and his colleagues to determine Olympic's revenue streams more precisely.
Get the cash flowing
"Although it showed a profit in 1998 after exceptional sale of assets, at the operating level Olympic is still loss making," he says. "Our first priority was to get a grip of Olympic's cash flow, to see what its real assets and liabilities were, and get a handle on finances fast. We've done that and we are now going through a process of providing a cash buffer through this winter. Fortuitously, we've got aircraft to sell."
He plans to sell four Boeing 747s, because four Airbus A340s already on order have been delivered. "Whether we like it or not, we've got to dispose of assets," he adds. We're not in the business of selling assets to finance losses, but the cash is there to provide an operating cushion through the winter. We have earmarked a 'new for old' replacement policy, which will see us rationalising Olympic's very varied fleet. Eight types of jets out of a fleet of 34 is an accident of history. We want to get that down to two or three types and we want to do it quickly."
The final shape of the fleet awaits the outcome of an assessment of the company's network. While it appears that the carrier will continue with the small number of long-haul routes, Lynch sees Olympic's future as a predominantly regional carrier, with 90% of its route structure continuing to focus on the medium range of 2-4 flying hours. This puts the regional markets of the Balkans, Central Europe and the Middle East in Olympic's sight.
There is an existing order for eight 737s due for delivery in March, but Lynch is undecided about whether to go ahead with it. "You couldn't put a cigarette paper" between the Airbus A320 family and the new-generation Boeing 737s, he says. "It depends on the route structure and the conditions of finance. We are going through that process now," he says. "If we walk away from Boeing it will cost us $6 million in lost deposits, but I am delighted to see that Boeing and Airbus are at each other's throat at the moment. We are driving the hardest bargains we can, in terms of owned aircraft and in working with lessors ILFC and GECAS and others on how we can put a package together of owned and leased aircraft."
Along with the four Boeing 747-200Bs, Olympic is selling its two remaining Boeing 727-200s, and both types have already been taken out of service. The carrier has also decommissioned its two leased Airbus A300B4-200s. During January, all long-haul routes will, therefore, be flown by the A340s and two A300-600Rs, with 11 B737-200s, one B737-300 and 13 B737-400s providing short-haul services. In addition, Lynch is proposing to acquire up to 24 new short-range aircraft for the mainline fleet to replace its 737-200s.
Balancing staff numbers
The most surprising recommendation in the new plan was that there were to be no redundancies. While staff numbers once ballooned to 16,300, says Lynch, permanent staff now number 6,700, and the seasonal labour force totals 3,000. Around 40% of these are involved in ground handling for other airlines. "If you strip all that out and look at the airline-related manpower, Olympic is in line with the European average," says Lynch. "Some 30% of Olympic's costs are down to the staff, but as staffing costs are 40% below the average, that still gives us a huge competitive advantage. The problem with Olympic is not the numbers of staff, but the wrong kind. We don't have people who understand IT, we don't have enough skilled maintenance personnel, we don't have enough simulator engineers, we lack people in avionics. So inside these roughly right numbers, we have the wrong balance and we have to recruit, that's the paradox."
The Greek Government has made it clear that it sees no future for Olympic in the state sector. But with elections due in March, how such a sensitive issue as privatisation is presented could influence whether or not the present socialist administration is returned to office. But Lynch says there will be no change in policy towards Olympic, because the EC's attitude precludes further government interference. "Although the government has given no specific details and timescale, I would expect in the long run that Olympic will find its way 100% into the private sector, although this is purely my view."
BA has made no secret of its view that Olympic would make a good strategic and alliance partner and that it has an option under the management contract of taking up to 20% of the airline - although Lynch makes it clear that BA has no wish to take a controlling stake. Before the three-year management contract has ended, the government will seek a strategic airline investor and sell a stake to Greek institutional investors. This is likely to be followed by an initial public offering for the remainder of the government's holding, while a small percentage, possibly 6-10%, will be reserved for the airline's employees.
What investors will be expected to fork out awaits a valuation. The prospects are looking good, however, with a robust domestic economy, a new Athens airport opening in March 2001 and the possibility of an early end to delays related to air traffic control following the introduction of full radar coverage over Greek airspace in April 1999.
"If you think about the company as turning over $1bn per annum and if you see, as we do, its growth prospects being very good, better than the European average because of the native growth rate in the Eastern Mediterranean, then over the next two to three years you are looking at a company with a turnover approaching $1.5 billion. On the crudest method of evaluation, that could give a market valuation of the same order, if it traded properly."
Lynch's management style sets him apart from his predecessors. A policy of listening, backed by real action, has won over most of the Olympic staff, and, more importantly, the powerful unions, which have held sway for years. A pledge in the most recent restructuring package to increase staff levels by 1,000, rather than wielding the axe, has endeared him further to employees.
