American Airlines CEO's Turnaround Plan Worked

American stayed out of bankruptcy court by building up a cash reserve, slashing $6 billion in annual costs and finding new sources of money, such as charging for curbside check-in and selling maintenance services to other airlines.


Feb. 25 -- On a spring morning in 2003, Gerard Arpey was scrambling to leave his Colleyville home when his 5-year-old daughter, Alexandra, asked him what he was doing for the day.

Arpey, who had been appointed chief executive of American Airlines a few weeks earlier, was heading to a crucial meeting of the airline's top management.

There he would unveil his blueprint for lifting the company from its dire financial straits.

For days, he and his executive team had been working nearly around the clock to plan the future of North Texas' largest employer while keeping bankruptcy at bay.

Arpey explained to Alexandra that he was having a "show-and-tell" with his friends at work. Alexandra darted to her room and returned with a purple papier-mâche dinosaur she had made.

"She was very excited," Arpey recalls. "She said: 'Daddy, you have to show them this. It's a dinosaur with magical flying powers.'''

A few hours later, after presenting his turnaround plan to the crowd of executives and managers at the airline's Fort Worth headquarters, Arpey showed off Alexandra's dinosaur.

"If anybody needs magical flying powers," he told his colleagues, "it's us."

Today, the dinosaur has a prominent place on Arpey's desk, and some American executives like to credit its "magical flying powers" for keeping the airline aloft while most of its rivals -- United, Northwest, Delta, US Airways -- descended into bankruptcy.

Last year, Fort Worth-based American posted its first annual profit since 2000, after a wrenching five years that saw the carrier bleed more than $8 billion.

American stayed out of bankruptcy court by building up a cash reserve, slashing $6 billion in annual costs and finding new sources of money, such as charging for curbside check-in and selling maintenance services to other airlines.

The seeds of that turnaround, which came after a remarkable period of financial shocks, lie in the straightforward plan Arpey and his team put together during those frantic weeks in May 2003.

"That was a really, really extraordinary time," Arpey said. "I've never experienced anything like it."

Future at stake

Arpey, who's now 48, had been given what he calls a "battlefield promotion" to American's top job. His predecessor, Don Carty, had resigned amid an employee uproar over the disclosure of a slate of executive bonuses and retirement perks after workers approved $1.6 billion in wage and benefit cuts.

The concessions had kept American out of bankruptcy for the moment, but Arpey says the airline remained on the brink for months.

"We had this real cash crisis; we were trying to figure out how to keep the lights on," he said.

That pressure continued long after the employees approved the concessions, he said.

"Many were simply advocating throughout 2003 and much of 2004 that we simply file for bankruptcy," Arpey said.

The pressure was coming from creditors and analysts, as well as some executives at the airline.

Gary Kennedy, the airline's general counsel, was ready to fly to New York at a moment's notice and file the papers.

"We were ready to pull the trigger at any time," said Dan Garton, American's executive vice president of marketing.

In the first days of his tenure, Arpey juggled the pressure of operating a severely distressed company with the need to plan for the future. He began a series of meetings with other executives and, in some cases, union leaders, in the executive suites on the sixth floor of American's Fort Worth headquarters. The meetings often ran late.

He asked some very basic questions: What sort of airline do you want American to be? How do you think we can get there?

"We realized that we didn't know what the endgame was going to be," Garton said.

He cites a 1990s push by Delta Air Lines to reduce its costs to 7.5 cents per seat-mile, which was dubbed "Leadership 7.5."

This content continues onto the next page...

We Recommend