British Airways Case

The BA Culture, 1960-1980

British Airways stumbled into its 1979 state of inefficiency in large part because of its history and culture. In August 1971, the Civil Aviation Act became law, setting the stage for the British Airways Board to assume control of two state-run airlines, British European Airways (BEA) and British Overseas Airways Corporation (BOAC), under the name British Airways. In theory, the board was to control policy over British Airways; but, in practice, BEA and BOAC remained autonomous, each with its own chairman, board, and chief executive. In 1974, BOAC and BEA finally issued one consolidated financial report. In 1976, Sir Frank (later Lord) McFadzean replaced the group division with a structure based on functional divisions to officially integrate the divisions into one airline. Still, a distinct split within British Airways persisted throughout the 1970s and into the mid-1980s.

After the Second World War, BEA helped pioneer European civil aviation. As a pioneer, it concerned itself more with building an airline infrastructure than it did with profit. As a 20-year veteran and company director noted: "The BEA culture was very much driven by building something that did not exist. They had built that in 15 years, up until 1960. Almost single-handedly they opened up air transport in Europe after the war. That had been about getting the thing established. The marketplace was taking care of itself. They wanted to get the network to work, to get stations opened up."

BOAC had also done its share of pioneering, making history on May 2, 1952, by sending its first jet airliner on a trip from London to Johannesburg, officially initiating jet passenger service. Such innovation was not without cost, however, and BOAC found itself mired in financial woes throughout the two decades following the war. As chairman Sir Matthew Slattery explained in 1962: "The Corporation has had to pay a heavy price for pioneering advanced technologies."

Success to most involved with BEA and BOAC in the 1950s and 1960s had less to do with net income and more to do with "flying the British flag." Having inherited numerous war veterans, both airlines had been injected with a military mentality. These values combined with the years BEA and BOAC existed as government agencies to shape the way British Airways would view profit through the 1970s. As former director of human resources Nick Georgiades said of the military and civil service history: "Put those two together and you had an organization that believed its job was simply to get an aircraft into the air on time and to get it down on time."

While government support reinforced the operational culture, a deceiving string of profitable years in the 1970s made it even easier for British Airways to neglect its increasing inefficiencies. Between 1972 and 1980, BA earned a profit before interest and tax in each year except for one. "This was significant, not least because as long as the airline was returning profits, it was not easy to persuade the workforce, or the management for that matter, the fundamental changes were vital. Minimizing cost to the state became the standard by which BA measured itself. As one senior manager noted: "Productivity was not an issue. People were operating effectively, not necessarily efficiently. There were a lot of people doing other people's jobs, and there were a lot of people checking on people doing other people's jobs" . . . As a civil service agency, the airline was allowed to become inefficient because the thinking in state-run operations was, "If you're providing service at no cost to the taxpayer, then you're doing quite well."

A lack of economies of scale and strong residual loyalties upon the merger further complicated the historical disregard for efficiency by BEA and BOAC. Until Sir Frank McFadzean's reorganization in 1976, British Airways had labored under several separate organizations (BOAC; BEA European, Regional, Scottish, and Channel) so the desired benefits of consolidation had been squandered. Despite operating under the same banner, the organization consisted more or less of separate airlines carrying the associated costs of such a structure. Even after the reorganization, divisional loyalties prevented the carrier from attaining a common focus. "The 1974 amalgamation of BOAC with the domestic and European divisions of BEA had produced a hybrid racked with management demarcation squabbles. The competitive advantages sought through the merger had been hopelessly defeated by the lack of a unifying corporate culture." A BA director summed up how distracting the merger proved: "There wasn't enough management time devoted to managing the changing environment because it was all focused inwardly on resolving industrial relations problems, on resolving organizational conflicts. How do you bring these very, very different cultures together?"

Productivity at BA in the 1970s was strikingly bad, especially in contrast to other leading foreign airlines. BA's productivity for the three years ending March 31, 1974, 1975, and 1976 had never exceeded 59 percent of that of the average of the other eight foreign airline leaders. Service suffered as well. One human resources senior manager recalled the "awful" service during her early years in passenger services: "I remember 10 years ago standing at the gate handing out boxes of food to people as they got on the aircraft. That's how we dealt with service." With increasing competition and rising costs of labor in Britain in the late 1970s, the lack of productivity and poor service was becoming increasingly harmful. By the summer of 1979, the number of employees had climbed to a peak of 58,000. The problems became dangerous when Britain's worst recession in 50 years reduced passenger numbers and raised fuel costs substantially.

Lord King Takes the Reins

Sir John (later Lord) King was appointed chairman in February of 1981, just a half-year before Roy Watts's unambiguously grim assessment of BA's financial state. King brought to British Airways a successful history of business ventures and strong ties to both the government and business communities. Despite having no formal engineering qualifications, King formed Ferrybridge Industries in 1945, a company which found an unexploited niche in the ball-bearing industry. Later renamed the Pollard Ball and Roller Bearing Company, Ltd., King's company was highly successful until he sold it in 1969. In 1970, he joined Babcock International and as chairman led it through a successful restructuring during the 1970s. King's connections were legendary. Hand-picked by Margaret Thatcher to run BA, King's close friends