Once upon a time, at an Airline far, far away...


Aug 20, 2002

Monday Hot Flash - April 21, 2003

Snatching Defeat >From The Jaws of Victory
American Management Scuttles The Ship

Until late last week, American had it made. They had engineered an out-of-bankruptcy turnaround that put them eons ahead of the competition. With tough and direct bargaining, management and labor jointly crafted a plan to posture American to not only survive, but grow and prosper. It really looked like they had pulled it off. Now, by trying to hide a measly few million in cushy executive perks, AA management has single-handedly torpedoed the entire deal.

American had been extorting the troops to believe that the airline was in deep into the financial weeds, and everybody was going to have to hunker down to save the airline. Take a look at some of the urge-the-masses-on stuff that management was feeding to the troops:

... American''s pension plans (are) underfunded by roughly $2 to $3.5 billion...

...Everything is being looked at, including (changing or eliminating) the pension plan... employee benefits are a major cost item for the company...

...American cannot speculate the impact on employee benefits (with a PBGC takeover) ...

- Flagship News, American Airline employee newspaper, March 2003.

Yessir, management says, your pension benefits and everything else are on the line - the company simply might have to cut them, and even may have to dump pension administration on to the PBGC, where employees can expect their benefits to be slashed to pennies on the dollar. Times are tough, after all. Sacrifice and cuts are the order of the day to get the airline through this crisis.

All that came crashing down this past week. Everybody, apparently, does not include senior management, several dozen of which have had their pension plans engineered to be immune from any bankruptcy filing. Everybody must work together to keep AA flying, but if things go bad, the head honchos don''t have to worry. They''ve got a pension plan they can rely on. They''re above the rank-and-file.

That was bad enough, but then employees heard about the retention bonus plan for the inner circle at AA management. While employees were agreeing to double-digit pay cuts and massive layoffs, the situation was far less bleak for Carty and his inner circle of henchmen. If they stay through next year, it would be double-salary-bonanza time. No, not stay and meet some tough performance goals, but just hang around until January of 2005, and then collect several hundred grand each - a bonus equal to double their salaries. But, hey, you gotta keep good management, right?

Retention of Management? To be sure, it is tough to keep good management. Just take a look at United, where it took almost a year to cajole somebody into taking the CEO job, and even then it can be argued that they got beer performance at champagne prices. But be that as it may, when the entire airline is supposed to be a team in the time of crisis, it just doesn''t fly to pay double-salary bonuses just to have them hang around for another 18 months or so. A team stays together. Unfortunately, this retention bonus would indicate that AA management may not possess the same level of company loyalty as do mechanics, pilots, and flight attendants. The message is clear: these executives can''t be trusted to stay and lead, so the AA board decided to bribe them with future bonuses. Yes, there is competition for top talent. But if it requires huge bonuses to keep them interested in working, one can only wonder if that''s what AA has. If AA doesn''t have the type of senior executives that are dedicated to the airline without needing a double-salary bonus to stay on the property, the airline is toast.

Palaces For Us. Reduced Dental Plan For You. What was revealed late last week, fairly or unfairly, paints AA''s senior management in a Saddam-esque light. From their gold-leaf palaces, replete with protected pensions and bonus programs, the AA elite had urged the masses to toil and sacrifice and sweat to defend the regime, Yet all the while they knew that if things come up a cropper they can boogie out of town, financially fat, leaving the great unwashed masses to their own fate. Fair description or not, the fact is that all the babble about shared sacrifice and that everything is being looked at now sounds like a lot of empty propaganda.

Outcomes. Until this revelation, it was a near-certainty that American would be the airline to watch. Now, it''s back on the fast track to Bankruptcyville. That''s not good for anybody. Some of the things to watch for:

If any union actually pulls out of the concession deal, AA will be up close and personal with bankruptcy. Worse, simply the near-total collapse in employee trust caused by this event could spook creditors, tossing American into Chapter. In fact, it now may be impossible for AA to stay out of bankruptcy.

Carty''s future is in question. He''d built a reputation for being a stand-up guy. That''s over. At this point, Don Carty might as well put on a cheap plaid jacket and start selling used cars. He''s got the right credibility for the job.

Watch for the trendies to call for the return of Bob Crandall, which is sort of like asking your ex-wife to come back and take over your checkbook. His track record, despite some lore, ain''t exactly pure as the driven snow, and right now, a change in the front office might not do anything positive. True, Carty has destroyed trust levels with employees, but, as the president of the Allied Pilots Association has intimated, emotional decisions should be avoided. So should the return of Crandall - when it comes to emotional, he''s got the interpersonal skills of a cranky badger with a migraine. Wrong guy for the job.
American can get through this, but it''s going to be a lot tougher. The problem is that senior management thought that it was somehow special and above the rest of the employees. If that changes - with full disclosure of any other cutsie perks that might exist - AA has a fighting chance.

But if it enters bankruptcy, it won''t be labor who caused it. But they are the ones who''ll pay for it.

The Boyd Group/ASRC, Inc.
On 4/22/2003 9:16:44 PM RV4 wrote:

Was there to much truth in this post for a response?

Even Mike Boyd thinks that the workers will pay for management's mistakes if the company files for bankruptcy - see the last line of the article. I agree with him.

Every time someone posts an opinion consistent with Boyd's view, certain posters fill the thread with the word "FEAR," usually in large font accompanied by some cut and paste from the online dictionary and some patronizing union bluster.

But when Boyd says it - it's the gospel?
There''s a grain of truth in there. Of course, it is surrounded by so much sound and fury signifying nothing, it''s hard to find.

I have to say I liked the comparison of Carty to a used-car salesman though...

On 4/22/2003 9:23:45 PM WXGuesser wrote:

There''s a grain of truth in there. Of course, it is surrounded by so much sound and fury signifying nothing, it''s hard to find.

Micheal Boyds'' biggest fan is Micheal Boyd.....the hot air that routinely comes from him could float a blimp.
He comes up with a few good observations from time to time, but overall, his credibility is overshadowed by his ego.
On 4/22/2003 9:30:45 PM desertfox wrote:

Micheal Boyds' biggest fan is Micheal Boyd.....the hot air that routinely comes from him could float a blimp.
He comes up with a few good observations from time to time, but overall, his credibility is overshadowed by his ego.

And how much money in the last 5 years have you made as an inudstry analyst?

At least he has an ego. You appear to be so low on self confidence that all you do is tear everyone else down. Does this make you feel better?

Michael Boyd is presidentof The Boyd Group/ASRC. Mike is well known as an expert in futurist aviation issues, and is often called upon by the national media to provide input regarding events and trends affecting airlines, airports, and aircraft manufacturers. Since 1984, he has directed hundreds of projects for clients ranging from small airports to global companies such as General Electric, Delta Airlines, and Embraer Aircraft. As background, Mike started his career with American Airlines in 1971. He joined Braniff International in 1977, attaining the position of Regional Director, and was responsible for opening the carrier's Far Eastern operations.He was with Bar Harbor Airlines as Vice President of Marketing and Planning prior to co-founding The Boyd Group/ASRC in 1984.

desertfox, please provide us with your credentials and employment history so that we can determine your credibility and worth of your opinions? I am not claiming he is the airline god, but you were the one that attacked him, so give us your story?