What If American Was Telling the Truth in Their Press Release Firing Scott Kirby?

Former US Airways President Scott Kirby left as President of American Airlines yesterday to become President of United.

American sent out their press release about elevating Chief Operating Officer Robert Isom to President and explained that Scott Kirby was leaving immediately. It didn’t mention anything about United, and it didn’t say anything about spending more time with his family.

Instead, it explained the decision that American couldn’t retain all of their executive talent so Kirby was out.

As part of that process, and subsequent conversations regarding career expectations and the marketability of its executives, the Company concluded it would not be able to retain its existing executive team in their current roles for an extended period. As a result, the Board chose to act proactively to establish a team and structure that will best serve American for the longer-term future.

American’s press release clearly states that they acted to make this decision.

Though Wall Street isn’t happy, Chairman and CEO Doug Parker isn’t going anywhere. After leading America West out of the wilderness to take over US Airways as it exited it second bankruptcy, and trying to merge it with United, then Delta, then United again he finally managed to take over American Airlines and gets to run the largest airline in the world (until Delta catches up, and it’s closer than you think).

Robert Isom has been COO since 2007. They decided to keep Isom and not Kirby.

Brian Sumers writes, “According to a source familiar with the matter, Kirby had been told he would need to leave American, and that Isom would replace him.”

Kirby walks away with about $13 million and keeps lifetime travel privileges, something he’ll obtain from United Airlines as well.

  • $3.85 million representing 2 years’ base salary plus his short-term bonus target

  • $9.37 million based on the current market value of 259,097 restricted stock units expected to vest in the future which have been accelerated.

    (i) 157,456 restricted stock units held by Executive that otherwise would have vested based solely on continued service through April 2017 or April 2018, as the case may be, (ii) 52,775 restricted stock units held by Executive that would have vested in April 2018 based on Company performance achievement of 96%, which constitutes actual performance through June 30, 2016, and continued service through April 2018 and (iii) 48,866 restricted stock units held by Executive that would have vested in April 2019 based on Company performance achievement of 87%, which constitutes actual performance through June 30, 2016.

  • He gets to keep lifetime travel privileges, but will be liable for taxes on the benefit.

    Executive previously vested into lifetime travel privileges that include unlimited reserved travel in any class of service for Executive and Executive’s immediate family, including eligible dependent children, for personal purposes, access to Admirals Club travel lounges and 12 free round-trip passes, or 24 free one-way passes, each year for reserved travel for non-eligible family members and friends

If Kirby simply quit to take the (lateral) United job, he wouldn’t be getting two years’ severance and accelerated vesting at this level.

Now, maybe the need to look at the extent to which they could retain all of their management talent is American’s corporate-speak for Kirby asking for a timeframe in which he’d become CEO with Parker becoming non-executive Chairman, and the gambit ending poorly for him.

After more than 20 years with America West, US Airways and American, he’s out at American. He’s become a wealthy man in exchange for his efforts, walks away with more money (though not as much as it cost United to rid itself of Smisek), and he gets to take a similar position with United Airlines which he’ll be serving under a CEO without previous airline experience who has had major health issues since coming into the role. Scott Kirby winds up just fine.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Amazing that he gets all the $$$$ & positive space flight Benefits etc while the retiree population were stripped of their promised stand by status for travel & active employee had Pensions frozen etc etc etc
    This is horrible …

  2. So AA replaces Kirby with Isom, who authored two failed reorganization plans for premerger AA (one in 2009-10 and then the rejected bankruptcy plan in 2012), and that’s seen as a postive for the airline? Oh well, United needs the good leadership.

  3. @Louise

    I know it isn’t a popular view, and I know the retired employees don’t want to hear it, but top management compensation aren’t comparable to line employee compensation because the jobs aren’t comparable.

    To be top management you have to be among the best and the brightest, make all the correct political moves to get and stay there, and you have the full fiduciary responsibility for the entire airline, INCLUDING those line employees. Every move you make is impactful, scrutinized, and can royally mess things up for everyone if you’re wrong.

    This isn’t me bashing line employees. It’s me saying we have to be honest when we compare a gate agent’s job responsibilities, impactfulness, requirements to get and stay there, and decision making power with that of a C-level officer, and admit that the C-level officer has earned and deserves a whole lot more compensation.

  4. That must be fun. I’m imagining his later years in a mansion in La Jolla on the phone with his kid, whose life was ruined by all the money:

    “Roland Garros is coming up. Should we fly SAN-LAX-CDG on United or American?”

    They discuss the relative merits for 20 minutes.

  5. I thought executive management was being paid exorbitant (aka attractive pay scales to retain their loyalty) wages for their retention.. Now as I see this, knowing how management at LAA works ( good ol’ boys ) , he was “let go” in order to take as much as he could get away with, to move over to his new job, which he has been negotiating for months. In spite of what some people think, these executives are not worth what they are paid. .

  6. @david the ceo makes more in a year than those line employees will see in a lifetime. Yes, there is a lot of responsibility, but if you think a line employee is not scrutinised all the time while on the job, then you’re mistaken.
    So yes, it is unfair that he gets to keep his flight privileges while revoking those of line employees under the dubious head of “cost saving”

  7. @David Huberman
    “To be top management you have to be among the best and the brightest”
    Not necessarily, or does this already consider Doug Parker’s three DUIs?

