The Baumert Report April 25, 2003
The More Things Change. . .
Gerald Arpey is the new CEO of AMR. Amid all the pronouncements,
including words of welcome from labor leaders, something seems not
quite right. To many, the selection of Arpey was obvious: if Robert
Crandall was not going to be invited back, then the second-in-command should take over for the disposed CEO. Yet, the question that rises from the ashes of Don Carty''s resignation is: As Chief Operating Officer and President, how far removed could Arpey have been from AMR''s horrendous business decisions, deteriorating labor relations and the special trust and bonus scandal?
Gerald Arpey became Chief Financial Officer under Crandall in 1995.
He was named COO in 2000, and then added the title of president in
2002. He was obviously heavily involved in major decisions and the
running of the company.
Given his responsibilities at the time, he was clearly in on the
decision to purchase TWA. Aside from the cost of the acquisition,
TWA continues to drain cash from AMR. As UBS Warburg''s Sam
Buttrick said not so long ago, American wouldn''t be in this
mess if it hadn''t bought TWA. He added that the disastrous
acquisition has exacerbated American''s cash loss by more than a
billion dollars.
As the former CFO of the company, Arpey must have known what
unrealistic pension return assumptions would do to the funded status
of the employees'' pension in a bear market. Yet, since the bear
market began AMR has barely changed their aggressive assumption, just lowering it from 9.5% to 9.0%. Such improbable rates contributed mightily to the $250 million pension contribution AMR made last year, the $1 billion charge they took against shareholders equity and the several hundred million dollars they will likely have to contribute this year.
Lest we forget, Arpey was not absent from the special trust and bonus scandal. As COO and President, he was and is a beneficiary of the special trust. Despite employee and public outrage, AMR and Arpey apparently plan on keeping this homage to unrelenting greed. He was also one of the executives slated to receive million dollar
retention bonuses (retention? Do they actually believe there''s a
strong market for airline executives?). Arpey''s keeping of the special trust continues to mean there is no shared sacrifice between labor and executives.
While were on the subject of money, there is the matter of the
phantom salary cuts of senior executives. Here''s how they operated
this scam. For instance, take Gerald Arpey. In 2002, he received a
17% raise on his salary. Then they turned around and made a big
announcement about how senior executives would be taking pay cuts in 2003. Arpey''s cut would be 14%. So, they raised his salary by 17% so they could lower it by 14%, which made him look good, all the while Arpey''s base salary would have been above his 2001 salary after the cut.
This goes on while pay rates for labor are slashed back more than a
decade. Furthermore, nowhere on the cuts for senior executives are
the words for five years.
As the president of American Airlines, he was obviously in on the
hardball, bare-knuckle, take it or leave it negotiating tactics the
company used to seize concessions that were more than they required and would last longer than needed, as well as the shameless company interference during the APFA''s re-vote. I find it dubious that Mr. Arpey has changed overnight. Recall, that Carty made similar pronouncements about improving labor relations shortly after he became CEO.
So, in the perverse world of corporate America, Don Carty is
deservedly forced to resign, but his right hand man, who participated
in the poor business decisions and was a party to a compensation
scandal, is given a promotion and the pay raise that goes with it.
And if that isn''t bizarre enough for you, Edward Brennan, a member of the compensation committee that approved the disgraceful special
trust and retention bonuses, is named Chairman of AMR.
The more things change, the more they stay the same.
Steven Baumert
I don''t know who Mr. Baumert is, but I often see his report cited as fact. There is a significant error in his report. According to the 2003 AMR Proxy Statement on page 29, Upon his election as President and Chief Operating Officer of the Corporation and American, Mr. Arpey''s base salary was increased in consideration of his additional responsibilities. Otherwise, there were no increases in the base salaries of any of the named executive officers in 2002. The last increase in base salaries of the named executive officers occurred in July 2001. Effective April 1, 2003, the salaries for the named executive officers were decreased.
Mr. Baumert refers to phantom salary cuts and a scam. The facts don''t support these accusations.
Also, it''s Gerard, not Gerald.
Mr. Baumert is free to have opinions and express them, but he should not misrepresent the facts.
