Jan. 22, 2018, © Leeham Co.: American Airlines was the last of the big US legacy carriers to enter bankruptcy, in 2011.
Executives put up a valiant battle to avoid being dragged into Chapter 11, despite having two airplanes hijacked on 9/11. One was flown into the World Trade Center, the other into the Pentagon.
Only two months later, American lost a third airplane in an accident.
Delta, Northwest, US Airways and United airlines all filed for Chapter 11 after 9/11; there were several other airlines to do so. Not all survived.
American did, merging with US Airways as part of the former’s bankruptcy reorganization.
AA’s former general counsel, Gary Kennedy, teamed with the aviation reporter for the Dallas Morning News, Terry Maxon, to tell the story of Twelve Years of Turbulence, The Inside Story of American Airlines’ Battle for Survival.
The book is available now.
Kennedy was named general counsel in 2003, at a time when American was still reeling from the effects of 9/11. He led the airline’s legal teams through that dealt with the consensual financial restructuring after 9/11, through the bankruptcy 10 years later and through the lawsuit by the US Department of Justice to block the merger with US Airways.
Through it all, Maxon followed the story.
Together they stitch together a fascinating inside look at the events of those 12 turbulent years.
Kennedy begins his story pre-9/11, in 1984. He joined American as a junior member of the legal department shortly out of college. It was a time when American was on financial ropes as a bloated airline beset by rising fuel prices and with an old fleet of jets. The period was shortly after a bruising battle with rival Braniff Inc. that ultimately left Braniff in bankruptcy and out of business and American licking its wounds.
Bob Crandall was president and COO to Al Casey’s CEO. Kennedy relates, in brief recounting, the stories that are well-known to airline aficionados of how the hard-charging Crandall turned American around and positioned the carrier for dramatic growth.
Crandall retired in 1998, more than a decade after becoming CEO. His lieutenant, Don Carty, succeeded him. Two months before that fateful day in September 2001, Carty named Kennedy general counsel.
Carty hadn’t yet arrived at work on 9/11. Gerard Arpey was the senior officer present with flight 11 was flown into the World Trade Center. While still digesting this, a United Airlines aircraft hit the other Twin Tower and American 77, out of Washington (DC), went missing, out of radio contact and off the radar. Within minutes, Arpey gave the order to ground American’s entire fleet. Carty, Kennedy wrote, affirmed the order and then took a phone call from the head of the Federal Aviation Administration. Asked his advice, Carty recommended that the FAA ground the entire US air transportation system. The order went out from the FAA minutes later.
Carty resigned shortly after winning nearly $2bn in concessions from employees when an Securities and Exchange filing outline retention bonuses for the executives and key management personnel in the event of a bankruptcy.
The rank-and-file felt betrayed. Kennedy writes that Carty divulged the essence of the plan to labor early, but at the same time, Carty delayed filing the SEC document until after the concessions were granted.
The optics stunk and Carty had to go.
Taking his place was Arpey.
Even after the concessions, some in American argued in favor of filing for Chapter 11. Arpey, Kennedy writes, opposed the filing on principal. Doing so would betray the labor groups but Arpey also felt strongly American had an obligation to other stakeholders—lenders, vendors, shareholders—to pay their bills and protect shareholder investments.
Arpey prevailed, for the time being.
But the clock was ticking, Kennedy writes.
With American’s big competitors all having gone through bankruptcy (Southwest Airlines was an exception), AA’s labor costs were out of kilter. The competitors also offloaded their pension fund obligations to the government, another huge imbalance American faced.
Finally, the Great Recession began in September 2008. Effects continued for years.
By November 2011, events caught up. Kennedy writes that Arpey philosophically still couldn’t go along with bankruptcy and resigned. He was succeeded by Tom Horton.
Kennedy tells the story of working through the early days of the bankruptcy and conflicts with the Unsecured Creditors Committee. American fully intended to emerge as a stand-alone company.
Yet it was no surprise, really, when US Airways emerged as a suitor. CEO Doug Parker and his team made a run at Delta during its bankruptcy, but lost. A previous effort to merge with United also failed. American was the last chance for Parker to combine with a major carrier.
Parker’s team, led by president Scott Kirby, struck Conditional Labor Agreements with American’s unions, perhaps the one surprising element of the effort, in advance of making a definitive offer.
Kennedy outlines American’s initial skepticism, opposition and then acceptance of the US Airways deal.
Finally, just when a resolution to the bankruptcy reorganization appeared at hand with the merger, the US Department of Justice sued to block the deal.
The strategies of AA and US to overcome this last-minute development are reported by Kennedy.
Unlike the 444-page, small-type book about Delta’s post-9/11 saga, Glory Lost and Found, including US Airways’ attempt to merge, Twelve Years is a short story, just 208 pages. Glory was a tough but interesting read. Twelve Years is an interesting but easy read.
One criticism: like Glory, Twelve Years has no pictures of the key players with whom the readers can attach a face. I know most of the airline people Kennedy cites, but many readers won’t. There’s not even a book jacket photo of Kennedy or Maxon—and, as it happens, Kennedy is not someone I know. Putting a face to the name would have been nice.
Savio Republic, Posthill Press. $26. Available on Amazon and other Internet locations.