United Aircraft Corporation, Aviation Corporation

 United Aircraft Corporation, 

Aviation Corporation

American company

American Airlines, major American airline serving nearly 50 countries across the globe and a founding member of the oneworld global alliance. Its parent, or holding, company, AMR Corp. (created in 1982), also has holdings in food-catering services, hotels and inns, airport ground-transportation and baggage-handling services, airport maintenance services, and other related businesses. Corporate headquarters are in Fort Worth, Texas.

 

American Airlines developed over the years out of the union or merger of some 85 companies. Two nucleate companies were Robertson Aircraft Corporation and Colonial Air Transport. Robertson Aircraft, first organized in 1921 in Missouri as a general flying service and manufacturer, flew its first mail route on April 15, 1926, between Chicago and St. Louis, Missouri; the pilot on the first flight was Charles A. Lindbergh. Colonial Air, which developed out of a charter service called the Bee Line (formed in 1923), flew mail between New York City and Boston, beginning June 18, 1926. In 1929 these airlines were combined under a holding company, the Aviation Corporation, which was reorganized as an operating company and renamed American Airways, Inc., in 1930. In that year, in the amalgamation of several airlines, the company had routes extending from Boston and New York City to San Diego and Los Angeles, via Cleveland and Kansas City. In 1934, when most U.S. airlines were compelled to reorganize because of new congressional guidelines and the loss of mail contracts, the company thoroughly reworked its routes into an integrated system and was renamed and reincorporated as American Airlines, Inc. Cyrus Rowlett Smith was elected president in that year and, as president or chairman of the board, guided the company’s fortunes until 1968, when he became U.S. secretary of commerce. Returning briefly as chief executive officer in 1973, he retired in 1974.

 

The airline expanded greatly from the 1970s to the ’90s, developing from a basically domestic American airline into an international carrier reaching the Caribbean, South America, Europe, and the Pacific, largely by buying routes of other airlines. In 2001 it acquired the American carrier Trans World Airlines, Inc.

 

In the early 21st century, because of increasing financial difficulties in a struggling airline industry, American Airlines underwent a period of major restructuring, including a decrease in flight routes, a reduction in seating capacity, and employee layoffs and job cuts. In 2008 American Airlines became the first airline to offer full in-flight Internet access in the United States on its Boeing 767-200 aircraft. In 2009 it became the first major airline to partner with the Environmental Protection Agency to develop environmentally friendly business strategies. However, American Airlines continued to struggle financially, and in 2011 the carrier and AMR Corp. filed for Chapter 11 bankruptcy protection. In early 2013 American Airlines agreed to merge with US Airways in a deal that would create the largest U.S. airline.

 

Trans World Airlines, Inc.

American Corporation

Trans World Airlines, Inc. (TWA), former American airline that maintained extensive routes in the United States and to Europe, the Caribbean, and the Middle East. TWA was absorbed by American Airlines in 2001.

 

TWA was formed on July 16, 1930, in the amalgamation of divisions of Western Air Express (founded 1925) and Transcontinental Air Transport (founded 1928). Western Air Express had flown both mail and passengers in its first year of service between Los Angeles and Salt Lake City, Utah (1926), and in 1930 TWA inaugurated coast-to-coast service—Newark, New Jersey, to Los Angeles in 36 hours with a stopover in Kansas City, Missouri. In 1934 Western Air Express again became independent (later to be called Western Air Lines), but TWA continued as a transcontinental airline. Until 1950 it was known as Transcontinental & Western Air, Inc.

 

In 1946 TWA inaugurated international flights between New York City and Paris, quickly expanding by the 1950s to routes through Europe, the Middle East, Africa, and Asia. From 1969 to 1975 it operated transpacific services and was a round-the-world carrier, but in 1975 it suspended such services in a route exchange with Pan American World Airways.

