Posted on 04/26/2003 8:21:15 PM PDT by Archangelsk
April 27, 2003
A Taut, Last-Minute Stretch to Save an Airline
By EDWARD WONG and MICHELINE MAYNARD
[A] dozen or so men walked out of the Hyatt Regency by the Dallas airport last Wednesday night holding in their hands the fate of the world's largest airline.
They were tired and anxious and hoarse, having spent 12 straight hours bargaining at a conference table in the hotel's basement. Over their heads, the silver jets of American Airlines veered toward the runways, doing the work of the very company they were trying to save.
One man, Donald J. Carty, walked from the hotel undoubtedly thinking ahead to his next meeting, this one with American's board of directors. Not only was the future of the airline at stake, but so was his job as the company's chairman and chief executive.
The leaders of American's three unions drove off to catch some sleep before the next morning's conference calls, when they would try to sell a new set of wage and benefit concessions to their boards.
What happened in that hotel, and the paths that diverged from it, ultimately pulled American Airlines back from the brink of bankruptcy while ending Mr. Carty's career at the company after more than two decades. The boards of all three unions agreed by Friday morning to accept $1.62 billion in annual wage and benefit cuts. Mr. Carty resigned at American's board meeting. Gerard J. Arpey, the 44-year-old president and chief operating officer, was promoted to chief executive, while Edward A. Brennan, a director at American and former chairman and chief executive of Sears, Roebuck, became chairman.
In one sense, the recent events that led to the fiery clash between Mr. Carty and union leaders were unexpected because Mr. Carty had tried to improve labor relations during his tenure as chief executive. And just less than two weeks ago, the unions had come around to meeting him on substantial concessions.
But in another sense, the conflict was a consequence of the bursting of the late-1990's economic bubble that has wreaked havoc at many big companies. To avoid bankruptcy, American had to ask workers to take cuts to make up for the excessive growth and wage hikes it encouraged before 2001. Yet, the company continued to dole out what many people perceived as lavish pay to its top executives, then hid some of the benefits during negotiations, aware perhaps of how abhorrent Enron-era corporate behavior had become to average wage-earners.
The outrage first exploded a week and a half ago, when workers learned that Mr. Carty had hid from union leaders new executive benefits while he was negotiating for deep concessions. The benefits ? so-called retention bonuses paid to seven executives and a $41 million pretax payment to a protected executive pension trust fund ? had been approved by American's board last year, but not disclosed until the company made a securities filing late on April 15, just after two unions had already voted to take concessions and a third was finishing its vote.
Infuriated, the Transport Workers Union and the Association of Professional Flight Attendants said they would hold new votes, while the Allied Pilots Association refused to sign off on the concessions.
Mr. Carty retracted the cash bonuses on April 18 and apologized publicly last Monday, although he said the company would keep the $41 million payment in the executive pension trust fund. The unions were still fuming. Without their approval of concessions expected to take effect May 1, the airline ? which lost $1.04 billion in the first quarter ? edged toward bankruptcy.
On Tuesday afternoon, Representative Martin Frost, a Democrat in the Dallas area, got a call from James Little, president of the ground workers' union at American. Could Congressman Frost call a meeting of all the parties and act as a mediator? Mr. Little asked, as Mr. Frost later recalled. American executives "immediately jumped at the chance," he said.
The groups walked into the Hyatt around 9 the next morning. Mr. Frost and three other local members of Congress first met with union leaders for an hour in the Meteor Room in the basement. The union leaders said they were angry that Mr. Carty had put them in an untenable position with their workers by duping them during negotiations.
"I ultimately suggested to them, `You don't have time for another vote,' " Mr. Frost said. " `You can't take a 30-day vote. The company can't survive with the uncertainty.' "
The union leaders then left the room. In came Mr. Carty, Mr. Arpey and a couple of other managers. Mr. Carty admitted to the members of Congress that he had made a big mistake, Mr. Frost said, and wanted to find a way to work it out.
All of the parties sat down at the conference table at 11 a.m. and began talking. The union leaders told Mr. Carty he had to give them something they could take back to their members, Mr. Frost said. An hour later, the executives and union leaders told the members of Congress they were ready to negotiate among themselves.
Mr. Frost said that a few of the union officials said they wanted Mr. Carty to step down but none of the unions pushed for that.
