- The Washington Times - Wednesday, April 23, 2003

Leaders of American Airlines' irate labor unions met yesterday to consider new votes that could rescind labor concessions and push the carrier into bankruptcy.
The airline's flight attendants, pilots and ground workers exploded after learning about management's plan to give itself bonuses and bigger pensions. The unions learned of the perks after they voted to grant the company $1.8 billion per year in wage, benefit and work-rule concessions.
"I again apologize to our employees and union leaders, and I ask for their forgiveness," Donald J. Carty, chairman and chief executive of parent company AMR Corp., said Monday night.
But his apology one of several in the past few days appeared to be too little, too late for the three major unions.
Now they are threatening to rescind the concessions they approved last week in new votes. Such a move is certain to hurt American Airlines and its unions.
"What the big picture shows is the most horrible, terrible, disgusting dichotomy imaginable between those who have and those who don't," said Robert Monks, founder of Institutional Shareholder Services, a Rockville consulting firm to large investors. "It's an affront to the decency of corporate governance."
Mr. Carty repeated his threat this week to file for bankruptcy if any of the unions rescinds the labor concessions.
The unions' plight is likely to be even worse in bankruptcy court, where a judge could abolish any labor agreements believed to be too costly for the Fort Worth, Texas, company.
"It's a tough industry," said Catherine Tinsley, associate professor of management at Georgetown University's McDonough School of Business. "There are very low margins for making mistakes, and this was a mistake."
Mr. Carty said American Airlines' board offered the executive bonuses and pension benefits to prevent top managers from leaving while the company was in financial trouble.
He and five other executives would have received twice their base salaries in bonuses if they stayed until 2005.
Mr. Carty said last month that he would take a 33 percent pay cut to show solidarity with the unions, lowering his annual salary to $543,453. Under the bonus plan, he would have earned a bonus of $1.6 million in 2005.
"I'm not sure if it's greed or fear," Miss Tinsley said. "They need to keep their top managers in place to weather out this storm."
Employee votes on the concessions were cast last week, and the company disclosed last night in its annual report filed with the Securities and Exchange Commission the special benefits and bonuses that management arranged for itself.
The board of AMR Corp. last year approved large bonuses for six executives, including Mr. Carty, if they stayed at the company through January 2005. It also approved $41 million in payments to a pension trust for 45 executives that would have been protected in bankruptcy, similar to some pilots' pensions.
The company killed the bonus deal Friday, but not the pension trust.
American Airlines' union members are outraged, saying they have been deceived and citing the "retention bonuses" as examples of corporate greed.
"This situation has incensed employees from the bottom all the way to the top," said George Price, spokesman for the Association of Professional Flight Attendants (APFA). "It is the APFA's intent to reballot our membership."
American Airlines' flight attendants earn an average of $32,000 a year.
The board of the Allied Pilots Association, which represents about 13,000 American Airlines pilots, said last night its members don't need to vote again on concessions the carrier is seeking to avoid bankruptcy because the agreement isn't final until the union's president signs it.
The union's board will decide whether to accept or reject the contract based on what AMR management does, union spokesman Andy Sizemore said.
Ground workers represented by the Transport Workers Union decided Monday night to hold a second vote.
"What we see is a breach of trust between the management and employees of this company," Mr. Sizemore said. "A number of people in our management structure live in a different world from the rest of the employees."
Ultimately, he said, any response by the company should include a review of whether Mr. Carty should continue as chief of American Airlines.
"There aren't a whole lot of people out there on his side right now," Mr. Sizemore said.
Mr. Carty said that the company's annual financial report was not deliberately withheld until after the concessions votes last week.
Initially, he said, the airline was hoping to win concessions before filing the report so that its auditors, Ernst & Young, would not include a statement that the airline was in danger of going out of business.
Once it became clear that the auditors intended to include that statement, Mr. Carty said, American executives continued to hold off on filing the report because they wanted the report to reflect the concessions package.
"If I had been smart, I would have filed it on March 1," he said.
Industry analysts said any new votes by the unions on their labor contracts are likely to make American Airlines' bad situation worse.
"In another vote, we believe the emotion would overrule logic and the contract would be turned down, thus driving AMR into bankruptcy," Ray Neidl, analyst for the Wall Street financial firm Blaylock & Partners, wrote in a research note Monday.
Any union demands for Mr. Carty's resignation would add to uncertainty at the company, he said.
While the unions are "entitled to be upset," said Jon Ash, managing director of the airline consulting firm Global Aviation Associates, "they are going to be poking themselves in the eye" if they force a bankruptcy.
The company is scheduled to report first-quarter earnings today. Analysts predict that it will post an $800 million loss.
Its stock continued to fall yesterday, dropping 11 percent, or 42 cents, to $3.43 on the New York Stock Exchange.
This article is based in part on wire service reports.

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