Doubts grow about Carty 04/20/2003
By ERIC TORBENSON / The Dallas Morning News
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By ERIC TORBENSON / The Dallas Morning News
Here is the link to the full story
http://www.dallasnews.com/latestnews/stori...arty.6551c.html
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Hindsight lends new perspective on Mr. Carty's key strategic decisions that put the airline where it is today:
• Spending $2.6 billion to buy back AMR stock when shares were trading near their highs in the late 1990s now seems ill-advised because the company's cash reserves have dwindled to near-bankruptcy levels. Many carriers, such as Houston-based Continental Airlines, did the same thing because investors demanded better returns on airline shares, which have rarely outperformed the broader market averages.
• Spending $750 million for the assets of bankrupt Trans World Airlines – which made American the world's largest carrier – was considered a bold play in January 2001 but has lost its luster. Mr. Carty referred to the purchase as defensive response to United Airlines' offer to buy US Airways. When that fell through, the TWA deal seemed unnecessary. And Mr. Carty has said he wouldn't have contemplated the TWA purchase given today's financial conditions.
Mr. Levine, the former airline executive who now teaches law at Yale, said the TWA purchase was American's final play in its 40-year effort to overtake United as the world's biggest airline. And United only became that by buying Capital Airlines in 1961.
I still think to this day that American bought TWA in response to United buying Capital Airlines, Mr. Levine said. That move required American to spend the next 40 years trying to top that, and they finally did by buying TWA.
But the TWA assets now hang like dead weight on the company.
The result was that AMR acquired 7 percent of the nation's air capacity at a time when airlines needed to start trimming their schedules. Mr. Carty also inherited TWA employees who felt they were treated unfairly by American's unions. Most of them have already been furloughed, and all the former TWA flight attendants would lose their jobs under the concessions.
But much of what has happened to AMR in the last five years had little to do with Mr. Carty's stewardship. The industry had always been cyclical by nature, but the current down cycle of lower fares, fewer passengers and mounting debt for the big airlines has yet to find a bottom.
• Spending $2.6 billion to buy back AMR stock when shares were trading near their highs in the late 1990s now seems ill-advised because the company's cash reserves have dwindled to near-bankruptcy levels. Many carriers, such as Houston-based Continental Airlines, did the same thing because investors demanded better returns on airline shares, which have rarely outperformed the broader market averages.
• Spending $750 million for the assets of bankrupt Trans World Airlines – which made American the world's largest carrier – was considered a bold play in January 2001 but has lost its luster. Mr. Carty referred to the purchase as defensive response to United Airlines' offer to buy US Airways. When that fell through, the TWA deal seemed unnecessary. And Mr. Carty has said he wouldn't have contemplated the TWA purchase given today's financial conditions.
Mr. Levine, the former airline executive who now teaches law at Yale, said the TWA purchase was American's final play in its 40-year effort to overtake United as the world's biggest airline. And United only became that by buying Capital Airlines in 1961.
I still think to this day that American bought TWA in response to United buying Capital Airlines, Mr. Levine said. That move required American to spend the next 40 years trying to top that, and they finally did by buying TWA.
But the TWA assets now hang like dead weight on the company.
The result was that AMR acquired 7 percent of the nation's air capacity at a time when airlines needed to start trimming their schedules. Mr. Carty also inherited TWA employees who felt they were treated unfairly by American's unions. Most of them have already been furloughed, and all the former TWA flight attendants would lose their jobs under the concessions.
But much of what has happened to AMR in the last five years had little to do with Mr. Carty's stewardship. The industry had always been cyclical by nature, but the current down cycle of lower fares, fewer passengers and mounting debt for the big airlines has yet to find a bottom.