1 Presentation Crisis Management Tuesday September 29 AIG St. John’s University Tuesday, September 29

2 Topics BP Oil Spill Recovery Chilean Mine Collapse Jet Blue Airways Disruption Crisis Planning at U.S. Airways

3 Presentation BP Oil Spill

The BP Crisis Day 1. (April 20, 2010) Transocean is preparing to move the Deepwater Horizon:  Leased to the BP Group.  Finished drilling a high pressure well for BP.  Explosion creates an out-of-control sea- floor oil gusher.  The oil rig sinks. 4

In Fairness to BP Horizon Deepwater was a very successful rig until April 20, 2010:  Seven-year safety record.  Drilling some of the deepest wells in the world.  Never fail or mostly working?  Should BP have known? 5

Mostly Working in Normal Times 2005: Texas City Refinery explosion.  15 deaths.  180 injuries.  Cause: Hydrocarbon overflow. Maintenance was cut as a cost-saving measure post-disaster inspection findings:  270 unfixed safety violations.  439 new violations. 6

Mostly Working At the BP Texas City refinery in :  Worker crushed between a pipe stack and mechanical lift.  Worker electrocuted.  Worker killed by a 500-pound piece of metal. In the North Sea in good weather:  BP helicopter ferrying workers from BP oil platform crashed killing all 16 on board. 7

Mostly Not Working From 2007 to 2010, (Occupational Safety and Health Administration) OSHA reported:  851 willful safety violations by U.S. oil refiners.  829 by BP. February OSHA reported that “BP has a serious, systemic safety problem in their company." 8

Information not Shared On the Horizon Deepwater, workers were surveyed prior to the oil spill:  Concerned about safety practices.  Feared reprisals if they reported problems.  Unreliable equipment.  “Run it, break it, fix it.”  Did BP have access to the information? 9

Failure to Collaborate On the Horizon Deepwater, Transocean did a 112-page equipment assessment report:  Unsafe conditions and practices.  Rig had never been in dry dock.  Blowout preventer rams and fail-safe valves not inspected.  26 components and systems in “bad” or “poor” condition. 10

Lacey Resignation Kevin Lacy was a drilling engineer who had implemented a rigorous drilling safety program at Chevron.  He was hired by BP in 2007 senior vice president for drilling operations.  He tried to improve and standardize the BP drilling policies and practices.  He resigned in 2009 believing BP was not committed to improving safety in offshore drilling. 11

Ready to Respond? Slow progress.  It was one thing to be surprised.  It is another thing to not be ready to respond.  The crisis was attacked in stages.  Close blowout preventer valves.  Add a containment dome.  Pump in heavy fluids  Pump in mud and cement. 12

Outcome Day 86. July 15, 2010 – Gusher was capped after releasing 5 million barrels of oil. 13

14 Presentation Chilean Mine Collapse

15 Copiapó Mining Accident A quite different picture Day 1. August 5, 2010  Copiapó, Chile.  Collapse of San José copper-gold mine  Trapped: 33 miners 770 meters below ground.  Did they survive?

Quick Response Day 4.  Chilean President Sebastián Piñera took charge.  Andre Sougarret, head of El Teniente mine put in charge.  Flew immediately to Copiapó.  Took charge.  Did they survive? 16

Situation at the Mine Day 5. Sougarret:  Found a nest of confusion with rescue workers, firefighters, police officers, volunteers and relatives.  Sent rescue workers home.  Talked to escaped workers.  Inspected the mine.  Gathered maps. 17

Gathering Information Day 6. Findings:  Huge block of stone closed the 4-mile corkscrew shaft to the miners.  Collapse involved 700,000 tons of rock.  Reopening the shaft could cause another collapse.  Nobody knew if the miners were still alive. 18

Hope for the Miners Day 7. Sougarret talked to miners who had escaped the collapse. Learned:  Maps were not up-to-date.  Likely location of trapped miners.  Safe room with 48-hour supply of food and water. Also repair shop.  Ventilation shaft..  Miners had a chance to be alive. 19

Find the Miners. Green. 4 drill shafts to galley near shelter. Blue. 4 drill shafts to shelter. 2 points of collapse Repair shop. Shelter. 20

Start of Success Day 17.  The 8 drills are getting close.  One drill broke through into the shaft near the safe areas.  Banging on the drill head.  Rescue team retrieved note. 21

Step 2. Prepare for the Rescue. Days 18 to 69  Drill two 28-inch wide shafts.  Send food, water, oxygen, messages, progress reports.  Monitor health conditions. 22

Successful Rescue Day 70. October 13, 2010  From midnight to 11 pm.  One at a time.  33 times. 23

BP Weakness Before the Event Before the extreme event:  Safety information identified but not shared.  Failures to comply with regulations not in organized systems.  Collaboration not encouraged. 24

BP Weakness after the Crisis Weaknesses include:  Failure to respond decisively to spill.  Failure to respond decisively to clean up. 25

Copiapó Situation Copiapó was different:  Good. Local risk management.  Bad. Central risk management. 26

Local Risk Management Two safety features:  “Safe” room.  Stocked with provisions.  Ventilation shaft.  Separate escape route. 27

Central Risk Management Weakness before the crisis:  Failure to maintain safety standards in a dangerous place.  Failure to install ladders after failing a safety inspection that closed the mine.  Opportunity lost. A second collapse closed the shaft. 28

Question Did BP have the big picture in 2010? 29

Big Picture Board of Directors Safety Practices in Texas Cost Cutting Concerns of Rig Workers Maintenance of Oil Rig itself Kevin Lacy Resignation OSHA Violations

