Remember that whole bribery saga that led to United CEO Jeff Smisek losing his job last year? Well, there is now a resolution to this whole thing, and it’s a good one if you like soap operas. United has entered into a Non-Prosecution agreement with the US Attorney’s Office that puts an end to the ongoing investigation. In exchange for this, United had to admit wrongdoing, pay $2.25 million, and strengthen its anti-corruption policies. You’d think that’d be enough, right? Oh no, and we should all be thankful. United also had to release details of everything that happened. It’s juicy.
If you’d like to read the whole thing, you can follow along here. What we knew before was that United was trying to get some infrastructure work done at Newark Airport, but the Port Authority kept stalling on the project. United loosened the logjam by magically starting a flight a couple days a week from Newark to Columbia, SC. The flight just happened to be timed exactly when David Samson, the Chairman of the Port Authority (the entity that runs Newark) wanted to fly to his home 50 miles outside Columbia. Coincidence? Of course not.
The bloodshed happened last September when Smisek was fired along with Nene Foxhall (EVP Communications and Government Affairs) and Mark Anderson (SVP Corporate and Government Affairs). Now that the details have been released, we can find out what actually happened. It’s even easier when crossing with the more detailed case against Samson (link via View From the Wing). The names of the players aren’t given, but you can draw your own conclusions…
United Employee 1 (UA1) “was a senior executive at United based at its headquarters in Chicago with authority to approve or disapprove the addition or cancellation of routes in United’s network.” Jeff Smisek was also a senior executive with this authority.
United Employee 2 (UA2) “was an executive at United based at its headquarters in Chicago who was primarily responsible for United’s interactions with public entities, including the Port Authority, and who reported directly to United Employee 1.” Nene Foxhall was the EVP of Communications and Government Affairs (communicating with public entities), based in Chicago, and she reported to Jeff Smisek.
United Employee 4 (UA4) “was an employee of United based in Washington, D.C. who interacted with public entities on behalf of United, and who reported to United Employee 2.” I believe Mark Anderson was based in DC and reported to Nene Foxhall.
Again, we don’t know for sure who these people are, officially. Now, let the story begin.
Way back in 2011, United and the Port Authority agreed on a deal for United to build a widebody hangar. Good plan, but it required approval at a board meeting. Shouldn’t be a problem, all is well.
Before any vote was taken, these execs all went to dinner with Samson from the Port Authority and a consultant who was helping with this process. At the meeting, it became clear that Samson wanted a nonstop to Columbia back. It used to exist under Continental but had been cut because it lost money. United’s team said they’d take it under consideration, looked at it, found it would still be unprofitable, and decided not to move forward. All good so far.
In November, United was expecting its hangar proposal to be voted on. It wasn’t included on the agenda. The next day, UA2 spoke with the consultant and learned that Samson was mad about the Columbia route. It was decided to revisit the issue.
On December 8, Samson put the hangar back on the agenda and it was approved, but United hadn’t agreed to reinstate the flight yet. It was still concerned about its overall relationship with the Port Authority, and Samson’s willingness to flex his muscles with the agenda must have scared the airline.
After some back and forth, UA2 took it back to UA1 to try to get it pushed through. UA1 agreed. It even went as far as UA2 asking the consultant what time Samson wanted his flights scheduled.
What’s most incredible to me is that ” At no time prior to reinstating the Newark/Columbia Route or during its operation did United consult with any legal counsel or compliance personnel or notify any law enforcement officials about the discussions regarding the Newark/Columbia Route.”
Smisek is an attorney. He should have known better. And United is lucky that it isn’t being prosecuted for this.
The route did start up in September 2012, only twice a week when Samson wanted it. In March 2014, the route disappeared once Samson was out of a job over a totally different scandal. In the meantime, he used that flight 27 times. He was probably the only one.
If you read the court docs against Samson, you might even begin to understand why United decided to go along with this. This was an old-fashioned shakedown, and United didn’t want anything standing in the way of its plans to improve its Newark operation. But there’s a little problem called “the law” that United really should have considered before going along with this.
This feels like ancient history now, but it still reads like a great soap opera and would make for a great TV movie drama. And if anyone wants to make that movie… don’t you think Alan Ruck would make a great Smisek?
I understand that this post focuses on United, but still…
Samson? The government official? The one who solicited a massive bribe to approve the hangar? He pled guilty, too.
Samson’s home was in Aiken, SC, which is 50 miles from the Columbia airport, but only ~20 miles from the Augusta airport. I’ve always wondered why he didn’t push for a route to AGS as opposed to CAE like he did.
