Who needs federal bailouts of troubled major air carriers when you have David Bronner, chief executive officer of the Retirement Systems of Alabama and its $25 billion in assets?
The system's purchase of 37.5% of US Airways Group Inc., approved by federal bankruptcy court, is not the kind of investment other financially strapped airlines ought to seek. But it's better for the country that US Airways get help this way instead of going to the governmental trough for more subsidies. The Alabama system now will play a key role in trying to revive the airline, taking a significant risk in the hope of earning a substantial return.
Let's hope Mr. Bronner resists the temptation to seek federal assistance for the airline. Private investment such as this should add more discipline to management. But so far Mr. Bronner is leaving the managing up to the current management team. Ultimately the Alabama system will bear a major share of the responsibility for how well management does. As Mr. Bronner has noted, "I only change management when there's a problem."
The system paid $240 million, less than 1% of its assets, for the stake. It also is providing $400 million interim debtor-in-possession financing. Mr. Bronner believes the system could earn a $1 billion return over five to seven years, guessing the industry "will turn around once we get through with Iraq." Well, US Airways and other major carriers such as UAL Inc. were in deep financial trouble before Sept. 11 and the war on terrorism. The problems are more fundamental than anxiety over security; it's troubling that his comments don't acknowledge them.
But Mr. Bronner should understand the opportunities and dangers in the airline sector, as he has made other investments in the business over two decades, including $1 billion in equipment trust certificates in major air carriers. Among those certificates are $340 million with US Airways, which, he has noted, returned more than 11% per year.
Mr. Bronner has a record of making unusual investments, from developing the Robert Trent Jones Golf Trail in Alabama to the $2.5 billion investment in taking control of Raycom Media Inc. A US Airways deal that ultimately fails doesn't necessarily mean that was a bad decision. But Mr. Bronner has to be prepared for the scrutiny of the system's participants and Alabama taxpayers and keep them fully informed of the progress of the investment, including measuring it against an appropriate benchmark for return and risk.
