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Unions Agree to Pay Cuts As American’s CEO Resigns

BY Admin  April 25, 2003 at 5:12 PM EST

John Ward, president of the flight attendants’ union, said, ”With new leadership in place at [American's parent company] AMR, there was a renewed willingness from management to begin to repair the damage done to relations with its employees.”

Unions representing pilots and ground workers had agreed to the company’s concessions request Thursday, but leaders of the Association of Professional Flight Attendants had been split.

The company’s plan shortens the length of employees’ wage and benefit concessions to five years, with limited renegotiations possible sooner, and includes potential bonuses up to 10 percent for employees. The carrier says the plan will save $1.8 billion annually.

Employees had voted last week to accept concessions, but then learned that while they were agreeing to cuts, the company had approved bonuses and pension payments for its top executives. The company eventually canceled bonuses for the top seven executives, but left in place the $41 million in pension funding for 45 executives.

Carty apologized for not disclosing the executive perks, but his relationship with employees was beyond repair, union leaders said.

With the airline’s fate still up in the air and its financial situation deteriorating, Carty resigned after an emergency meeting of parent AMR Corp.’s board Thursday.

“It is now clear that my continuing on as chairman and CEO of American Airlines is still a barrier that, if removed, could give improved relations — and thus long-term success — the best possible chance,” Carty, 58, said in a statement.

Airline officials had said the carrier would file for Chapter 11 protection unless all three unions accepted. But it is still unclear whether the new leadership and labor deal will be enough to keep American out of bankruptcy for long.

Gerard Arpey, the company’s president, will take over as CEO while also retaining his current post, and board member Edward Brennan will become the new chairman.

“We are not out of the woods yet,” Arpey said Friday. “Working with our unions and all of our employees, together we will put American Airlines back on top.”

Brennan, 69, retired from the helm of Sears in 1995. Some shareholders had demanded his resignation because of the retailer’s flagging fortunes and its sale or spin-off of successful side businesses. He has been an AMR board member since 1987.

Arpey, 44, has held a variety of management jobs at the airline since 1982, including chief financial officer, executive vice president of operations, and president and chief operating officer of American and AMR since April 2002.

On Wednesday, AMR reported a $1 billion loss for the first quarter — more than half the annual amount of the just-approved labor concessions, which take effect May 1.

Airlines have been hit hard by a downturn in travel caused by the weak economy, the 2001 terrorist attacks in the U.S., fear of new terrorism around the Iraq war, and the outbreak of severe acute respiratory syndrome. Competition from low-fare carriers has also put a lid on ticket prices.