AGS only had service at that time from DL and US (still only DL and AA but it’s a great little airport!), while CAE had service from DL, AA, US, and UA. So for UA to go into AGS would have been highly suspect. A new route to CAE from one of their hubs at least had some plausibility.
Plus, CAE probably was a reasonable route from a business perspective. AGS may have been a total bloodbath for UA.
> CAE probably was a reasonable route from a business perspective.
As far as not being suspect on the surface, which is what you are referring to, then yes, the CAE route may not have been obviously suspect for those who didn’t think it through or ask many questions.
Those that did, however, knew that something just didn’t add up, or thought that Unite was just being a bit stupid.Even the head of CAE knew the route made no sense, as has been reported in other blogs (View From the Wing, IIRC). He was extremely concerned about not having enough pax for the route (i.e., that the route would fail because of lack of demand), but United told him not to worry.
With flight times like that, a 1x weekly roundtrip only makes sense for pax from EWR heading to SC for the weekend or for those in SC heading to NYC for the week.
Wonder if UA will now withdraw its “open skies” complaint that the ME3 are “cheating”?
Instead of these slimeballs keeping their bloated pension, and in Smiseks case huge parting gift$, I would give most anything to have seen a couple of perp walks!!!
Rumor has it all employees, yes even the front line grunts, have watch some dopey videos about corruption. You cannot make this stuff up…..
Would guess that every largish company makes all employees take mandatory training classes for ethics and anti-corruption, if only so the company can wash their collective hands when something like this happens and shift the blame to the employees who “should have known better because we provided them with training”.
Office drone and cube jockey. Can confirm. Every year (and in each of the 3 companies I have worked for), it is mandatory online courses on anti-corruption, sexual harassment, etc etc, and you have to pass the knowledge quizzes to pass the course, so you can’t just let it run in the background to get credit. This year a new course on “active shooter safety” was added.
UA even asked Samson what times he wanted the flights to be scheduled? Seriously? If that isn’t evidence of a quid pro quo I don’t know what is.
Agree that Smisek should be in jail right now. If he were a banker or a food company exec busted for similar corruption he most certainly would be.
At least this case gave the FBI a break from chasing terrorism cases.
Um… What country have you been watching? Bankers don’t go to jail in the US..
You’re right Nick, didn’t think that one through. Who am I kidding, execs never or rarely go to jail, and when they do it is minimum security jails with tennis courts.
If a law were on the books that would require the perpetrators of corruption and fraud crimes over $X to spend at least Y years in supermax facilities, behavior might change. As it is now, settlements like this are just a cost of doing business.
It’s really disgusting when you see how the sausage is made. Seriously, United was the victim but, Politicians prevailed. Hope Samson went to jail. Politics are dirty but in the NY/NJ area they are disgusting
You pay a bribe, you don’t get to call yourself a victim anymore.
The other scandal being mentioned here is the GWB toll lanes closure. David Samson & members of the Christie administration took revenge against the mayor of Fort Lee over not supporting the governors reelection. Some how this never stuck to Chris Christie despite being aware of what was happening the entire time.
liked the movie poster.
Agreed. Cranky always has some great photo illustrations (the one from the previous post, featuring the Dos Equis guy as the Unluckiest Airline in the world, was great as well), but this is a classic.
This illustration is probably my favorite and the best I have seen in the 5+ years I have read this blog.
Me too, although I think Samson should be the one holding the gun.
gobluetwo – If the gun were pointed at the other guy, I totally would have switched the faces. But Smisek is just trying to protect himself. ;)
“The route did start up in September 2012, only twice a week when Samson wanted it. In March 2014, the route disappeared once Samson was out of a job over a totally different scandal. In the meantime, he used that flight 27 times. He was probably the only one.”
now THAT is the kind of flight that certain avgeeks should be riding and reviewing! how hard would it be to book one of those flights and just see if the guy is on there?
Regarding the wish list of Smisek in the slammer…give him his own personalized cell with the placard “SMI/J” on the door.
Bonus: you wouldn’t see him sitting in first class on any UA flights (one of his lovely parting gifts).
BTW–does the Smister still get positive space in F on other airlines?
I’m kinda torn about this. If I understand the story right, United wasn’t paying a bribe to get preferential treatment from the port authority. That would clearly be wrong. Instead, Samson was shaking down United for a specific bribe (ie the flight) before he would do his job (ie approve the infrastructure project).