The More Things Change. . .
Gerald Arpey is the new CEO of AMR. Amid all the pronouncements,
including words of welcome from labor leaders, something seems not
quite right. To many, the selection of Arpey was obvious: if Robert
Crandall was not going to be invited back, then the second-in-command should take over for the disposed CEO. Yet, the question that rises from the ashes of Don Carty''s resignation is: As Chief Operating Officer and President, how far removed could Arpey have been from AMR''s horrendous business decisions, deteriorating labor relations and the special trust and bonus scandal?
Gerald Arpey became Chief Financial Officer under Crandall in 1995.
He was named COO in 2000, and then added the title of president in
2002. He was obviously heavily involved in major decisions and the
running of the company.
Given his responsibilities at the time, he was clearly in on the
decision to purchase TWA. Aside from the cost of the acquisition,
TWA continues to drain cash from AMR. As UBS Warburg''s Sam
Buttrick said not so long ago, American wouldn''t be in this
mess if it hadn''t bought TWA. He added that the disastrous
acquisition has exacerbated American''s cash loss by more than a
billion dollars.
As the former CFO of the company, Arpey must have known what
unrealistic pension return assumptions would do to the funded status
of the employees'' pension in a bear market. Yet, since the bear
market began AMR has barely changed their aggressive assumption, just lowering it from 9.5% to 9.0%. Such improbable rates contributed mightily to the $250 million pension contribution AMR made last year, the $1 billion charge they took against shareholders equity and the several hundred million dollars they will likely have to contribute this year.
Lest we forget, Arpey was not absent from the special trust and bonus scandal. As COO and President, he was and is a beneficiary of the special trust. Despite employee and public outrage, AMR and Arpey apparently plan on keeping this homage to unrelenting greed. He was also one of the executives slated to receive million dollar
retention bonuses (retention? Do they actually believe there''s a
strong market for airline executives?). Arpey''s keeping of the special trust continues to mean there is no shared sacrifice between labor and executives.
While were on the subject of money, there is the matter of the
phantom salary cuts of senior executives. Here''s how they operated
this scam. For instance, take Gerald Arpey. In 2002, he received a
17% raise on his salary. Then they turned around and made a big
announcement about how senior executives would be taking pay cuts in 2003. Arpey''s cut would be 14%. So, they raised his salary by 17% so they could lower it by 14%, which made him look good, all the while Arpey''s base salary would have been above his 2001 salary after the cut.
This goes on while pay rates for labor are slashed back more than a
decade. Furthermore, nowhere on the cuts for senior executives are
the words for five years.
As the president of American Airlines, he was obviously in on the
hardball, bare-knuckle, take it or leave it negotiating tactics the
company used to seize concessions that were more than they required and would last longer than needed, as well as the shameless company interference during the APFA''s re-vote. I find it dubious that Mr. Arpey has changed overnight. Recall, that Carty made similar pronouncements about improving labor relations shortly after he became CEO.
So, in the perverse world of corporate America, Don Carty is
deservedly forced to resign, but his right hand man, who participated
in the poor business decisions and was a party to a compensation
scandal, is given a promotion and the pay raise that goes with it.
And if that isn''t bizarre enough for you, Edward Brennan, a member of the compensation committee that approved the disgraceful special
trust and retention bonuses, is named Chairman of AMR.
The more things change, the more they stay the same.
Steven Baumert
I don''t know who Mr. Baumert is, but I often see his report cited as fact. There is a significant error in his report. According to the 2003 AMR Proxy Statement on page 29, Upon his election as President and Chief Operating Officer of the Corporation and American, Mr. Arpey''s base salary was increased in consideration of his additional responsibilities. Otherwise, there were no increases in the base salaries of any of the named executive officers in 2002. The last increase in base salaries of the named executive officers occurred in July 2001. Effective April 1, 2003, the salaries for the named executive officers were decreased.
Mr. Baumert refers to phantom salary cuts and a scam. The facts don''t support these accusations.
Also, it''s Gerard, not Gerald.
Mr. Baumert is free to have opinions and express them, but he should not misrepresent the facts.