The financier and aviation pioneer Howard Hughes was the principal stockholder and guiding genius of TWA from 1939 until 1960–61, when he lost control of the airline to a group of Wall Street banks and financial institutions that had financed the purchase of jet aircraft for the airline. An antitrust suit was mixed in with the complex civil litigation, and the multiple litigation involved repeated court hearings, before which the reclusive Hughes refused to appear. In 1966 he sold his TWA shares for more than $500 million.

 

TWA reorganized under the ownership of a holding company called Transworld Corp. in 1979, but Transworld sold TWA to the public in 1984 in the course of defending itself against a threatened hostile takeover. By then TWA was experiencing financial troubles, and in late 1985 the American investor Carl C. Icahn acquired the airline. In 1986 TWA bought Ozark Air Lines, Inc., a carrier with routes centred on the south-central United States. Although it continued to operate as usual, the company filed for bankruptcy (to enable timely reorganization) in 1992. Despite emerging from bankruptcy the following year, TWA continued to operate at a loss and announced in January 2001 that American Airlines would acquire its assets. TWA ceased to exist as a separate airline in December 2001.

American Airlines flight 77

terrorist hijacking, Arlington, Virginia, United States [2001]

American Airlines flight 77, flight scheduled to travel from Dulles International Airport near Washington, D.C., to Los Angeles International Airport on September 11, 2001, that was hijacked by terrorists and deliberately crashed into the Pentagon as part of the September 11 attacks.

 

The American Airlines Boeing 757-200 took off 10 minutes behind schedule at 8:20 AM on September 11 with a crew of six and a scant 58 passengers, including the militants. They encompassed three children and three teachers and some officials on a National Geographic Society field trip, the political pundit Barbara Olson (wife of Solicitor General Ted Olson), as well as people traveling for work or for vacation and people returning home. In addition, five hijackers boarded the flight. One of the hijackers, Hani Hanjour, was a trained pilot. About half an hour after takeoff, the hijackers took control of the aircraft. At 8:54 the westbound plane turned to the south, a deviation from its flight plan. Two minutes later the airplane’s transponder was turned off. Radar contact was also lost. An air traffic controller at the Indianapolis Air Traffic Control Center tried repeatedly to make contact with the pilot; receiving no response, he contacted American Airlines, which was similarly unsuccessful. Unaware of the earlier hijackings, the air traffic controllers began notifying other agencies that the plane might have crashed. At 9:09 the Indianapolis Air Traffic Control Center notified the FAA regional centre that it had lost contact with flight 77. At 9:12 one of the flight attendants, Renee May, used her cell phone to call her mother; she asked her mother to tell American Airlines that the flight had been hijacked. A couple of minutes later, Barbara Olson phoned her husband to tell him that the plane had been hijacked and that all the people aboard had been herded to the back of the plane. It was about that same time that the Indianapolis Air Traffic Control Center learned from American Airlines that other planes had been hijacked. A discussion ensued between the FAA command centre and Indianapolis, and another confused conversation took place between the FAA and the Northeast Air Defense Sector. In the meantime, flight 77 traveled undetected back toward Washington for 36 minutes. At 9:32 air traffic controllers at Dulles found an unidentified aircraft traveling east at a high rate of speed and notified their compatriots at Reagan National Airport. FAA officials at both airports notified the Secret Service, and controllers at Reagan ordered an airborne National Guard cargo plane to find and follow the unidentified aircraft. At 9:34 flight 77 was 5 miles (8 km) west-southwest of the Pentagon; it executed a sharp turn and quick descent and dove toward the Pentagon, slamming into it at 9:37.

 

The plane hit the outer wall between the first and second floors and smashed through three of the Pentagon’s five concentric rings. The jet fuel exploded into a fireball, and about half an hour later a section of the building above where the plane hit collapsed. By that time, most people working there had been evacuated. However, 125 people working in the building were killed, as were the 64 crew, passengers, and hijackers on the plane. The Pentagon had recently been upgraded in response to the 1995 Oklahoma City bombing, and this likely prevented worse damage and a higher death toll. The impact, fire, and collapse of the affected part of the building destroyed most of the aircraft, leaving only a few pieces of wreckage.

business organization

business organization, an entity formed for the purpose of carrying on commercial enterprise. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation.

