- The Washington Times - Friday, April 25, 2003

American Airlines' efforts to defuse tensions with its flight attendants collapsed last night, prompting Chairman and Chief Executive Officer Donald Carty to quit and setting up a bankruptcy filing by the world's largest carrier.
Parent AMR Corp. will file for Chapter 11 bankruptcy protection today or Monday unless the flight attendants agree shortly to accept pay concessions, several sources familiar with the matter said last night.
The company forced the resignation of Chairman and Chief Executive Donald J. Carty last night, an attempt to pacify irate labor unions whose outrage over executive perks has driven the world's largest airline to the verge of bankruptcy.
"I've said publicly that I felt a change of leadership was needed to clear the air, and I thought we need a fresh beginning with completely transparent information between all parties, including management and labor," said board member David Boren, who is president of the University of Oklahoma.
The impending move in the U.S. Bankruptcy Court in New York comes after the board met all day yesterday in Texas to consider the fate of the world's largest airline, which has been embroiled in a big dispute with its three major unions.
A $1.8 billion cost-cutting package that the unions agreed to last week unraveled after employees learned of previously undisclosed executive perks, including bankruptcy-proof pensions and huge bonuses.
The removal of Mr. Carty represented a last effort to restore trust among the furious employees. He apologized several times for not telling workers sooner about the executive benefits, and the company eventually canceled bonuses for the top six executives but left in place the $41 million in pension funding for 45 executives.
The AMR board promoted its current president, Gerard Arpey, to replace Mr. Carty as chief executive. Ed Brennan, the former chairman of Sears, will take over as chairman.
The appointments of Mr. Brennan and Mr. Arpey will "begin to build a bridge back to the path that promised a new culture of collaboration, cooperation and trust," Mr. Carty said in a statement last night.
Pilots, with mechanics and other ground workers, yesterday agreed to certify the old concession packages with a few new provisions. But the flight attendants rejected it last night.
Mr. Carty's removal was a key element that prompted the pilots and ground workers to sign the agreement.
The executive-compensation plan that outraged the unions would have given six top executives bonuses of double their salaries if they stayed at the company through January 2005, and it funded a pension trust for 45 executives. The plan was disclosed in an annual report April 15 while employees were voting to approve the first labor concessions.
The pilots, flight attendants, mechanics and ground workers learned of the plan April 17, after they had approved the concessions.
Airline officials had said they would file for bankruptcy unless all three of its major unions agreed to accept wage, benefit and work-rule concessions to cut operating costs by $1.8 billion.
The revised labor agreement would shorten the six-year length of the original concessions, added an incentive-compensation provision tying additional pay for workers and management to performance, and provided an arbitration process.
The flight attendants' leaders said they preferred to go ahead with a new vote, which was expected to take 30 days. Pilots union leaders approved the revised plan contingent on its acceptance by the airline's two other major unions.
The agreement included an offer by Mr. Carty to resign if his continued presence at American was the stumbling block to approval of the agreements.
Mr. Carty's repeated apologies during the past week failed to satisfy the unions.
American reported a $1.04 billion first-quarter loss Wednesday.
Standard & Poor's said on Wednesday that it believes the company's unrestricted cash has "fallen substantially" since Dec. 31, when the company had $1.9 billion. The company needs a minimum of $1 billion in unrestricted cash and short-term investments to meet the terms of its loans.
Mr. Brennan is the retired chairman, president and CEO of Sears, Roebuck & Co. He worked for Sears for 39 years before retiring in 1995.
Mr. Arpey, 44, has spent his entire professional career with American. He started as a financial analyst in 1982 and became a corporate officer in 1989. He is a private pilot.
This article is based in part on wire service reports.


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