But it was not like this when Lynch first arrived in Athens. He recalls the riots, the burning of the UK flag when he was sworn in by the Greek Parliament, the personal attack as a mob stormed the Ministry of Transport, and a complete refusal by the Hellenic Airline Pilots Association to have anything to do with him. "So I went to the airport, talked to ramp handlers, cleaners, bus drivers, introduced myself and ask how they felt about their job," says Lynch. "It is very difficult to maintain a hate relationship when the guy stands in front of you asking polite questions. I've been to places in my first four months when staff told me that this was the first time that they had seen anyone from the board, let alone the chief executive. They now know that we are here to roll up our sleeves and fix things."
He blames neither the staff, nor the unions for the dire situation Olympic Airways finds itself in. "Plan fatigue is a real issue," he says. "Staff want us to succeed but are cautious after so many false dawns. I think the unions are a result of weak management. If Olympic had been managed in a vigorous and commercial way, I don't think there would be today's strength in the union movement. People in many cases turned to unions in despair, because there was no other focus for communications. There is no doubt the unions form an obstacle to what I am trying to do, but to be fair to them they have built a position of strength by default."
But now a pay deal has been signed, although a government freeze on state employees' pay until the end of the year means this only provides an improvement in non-salary benefits. "We have a deal lasting for two years. This lays the foundation for a longer one which relates all future pay increases to productivity and commits them to supporting us in getting this plan in place and pulling the airline back from the brink. It would be impossible without union co-operation.
Passion for the company
"It saddens me when I hear other professionals say, 'What a mess, what a hopeless case'. Far from it. There are terrific skills within the airline. What it lacks is a decent front end, marketing, distribution, and a good product. The employees have passion for the company and its recovery. You can teach skills, but you can't teach passion. These are the best building blocks you can have," says Lynch. What the company has to do now is set about fixing the problems. He has more than 300 specific sub-programmes, which will be implemented against a fixed time scale over the next two years. This ranges from putting in a modern revenue management system, proper automated spares management, looking at the corporate identity, to disposing of surplus property. "We are covering all the things that need doing," he adds.
Lynch sees this as Olympic's last chance. "Although the airline is getting close to break-even, it is still loss-making, and loss-making means accumulating debts again. Olympic needs to renew its fleet, and complete the move to the new airport, both of which will be expensive. So it has the chance to do better, but it has to grab it with both hands this time and go for it. If it doesn't, it is very hard to see what future Olympic Airways has. And for me, that would be a tragedy."
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From British Airways to the BBC and back
Rod Lynch was appointed chief executive of Olympic Airways in May 1999, after several years in the aviation industry and considerable experience in other fields.
He joined British Airways in 1971 and launched the airline's Shuttle operation in the UK. A number of operational and commercial appointments followed, culminating in Lynch's appointment in 1983 as general manager with responsibility for making BA's Southern Europe region profitable.
He later became managing director of charter subsidiary British Airtours, and subsequently senior general manager for BA's worldwide operations.
Lynch left BA in 1989 and joined Air Europe as managing director. During his time with the charter airline, he was closely involved in the development of franchise operations in Norway, Germany, Italy and Spain.
After the collapse of Air Europe's parent company ILG in 1991, Lynch had a two-year spell at Trusthouse Forte, before resuming his aviation connection with positions as part-time board member of the UK Civil Aviation Authority and later non-executive director of National Air Traffic Services.
He branched out again, spending six years with BBC Resources, a directorate of the British Broadcasting Corporation, most recently employed as chief executive responsible for restructuring.
It was Robert Ayling, BA's current chief executive, who brought Lynch back to the airline industry and close to BA, recommending him for the position of chief executive at Olympic Airways to carry through the Speedwing management contract.
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Jet future for Olympic Aviation
Contrary to local speculation, Olympic Aviation, the Greek flag carrier's domestic and charter arm, will not be closed and will retain its autonomy. However, that will be conditional on re-aligning its activities more closely to fit the parent company's overall strategy, which falls into three categories, says Lynch: feeder services in support of Olympic's Athens hub, developing the secondary hub at Thessaloniki, and launching new routes.
As with Olympic Airways, Lynch aims to simplify Olympic Aviation's 19-strong fleet of ATRs and Fairchild Dornier 228s with two Boeing 717s on order. He wants just two aircraft types in the 50/70/90-seat category and intends to put a heavy emphasis on regional jets for use on longer sectors, mostly to Northern Europe. High operating costs mean the six Dornier aircraft are to go, but Lynch says the more efficient ATRs will be harder to replace.
The proposed fleet changes are part of Olympic's plan to pull out of some of its social services obligations to provide scheduled and contract flights to small island communities. While partially subsidised, they nevertheless remain loss-making. Lynch suggests that other airlines will be given the opportunity to bid for these routes. "I'm not saying Olympic will turn its back on every community in Greece, but if we can't make money on those, we will say so."
Source: Airline Business
