Las Vegas SUN: American Airlines loses $1.04 billion in quarter
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Las Vegas SUN
April 24, 2003
American Airlines loses $1.04 billion in quarter
Further turmoil seen as likely
By Edward Woug
NEW YORK TIMES NEWS SERVICE
AIVIR, the parent of American Airlines, reported a first-quarter loss of $1.04 billion on Wednesday, reflecting a dismal
three months in which it struggled to fill seats and avoid bankruptcy conrt even as air travel plummeted because of a
depressed economy, the invasion of Iraq and the global spread of a new respiratory illness.
AMR5 loss equaled $6.68 a share; analysts polled by Thomson First Call had expected a loss of $6.08 a share. For the
period a year earlier, AIvIR reported a loss of $1.56 billion, or $10.09 a share, which included the cumulative effect of an
accounting change of $988 million, or $6.38 a share.
The company’s first-quarter loss this year came on revenue of $4.12 billion, a 1 percent drop from the period last year.
“Our first-quarter results were truly dreadful,” Donald J. Carty, the chiefexecutive of AMR, said in a statement. On
Wednesday, the company canceled a planned conference call between its chief financial officer, JeffCampbell, and
industry analysts and reporters, citing the “fluidity” of the situation at the airline.
It lost nearly $5.2 billion in 2001 and 2002. Its loss last year, $3.51 billion, was the largest annual loss ever in aviation
history.
AMR’s stock closed on Wednesday at $3.80 a share, down 37 cents.
The worst could still be ahead for American, the world’s largest airline, including a possible trip to bankruptcy court, an
overhaul of senior management and increased scrutiny of its board all because of a fiasco last week involving
management’s delayed disclosure of what labor leaders perceive to be generous executive compensation packages.
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The Transport Workers Union and the Association of Professional Flight Attendants said they would vote again on $906
million in annual concessions they had agreed to give the company last week, and the Allied Pilots Association said it
would withhold final approval of $660 million in annual concessions. The unions are fuming over the failure of Carty to
disclose in a timely manner AMR’s intent to pay retention bonuses in the next two years worth up to twice base salary to
seven executives.
The company had also put off disclosing a payment of $41 million it made last October to a trust fund set up to protect
the pension benefits of 45 executives in the event of bankruptcy.
The company had been negotiating since February with the unions for the $1.62 billion in annual concessions, saying
the cuts were necessary to avoid a trip to bankruptcy court. But it neglected to disclose the new executive benefits until it
made a securities filing on the night of April 15. By then, two of the unions had already finished their voting and a third
was close to finishing.
George Price, a spokesman for the flight attendants’ union, said on Wednesday that the union would use a paper ballot
process, which would take 30 days. It has not scheduled a start date for the voting, he said. The ground workers’ union
also has not announced details of its new vote.
The flight attendants had complained to management on April 14 that the union was having problems with the phone
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Las Vegas SUN: American Airlines loses $1.04 billion in quarter
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voting system.
American Airlines, which last Friday canceled the cash bonuses to executives but kept the payment to the pension trust,
insists it has valid concession agreements and will go ahead with putting them into effect by May 1. The flight
attendants’ union said it was looking at legal options to block that.
Gregg Overman, a spokesman for the pilots’ union, said Wednesday that the union would not vote again on concessions,
but would not approve the concessions it had agreed to on April 15 until it determined what happened at the other
unions. Overman said the union’s lawyers had concluded that a provision in the agreement allowed the union’s board to
void it if they wanted to do so. On Tuesday, the board told John Darrah, the union president, not to sign the agreement.
When asked what the union would do if American puts into effect the concessions on May 1, Overman said, “It remains
to be seen.”
RaymondL. Neidl, an analyst at Blaylock & Partners, wrote in an investor’s report on Wednesday that “even if a revote
is ruled not to be legal and cost cuts are implemented, AN/IR would probably face turmoil and probably bankruptcy if
current management cannot patch up things with its workers and cut the ill-will, since this is a service industry and
distrustful employees can ruin service and drive away customers.”
