American Airlines CEO resigns post; unions reach deal

FORT WORTH, Texas -- The embattled chairman and chief executive of American Airlines resigned Thursday as the flight attendants union split bitterly over a cost-cutting package that was the last hope for avoiding bankruptcy.

Two other unions representing pilots and ground workers agreed to the company's sweetened offer, but leaders of the flight attendants union were said by a source to be embroiled in a "holy war" over whether to go along. The union's board rejected the deal, but the executive committee was seeking to overturn the decision, a source familiar with the situation said on condition of anonymity.

The company has said it would file Chapter 11 bankruptcy unless all three labor groups accepted the $1.8 billion in annual wage and benefit concessions.

With the airline's fate uncertain, Donald J. Carty resigned as chairman and CEO. Gerard Arpey, the company's president, will replace Carty as CEO, while board member Edward A. Brennan will take over as chairman.

It was not clear, however, whether the combination of Carty's resignation and the sweetened labor deal would be enough to prevent a bankruptcy filing.

The new deal improves potential bonuses for employees and shortens the length of concessions by one year to five years. The deal would also provide incentives for "additional cash compensation," said John Darrah, president of the pilots union.

Unknown perks

The original package unraveled last week after employees learned of previously undisclosed executive perks, including bankruptcy-proof pensions and huge bonuses.

Carty apologized for not telling workers sooner about the executive benefits. The company eventually canceled bonuses for the top six executives that were worth twice their annual salary, but left in place $41 million in pension funding for 45 executives.

Arpey, who will remain as president, said he would work to "restore the confidence of all employees in their great company."

In fact, Arpey late Thursday invited four officers from the flight attendants union to his office to discuss the impasse, union spokesman George Price said. The union's board would likely reconvene today, Price said.

Flight attendants were asked to contribute $340 million of the wage and benefit cuts.

Price said flight attendants were concerned by the concessions' length, lack of incentives and specific measures affecting only flight attendants. He did not elaborate. The union said it would work to avoid a bankruptcy filing, and was still talking to the company.

Adding to the pressure on Carty was Wednesday's first-quarter financial report from America's parent, AMR, which posted a worse-than-expected $1.04 billion loss.

After details of the executive perks went public, two unions last week called for new elections, which threatened American's plans to cut spending by imposing the concessions May 1. Some AMR board members were angered, and one, University of Oklahoma president David Boren, said he would call for Carty's replacement.

The new management team combined the long experience of Brennan with the youth of Arpey, a rising star within American.

Brennan retired from the helm of Sears in 1995. Some shareholders had demanded his resignation because of the retailer's flagging fortunes and its sale or spinoff of successful side businesses. He has been an AMR board member since 1987.

Arpey, 44, has held a variety of management jobs at the airline since 1982, including chief financial officer, executive vice president of operations, and president and chief operating officer of American and AMR since April 2002.

In a statement, Carty said the appointments of Brennan and Arpey would "begin to build a bridge back to the path that promised a new culture of collaboration, cooperation and trust."

Board members of AMR Corp. declined to comment after meeting all day Thursday, referring questions to the company.

Airlines have been hit hard by a downturn in travel caused by the weak economy, the 2001 terrorist attacks, fear of new terrorism around the Iraq war, and the SARS outbreak. Major carriers like American have also found it difficult to raise prices because of competition from low-fare carriers on many of their routes.

AMR stock rose Thursday, as investors held out hope the airline can restore labor peace and avoid bankruptcy. In trading on the New York Stock Exchange, AMR shares rose 24 cents, 6.3 percent, to $4.04. They fell 16 cents in extended trading.