In 2000, AMR purchased TWA for a total of $782 Million using $500 Million in cash to fund the deal. AMR shares were trading at $34 the day the deal was announced. What happened to 90% of the value of AMR?
Under Robert Crandall’s watch, American was an aggressive growth company that ran afoul of the DOT once or twice in order to block competitors from gaining routes. Today under Gerard Arpey, American has walked away from nearly all of its investment in Reno Air, leaving the routes to Southwest Airlines (SWA), and then walked away from Long Beach leaving routes to upstart Jet Blue.
From 1998 to 2003 Don Carty was the CEO of American while the stock slid from a high of about $38 to $11 about the time he was ejected by the board. Clearly the board took the steps they should have. So what is happening now?
Since Sept 11, 2001 Mr. Arpey has used high costs as his excuse for everything. The spirit of competition at American is all but gone and the market knows it. How else could Southwest Airlines be worth $ 7 Billion vs. American’s paltry $1.25B and American did almost exactly double the revenue.
Gerard Arpey has not been the CEO that American needs, he hasn’t had the chain smoking enthusiasm for the Airline business that Robert Crandall brought, or the tattoo yielding LUV that Herb brought to Southwest. In fact instead of being out cheerleading the enthusiasm of the new 400+ aircraft purchase, he has been nearly unseen according to most American employees at the Dallas Hub located just minutes from the headquarters.
Labor isn’t the problem at American Airlines, the leadership is. The longstanding gap between labor and management at American could have been welded shut when Mr. Arpey took over the carrier from Don Carty. Instead labor pay cuts and increasing management bonuses have only deepend and widened the chasm Mr. Arpey must cross to restore the ailing carrier.
Recently at the opening of Terminal two at San Francisco International Airport, you could see the problem first hand. Richard Branson of Virgin American showed up and brought along his space ship and astronaut Buzz Aldrin to speak about the future. Mr. Arpey sent a 1940’s era DC-3 that left a trail of oil on the gleaming new tarmac and a few retired instructor pilots. Mr. Arpey was nowhere to be found.
The recent good news of American buying 420 new airplanes is slightly reminiscent of the deal that Robert Crandall struck to buy the current MD-80 fleet at a super discount and grow the airline. The difference was he had all the labor deals in his pocket first. According to the press releases recently by the mechanics and flight attendants, Mr. Arpey is nowhere close to having these agreements.
With a looming pilot shortage and pilot pay that is among the lowest in the industry, sources say that American is getting less than 20% of its furloughed pilots returning to work. Where does Mr. Arpey plan to get the 4000 plus new pilots to fly the 420 new airplanes?