New American CEO 'up to task' By Dan Reed, USA TODAY FORT WORTH ? If the American Airlines' story over the past month seemed to play like a Greek tragedy, then Gerard Arpey has been cast as the deus ex machina, the "god from a machine" character whose improbable last-minute appearance is supposed to right all wrongs and magically solve the unsolvable. Solving the myriad problems faced by the world's largest airline might not be a role that many executives would want. Yet on Friday, as he was introduced as only the sixth CEO in American's 74 years, Arpey said flatly, "I'm up to the task." Despite his relative youth, the 44-year-old Arpey's résumé suggests he's well-prepared for the position. The son of a former senior finance and operations executive at both TWA and Continental, Arpey seemingly has been training for American's top job since 1983, when he came to headquarters here with an MBA from the University of Texas. He was involved in nearly every major development at American over the past 20 years, from its rapid growth plan of the 1980s and early 1990s, to its purchase of more than 1,000 jets over the past two decades. Veteran industry executive Tom Plaskett says Arpey, who joined American three years before Plaskett left to become president at Continental, probably has "the best résumé in the business." But that's no guarantee of success, given the big problems American continues to face, he says. Arpey himself isn't assuming that his and American's past successes are enough to guarantee a positive outcome this time. "We have our work cut out for us. We clearly are not out of the woods yet," he said Friday. Befitting his reputation for straight talk, there was no hype in that statement. American's problems are legion. Parent AMR has lost $6.3 billion in the past 27 months and narrowly escaped a Chapter 11 bankruptcy filing three separate times in the past month. It still could end up in bankruptcy soon. In its recent 10-K report, the company said that even with nearly $1 billion in tax refunds and government emergency aid coming in this quarter, it is in danger of defaulting on a lending covenant requiring that it maintain a minimum of $1 billion in unrestricted cash beginning on June 30. Workers, more than a third of whom voted to reject concessions knowing that the alternative was a bankruptcy filing, will be taking pay cuts of 15% to 23%. Some still seethe over the concessions they say were rammed down their throats. About 7,000 will lose their jobs in the next few months, and the 92,000 who remain will have to work more hours and will get fewer benefits. If the plan doesn't work, the next round of personnel cutbacks will be much worse. A prolonged soft economy, the Sept. 11 terrorist attacks, intense competition from rapidly growing discount carriers, increased travel security hassles, the widespread availability of cheap fares via the Internet, war and now severe acute respiratory syndrome (SARS) have combined to cut travel demand by 20%. Demand for business travel, American's core market, is off even more. Costs continue to be a big problem. Labor and fuel costs at American are moderating a bit. But aircraft, security and distribution costs are rising. The $1.8 billion in labor savings American cinched last week are part of a plan to cut $4 billion in operating costs, or nearly 20% overall, by the end of 2004. Still, those savings won't be enough to restore profitability. Management concedes that its recovery plan depends on costs coming down sharply and at least a modest recovery of business travel. There's no consensus as to whether the economy will rebound enough for American to hit its target of 30% more revenue per passenger mile than discounters like Southwest. American's hopes of returning to profitability hinge on getting that 30% revenue premium. And it plans to get that by playing to its strengths: a huge hub-and-spoke domestic network and larger international network, its 45 million-member AAdvantage frequent-flier program, its leading brand image, and its "more room throughout coach" passenger cabins. Industry consultant Mo Garfinkle of GCW Consulting has negotiated with Arpey on behalf of clients and likes his style. "He's a very detailed person. He'll engage himself with employees. He's not above them ? he's with them." Garfinkle wonders if American's top managers can be as successful in the rapidly evolving airline environment as their highly regarded predecessors were in the old industry environment. American has been "incestuous" in developing new leadership, he says. "They haven't brought people in from the outside" and may lack the flexibility to adapt to new ways of doing business. David Banmiller, who worked at American for three years in the early 1990s after it acquired his airline, AirCal, says he would challenge American's managers "to think outside the box because the traditional way of doing business in this industry is over." Plaskett figures it will take six to nine months to find out whether the business plan Arpey and his team will implement will work. As an old-school airline executive himself, Plaskett says he is inclined to think the economy and business travel will rebound slowly but enough to give American a chance to survive with its new, somewhat lower costs. Still, the unknowns remain a concern, and American's costs still are too high for it to survive if anything more goes wrong. "You tell me what fuel prices will be doing in six months, where fares will be in six months, whether we'll still be at war, or whether there will be another major act of terrorism," Plaskett says. "Gerard's a very capable young man, but there's a lot of things going on that are beyond his control, or anyone's control." Contributing: Barbara De Lollis, Marilyn Adams and Chris Woodyard *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.pscutt.com TnT Webdirectory: http://search.co.tt *********************************************************