"We wouldn't have wasted our negotiating capital on that," said Sam Mayer, a member on the board of the pilots' union who had been briefed on the discussions. "Mr. Carty had mortally wounded himself."
Everyone in the room walked out at 9 p.m., having worked out new concession terms. The amounts would remain the same as in the original agreements. But the contracts would last five years instead of six, cash bonus payouts for workers would be tied to those for executives and the unions could change one item in the contracts as long as the change did not alter the value of the concessions.
The union leaders were nervous because they knew it would not be easy convincing incensed board members to vote for the contracts, Mr. Frost said.
Mr. Carty had his own demons to face.
The 12-member board of American met at 8 the next morning in the Wyndham Anatole Hotel in Dallas. The previous night, one director, David Boren, president of the University of Oklahoma, had told Tulsa World newspaper that he intended to ask for Mr. Carty's resignation.
In the morning, the board was split between those who wanted Mr. Carty to step down and those who backed him, said one person briefed on the discussions. The board also debated whether to file for bankruptcy protection immediately. Some members even advocated trying to rehire Robert L. Crandall, the legendary chief executive who left American in 1998 after 13 years at the helm. The previous week, Mr. Crandall had told CNBC that he would return to the airline if asked.
Mr. Crandall's tenure as chief executive had been fraught with labor confrontations, and Mr. Carty had spent years trying to defuse the tension. Despite his efforts, many union officials found Mr. Carty frosty and distant. He declared that he wanted to work with unions to avoid bankruptcy, but showed up only on rare occasions at the bargaining table. His absences provoked an odd nostalgia for the more confrontational Mr. Crandall, who might dress down the union leaders, but at least did it to their faces.
A handful of directors argued that Mr. Carty could weather the storm, the person said. But it became apparent that most of the directors, sensitive to the growing public outcry against American, were thinking of who could replace Mr. Carty.
Supporters of Mr. Crandall ? generally among those who had joined the board before 1998 ? brought up his name. But many directors felt that American had to act fast and had to provide a sense of continuity, the person said. That meant just one candidate: Mr. Arpey, the company's young president.
"Nobody else had more than a 20 percent chance," said the person briefed on the deliberations.
Mr. Arpey was almost unknown outside the airline, though he was well-regarded within the company. He was also familiar to the board, which had elected him president a year ago, and whose members had worked with him since 1995, when he was named chief financial officer. Mr. Arpey's acquaintances described him as plain-spoken and able to mix with all manner of employees at the airline, from fellow executives to pilots (he had a license and two planes himself) to ticket agents.
"Gerard is incredibly bright and personable, fanatical about details and a person with a heart that most people never see because he's so private," said a former company executive who spoke on the condition of anonymity.
Mr. Crandall once made an infamous boast that American had saved $100,000 a year by cutting olives from on-board drinks ? a measure thought up by Mr. Arpey.
If there was any hesitation among directors about Mr. Arpey's ability to take on the top job, it came from the fact that he had little experience publicly representing the airline, said people briefed on the board's discussions. Mr. Arpey had struggled after being promoted to chief financial officer, when he had to face industry analysts and investors in Wall Street presentations.
But in the end, he was the obvious choice to replace Mr. Carty. The directors left the hotel shortly after 4 p.m.
Mr. Arpey rushed off that night to meet with members from the board of the flight attendants' union. While the other two unions had agreed to concessions, the flight attendants had balked. Some changes in the contract were quickly worked out, one union board member said.
On Friday morning, the flight attendants' board voted 13 to 5 to accept the cuts, allowing American to stave off bankruptcy for now. Mr. Arpey had passed his first test as chief executive.
But the real challenge remained: In an airfield across town sat a fleet of red-and-brown planes. Against all odds, Southwest Airlines had remained profitable for 30 years, and its jets were showing up more and more in the skies. The union leaders and executives at network airlines like American could cajole and threaten and bargain all they wanted, but they were looking more and more like relics of an era now vanishing as quickly as a vapor trail.
This is what they pay airline financial analysts to do, think of ways to reduce the non-revenue weight of the airplane to use less fuel. It's the primary reason SWA is so successful (that and the fact that they only fly one type of equipment). It's also the reason why in-flight meals are now as scarce as hen's teeth now on everything except long cross country flight.