Sure, the morally correct thing would have been to complain to the appropriate authorities. But I feel like *most* of the blame here lies with Samson.
If a cop pulls me over, produces some trumped-up problem, and then solicits a bribe to make it go away… I’m going to be pretty strongly tempted to pay up. I know it’s a false analogy–United has a lot more power than I do–but that’s the flavor behind why I’m conflicted.
Pretty sure I recall from my mandatory ethics/anti corruption classes that I would get in trouble if I have in to a bribe request (I.e. You don’t have to initiate the “deal” to be the liable for criminal charges).
Takes two parties to tango.
Gah, garbled sentence alert.
… that I would get in trouble even if I gave in to a bribe request
It may be more straightforward in the West, but in the Middle East and Asia it’s far from it. I have met guys who worked in KnR (Kidnap and Rescue) for MNCs. One case they had to get a middle-manager and his family of a SE Asia country because he refused a kick-back, and he was thrown in jail on trumped up charges. The company then has to send people in to buy his release – none of which involves diplomatic channels (which generally are useless in such cases). I believe they refer to it as the price of doing business… Not all cases are easily resolved either.
Sure. Still illegal (foreign corrupt practices act, I think) in the US. Wish this would get more visibility, though. Perhaps sometimes it is NOT worth the price to do business there…
But… This is New Jersey. It should be better,
I wish they had reports on the level of perceived corruption in different parts of the US, similar to the reports they have on perceived corruption in different countries of the world.
My guess is that Chicago, NYC area, and all of NJ state would rank very high on that list.
New Jersey–less corrupt than SE Asia? That takes some dreaming…
I agree, it’s tough not to have some sympathy for UA in this situation. In fact, the thoroughly amateurish way that they went through this whole process in some sense must be reassuring to shareholders – this kind of thing is clearly not entrenched in company culture or something which occurs commonly.
> In fact, the thoroughly amateurish way that they went through this whole process in some sense must be reassuring to shareholders – this kind of thing is clearly not entrenched in company culture or something which occurs commonly.
Great point, and I agree. If you are going to do this, you might as well go full hog and do at least 5x weekly roundtrips on the route. While you’re at it, announce a few other routes (or tie in the announcement for this route with other new routes in the works) that appear similar on the surface, maybe some additional routes from EWR to small cities in the Southeast. Heck, if you do the above and put out a press announcement that you are challenging US/AA for market share in the Carolinas, this will be seen as another “airlines are stupid” story instead of potential corruption.
The way United did it is similar to a kid who sneaks into the teacher’s office and changes grades in the gradebook, not realizing that if he only changes HIS grades (and not the grades of other students) it will be obvious what is up.
Loved the pic, too. Yes, United may have started off being the victim, but it decided to play the game rather than crying foul. I totally get that, it’s NJ politics. It’s also sad that Smisek didn’t get his big bonus and perks rescinded.
The irony is it would’ve been cheaper for UA to provide an executive jet to Samson for his out and backs each week. OTOH, why didn’t UA publicize this when it started? Would’ve got rid of Samson much more quickly.
I just don’t see United’s actions as that bad; they didn’t make the rules, they just played the game. The politician is definitely the bad actor.
For those like Kilroy, prison should be reserved for dangerous criminals. Society is much better off by receiving large fine money rather than spending tax dollars to send white collar criminals to prison.
Jumping-in a bit late on this post… but, no one here has mentioned the question of any UA Exec’s personal culpability. The NPA clearly states that, “This Agreement also applies only to United and… not to any other
entities or to any individuals.”
Seems to me UA1, UA2 & UA3 are still fair game for prosecution, no? And, if so, didn’t UA just hand the Justice Department their smoking gun?
I’d be VERY surprised if UA didn’t try their hardest to extend the NPA to cover current and former employees. That it doesn’t makes me think there’s a reason… but I’ve seen no coverage on this story even hinting that further charges could follow…?
Dollars and Cents: What was the net loss to United for the 27 flights? Not to mention not having the airplane, pilots, and flight attendants available for other flights where needed.
Overall, this is a shameful event in United’s history, and for anyone to go unpunished is a shame.
In addition, the actions of these employees are crimes against the company’s shareholders since they have violated their fiscal responsibilities.
Because they wear fancy suits, shiny shoes, and have chauffeurs do not make them any better than common street thugs.
They have tarnished the work of thousands of employees who have worked for almost 100 years to promote United and its good name. Thugs.