There is widespread speculation over whether AMR’s board is seriously considering asking Carty to step down. Board
members have remained quiet about that, though union leaders have been demanding Carty’s removal. Carty also is
chairman of the board and has not indicated that he would leave the company.
But the board itself is also being criticized not only for giving out the executive compensation packages, but also for
failing to push Carty to disclose them during labor negotiations.
--
Carty has said the board’s decision to give the executive benefits was justified. But what did board members know about
Carty’s decision to delay the disclosure? The board has yet to answer that question.
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USATODAY.com Travel News Last holdout union approves concessions at American Airlines
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Last holdout union approves concessions at
American Airlines
FORT WORTH, Texas (AP)
Flight attendants at American Airlines
agreed Friday to concessions that the company said it needed to avoid
bankruptcy. Following approval a day earlier by the carrier’s two other
unions, the flight attendants’ decision allowed American to avoid an
immediate Chapter 11 filing. But the company’s new chiefexecutive said
the world’s largest carrier still has much work to do.
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CEO Carty resigns
Workers in limbo; morale horrible
_________________________________________
AA promotes man who made fateful Sept. 11 call
Canadian Carty had rough ride at American
AMR posts dreadful $1 billion first-quarter loss
Shares of AA parent company plunge
Some AA workers to vote again on concessions
AA protects execs as workers asked to make steep
cuts
CEO: Concessions don’t mean AA is in the clear
AA pilots, ground workers OK concessions
American offers bonuses in 2006 in bid for support
AA shrinks May schedule, postpones service
AA defends smaller pay cuts for management
Stock options to ease pain of concessions at AA
American Airlines presses creditors
AA cuts 2,500 pilot jobs
AA gets $1 .6B in labor concessions
Two airlines scramble to fix money problems
Airlines predict war could cost them $IOB
Airline chief asks employees to make sacrifices
AA cuts international flights due to war
American quietly seeks bankruptcy funding
______________
Leaders of the Association of Professional Flight Attendants had been
badly split over a concessions offer that the company sweetened this
week, with lingering anger aimed at Donald J. Carty, who resigned as
chairman and chiefexecutive late Thursday.
“With new leadership in place at AIVIR, there was a renewed willingness
from management to begin to repair the damage done to relations with its
employees,” said John Ward, president of the flight attendants’ union.
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USATODAY.com Travel News Last holdout union approves concessions at American Airlines
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praised the unions for agreeing to the concessions and said some
employees will lose their jobs.
“By any measure, we have our work cut out for us,” Arpey said at a news
conference Friday afternoon shortly after the flight attendants announced
their agreement.
“We are not out of the woods yet, but as your new CEO, I am up to the
task. I will always do what is right. Working with our unions and all of
our employees, together we will put American Airlines back on top,” he
said.
The sweetened concessions include potential bonuses for employees and
shortens the length of concessions by eight months, to five years with
limited renegotiations possible even sooner.
Unions representing pilots and ground workers approved the new offer
Thursday and urged the flight attendants to follow suit, sources said.
Airline officials said AMR would file for Chapter 11 protection unless all
three unions accepted the wage and benefit concessions.
Employees voted last week to accept concessions but reacted angrily
when they later learned that the company had approved bonuses and
pension payments for top executives. The company canceled bonuses for
the top seven executives but left in place the $41 million in pension
funding for 45 executives.
Carty apologized for not disclosing the executive perks sooner, but his
relationship with employees was beyond repair, union leaders said.
With the airline’s fate still up in the air and its financial situation
deteriorating, Carty resigned after an emergency meeting of parent AMR
Corp.’s board Thursday in Dallas.
“It is now clear that my continuing on as chairman and CEO ofAmerican
Airlines is still a barrier that, if removed, could give improved relations
and thus long-term success the best possible chance,” Carty, 58,
said in a statement.
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While Arpey replaced Carty as CEO, board member and former Sears
CEO Edward A. Brennan will take over as chairman.