 

Business enterprises customarily take one of three forms: individual proprietorships, partnerships, or limited-liability companies (or corporations). In the first form, a single person holds the entire operation as his personal property, usually managing it on a day-to-day basis. Most businesses are of this type. The second form, the partnership, may have from 2 to 50 or more members, as in the case of large law and accounting firms, brokerage houses, and advertising agencies. This form of business is owned by the partners themselves; they may receive varying shares of the profits depending on their investment or contribution. Whenever a member leaves or a new member is added, the firm must be reconstituted as a new partnership. The third form, the limited-liability company, or corporation, denotes incorporated groups of persons—that is, a number of persons considered as a legal entity (or fictive “person”) with property, powers, and liabilities separate from those of its members. This type of company is also legally separate from the individuals who work for it, whether they be shareholders or employees or both; it can enter into legal relations with them, make contracts with them, and sue and be sued by them. Most large industrial and commercial organizations are limited-liability companies.

 

This article deals primarily with the large private business organizations made up chiefly of partnerships and limited-liability companies—called collectively business associations. Some of the principles of operation included here also apply to large individually owned companies and to public enterprises.

 

Types of Business Associations

Business associations have three distinct characteristics: (1) they have more than one member (at least when they are formed); (2) they have assets that are legally distinct from the private assets of the members; and (3) they have a formal system of management, which may or may not include members of the association.

 

The first feature, plurality of membership, distinguishes the business association from the business owned by one individual; the latter does not need to be regulated internally by law, because the single owner totally controls the assets. Because the single owner is personally liable for debts and obligations incurred in connection with the business, no special rules are needed to protect its creditors beyond the ordinary provisions of bankruptcy law.

 

The second feature, the possession of distinct assets (or a distinct patrimony), is required for two purposes: (1) to delimit the assets to which creditors of the association can resort to satisfy their claims (though in the case of some associations, such as the partnership, they can also compel the members to make good any deficiency) and (2) to make clear what assets the managers of the association may use to carry on business. The assets of an association are contributed directly or indirectly by its members—directly if a member transfers a personally owned business or property or investments to the association in return for a share in its capital, indirectly if a member’s share of capital is paid in cash and the association then uses that contribution and like contributions in cash made by other members to purchase a business, property, or investments.

 

The first feature, plurality of membership, distinguishes the business association from the business owned by one individual; the latter does not need to be regulated internally by law, because the single owner totally controls the assets. Because the single owner is personally liable for debts and obligations incurred in connection with the business, no special rules are needed to protect its creditors beyond the ordinary provisions of bankruptcy law.

 

The second feature, the possession of distinct assets (or a distinct patrimony), is required for two purposes: (1) to delimit the assets to which creditors of the association can resort to satisfy their claims (though in the case of some associations, such as the partnership, they can also compel the members to make good any deficiency) and (2) to make clear what assets the managers of the association may use to carry on business. The assets of an association are contributed directly or indirectly by its members—directly if a member transfers a personally owned business or property or investments to the association in return for a share in its capital, indirectly if a member’s share of capital is paid in cash and the association then uses that contribution and like contributions in cash made by other members to purchase a business, property, or investments.

 

Dutch and Italian public companies tend to follow the German pattern of management, although it is not expressly sanctioned by the law of those countries. The Dutch commissarissen and the Italian sindaci, appointed by the shareholders, have taken over the task of supervising the directors and reporting on the wisdom and efficiency of their management to the shareholders.

