Carty Out As Labor Deals Finalized, AMR Bankruptcy Still Possible
Don Carty last night resigned under pressure as chairman and CEO of American Airlines parent AMR Corp., following a tumultuous week for the world's largest airline. The board of directors appointed president and COO Gerard Arpey as CEO and veteran director Edward Brennan as executive chairman. They face the prospect of a potential bankruptcy filing as early as Monday.
Carty's departure last night was coupled with final authorization by pilots and ground workers unions for modified labor contracts. The eleventh-hour deals, salvaged as part of the company's last-ditch efforts to avoid Chapter 11, were followed today by a similar approval by the flight attendants union.
"It is now clear that my continuing on as chairman and CEO of American Airlines is still a barrier that, if removed, could give improved relations--and thus long-term success--the best possible chance," Carty said in a statement. The appointments of Brennan and Arpey will "begin to build a bridge back to the path that promised a new culture of collaboration, cooperation and trust."
The company abruptly was knocked off that path last week when AMR's unions, after narrowly voting to approve concessions, threatened to leave new contracts unsigned. Revelations of executive compensation and retention packages, revealed in a Securities and Exchange Commission filing as union voting came to a close, touched off a firestorm and prompted a public apology from Carty for his "big mistake." A few days later, he called "truly dreadful" the company's $1.04 billion first-quarter loss. During one of the worst crises in industry history, AMR now has dropped more than $6 billion since the end of 2000.
The newest labor agreements, with all three unions, include employee incentive plans and an earlier amendable date. Even after securing the labor deals, AMR still may file for bankruptcy.
"All you have to do is live through it to understand how difficult a situation it is for management and for employees," said US Airways CEO David Siegel, who led his airline through the bankruptcy restructuring process. "Change is difficult and painful and significant change is that much worse. Ultimately they will sort the situation out over there but carriers will have greater or lesser success depending on how they manage it."
The tall task falls to Arpey and Brennan. Arpey, who has held a variety of financial positions at American since 1982, including CFO for a five-year stint in the late 1990s, served as Carty's operations chief and right-hand man since 2000. Brennan, an AMR director for 17 years, had been chairman, president and CEO of Sears, Roebuck and Co. until his retirement in 1995.
Carty's resignation came after a 20-year career at American. In 1998, he replaced hard-driving Robert Crandall as CEO and chairman, with the aim of improving labor relations. He got off to a rocky start when pilots staged a work slowdown to protest American's purchase of Reno Air.
Business Travel News named Carty as one of the travel industry's most influential executives in both 2001 and 2002. In those years, he executed the acquisition of Trans World Airlines, guided the airline through the tragedies of the Sept. 11 attacks and the crash of flight 587 two months later in New York City, failed twice to achieve acceptable terms from the U.S. Department of Transportation for antitrust immunity with British Airways and announced the EveryFare program, which moves the GDS cost burden to travel agencies in exchange for access to full inventory.