One of Arpey’s first moves was to call four leaders of the flight
attendants’ union to his office when it became clear the union was balking
at accepting concessions.
It was not clear, however, whether the new leadership and labor deal
would be enough to keep American out ofbankruptcy for long.
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USATODAY.com Travel News
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Last holdout union approves concessions at American Airlines
On Wednesday, AIMIR reported a $1 billion loss for the first quarter
more than half the annual amount of the labor just-approved labor
concessions, which take effect May 1.
Page 3 of3
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Airlines have been hit hard by a downturn in travel caused by the weak
economy, the 2001 terrorist attacks, fear of new terrorism around the
Iraq war, and the SARS outbreak. Competition from low-fare carriers
has also put a lid on prices.
Wall Street reacted positively to the news of the flight attendants’
decision. In midafternoon trading Friday on the New York Stock
Exchange, AN’IR shares were up 46 cents, or 11.4%, to $4.50.
Arpey, 44, will remain president of American and AIVJ1R and said he
would work to “restore the confidence of all employees in their great
company.”
Brennan, 69, retired as chairman and CEO of Sears in 1995. He joined
the AMR board in 1987.
“It’s a very good team that’s been put in place, and I’m very supportive of
it,” said board member David Boren, president of the University of
Oklahoma, who had called openly for Carty’s removal.
Copyright 2003 The AssociatedPress. All rights reserved This material
may not be published, broadcast, rewritten or redistributed
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Las Vegas SUN: American Airlines CEO Quits; Unions Split
Page 1 of 2
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Las Vegas SUN
Today: April 25, 2003 at 5:21:35 PDT
American Airlines CEO Quits; Unions Split
By DAVID KOENIG
ASSOCIATEO PRESS
FORT WORTH, Texas (AP)
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On one of the most turbulent days in American Airlines’ history, the embattled chairman and chief executive resigned,
the board met in emergency session and the company’sunions split over concessions designed to slash labor costs.
After all the scrambling, the world’s biggest carrier was right where it started Thursday: staring down the barrel of a
potential bankruptcy filing.
The outcome may rest with flight attendants, who balked at approving a slightly sweetened package of concessions
aimed at saving $1.8 billion a year. A spokesman said the union’s board probably would meet by telephone Friday
morning.
With the airline’s fate still up in the air, Donald J. Carty resigned as chairman and CEO, the victim of his deteriorating
relationship with employees and increasingly shaky financial situation. On Wednesday, parent AIVIR Corp. reported a
$1 billion loss for the first quarter.
Gerard Arpey, the company’s president, will replace Carty as CEO, while board member and former Sears CEO Edward
A. Brennan will take over as chairman.
It was not clear, however, whether the combination of Carty’s resignation and the more generous labor deal would be
enough to prevent a bankruptcy filing.
Unions representing pilots and ground workers agreed to the company’s latest concession offer, but leaders of the flight
attendants’ union balked.
George Price, a spokesman for the Association of Professional Flight Attendants, said the group objected to the duration
ofthe concessions now five years the “lack of incentives” for employees and specific items affecting attendants.
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Late Thursday night, Arpey invited four national officers of the union to his office to discuss the impasse, Price said.
“The APFA is committed to working with the company to avoid bankruptcy,” Price said. “Discussions are ongoing.”
The union might not have much time to make a decision. Company officials have said American would file for Chapter
11 protection in New York unless all three unions accepted the wage and benefit concessions, and the chieffinancial
officer flew there late Thursday.
The new deal shortens the length of concessions by nearly one year to five years and provides bonuses of up to 10
percent of wages for meeting company-performance goals that will be the same for labor and management, said officials
of the pilots’ and ground workers’ unions.
The original concessions package was approved by workers last week but unraveled when employees learned of
previously undisclosed executive perks, including bankruptcy-proof pensions and huge bonuses. Employees harshly
criticized Carty, who had said management was sharing in the sacrifices to strengthen AMR.
