Former CFO Now CEO at American Airlines

Union leader praises Arpey appointment; will creditors, shareholders feel the same way?
Lisa YoonApril 28, 2003

Welcome to the left seat, Gerard Arpey

Arpey is the new chief executive of troubled American Airlines. He started at the company as a finance specialist, joining American in 1982 as a financial analyst, working his way up to CFO by 1995. In 2000, he became executive vice president for operations, in charge of the company’s worldwide flight operations. Last year, he was named president and COO.

Though Arpey was seen as a potential future leader of the airline, his rise to the top spot was nevertheless earlier than expected.

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That’s because, under fire from union workers, former CEO Donald Carty resigned Thursday. As you know, some of the airline’s rank-and-file were outraged that Carty had hid from union leaders new executive benefits while he was negotiating deep concessions from those very unions.

The benefits — so-called retention bonuses paid to seven executives and a $41 million pretax payment to a protected executive pension trust fund — had been approved by American’s board last year. But the perks weren’t disclosed until the airline filed its annual report on April 15 — just days after two unions had already voted to accept the concessions.

Infuriated, leaders of the Transport Workers Union and the Association of Professional Flight Attendants said they would hold new votes, while the Allied Pilots Association refused to sign off on the give-backs.

On April 18, Carty retracted the cash bonuses. On Monday of last week, he apologized publicly for not informing the unions about the plans. He refused, however, to rescind the $41 million payment into the executive pension trust fund.

That intransigence did not sit well with union leaders, who refused to sign off on the worker concessions. Without those concessions — expected to take effect May 1 — American appeared to be headed for Ch. 11.

The airline lost $1.04 billion in the first quarter of 2003.

According to the New York Times, Arpey’s acquaintances describe him as plain-spoken and able to mix with everyone from fellow executives to pilots to ticket agents. During his tenure at American, he learned about different aspect of the airline business, even earning a pilot’s license, colleagues told the AP.

“Gerard is incredibly bright and personable, fanatical about details and a person with a heart that most people never see because he’s so private,” a former American executive told the Times.

And remember that time when former CEO Crandall said American had saved $100,000 a year by cutting olives from on-board drinks? That was Arpey’s idea, says the Times.

The one concern American directors had about Arpey leading the company was his limited experience publicly representing the airline, insiders told the newspaper. In fact, even when he became CFO eight years ago, Arpey struggled when he had to face analysts and investors in Wall Street presentations.

Apparently, the board thought he could handle the job anyway. They gave him the post, and Arpey rushed off to his first test as CEO: a meeting with representatives of the flight attendants’ union (the only one that was still refusing to agree to the concessions).

After some changes in the contract were quickly worked out, the flight attendants’ board voted to accept the cuts. And American narrowly averted bankruptcy once again.

Arpey has even been praised by union leaders, one of whom said he respects Arpey more than anyone — in the world. “There is not a person that I have more respect or trust in, not only in this company, but on this planet, than Mr. Arpey,” John Darrah, president of the pilots’ union, told the AP. “He has never shown me anything other than respect and self-confidence, and I feel we can work together.”

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