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The New York Times
July 23, 2006
Anger Management at American Air
By JEFF BAILEY
Fort Worth, Tex.
A GRAND experiment is playing out behind the scenes at American Airlines. Just listen.
Top executives complain openly that they are underpaid. Mechanics swear up a storm at their bosses as they explain the proper way to operate maintenance plants. Gate agents freely tell pilots to consider working longer hours so their company can become solidly profitable. Pilots refuse to discuss working more because they are angry about management’s $100 million bonus program.
Chaos? Actually — at a company throwing off its famously buttoned-downed culture and endeavoring to replace management-by-edict with freewheeling collaboration — these are the early, uncertain sounds of survival and possible renewal.
“If we go down the tubes, we all go down together,” said Anne Helton, a gate agent in Nashville who is weary of brinkmanship between pilots and management, two groups that make a lot more money than gate agents do. “I’m sorry they’re not feeling the love,” she said of the pilots. “You’ve got to suck it up. We all go home dead tired at the end of the day.”
For his part, Gerard J. Arpey, American’s 47-year-old chief executive, has traded away the bankruptcy card used by most of his competitors — which gave them shelter to prune debt while also tossing out labor contracts and pensions — for the hope of trying to motivate workers. “Our fundamental objective is to make organized labor and our front-line employees our business partners,” he said, asserting that the world’s largest airline cannot become more efficient without such collaboration. “If they don’t want to do it, it ain’t going to happen. It doesn’t matter how brilliant you are.”
“Call me old-fashioned,” he added. “But I think companies ought to pay people back. And I think companies ought to make good on commitments to employees and communities.”
American is the only old-line domestic airline that has never filed for bankruptcy protection, and Mr. Arpey intends to keep it that way by fostering open dialogue, teamwork and a relentless focus on efficiency. Three years into his experiment, he can claim one huge and as yet uncompleted success: an agreement with mechanics to operate maintenance plants more effectively that could save American more than $1 billion a year by 2008.
He won that victory, however, only because union workers sensed that their jobs could be largely outsourced, as they were at other airlines. Other workers at American, particularly pilots and flight attendants, have tried to collaborate with management to become more competitive — but then walked away from the process in January after American disclosed management’s bonus program.
Mr. Arpey now needs pilots, flight attendants, and everyone else back at the same table. He wants management and labor to stop fighting each other, a decades-old pattern at the company that has sapped productivity and forced it to shrink in recent years. Mr. Arpey has voluntarily forfeited his own raises and bonuses recently — an unusual gesture in an era when excessive executive compensation has drawn heightened scrutiny. He also plans to make good on $11 billion of pension obligations and offer a little more job security to a work force of 86,500 that remains shellshocked after losing more than 20,000 colleagues to layoffs and attrition since 2001.
Some of American’s numbers are promising. Its parent company, the AMR Corporation, reported a $291 million second-quarter profit last week, and analysts expect the company to eke out a profit for the year. It has about $5 billion in cash on hand and by many measures is operating far more efficiently that it did in 2003 when, on the brink of bankruptcy, it handed the chief-executive reins to Mr. Arpey. But like any executive taking a sizable gamble, Mr. Arpey is toeing a delicate line.
The airline industry as a whole has lost more than $40 billion since 2000 and is contending with rising fuel prices and intense competition. American itself lost $861 million last year, is saddled with $20 billion in debt and has a pension plan that is underfunded by about $3.2 billion. Without the wage cuts that other airlines are extracting through the bankruptcy process, American could hit the next economic downturn in a vulnerable state. If that happens, Mr. Arpey stands to catch the blame, regardless of his enthusiasm for corporate warmth and collaboration.
“It’s a risk,” said Robert Hughes, president of Overland Resource Group, a consulting firm hired to help American and its unions work together. “If it doesn’t go well, he’s put himself out there.”
There is plenty of room for American to loosen its corporate screws. Flight attendants often need a doctor’s note to take a day off. But with the airline covering most medical costs, whom does that policy hurt the most? The company so strictly defines which flight attendants can handle certain flights that it finds itself needlessly shorthanded at times. At its maintenance bases, managers once turned a deaf ear to mechanics, a group that includes many compulsive and adept problem solvers.
In short, American has been a command-and-control organization in danger of suffocating itself. Mr. Arpey intends to change all of that.
An airline executive’s son, Mr. Arpey seems an unlikely candidate for such an abrupt corporate overhaul. He spent most of his career in finance, away from flesh-and-blood workers who fly planes and load bags. Rail thin with a wide smile, his demeanor seems positively Sunday-school-teacher-like when compared with his better-known mentor, Robert L. Crandall, who ran American like a drill sergeant until the late 1990’s.