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Las Vegas SUN: American Airlines CEO Quits; Unions Split
Page 2 of 2
Carty apologized for not telling workers sooner about the executive benefits. The company eventually canceled bonuses
for the top seven executives but left in place the $41 million in pension funding for 45 executives.
Two unions announced plans for new elections on the concessions, which American had hoped to avoid.
“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, 58, said in a statement.
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Arpey, who will remain president, said he would work to “restore the confidence of all employees in their great
company.”
Arpey, 44, has held a variety of management jobs at the airline since 1982, including chief financial officer, executive
vice president of operations and president and chief operating officer of American and AIVIR since April 2002.
Brennan, 69, retired as chairman and CEO of Sears in 1995. Some shareholders had demanded his resignation because
of the retailer’s flagging fortunes and its sales or spinoff of successful side businesses. He joined the AIVIR board in
1987.
“It’s a very good team that’s been put in place, and I’m very supportive of it,” said board member David Boren, president
of the University of Oklahoma, who had called for Carty’s removal.
Airlines have been hit hard by a downturn in travel caused by the weak economy, the 2001 terrorist attacks, fear of new
terrorism around the Iraq war, and the SARS outbreak. Competition from low-fare carriers has also restrained fares.
On the Net:
AIVIR: http://www.amrcorp.com
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USATODAY.com -Travel - News - Carty resigns as 2 unions agree to new concessions
Page 1 of4
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Carty resigns as 2 unions agree to new concessions
By Dan Reed, USA TODAY
FORT WORTH
AMR’s board forced chiefexecutive Don Carty to
resign Thursday, but after a day of stormy meetings, the world’s biggest
airline was still on the precipice of a bankruptcy filing.
Read more below
News
Stories
—
• CEO Carty resigns
• Workers in limbo morale hornble
• AA promotes man who made fateful Sept 11 call
• Canadian Carty had rough ride at American
• AMR posts ‘dreadful’ $1 billion first-quarter loss
• Shares of AA parent company plunge
• Some AA workers to vote again on concessions
• AA protects execs as workers asked to make steep
cuts
• CEO: Concessions don’t mean AA is in the clear
• AA pilots, ground workers OK concessions
• American offers bonuses in 2006 in bid for suppori
• AA shrinks May schedule, postpones service
• AA defends smaller pay cuts for management
• Stock options to ease pain of concessions at AA
• American Airlines presses creditors
• AA cuts 2,500 pilot jobs
• AA gets $1 .6B in labor concessions
• Two airlines scramble to fix money problems
• Airlines predict war could cost them $1 OB
• Airline chief asks employees to make sacrifices
• AA cuts international flights due to war
• American quietly seeks bankruptcy fundjng
Gerard Arpey, AIVIR’s president, will succeed Carty as CEO. Edward Brennan, an
AMP. director and former Sears chairman, will serve as chairman of APvIR’s board.
But late Thursday evening, the fate of the airline and a crucial package of laborcost savings worth $1.8 billion a year that AMR says is needed to avoid bankruptcy
court was once again in the hands of its flight attendants union.
—
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Last week’s ratifications by all three American unions had been threatened by Carty’s
decision not to fully disclose details of executive compensation plans to workers before
voting was completed. When the details became public, all three unions began
backing off on their endorsements ofthe concessions.
Thursday, AMR offered the unions better terms but on the condition that they not.4ei~4
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USATODAY.com Travel News Carty resigns as 2 unions agree to new concessions
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the savings desperately now because of weakening travel demand and financial
obligations it must meet in the weeks ahead.
The airline’s pilots union and the Transport Workers Union, which represents
mechanics and ground workers, agreed to the new terms, but the flight attendants
union, which initially rejected and then approvedthe original concessions last week,
was still debating the company’s new terms Thursday night. Leaders ofthe flight
attendants are scheduled to reconsider the company’s terms at 8 a.m. CT today and
have asked the company to delay a bankruptcy filing until after that.