 

Separation of Ownership and Control

The investing public is a major source of funds for new or expanding operations. As companies have grown, their need for funds has grown, with the consequence that legal ownership of companies has become widely dispersed. For example, in large American corporations, shareholders may run into the hundreds of thousands and even more. Although large blocks of shares may be held by wealthy individuals or institutions, the total amount of stock in these companies is so large that even a very wealthy person is not likely to own more than a small fraction of it.

 

The chief effect of this stock dispersion has been to give effective control of the companies to their salaried managers. Although each company holds an annual meeting open to all stockholders, who may vote on company policy, these gatherings, in fact, tend to ratify ongoing policy. Even if sharp questions are asked, the presiding officers almost invariably hold enough proxies to override outside proposals. The only real recourse for dissatisfied shareholders is to sell their stock and invest in firms whose policies are more to their liking. (If enough shareholders do this, of course, the price of the stock will fall quite markedly, perhaps impelling changes in management personnel or company policy.) Occasionally, there are “proxy battles,” when attempts are made to persuade a majority of shareholders to vote against a firm’s managers (or to secure representation of a minority bloc on the board), but such struggles seldom involve the largest companies. It is in the managers’ interest to keep the stockholders happy, for, if the company’s shares are regarded as a good buy, then it is easy to raise capital through a new stock issue.

 

Thus, if a company is performing well in terms of sales and earnings, its executives will have a relatively free hand. If a company gets into trouble, its usual course is to agree to be merged into another incorporated company or to borrow money. In the latter case, the lending institution may insist on a new chief executive of its own choosing. If a company undergoes bankruptcy and receivership, the court may appoint someone to head the operation. But managerial autonomy is the rule. The salaried executives typically have the discretion and authority to decide what products and services they will put on the market, where they will locate plants and offices, how they will deal with employees, and whether and in what directions they will expand their spheres of operation.

 

Executive Management

The markets that corporations serve reflect the great variety of humanity and human wants; accordingly, firms that serve different markets exhibit great differences in technology, structure, beliefs, and practice. Because the essence of competition and innovation lies in differentiation and change, corporations are in general under degrees of competitive pressure to modify or change their existing offerings and to introduce new products or services. Similarly, as markets decline or become less profitable, they are under pressure to invent or discover new wants and markets. Resistance to this pressure for change and variety is among the benefits derived from regulated manufacturing, from standardization of machines and tools, and from labour specialization. Every firm has to arrive at a mode of balancing change and stability, a conflict often expressed in distinctions drawn between capital and revenue and long- and short-term operations and strategy. Many corporations have achieved relatively stable product-market relationships, providing further opportunity for growth within particular markets and expansion into new areas. Such relative market control endows corporate executives and officers with considerable discretion over resources and, in turn, with considerable corporate powers. In theory these men and women are hired to manage someone else’s property; in practice, however, many management officers have come increasingly to regard the stockholders as simply one of several constituencies to which they must report at periodic intervals through the year.

 

Managerial Decision Making

The guidelines governing management decisions cannot be reduced to a simple formula. Traditionally, economists have assumed that the goal of a business enterprise was to maximize its profits. There are, however, problems of interpretation with this simple assertion. First, over time the notion of “profit” is itself unclear in operational terms. Today’s profits can be increased at the expense of profits years away, by cutting maintenance, deferring investment, and exploiting staff. Second, there are questions over whether expenditure on offices, cars, staff expenses, and other trappings of status reduces shareholders’ wealth or whether these are part of necessary performance incentives for executives. Some proponents of such expenditures believe that they serve to enhance contacts, breed confidence, improve the flow of information, and stimulate business. Third, if management asserts primacy of profits, this may in itself provide negative signals to employees about systems of corporate values. Where long-term success requires goodwill, commitment, and cooperation, focus on short-term profit may alienate or drive away those very employees upon whom long-term success depends.

