Gerard Arpey led American Airlines for 9 years up until the carrier’s bankruptcy. However he lost the trust of employees half way through his tenure. That’s odd, in a way, because by insisting on pulling every lever possible to forestall bankruptcy the airline underperformed the industry financially for years, while delaying changes to employee contracts that would eventually come through Chapter 11.
The biggest area of controversy with employees was Arpey’s (and management) pay. Another piece of irony is that his pay was mostly in stock, the bulk of which he held to the end losing much of its value when the airline finally did enter bankruptcy. His compensation was ultimately far less than that of his peers, perhaps even less than $2 million a year – which was low for a major company CEO and for an airline CEO once stock awards are factored.
In 2003 the airline secured labor concessions worth over $1.5 billion a year. That’s why they didn’t enter bankruptcy, even as the rejection of a pay deal at United pushed that carrier into Chapter 11.
- While other airlines outsourced maintenance as part of their bankruptcy process, American did not. It’s a huge part of why the airline’s recent contract negotiations with mechanics were so bitter. American has more employees per aircraft than competitors.
- American also didn’t liquidate pensions through bankruptcy the way competitors did. They didn’t do so in American’s ultimate bankruptcy, with the Pension Benefit Guaranty Corporation weighing in favor of the US Airways acquisition of American prior to emergence, avoiding doing so. The US Airways deal meant American didn’t gain some of the concessions through bankruptcy that other airlines secured.
Arpey invoked the slogan “Pull together, win together” and talked about shared sacrifice. When the airline performed well in 2006 and 2007 – prior to once again entering a crisis in 2008 – executives received stock awards rewarding the performance. However employees resented not seeing their own upside. Employees felt burned, and they didn’t trust management to bargain in good faith for more concessions outside of bankruptcy.
Upon entering bankruptcy Gerard Arpey resigned, having failed to keep his commitments to creditors. Airline President Tom Horton became Chairman and CEO. The pilots, in the midst of contract negotiations, more or less determined his fate by engaging in a work slowdown.
Current American Airlines management wouldn’t be in place, US Airways wouldn’t have taken over, if American had gotten concessions through bankruptcy that Arpey avoided, and if they hadn’t sided with the takeover and pushed out management.
The resentment came over the perception rather than the reality of being treated unfairly, of management benefiting from the company’s success while employees did not. They benefited in many ways more than Arpey did, as a result of Arpey’s strategy not to wring concessions through bankruptcy or use the bankruptcy code to terminate pensions.
I’d submit that the wrong decisions were made – because perception matters, unfortunately, as much as reality when it comes to leadership. As travel companies struggle through the current times that’s a lesson that executives need to remember – and one that struggling employees need to understand as well as they sort through where their interest actually lies.
My advice is that the substance needs to be there also, people eventually figure out when the symbolism is fake in an age that craves authenticity. However along side making all the right moves it’s important to frame messages effectively.