John Darrah, president of the Allied Pilots Association, said in a message posted on
the union’s Web site around 5:20 p.m. CT that his board had authorized him to sign
the contract concessions approvedby union members last week, with some agreedupon modifications. He emphasized that the pilots’ agreement was contingent on both
the TWTJ and the Association of Professional Flight Attendants also agreeing to the
deal.
Almost simultaneously, Jim Little, head ofthe TWU atAmerican, posted a letter to
his members on the union’s Web site, saying the same thing. “We and the pilots are
prepared to go forward,” Little wrote, after explaining the changes to the concessions.
“There is only one rational decision which can be reached,” he added. “Revoting the
ratified agreements will mean a bankruptcy, with far more layoffs, worse pay and
working conditions. Pensions and health care will be in immediate jeopardy. We will
not be taking our chances in bankruptcy we will be guaranteeing a worse future for
—
our members.”
Little said that by honoring last week’s ratification vote, the modified deal will shorten
the contract by a yearand “maximize our chances for undoing concessions no one
wants. Moreover, if there is a bankruptcy, we will have provisions in place protecting
us from attempts to secure further concessions.”
To secure the union’s approval of the concessions deals voted on last week, AMR’s
board agreed to several modifications:
The length of the contracts was shortened to five years, or until April 30, 2008.
Previously, the contracts were to run five years and eight months, until Jan. 1, 2009.
Airline contracts don’t end. They become amendable at a set date, while existing terms
remain in effect.
Either the unions or the company can move to reopen contract negotiations two years
early, in April 2006, effectively reducing the contract’s length to three years.
Unions can seek to renegotiate one contract item of their choosing during a 30-day
period that begins May 15. However, total value of the contracts cannot change.
Disputes on those points can be settled by arbitration.
Terms of an incentive pay plan added as a deal sweetener earlier this month to coax
union members to approve the concessions will also be applied to management.
Employees will be able to earn larger pay raises if American reaches “reasonably
achievable” operational and financial goals. The plan is in addition to profit sharing
and stock-option plans included in the concessions approved last week.
Little also said management has committed to the unions
and the four House
members who helped facilitate the final talks that led to Thursday’s deal that there
are no further executive compensation matters that have not been disclosed.
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Travel News Cart~’resigns as 2 unions agree to new concessions
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“Based on these considerations and on the commitments made (Wednesday), our
union will honor last week’s vote in order to protect our members,” Little said. “We
must do everything in our power to limit exposure of our contracts and our members
in bankmptcy proceedings. Those who would do otherwise are clearly motivated by
reasons other than the welfare of the members.”
The makings of a potential deal allowing American to skirt a Chapter 11 bankruptcy
filing began to come together Wednesday during a marathon meeting ata Dallas/Fort
Worth International Airport hotel between Carty and other American officials. The
meeting had been arranged by Rep. MartinFrost, D-Texas, whose district in nearby
Arlington and Fort Worth is home to hundreds of American employees.
Frost was joined by three House Republicans from north Texas, Pete Sessions, Joe
Barton and Michael Burgess, in serving as meeting facilitators. Sessions told reporters
that the union leaders and Carty all agreed that avoiding bankruptcy was imperative.
But by early afternoon, the politicians had all left the meeting, fmstrated at the
inability of the parties to reach a compromise that would keep the airline out of
bankruptcy.
By evening, AMP.’s management suggested they could sell the company’s board on a
shorter contract length ifunions would give up their insistence on revoting. One
potential problem was whether American lenders would agree.
Leaders of the pilots union, which had decided not to revote but to withhold their
president’s signature from the deal, said they thought they could sell such a deal to
their board members. TWU leaders, who had announced indefinite plans to revote,
expressed confidence that both their local presidents and TWU national officers could
be persuaded to accept such a deal.
But flight attendants leaders were split on the idea, with President John Ward
insisting that the concessions had to be put back out for another vote.