  8. @747 – While I agree that lifetime flying benefit is strange to grant a departing employee I disagree that the overall compensation is too high. Yes, line employees are scrutinized but so is everyone else working anywhere. The criteria are different for line and C level employees, though. If a line employee makes an error then it affects a small number of people, possibly a plane is late or a customer is mad. If a C level employee makes an error it can affect stock price, thus directly affecting all shareholders AND line employees. Higher pay and benefits are needed to make sure that the company can attract and keep the best employees for those jobs. Does the line employee want the pay and benefits of the C level? Sure! Does the line employee have the ability to fill the job and manage the stresses? Probably not, or he/she would be moving up the chain already.

  9. @Stvr neither, AA nor UA flies to CDG from LAX. The French Open is better watched on television anyway, in my opinion

    @JD exactly.

  10. Read the entire Travel benefit statement, this is a quote from it “from the Termination Date”. That tells me he was fired.

  11. The “best and the brightest?” Really? None of these clowns, Parker, Isom or Kirby are visionaries – they just copy Delta. No imagination, no leadership (as evidenced by the poor morale of the employees). And certainly not worth their generous compensation packages.

  12. While there is no way to know what the actual series of events was, it is possible that Kirby had been negotiating with UA as he saw a better pathway to CEO than he did with AA. Once he had that bird in hand he approached AA and asked for a commitment on the CEO succession plan at AA. That tipped AA into making a decision. This is why they had the “no way to retain all of the executive talent” line. As Parker is not going anywhere soon (even to Executive Chairman), Kirby was out despite the fact that he has been Parker’s right arm for many years. Since AA triggered the actual action, they had to pay up. Kirby, however, had his plan B in hand and had a true win/win. This is why he did not lose a step and immediately went to UA. AA is the loser but they had their story to save face. They now have a CEO who is not a detail guy and a President that is not of the caliber of Kirby. UA needed the talent, and Kirby has a “turn-around” opportunity that can lead him to a sooner shot at the CEO position. AA blew this one big time. They will never admit it, but Kirby was instrumental in two mergers that were far better handled than either the Delta UA iterations even with the problems. Oh well, seems to be the course that AA is on–further mediocrity….

  13. 9:00 AM Board: “Mr. Kirby, Please plan to transition out from AA.”
    9:01 AM Kirby: “Hey Oscar, I was searching Monster.com, got any multi-million dollar positions there? Really? Sounds great. Travel privileges? Even better. I’ll take it. I’ll be there tomorrow.”

    @DK: All employees who leave a company are generally referred to as “Terminated”. the Termination Date is the last day of employment.

  14. In regard to the “pay vs. responsibilities” topic. I am not here to debate the salaries of C-level staff. Mr. Kirby’s change of employment is a blip on the aviation media’s front page for a short time. I am here to compare the “golden parachutes” of executives to the 50% cotton, 50% polyester handkerchiefs given to retiring employees, only to see the handkerchiefs snatched away in mid-air. The shameful way that AA management has done this has left a long-term scar on our record, an ongoing tarnishing of the contributions that AA retirees have made, and retirement-eligible employees with tenure have contributed. I put it to you that Mr. Kirby and his peers would cry to high heaven and litigate to the same, in order to keep their parachutes intact. AA management, I call on you, in this era of record profits, to reinstate our benefits, fair benefits such as equitable travel privileges, retiree medical plans,. and other benefits taken from us. Give us back the virtual retirement wristwatches that you have virtually ripped off our wrists. We deserve fairness, not lip service at the Earnings Calls. We have not forgotten.

    By the way @David Huberman – when you say “To be top management you have to be among the best and the brightest, make all the correct political moves to get and stay there, and you have the full fiduciary responsibility for the entire airline, INCLUDING those line employees. Every move you make is impactful, scrutinized, and can royally mess things up for everyone if you’re wrong.” all you have to do is reverse the job titles and the same holds true for mechanics, air crew, and EVERY other airline employee, from the very first day on the job. If we royally mess up, lives could be at stake. Don’t forget it. We have a responsibility to protect out customers AND our management, sir.

  15. He is NOT the best. Executives today are greedy and corrupt and try to take all they can from employees and keep it for themselves. He is not worth the money he is getting. Good ole boys stick together and keep ripping off the workers. Wall Street is the most vile corrupt bunch of retards.

  16. if an airline goes belly up because of the decisions of the brightest and the best, the managers sail away with their golden parachutes unscathed while labor losses at least some pension benefits and takes pay cuts, etc. so if management were truly made responsible for their decisions, they would be impacted in a negative way. the laws take care of the rich and the banks.

  17. The Best and the brightest? I disagree. Airline CEO’s are the “D” students of business schools. The best and the brightest are working for companies like Coca-cola or Disney and making five times the money that these people make.

  18. @David : “To be top management you have to be among the best and the brightest”
    You owe me a display cleaning.
    I suppose 3, or is it 5, DUIs and a propensity to lose money, as much as $417 million at the races at least once, then you may have your man. He has blown two mergers (USAir taking over America West is not done, yet). His only talent seems to be satisfying the investors (not necessarily shareholders).
    His management skills of the line employee at Phoenix seems to promote bullies. He can’t keep mechanics around, and never have I ever seen such an unsafe operation (There are way too few competent employees in Phoenix).
    Very unsafe and inefficient operation there. Drives them crazy when I refuse boarding due to high temperature (above 80) in the aircraft. When they load up the jetway with 120 passengers and we cannot board, I just call the Fire Marshall and he forces them to take the passengers back to the gate lounge.
    This is a quick overview of the guy you think deserves his compensation. Destroyed USAir and now he is working at destroying American. I am thinking bankruptcy in a few years. Too bad. It is like he is trying to replicate Mitt Romney’s destruction of some 100 companies, shelling them, converting any assets to cash then BK.

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