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The Honolulu Advertiser
Posted on: Wednesday, April 23, 2003

American again on the verge of filing for bankruptcy

By Dan Reed
USA Today

FORT WORTH, Texas — As the chief executive of American Airlines' parent company fights to save his career and company, AMR is poised to announce today a first-quarter loss of $800 million to $1 billion. And bankruptcy court protection might be impossible to avoid.

AMR Corp. CEO Don Carty said at a news conference Monday that he was sorry for his mistake in judgment in not revealing executive bonuses earlier.

Associated Press

CEO Don Carty succeeded fiery Bob Crandall as AMR's chief executive in 1998. At the time, AMR was heading for a record $1.3 billion annual profit, and the only thing Carty wanted to change was its record of poor labor relations.

But his own relationships with American's workers have soured and left him with diminished support. Almost five years after Carty became its CEO, AMR's losses may leave it no option but to seek to reorganize.

AMR's board, which meets today, gave preliminary authority to file a Chapter 11 bankruptcy petition on March 31. Bankruptcy court was avoided when union leaders tentatively accepted contract concessions before lawyers could file the papers.

Now, union leaders and company officials alike expect the AMR board once again to order a bankruptcy filing if unions act on threats to send the now-ratified concessions back to employees for a new vote.

The agreements, plus pay and benefit reductions for non-union workers, would save AMR $1.8 billion a year. The pilots union said yesterday that it would not call for another vote but would hold off indefinitely on signing the agreement.

In addition to weighing a Chapter 11 filing, people close to the situation at American say the board likely will consider whether Carty, 56, can continue to lead the airline.

Carty admitted Monday that it was his "poor judgment" and "dumb, naive mistake" that has angered employees and put American on the brink of bankruptcy protection this time.

Carty said he failed to fully disclose details of the changes potentially boosting executives' compensation while workers were voting on their concession deals in part because he believed the changes were reasonable in light of much more lucrative deals for executives at rival Delta.

AMR has now canceled the retention bonuses for its top six executives, but it is keeping in place a trust fund that partially protects 45 executives' pensions if AMR winds up in bankruptcy reorganization.

Carty's "hat-in-hand apology" on Monday won't "come close to rebuilding the trust that was lost," says Patt Gibbs, co-founder of the Association of Professional Flight Attendants.

"Now, we all feel like (Carty) pulled the rug out from under us," Gibbs says.

Carty was asked Monday if he would step down if unions made his continued leadership the central issue in accepting the concession deals. He dodged the question.