On Thursday morning, AMR board member and former U.S. senator David Boren
was quoted in the Tulsa World as saying he would move at the board’s meeting at
Dallas’ posh Wyndham Anatole Hotel that Carty be replaced as CEO. “Mr. Carty has
lost the credibility and trust necessary to effectively lead the company through
challenging times,” Boren said.
At midmorning, Frost told a CNN reporter that he believed there was a basis for a
deal in place but that management and leaders of all three unions still had to sell the
deal to their respective boards.
A senior pilots union official, however, said Frost was optimistically over-reaching.
The flight attendants leaders, particularly Ward, were still not on board, the pilots
union official said.
In midafternoon, the AMIR board sent word to APFA that it had to have an answer by
4:30 p.m. CT, or they would vote to put the company into bankruptcy reorganization.
Around 3:30 p.m. CT, the APFA board voted to turn down the deal. The AMR board
was informed a few minutes later. Within minutes, though, members of APFA’s
executive committee began moving to override the union board’s decision to reject the
deal. A call was made to the AIvIR board, asking for more time. Shortly after 4 p.m.,
AMP. board members adjourned, having voted to file for Chapter 11 bankruptcy
unless the APFA decision was reversed.
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USATODAY.com Travel News Carty resigns as 2 unions agree to new concessions
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An hour later, both TWEJ’s Little and the pilots union’s Darrah posted the messages on
their Web sites saying that they had agreed to the deal but the agreements were
contingent on APFA joining them. The twin announcements increased the pressure on
APFA, which was being painted as the party responsible for possibly putting
American into bankruptcy.
Meanwhile, at APFA headquarters in Euless, Texas, about five miles from AMR’s
Fort Worth headquarters, the scene was chaotic.
One person close to the APFA talks said many of the board members who were in the
room for the conference call were in tears, while others were “stressing out.”
Members of the union’s powerful executive committee argued that the decision to
accept the AIVIR board’s proposed deal rightfully belonged to them, not the union’s
board.
The person close to the situation said that executive committee members argued that
by putting the decision into their hands, the company could be saved from bankruptcy
reorganization and the union’s board members, also the elected leaders of the union’s
various locals, could be shielded from taking the blame from members opposed to the
deal.
For Carty, 56, his ouster may end a career spanning more than 20 years at AMR. He
has been chairmanand CEO since 1998.
Arpey, 44, was promoted to president a year ago. Arpey got his first airline job as a
part-time baggage handlerfor Delta. He has spent his entire professional career at
American.
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Las Vegas SUN: Editorial: American Airlines’ black eye deserved
Page 1
of1
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Las Vegas SUN
April 24, 2003
Editorial: American Airlines’ black eye deserved
LAS VEGAS SUN
Recently the management of American Airlines extracted significant wage concessions from unions as the airline sought
to prevent bankruptcy. The unions agreed to pay reductions that would save American $1.6 billion annually. But late
last week the unions found out only after they had already agreed to the concessions that seven airline executives
were receiving large retention bonuses to stay on, In addition, 45 executives were guaranteed pensions even if the
company went into bankruptcy, a sum that could total $41 million. The airiine’s CEO, Donald Carty, apologized for
--
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failing to disclose the pay and benefits, adding that executives would now get rid of the retention bonuses
--
but not give
up the guaranteed pensions. In response, the unions may rescind the contracts. The company, whose board is meeting
today to consider filing for bankruptcy and p ossibly removing Carty as CEO, has created this mess.
If the unions void the contracts, they could hurt themselves in the long run. The company would almost certainly file for
bankruptcy and the union’s membership could face greater hardships. More layoffs could occur and the company could
slip deeper into debt to the point where the airline has to be liquidated. Nevertheless, it’s easy to understand the
employees’ anger. To prevent a disaster, the company should immediately forgo the pension benefits for the executives.
Even if the company agrees to do that and the unions agree to keep the wage concessions in place, its failure to disclose
its perks will have a debilitating effect on its relationship with its workers. The actions of American’s executives are
deplorable and show just how out oftouch they are with their employees and with the public, whose cynicism about
corporate America continues, with reas on, to grow.
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