American: Why Different Didn’t Work
With its bankruptcy filing, American belatedly joined its domestic peers in commencing what will be a dramatic, unpleasant, overdue restructuring. The question for many: What the heck took so long? The simple answer is a perception of ethics.
In an illuminating interview in September 2010 with Ted Reed of The Street.com, former AMR CEO Gerard Arpey equated bankruptcy restructuring with moral failure. The whole thing is worth a read but here’s the kernel of why American tried to do things differently.
Gradually, [AMR] will emerge as a successful company that honored its commitments and its pension obligations and that was guided by principles of doing what’s right. The path we have taken has created cost challenges for us. But I believe there is something misguided about how we measure success, if success is bankruptcy, giving pension obligations to taxpayers and not paying back creditors. By that measure, we have failed.
That “failure” today means that taxpayers are likely to assume AMR’s pension costs and creditors will now queue in a New York bankruptcy court, collecting less than they are owed. The new airline, when it emerges at some point in 2013, is likely to be a smaller operation focused even more intently on its hubs, which have critical strengths. (Assuming it is not merged with some other carrier.)
It’s not for nothing that AMR is situated squarely in the heart of the conservative Bible Belt. Contracts mattered, according to the company line. The airline was not run by lawyers and financial engineers, as many other carriers now are. AMR retains a sizable corps of “airline” people in the ranks, folks who worked on the planes and the ramp and had a visceral connection with air travel’s allures. (Arpey himself loaded planes as a summer job in college, Reed reported.) Other airlines have relinquished that heritage in seeking to fix their finances. American now will also. To some that may be sad but flying people, these days, is and must be a business first because it doesn’t work any other way.
And yet Chapter 11 is not some corporate panacea. The company’s financial metrics will undoubtedly improve with this process but that alone won’t signify success. Its management ranks will also need a radical overhaul, a turn from insularity. American did not always follow the industry crowd, whether it was in flying a fleet of aged McDonnell-Douglas MD-80s, keeping maintenance in the U.S., or eschewing bankruptcy. Mark Drusch, the president of online marketing firm e-Miles, and a former executive at Delta and Continental, said in an August interview that AMR executives have traditionally been far more deliberate than most in the industry, often taking months to study an issue and then forging ahead from that analysis regardless of industry practice.
Bankruptcy will also not “fix” employee expectations. “Hostility between labor and management is so ingrained at American that it’s practically part of the DNA,” long-time business columnist Mitchell Schnurman wrote last month in the airline’s hometown paper, the Fort Worth Star-Telegram (one of my former employers). In many ways, AMR workers had gotten a better deal than the rest of the industry for most of the decade, owing to Arpey’s resistance to using the courts. American would loudly tout its costs disadvantages to workers but then stop short of doing anything drastic like Chapter 11. That hammer may now have fallen but the culture doesn’t change overnight.
If you are Steve Jobs selling consumer gewgaws, “Think Different” is a brilliant tagline. If you’re an airline, however, it’s downright dangerous.
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