By Mitchell Schnurman
mschnurman@star-telegram.com
Is this Gerard Arpey's last stand at American Airlines?
Many are surprised that he has managed to hang on this long. He has been leading the carrier for eight years, longer than the average tenure for CEOs, and in that time, American has lost nearly $7 billion and the top spot in the industry.
Major rivals have restructured and merged, passing American in revenue, network reach and profits. Last week, the stock price of parent company AMR Corp. briefly dipped below $2, amid speculation that bankruptcy lies ahead.
Arpey has made some savvy moves to keep American afloat and improve aspects of the business. But you could drive a jetliner through the hole in his résumé: He hasn't delivered new labor contracts with pilots, flight attendants or mechanics, despite five years of talks.
American execs hammered out a tentative deal with leaders of the Transport Workers Union last year, only to have mechanics reject the contract by almost 2-to-1. That's an indication of prevailing attitudes and the odds against a breakthrough.
American's labor costs are 21 percent higher than Delta's and 16 percent higher than United's. Combine that with a brutal economy, and every bit of progress at American is overwhelmed by a sea of red ink.
New labor contracts won't solve all of American's problems, but without them, there's no chance of a sustainable business model. Arpey understands this, of course, and has been talking about boosting productivity and getting more competitive since Day 1.
He has proposed ways that employees could take home more pay in exchange for more hours and workplace flexibility. There's a path to keeping current pensions, if more affordable plans are phased in for new hires. More robust profit-sharing could ensure that every worker gains from a turnaround.
The question is whether anyone is listening to the leader. Does Arpey have the clout and credibility to win over the unions?
In 2010, Arpey managed to keep Japan Airlines in the Oneworld alliance in what was a crucial save for the global network. Many believe that Arpey's personal connection with JAL Chairman Kazuo Inamori turned the tide.
This is another legacy moment for the CEO, demanding the same skills and singular focus. Arpey has to step up and deliver -- or let somebody else take the swings.
American faces a debt crisis in a year, maybe sooner, so the motivation could not be greater. Bankruptcy would be devastating for employees and a personal failure for Arpey and his leadership team.
Arpey is also dangling a carrot. Lots of new planes are coming, and they offer the chance for organic growth, along with opportunities for promotion and more hours. Growth can happen only if it's profitable, and that requires new labor agreements.
Then there's Arpey himself. His signature achievement is keeping American out of Chapter 11, and he's almost turned that into a moral crusade. While every legacy carrier used bankruptcy to break union contracts, dump pensions and stiff investors, American kept its promises. That should count for a lot.
In the past, Arpey's credibility has made a big difference with lenders, partners and the board of directors. How about the rank and file?
Hostility between labor and management is so ingrained at American that it's practically part of the DNA. Not long ago, union leaders were attacking Arpey personally and publicly, and running a high-profile campaign to discredit the company.
But some current leaders realize that they have a friend at the top and that he may not be there for long. They acknowledge that Arpey helped preserve pensions for almost a decade. And that his commitment to employees saved thousands of maintenance jobs, while competitors were off-shoring much of their work.
At most places, that would have built up a reservoir of good will, and Arpey could cash in the political capital. Instead, the appeal must be to pragmatism and self-interest: If unions can't make a deal with Arpey, they best get ready for a hawk with a hammer.
In 2004, flight attendants at Southwest Airlines had been clashing with management for two years. Bitter contract fights were practically unheard of at Southwest, so CEO Jim Parker suddenly resigned and beloved Chairman Herb Kelleher delivered a deal in two weeks, with big increases in pay.
No such white knight is waiting in the wings at American.
Employees are still angry about bonuses paid to American executives, and it's mystifying that Arpey never fixed them. On the substance he was right, because the variable pay plan worked as intended: American executives received less than half their target pay in the past decade because of the company's poor performance.
But the system is so complex and so easily manipulated by critics that it has been an Achilles' heel for almost his entire tenure. And Arpey often seemed arrogant and out of touch in defending it.
Now he should insist that executive pay be reinvented in the same way as union contracts.
No one can go back to the world of yesterday, neither executives nor the rank and file, and leaders have to drive home that message.Arpey and American's employees still have a fighter's chance of building a better future, but the clock is ticking.
Mitchell Schnurman's column appears Sundays and Wednesdays. 817-390-7821
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