American's CEO has weathered huge changes

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By ERIC TORBENSON / The Dallas Morning News

After three years of running the world's largest airline, Gerard Arpey's list of accomplishments runs long.

[Click image for a larger version] RICKY MOON/Special Contributor
RICKY MOON/Special Contributor
For all his successes at American, CEO Gerard Arpey's legacy is still up in the air.

The chairman, chief executive and president of American Airlines Inc. has forged a collaborative way of working with unions that's considered groundbreaking in the industry.

He's turned American's three maintenance bases into profit centers, capitalizing on the outsourcing trend by taking on overhauling work from other carriers.

Mr. Arpey has overseen hundreds of changes that have simplified American's once-dizzyingly complex operations, and he's beefed up the carrier's balance sheet.

Yet for all of Mr. Arpey's successes, American still isn't profitable, largely because of skyrocketing fuel costs. And it's far from making the kind of money it needs to buy new planes and reinvest in itself.

"Performance has got to be your reality," Mr. Arpey said after an employee meeting last month at the carrier's giant maintenance facility in Tulsa, Okla.

"You can't take much satisfaction in losing money," he said.

"Our goal is to make the company sufficiently profitable so it can replace its assets and grow."

As Mr. Arpey sees it, he needs American's labor unions at his side in order to make money and expand.

Indeed, he's staked his stewardship of American on the Working Together approach that links employees and managers at all levels of the carrier.

Other carriers have tried some levels of cooperation with labor, but American's effort is unique in how deeply it extends through the airline.

"This will be his legacy, if successful," said Tommie Hutto-Blake, president of the Association of Professional Flight Attendants that has 16,000 members at American. "There is no doubt this model will be a much more challenging course, rather than stripping the company of debts and obligations via the bankruptcy courts."

Despite not having the power to set aside leases, contracts and pensions, American has posted better results than United Airlines Inc., which recently emerged from a three-year stint in bankruptcy where it terminated its employee pensions.

Lost opportunity

Mr. Arpey said he considers the incident over and is focusing instead on how to improve productivity. The average American employee understands how the payout situation played out and has moved on, he said.

But Mr. Arpey's relationship with the flight attendants and pilots has begun to resemble the traditional adversarial situation he inherited three years ago. And contract talks are right around the corner, which historically have added tension between unions and managers.

The flight attendants' union says it won't participate in meetings that management has held around the country discussing productivity improvements. And the pilots union has filed contract grievances over new sick-leave policies it says breaks the contract.

Aviation consultant Bob Mann says Mr. Arpey lost a "golden opportunity" to win over workers and unions by forcing managers to take much less or take none of the payout. That kind of move might have exposed the airline to lawsuits because the payouts are considered deferred compensation, not discretionary bonuses.

"A lot of 'attaboys' were just erased from the blackboard with one move," said Mr. Mann, who has done work with American's pilots union. "He probably would have lost five or 10 or 15 managers, but he would have absolutely cemented his relationship with 50,000 people who touch American's customers every day."

Mr. Arpey underestimated the big payouts' impact on employee trust, said Sam Mayer, who represents American's pilots based in New York and who is among management's most vocal critics.

"I heard from guys on this payout issue that I hadn't head from in years – line guys who usually never take much interest," he said.

"Listen, I really do think that Arpey gets it," Mr. Mayer said. "My problem is that he inherited a bunch of assistant coaches from the previous head coach, and three years later, there's been no real change in the lineup. A lot of these guys don't share his vision."

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"Listen, I really do think that Arpey gets it," Mr. Mayer said. "My problem is that he inherited a bunch of assistant coaches from the previous head coach, and three years later, there's been no real change in the lineup. A lot of these guys don't share his vision."

There is a lot of truth in that statement.
 
"Listen, I really do think that Arpey gets it," Mr. Mayer said. "My problem is that he inherited a bunch of assistant coaches from the previous head coach, and three years later, there's been no real change in the lineup. A lot of these guys don't share his vision."

There is a lot of truth in that statement.



So,what is keeping Arpey from showing these non-team players to the exit door?
 
Corporate culture resists change. Un-Cartying AA is going to be a toughie. It always takes more time and commitment to undo damage than it does to do the damage. I think upper management is rife with members who do not believe we should change. Part of it is mindset, and part of it is a sense of entitlement. They love their power and perks, and feel they are entitled to it at our expense, and even at the long-term expense of the company.

The BOD was not mentioned at all.
 
Kind of taking his time, don't you think? 3 years? My guess is that Arpey probably doesn't agree with Sam Mayer's assessment of the situation.


Can also consider ramifications of buy out sections of contracts for anyone pretty much level 7 and above. To fire without and sometimes even with cause can cost more than the bonuses.
 
Bingo! Firing a director or higher essentially means paying them to play golf for the next three years with benefits.

While I'd rather see fresh blood in a few places, the logical approach is to hold the existing people accountable, and make to make life miserable for those who don't perform. It's far cheaper to make people re-evaluate their career and find their own way out.

That said, even if Arpey $#itcanned half the VPs, the rank and file probably still wouldn't believe that things had changed for the better.

Go look at USAirways, where they've got one of the best CEO's in the business (Doug Parker), and almost all of the former US management is gone, yet you've still got a largely demoralized and disenfranchised workforce.
 
Former Mod makes the best point yet...there are a lot of people who would complain no matter what. Having quotes from the union and their consultants only is a very one sided article. Of course the union leaders and thier consultants are going to point out what they think were mistakes. Nobody mentioned that those same people were fully aware of the bonus plan and said nothing until it took effect. When it did, only then did they announce their anger at the plan. A little disingenuous don't you think? Unions only work when there's a fight...regardless of whether it's real or imagined. Is Arpey perfect? No...but who is?!?! Even Herb Kelleher had to replace his immediate sucessor who was a bad decision...
 
I don't see where you get the idea that Jim Parker was forced out by Kelleher. By all accounts, even the LUV board of directors was caught completely off-guard when he resigned, and I seriously doubt Herb would have made a move like that without consulting them first.
 
...nobody was caught off gaurd by Parker's resignation. After Herb had to step in to resusitate the negotiations with the flight attendants, it became pretty apparent that Parker wasn't the guy. He resigned a little after that having served an extremely short stint in the position. It was no surprise. Of course, publicly, they expressed shock and surprise. They ate crow. Their current ceo would have been a better choice from the get go.

The point is that everyone makes mistakes. Arpey has done an exceptional job given the situation. To say he has hurt his creditability because some of his decisions haven't been what the union leaders wanted is a bit of a stretch. Those same leader's shock over the bonuses they knew about was a little disingenuous. Personally, I think they felt like people were starting to like the CEO too much for them to be effective. This gave them a chance to create the illusion of an issue. Like good followers, nobody in the union asked their leaders why this wasn't brought up when Arpey showed them the management compensation plan when the stock was at $1.