Unions solve problems, but once the original labor problems are fixed, the unions ultimately become the problem.
The same syndrome occurs in all socialist situations; the seeds of corruption, disaster and death are present when any socialist organization gains power
What happens first, the creation of a business or the appearance of a union representing that business's employees?
The creation of a business is capitalism -- virtue -- in action; and the appearance of a union is socialism -- evil -- in action.
Once a union is empowered, the continuance of that business becomes an ever shifting compromise/accomodation scenario leading toward pure socialism -- it is a one-way road to hell with corruption of corporate management being part of the process.
"Compromise and accomodation are both forms of moral dishonesty." -- Source unknown
In your view all was virtue in the economic realm prior to 1935, when unions were legalized? There were no corporate criminals and we lived in the best of all possible worlds?
And you might be interested in reading a related post here.
If you believe workers should have rights, that they're more than slaves, then unions follow...because collective bargaining is the only way for workers to secure those rights.
Unions, in turn, bring other problems - as we all know - because union members, like everyone else, try to get as much as they can, often without regard to the consequences.
With or without unions, corporations, or any other modern social structures, people are people, subject to all the failings listed in the Bible and even earlier moral tracts. Trying to blame these failings on unions is silly.
Returning to American Airlines, it's officers chose greed and at least one of them has paid the price.
Your premise ("worker's rights") is false, employment is a two way street where justice means employment is an arms length relationship.
An employer has the responsibility to provide workers with what they are worth, and the workers have the responsibility to look elsewhere if they're not satisfied.
Any deviation from freedom has a name -- pick one from socialism, fascism, communism, or slavery -- they are all variants of socialsim.
Work at an airline, expecting merit raises and benefits without representation? Careerism is being killed by greedy executives with poor business skills. Remember: SWA has TEN unions on the property, ~ along with a better business plan.
The socialist creed of need -- talks of greed.
Ditto your definition of justice. Justice is what a society says it is - not what you say it is. If the market system provides a decent life for a large percentage of those who live under it they'll stay with it. Otherwise they'll toss it - and have no trouble finding "just" reasons for doing so.
Those who have capital have power. They're in a different weight class than those who don't. In most competitions that's recognized. You don't want to, so - presumablyyou'll forbid workers from organizing to increase their weight while allowing employers to do so to make the competition even more uneven.
And how do people get capital? In the ideal market model they do so by possessing talents and doing work that others are willing to pay for. There are certainly plenty of people who fit the model. But there are others - Enron types and perhaps the AA execs - who are little more than criminals. I have yet to see you condemn them or even admit that they're responsible for their actions.
Your ideas don't take sufficient account of inherited differences - of wealth, of ability - and of the implications of technological advance. In any competition there are winners and losers. Shall the losers just lie down in the gutter and starve because no one with money is willing to pay them a living wage? If that doesn't happen in America its not because of laissez-faire economics. It's because of "hated" socialistic modifications to the system which redistribute wealth through taxation and social programs and insist that employers provide workers with certain conditions.
You can make a good argument for saying the process has gone toofar. It's encouraging sloth and discouraging innovation and enterprise. But you'll never convince people that we should return to "good old" laissez-faire and the age of robber barons.
A nice digression...but there's still the issue of the behavior of the AA execs...which was my reason for posting.
The tribal chief/witch doctor combination worked well in enslaving entire tribes, feudal serfs were the "property" of land owning feudal lords, and outright slavery defined the old South in America -- all of which being Biblical acceptable (Exodus 20-10) socialist enslavement situations.
Justice is what a society says it is
Seems to me like justice is a matter of individual ethics that is seldom agreeable to all. Does the collective Third Reich justice system under Hitler qualify as a "justice system" in your mind? Is there such a thing as a collective mind? Can there be such a thing as a "rational ethics"? (Answer to the last one is "yes.")
presumably you'll forbid workrs from organizing
Wrong! You've ignored my original post.
But there are others - Enron types and perhaps the AA execs
I'm not saying corporate execs are clean, I'm saying that the rot inherent in unions ends up corrupting what started out as successful -- probably ethical -- corporations.
Shall the losers just lie down in the gutter and starve because no one with money is willing to pay them a living wage?
I agree with Ronald Reagan in saying that ... "We must care for the truly needy." As for the rest, they bear personal responsibility for themselves.