BUT for the task at hand — persuading distrustful employees that management is sincere in seeking collaboration and is not just trying to smooth-talk its way to more labor concessions — Mr. Arpey may be the better man. “Gerard has a nice way about him,” said Edward A. Brennan, the retired Sears chairman and a longtime AMR board member, noting that it was Mr. Arpey who convinced dubious board members that collaboration was a wise strategy. Mr. Arpey’s personal distaste for bankruptcy also helped to strengthen the board’s resolve about avoiding Chapter 11.
Even with willing workers, however, few companies ever truly master continuous improvement — the task of making and sustaining incremental productivity gains that, compounded over time, propel an operation past competitors. Dell once did it with computers, as did Wells Fargo in banking. And — this comparison stings at American’s headquarters — Southwest Airlines has done it.
Mr. Arpey will not easily move American into such a rarefied club. American’s managers and workers, in seeking to improve, mostly compare themselves with other airlines. Southwest aside, that is hardly stiff competition. The recent management bonuses, in fact, were made fatter because American’s surging stock price looked even better when compared with a group that included Northwest Airlines and Delta Air Lines, both now in bankruptcy, their shares all but worthless.
Also working against Mr. Arpey is a fading sense of urgency. Since 2001, domestic airlines trimmed fleets while the economy grew. That resulted in fuller planes and higher fares. Even with oil above $70 a barrel, much of the airline industry may report an annual profit for 2006. American’s labor costs were relatively low after unions made $1.62 billion in annual concessions in 2003 to stave off bankruptcy. But United Airlines, Northwest and Delta, running through bankruptcy, have since pushed their costs lower.
The big draw of collaboration is the opportunity it provides to tap into workers’ knowledge so the enterprise as a whole can find and exploit unseen efficiencies. At American, that means more than simple wage and cost cuts. It means changing how the entire company functions. One of the most telling examples is American’s giant maintenance base in Tulsa, Okla.
The base employs about 7,000 workers and two years ago seemed a candidate to have most of those jobs outsourced. Every five years, Tulsa overhauls American’s MD-80’s, the workhorses of the company’s fleet, for about $1 million a plane. If outsourced, the cost would be about $500,000. Cutting costs at the base seemed unlikely, Mr. Arpey said, because “it was a very hostile work environment, labor and management virtually at war on a day-to-day basis.”
The New York Times
July 23, 2006
Anger Management at American Air
By JEFF BAILEY
Fort Worth, Tex.
A GRAND experiment is playing out behind the scenes at American Airlines. Just listen.
Top executives complain openly that they are underpaid. Mechanics swear up a storm at their bosses as they explain the proper way to operate maintenance plants. Gate agents freely tell pilots to consider working longer hours so their company can become solidly profitable. Pilots refuse to discuss working more because they are angry about management’s $100 million bonus program.
Chaos? Actually — at a company throwing off its famously buttoned-downed culture and endeavoring to replace management-by-edict with freewheeling collaboration — these are the early, uncertain sounds of survival and possible renewal.
“If we go down the tubes, we all go down together,” said Anne Helton, a gate agent in Nashville who is weary of brinkmanship between pilots and management, two groups that make a lot more money than gate agents do. “I’m sorry they’re not feeling the love,” she said of the pilots. “You’ve got to suck it up. We all go home dead tired at the end of the day.”
For his part, Gerard J. Arpey, American’s 47-year-old chief executive, has traded away the bankruptcy card used by most of his competitors — which gave them shelter to prune debt while also tossing out labor contracts and pensions — for the hope of trying to motivate workers. “Our fundamental objective is to make organized labor and our front-line employees our business partners,” he said, asserting that the world’s largest airline cannot become more efficient without such collaboration. “If they don’t want to do it, it ain’t going to happen. It doesn’t matter how brilliant you are.”
“Call me old-fashioned,” he added. “But I think companies ought to pay people back. And I think companies ought to make good on commitments to employees and communities.”
American is the only old-line domestic airline that has never filed for bankruptcy protection, and Mr. Arpey intends to keep it that way by fostering open dialogue, teamwork and a relentless focus on efficiency. Three years into his experiment, he can claim one huge and as yet uncompleted success: an agreement with mechanics to operate maintenance plants more effectively that could save American more than $1 billion a year by 2008.
He won that victory, however, only because union workers sensed that their jobs could be largely outsourced, as they were at other airlines. Other workers at American, particularly pilots and flight attendants, have tried to collaborate with management to become more competitive — but then walked away from the process in January after American disclosed management’s bonus program.