Big Picture Top Management High pressure well 41 miles from Louisiana wetlands Everybody not ready Rig needs overhaul Rushing to complete drilling

Cost Cutting and 41 Miles Linkages. leads to creating while for a big loss when 32 Cost Cutting Unsafe practices Rushing to complete drilling Everybody is not ready 41 miles from Louisiana wetlands Poor maintenance of oil rig

Question Did Sebastián Piñera and Andre Sougarret have the big picture in 2010? 33

Lesson Learned Risk management has value.  We cannot predict extreme events.  We can look for the big picture.  We can avoid some situations.  We can prepare for others. 34

Lesson Learned Severity Trumps Frequency  The value of risk management is not the occurrence of extreme events.  We may just be lucky.  Who knows?  But we should be ready. 35

36 Presentation Jet Blue Airways Disruption

37 Jet Blue Airways New York’s Kennedy Airport. Valentine’s Day Ice storm. Trapped passengers on planes up to 10 hours.

38 Question Did the company have the Big Picture?

39 Question (2) What are some examples of disruptions?

40 Answer Examples:  Ice storm.  Police action.  Terrorist act.  Congestion.  Maintenance.  FAA regulations.  Technology.  Fuel shortage.  Employee absence. Strike. Crazy person. Power outage. Communications outage. Airport closing. Improper training. Absence of linguists. Missing parts. Accident/Crash.

41 Question Who should be responsible for disruption risk?

42 Answer Highest level.  This risk is assigned to the Executive Vice President for Flight Operations. Next level.  It is further assigned to Kennedy Airport Operations Center.

43 Question What is the likelihood of a disruption of operations? An ice storm hits New York once every three winters. 33%. The chance of hitting at a busy time.

44 Answer A disruption is likely to happen one time in a 9-year period.

45 Question How severe could it be to have a disruption of operations?

46 Answer Could be:  A public relations nightmare if passengers stranded on planes for long periods of time.  Financially costly to reimburse passengers for losses or time spent.  Harmful to long-term and cherished reputation for the highest quality of customer service.

47 Question What alternatives did Jet Blue have to mitigate the impact of a disruption?

48 Answer (1) Bus Contingency Plan. Unload planes sitting on the tarmac.

49 Answer (2) Additional Personnel. Train nearby headquarters staff. "We had so many people in the company who wanted to help but who weren't trained to help," David G. Neeleman, CEO quote, New York Times”.

50 Answer (3) Revised Operating Procedures. For weather or other delays.

51 Question What were the consequences of the failure to prepare?

52 Answer (1) Consequences:  $30 million in added costs.  Removed from #4 position in a customer satisfaction survey published by Business Week (March 5, 2007).

53 Answer (2) Consequences:  $30 million in added costs.  Removed from #4 position in a customer satisfaction survey published by Business Week (March 5, 2007).  Jet Blue was the cover story in Business Week on March 5.

54 Answer (3) More consequences. Jet Blue endangered:  Top choice in national airline quality rating (4 years in a row).  Condé Nast Traveler reader’s choice award (5 years in a row).  High J.D. Powers ranking for quality.

Question What happened to Jet Blue in the years after the Valentine’s Day disruption? 55

Answer Jet Blue recovered:  Implemented a Customer Bill of Rights.  Created a database to track crew locations and contact information.  Cross trained employees and had on call in the event of a crisis.  Created a Web-based rebooking system to reschedule flights. 56

Presentation Tower Request Takeoff 57

58 Presentation Crisis Planning at U.S. Airways

59 Question U.S. Airways flight 1549 landed on the Hudson River in 2009 with no loss of life. Landing by pilot Sullivan was called the “Miracle on the Hudson.” How did U.S. Airways prepare for a crisis?

60 Answer Preparation:  “Dry Runs.” 3 times a year at every airport it serves.  “Care Team.” Gates agents, reservation clerks, and other employees dispatched on a “moment’s notice.”  800 Number. For families to call for information.

61 Question How did it handle the passengers who were removed from the plane?

62 Answer The airline took action:  150 employees from headquarters (Arizona) to New York.  Employees credit cards to buy medicines, toiletries, and personal items.  Bag of cash.  Suitcases with prepaid cell phones and sweat suits (dry clothes).  Escorted passengers to hotels with 24-hour buffets.

63 Question What else did it do?

64 Answer (1) More action:  Arranged train tickets and rental cars for individuals who did not want to get back on a plane.

65 Answer (2) More action:  Arranged train tickets and rental cars for individuals who did not want to get back on a plane.  Reached out to high-level executives at Hertz and Amtrak so no hassle getting the tickets.

66 Answer (3) More action:  Arranged train tickets and rental cars for individuals who did not want to get back on a plane.  Reached out to high-level executives at Hertz and Amtrak so no hassle getting the tickets.  Retained locksmiths to help passengers who had lost keys for cars and home.

67 Question Anything else?

68 Answer (1) Follow-up action:  Sent letters updating passengers after they arrived home.

69 Answer (2) Follow-up action:  Sent letters updating passengers after they arrived home.  Refunded the airplane ticket and gave each passenger $5,000 to replace lost possessions.

70 Answer (3) Follow-up action:  Sent letters updating passengers after they arrived home.  Refunded the airplane ticket and gave each passenger $5,000 to replace lost possessions.  Paid additional monies to passengers where $5,000 did not cover losses.

Question Jet Blue stumbled. U.S. Airways seized an opportunity. Is life fair? 71

Answer (1) Is life fair? Jet Blue fully recovered. American Airlines acquired US Airways. 72

Answer (2) Is life fair? Jet Blue fully recovered. American Airline acquired US Airways. U.S. Airways management will run the combined airline from the American headquarters in Fort Worth, Texas. 73