American Air's Carty -- Chastized But Vindicated?


Nov 21, 2003

American Air's Carty -- chastized but vindicated?

Wednesday February 4, 3:45 pm ET
By Jon Herskovitz
DALLAS, Feb 4 (Reuters) - When the poster children of corporate chicanery were rounded up at the end of the year, former American Airlines Chief Executive Don Carty's name was at the top of several lists.

Carty, 57, was forced to step down from American's parent AMR Corp. (NYSE:AMR - News) in April 2003, as employees fumed over disclosures of executive perks that came out while workers were voting on massive wage cuts needed to keep the airline from bankruptcy.

His legacy will include the blunder that cast him from power, but Carty may be vindicated for leading a restructuring plan that pulled American from the brink of bankruptcy and turned it into one of the more buoyant airline stocks on Wall Street. AMR shares are now trading at about $15 on the New York Stock Exchange (News - Websites) after falling under $2 in March 2003.

Carty and other top managers kept American out of Chapter 11 with a $4 billion a year cost-cutting plan, likely the largest mutual restructuring agreement for a U.S. company with a heavily unionized labor force.

In a recent interview with Reuters, Carty said it was his responsibility to step aside in order to keep the restructuring plan on track. The perks included retention bonuses for top executives and about $40 million in funding in pensions for senior mangers that would have been paid even in bankruptcy.

"As the CEO, I did, and should take responsibility for errors," he said.

There are some in the company who said that by Carty falling on his sword, the workers could vent their anger at one man as they swallowed wage cuts of 16 percent to 23 percent, in addition to the loss of thousands of jobs.

Brinksmanship sealed deals by which union members would reduce their annual wages by about $1.6 billion. The airline was ready in March and April of 2003 to file for bankruptcy.

Carty was despised by many workers at American after they agreed to concessions. A few flight attendants tore his picture out of in-flight magazines and gate agents complained openly about pay cuts.

Union officials would not comment, but some workers at the company say they will never forgive Carty, while others grudgingly acknowledge his contribution to keeping the carrier flying.


Chief Executive Gerard Arpey, Carty's successor, had to immediately mend fences with the flight attendants union in order to get them to agree to concessions. He also had to quickly implement new contracts that would change the way almost everyone got paid and did their job at the airline.

"We actually benefited by the misfortunes of some of our colleagues, by United going under and various things. It was a hard lesson, but it made it credible that it could happen to us," Carty said.

The bankruptcy filings of United's parent UAL Corp. (OTC BB:UALAQ.OB - News) and US Airways (NasdaqNM:UAIR - News) demonstrated to employees that they would be worse off with a company in Chapter 11 than they would be through concession deals that kept the carrier solvent.

Carty said that because of the concession deals, American has emerged as the strongest of the traditional airlines.

He cautioned that due to increased competition in the industry, especially among low-fare carriers such as Southwest, American needs to trim its annual operating costs by about another $1 billion over the next three to four years.

"Employees are feeling a growing sense of confidence in the company," Carty said.

He had high praise for Arpey and the new leadership at American for implementing and refining the restructuring plan, working to better relations with employees as well as winning the trust of Wall Street that American is on the right path.

Ray Neidl, an airline analyst at Blaylock & Partners, called Carty a brilliant strategist who will be remembered in the industry for the restructuring plan.

"It was his plan that was implemented, accepted and it has not only saved the company," said Neidl, "but American may prosper before any of the other legacy carriers."

As for Carty, he maintains an office in Dallas, where he is busy with board work for several companies and charities. While he has toyed with the idea of returning to a full-time job, he says he has not been tempted by the thought of working for another airline.

What would he like his legacy to be?

"What I would like it to be is to have credit for that plan that turned the corner at that company," Carty said. "I probably will never get that credit because I left before the evidence of it was in. But for me, I have the self satisfaction of it."
What Mr. Herskovitz fails to mention is that Mr. Carty was also the one that was at the helm when he piloted the airline onto the financial rocks, failed to strategically plan, compensated for his lack of strategic thought by making the workers pay for it, fostered the worst labor relations in memory, reportedly lied to the BOD about what he told the unions about the sheltered executive pensions, and then walked away "a failure" with reportedly, $8.2 million and a handsome yearly pension. Seems even failure in the airline executive ranks pays pretty well.

This is like a surgeon botching an operation, then getting accolades when the patient doesn't die.
They used his stepping down, as a ploy to give union officials the feeling that "THEY" had the power........ to get the RPA.
Many new the day before around 5:00-5:30pm cst.............. Apparently not the unions...........
Carty will yet have to answer for his "fair and equitable" promises to the TWAers along with his promise to furlough equally.
Well, I suppose that Carty could promise the moon, but in the case of the seniority integration, he didn't have the legal or contractual authority to compel the AA unions to acquiese to a seniority agreement on TWA terms. That was obvious to the most casual observer prior to the TWA acquisition. They were just nice feely-good statements.

He also promised in-writing and contractually that he wouldn't furlough anybody.
By mid march 2003, Carty's antics had been made fully public, and it caused the company's stock to tank at $1.24 That is the only reason why, the next month, April 2003, he was handed his walking papers. Stepped down my aunt fanny!

This story is just company PR, released in hopes of smoothing over not only the concession requests that are yet to come (and make no mistake, they are coming), but my best guess is . . .Carty's return to AMR.

AMR did nothing but build a mountain of debt that is going to crumble quite easily. They hocked the farm, and now someone has to pay. The final depeaking is just around the corner . . .

Guess who that someone is?

If I were Arpey, I'd be mad as hell that the old gray haired numbnuts is out there taking credit for everything a year after he was fired.
L1011Ret said:
Carty will yet have to answer for his "fair and equitable" promises to the TWAers along with his promise to furlough equally.
Do you ever stop with the seniority issue? None of the f/a's will ever get their DOH or something like the pilots or mechanics did.

Here is a question for all of you TWA'ers; Will you return to AA when your lawsuit is lost and you get recalled?
Carty did not "fall on his sword" nor was he fired. The whole thing was part of a planned deception to get the unions to buy the concessions.

AA played the unions like a violin.
"AA played the unions like a violin." I guess the music was good because by majority votes everybody waltzed to Carty's tune. I think it also true that had you not waltzed, it would have been Chapter 11 or possibly 7. By deciding to go to the dance and participate you made possible a future for AA, yourself as an AA employee and all your fellow employees. Painful in the short run, but the in the long run AA placed itself in a much stronger position to compete.