I'm sorry if it seemed I ignored it. I didn't. I just wasn't sure how to respond. It now seems that we do not disagree as much as I thought and our differences are harder to pinpoint.
As I said in an earlier post, I agree that once they gain power unions do become a problem. They're certainly not exempt from Lord Acton's famous quip. But I see unions as one more group competing for power - not as a source of original evil. "Eternal vigilance is the price of liberty" applies to each group within a society as well as to competing societies.
I'm saying that the rot inherent in unions ends up corrupting what started out as successful -- probably ethical -- corporations
"Power corrupts. Absolute power corrupts absolutely." I see that as applying to all individuals and groups - corporations as well as unions. The latter, more often than not, starts out ethically with the intent to provide decent conditions to its members. But with power comes nepotism, an expensive life-style, and the joy of lording it over others. Tempting to all human beings. With corporations as soon as power devolves from the founder to others you have the same weaknesses appearing.
Seems to me like justice is a matter of individual ethics that is seldom agreeable to all
Ethics is certainly an individual matter. But justice is a collective concept by definition. It's what the laws, the courts, and the police define it to be by their statements and actions.
I agree with Ronald Reagan in saying that ... "We must care for the truly needy."
It's a question of how society can best handle differences of inherited ability, wealth, social class, and luck. Shall we allow employers to work employees to death in unsafe conditions and only take care of the wretches if they become too sick to work - or shall we forbid unsafe conditions of employment? There are lots of questions like that. I suspect you and I would answer differently to most of them - but maybe not.
...socialist enslavement situations.
Socialist usually means communal ownership of the means of production and production to meet need rather than for profit. I don't think any of that applies to the ancient or medievil world or the old South. If you really believe socialism leads to the enslavement of most citizens then you can say that socialism is a form of slavery. You cannot say the reverse.
Wrong. This has affected millions of non-union employees across the country, and their career decisions. You treat people like crap ~ and yourself CREATE the unions.
Your choice of words ... reveals your values.
Go ahead, strike it shut; create another vacant "victory."
Justice, as a collective concept, found O.J. Simpson not guilty of murder.
From whom do authorities receive their mandate and what is the purpose of law?
American pioneers had to take care of things by themselves until the day came that their community hired a sheriff and picked a judge -- all for the protection of individual rights. My point being that justice is served and deserved at the local, individual level.
Some other word should be used for that described as collective justice; anti-trust is best described as a fascist action, uisng the term action instead of justice because socialist actions should not be dignifed with a mantle of justice.
It's a question of how society can best handle differences of inherited ability, wealth, social class, and luck.
Replace the word "society" with "the gang" and your message becomes clearer. But please ... tell me that you weren't thinking when you wrote that it is possible to handle differences in ability and luck, that you weren't stealing those concepts to justify the redistribution of wealth.
I don't think
You wrote it, so ... think about it.
All your fears about the possible abuse of collective justice are real and reasonable. But they can also be applied to individuals (individual ideas of justice and ethics) with equal validity.
From whom do authorities receive their mandate and what is the purpose of law?
From those who hold the power to give it - for the purpose of maintaining an orderly society which functions according to the vision and wishes of those same people.
That's disturbing and unstable but it's also reality.
In order to create a functioning society, its individual members must give up certain rights. Hopefully, they gain more in return than they lose. Often that's not the case. Far too often.
Replace the word "society" with "the gang" and your message becomes clearer. But please ... tell me that you weren't thinking when you wrote that it is possible to handle differences in ability and luck, that you weren't stealing those concepts to justify the redistribution of wealth.
I was thinking. I am thinking.
I'll replace society with gang if I don't like what my society is making me do, the opportunities it provides, the life I lead. Obviously, one's opinion depends upon one's success, one's position in society.
You seem to think that one should be allowed to amass whatever power and wealth one can in a market system...but at the same time you recognize that collective bargaining is often legitimate. A contradiction.
The trick is to allow individuals as much freedom as possible while at the same time maintaining some minimum standards of decent living for most. For me, that's a pragmatic endeavor. There are no good ideological guides.
Your take on most everything is tainted with false or misleading pragmatic/socialistic cliches that sound good.
One excellent guide is Common Sense, an ideological guide I'd associate with freedom, individual rights, and capitalism.
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