 

Generally speaking, most companies turn over only about half of their earnings to stockholders as dividends. They plow the rest of their profits back into the operation. A major motivation of executives is to expand their operations faster than those of their competitors. The important point, however, is that without profit over the long term no firm can survive. For growing firms in competitive markets, a major indicator of executive competence is the ability to augment company earnings by increasing sales or productivity or by achieving savings in other ways. This principle distinguishes the field of business from other fields. A drug company makes pharmaceuticals and may be interested in improving health, but it exists, first and foremost, to make profits. If it found that it could make more money by manufacturing frozen orange juice, it might choose to do so.

 

The Modern Executive

Much has been written about business executives as “organization men.” According to this view, typical company managers no longer display the individualism of earlier generations of entrepreneurs. They seek protection in committee-made decisions and tailor their personalities to please their superiors; they aim to be good “team” members, adopting the firm’s values as their own. The view is commonly held that there are companies—and entire industries—that have discouraged innovative ideas. The real question now is whether companies will develop policies to encourage autonomy and adventuresomeness among managers.

 

In Japan, where the employees of large corporations tend to remain with the same employer throughout their working lives, the corporations recruit young people upon their graduation from universities and train them as company cadets. Those among the cadets who demonstrate ability and a personality compatible with the organization are later selected as managers. Because of the seniority system, many are well past middle age before they achieve high status. There are signs that the system is weakening, however, as efforts are more often made to lift promising young men and women out of low-echelon positions. Criticism of the traditional method has been stimulated by the example of some of the newer corporations and of those owned by foreign capital. The few individuals in the Japanese business world who have emerged as personalities are either founders of corporations, managers of family enterprises, or small businesspeople. They share a strong inclination to make their own decisions and to minimize the role of directors and boards.

 

Modern Trends

The sheer size of the largest limited-liability companies, or corporations—especially “multinationals,” with holdings across the world—has been a subject of discussion and public concern since the end of the 19th century, for with this rise has come market and political power. While some large firms have declined, been taken over, or gone out of business, others have grown to replace them. The giant firms continue to increase their sales and assets by expanding their markets, by diversifying, and by absorbing smaller companies. Diversification carried to the extreme has brought into being the conglomerate company, which acquires and operates subsidiaries that are often in unrelated fields. The holding company, with the conglomerate, acts as a kind of internal stock market, allocating funds to its subsidiaries on the basis of financial performance. The decline or failure of many conglomerates, however, has cast doubt upon the competence of any one group of executives to manage a diversity of unrelated operations. Empirical evidence from the United States suggests that conglomerates have been less successful financially than companies that have had a clear product-market focus based on organizational strengths and competencies.

 

John Kenneth Galbraith

 

The causes of such vast corporate growth have found varying explanations. One school of thought, most prominently represented by American economist John Kenneth Galbraith, sees growth as stemming from the imperatives of modern technology. Only a large firm can employ the range of talent needed for research and development in areas such as aerospace and nuclear energy. And only companies of this stature have the capacity for innovating industrial processes and entering international markets. Just as government has had to grow in order to meet new responsibilities, so have corporations found that producing for the contemporary economy calls for the intricate interaction of executives, experts, and extensive staffs of employees. While there is certainly room for small firms, the kinds of goods and services that the public seems to want increasingly require the resources that only a large company can master.

 

Others hold that the optimum size of the efficient firm is substantially smaller than many people believe, and some research has shown that profit rates in industries having a large number of smaller firms are just as high as in those in which a few big companies dominate a market. In this view, corporate expansion stems not from technological necessity but rather from an impulse to acquire or establish new subsidiaries or to branch out into new fields. The structures of most large corporations are really the equivalent of a congeries of semi-independent companies. In some cases these divisions compete against one another as if they were separately owned. The picture has been further complicated by growth across national boundaries, producing multinational companies, principally firms from western Europe and North America. Their enormous size 

and extent raise questions about their accountability and political and economic influence and power.

 

Sneha Jaiswal  [MBA]

HR Manager & Market Research