Mr. Arpey now needs pilots, flight attendants, and everyone else back at the same table. He wants management and labor to stop fighting each other, a decades-old pattern at the company that has sapped productivity and forced it to shrink in recent years. Mr. Arpey has voluntarily forfeited his own raises and bonuses recently — an unusual gesture in an era when excessive executive compensation has drawn heightened scrutiny. He also plans to make good on $11 billion of pension obligations and offer a little more job security to a work force of 86,500 that remains shellshocked after losing more than 20,000 colleagues to layoffs and attrition since 2001.
Some of American’s numbers are promising. Its parent company, the AMR Corporation, reported a $291 million second-quarter profit last week, and analysts expect the company to eke out a profit for the year. It has about $5 billion in cash on hand and by many measures is operating far more efficiently that it did in 2003 when, on the brink of bankruptcy, it handed the chief-executive reins to Mr. Arpey. But like any executive taking a sizable gamble, Mr. Arpey is toeing a delicate line.
The airline industry as a whole has lost more than $40 billion since 2000 and is contending with rising fuel prices and intense competition. American itself lost $861 million last year, is saddled with $20 billion in debt and has a pension plan that is underfunded by about $3.2 billion. Without the wage cuts that other airlines are extracting through the bankruptcy process, American could hit the next economic downturn in a vulnerable state. If that happens, Mr. Arpey stands to catch the blame, regardless of his enthusiasm for corporate warmth and collaboration.
“It’s a risk,” said Robert Hughes, president of Overland Resource Group, a consulting firm hired to help American and its unions work together. “If it doesn’t go well, he’s put himself out there.”
There is plenty of room for American to loosen its corporate screws. Flight attendants often need a doctor’s note to take a day off. But with the airline covering most medical costs, whom does that policy hurt the most? The company so strictly defines which flight attendants can handle certain flights that it finds itself needlessly shorthanded at times. At its maintenance bases, managers once turned a deaf ear to mechanics, a group that includes many compulsive and adept problem solvers.
In short, American has been a command-and-control organization in danger of suffocating itself. Mr. Arpey intends to change all of that.
An airline executive’s son, Mr. Arpey seems an unlikely candidate for such an abrupt corporate overhaul. He spent most of his career in finance, away from flesh-and-blood workers who fly planes and load bags. Rail thin with a wide smile, his demeanor seems positively Sunday-school-teacher-like when compared with his better-known mentor, Robert L. Crandall, who ran American like a drill sergeant until the late 1990’s.
BUT for the task at hand — persuading distrustful employees that management is sincere in seeking collaboration and is not just trying to smooth-talk its way to more labor concessions — Mr. Arpey may be the better man. “Gerard has a nice way about him,” said Edward A. Brennan, the retired Sears chairman and a longtime AMR board member, noting that it was Mr. Arpey who convinced dubious board members that collaboration was a wise strategy. Mr. Arpey’s personal distaste for bankruptcy also helped to strengthen the board’s resolve about avoiding Chapter 11.
Even with willing workers, however, few companies ever truly master continuous improvement — the task of making and sustaining incremental productivity gains that, compounded over time, propel an operation past competitors. Dell once did it with computers, as did Wells Fargo in banking. And — this comparison stings at American’s headquarters — Southwest Airlines has done it.
Mr. Arpey will not easily move American into such a rarefied club. American’s managers and workers, in seeking to improve, mostly compare themselves with other airlines. Southwest aside, that is hardly stiff competition. The recent management bonuses, in fact, were made fatter because American’s surging stock price looked even better when compared with a group that included Northwest Airlines and Delta Air Lines, both now in bankruptcy, their shares all but worthless.
Also working against Mr. Arpey is a fading sense of urgency. Since 2001, domestic airlines trimmed fleets while the economy grew. That resulted in fuller planes and higher fares. Even with oil above $70 a barrel, much of the airline industry may report an annual profit for 2006. American’s labor costs were relatively low after unions made $1.62 billion in annual concessions in 2003 to stave off bankruptcy. But United Airlines, Northwest and Delta, running through bankruptcy, have since pushed their costs lower.
The big draw of collaboration is the opportunity it provides to tap into workers’ knowledge so the enterprise as a whole can find and exploit unseen efficiencies. At American, that means more than simple wage and cost cuts. It means changing how the entire company functions. One of the most telling examples is American’s giant maintenance base in Tulsa, Okla.
The base employs about 7,000 workers and two years ago seemed a candidate to have most of those jobs outsourced. Every five years, Tulsa overhauls American’s MD-80’s, the workhorses of the company’s fleet, for about $1 million a plane. If outsourced, the cost would be about $500,000. Cutting costs at the base seemed unlikely, Mr. Arpey said, because “it was a very hostile work environment, labor and management virtually at war on a day-to-day basis.”
