President and chief executive officer, AMR Corporation and American Airlines
Born: July 26, 1958, in New York City, New York.
Education: University of Texas, BBA, 1980; MBA, 1982.
Family: Married Lisa (maiden name unknown); children: three.
Career: AMR Corporation and American Airlines, 1982–1983, financial analyst; 1983–1985, senior financial analyst; 1985–1987, manager of financial analysis department; 1987–1988, director of airline profitability analysis; 1988–1989, managing director of financial analysis and planning; 1989–1992, vice president of financial planning and analysis; 1992–1995, senior vice president of financial planning; 1995–1999, senior vice president of finance and planning and chief financial officer; 2000–2002, executive vice president of operations; 2002–2003, president and chief operating officer; 2003–, president and chief executive officer.
Address: P.O. Box 619616, Dallas–Fort Worth International Airport, Dallas, Texas 75161-9616; http://www.amrcorp.com.
■ Gerard Arpey was president and chief operating officer of American Airlines and its parent company AMR in the early 2000s when the U.S. economy suffered a major downturn, partly as a result of the 9/11 hijackings of four passenger jets, two of which belonged to American Airlines. The entire airline industry fell into financial disarray, and American was facing Chapter 11 bankruptcy. Arpey took over as chief executive officer early in 2003, when the presiding chief executive was fired following a scandal involving huge executive bonuses and pension-plan benefits at a time when lesser employees were taking enormous cuts in salaries. Functioning in an internally hostile environment and an externally ailing economy, within nine months Arpey pulled American away from the brink of bankruptcy and developed considerable employee and shareholder confidence in his leadership abilities and in the corporation as a whole.
Arpey was a one-company employee, and his relationship with aviation was both personal and professional. He hailed from an airline-industry family—his father was a career airline employee and an executive with Texas Air (now part of Continental Airlines)—and started with American loading luggage into airplanes. After college he became an analyst in the finance department, which, according to Micheline Maynard of the New York Times , was a "stellar training ground for airline executives" (April 25, 2003). Under the tough leadership style of the then CEO Robert Crandall, who gained a reputation as American's "iron hammer," Arpey developed an ethic for hard work. Aviation even became his hobby; an avid pilot, he earned his Federal Aviation Administration multiengine instrument pilot rating and flew private multiengine planes. In the Washington Post , Sara Kehaulani Goo quoted George Hamlin, the aviation analyst with Global Aviation, as saying, "He's got some kind of kerosene in his blood" (April 25, 2003).
American Airlines, the largest airline in the world, serviced more than 250 cities in 41 countries and territories in 2003 and owned 1,100 aircraft that made a combined total of 4,400 flights a day. While working his way up the corporate ladder, Arpey was responsible for profitability analyses, fleet planning and scheduling, financial planning, strategic planning, and partnership activities. As chief financial officer, he oversaw the company's entire financial operations. As executive vice president of operations, he managed flight operations worldwide, which included engineering and maintenance, purchasing, corporate real estate, operations planning, the flight department, and AA Cargo and American Eagle.
Following 9/11 and the major economic downturn of the early 2000s, American, along with other major carriers, suffered a financial freefall. Donald J. Carty, the chief executive officer at the time, appealed to American's employees and negotiated with union leaders for huge employee concessions and cutbacks. Indeed, employees voted in favor of slashing their own salaries to help the company survive. Meanwhile, Carty hid the fact that he and top executives, including Arpey, had agreed to accept huge retention bonuses and lucrative pension deals. When the cover-up was revealed to the public, enraged employees and union officials stirred up a furor; Carty was fired. Arpey was thrust into the position of CEO, albeit amid serious concerns from union leaders, financial analysts, and employees about his involvement in the executive compensation debacle. Maynard quoted Kevin Mitchell, president of the Business Travel Coalition, who expressed the reservations of many when he said, "My concern with him is that he was right there. What was his advice and counsel on what should have been done?" (April 25, 2003).
Regardless of the overarching skepticism, American's shares jumped 96 percent following the announcement that Arpey would replace Carty. Highly regarded for his analytical skills, determination, company loyalty, and strong belief in its employees, Arpey took over the helm of American when the company was carrying $11 billion in long-term debt and employee morale was at its lowest—and he was obligated to ask employees to sacrifice even more. In Business Week , Wendy Zellner quoted Arpey as saying, "People are being asked to work harder for less pay. That obviously does not create an environment for happiness" (March 22, 2003).
Arpey set about the Herculean task of keeping the company airborne, realizing that little could be done successfully until teamwork and trust were reestablished. Pilot Thomas W. Hoban, whose $157,000 annual salary became $95,000 while his hours on the job increased, had high regard for Arpey's ability. "I think he understands the employee relationship problem we have here and the impact it has on the bottom line," he told Zellner (March 22, 2003). A spokesman for the Allied Pilots Association commented that the union had "quite favorable dealings" with Arpey over the years, and, according to Goo, association president John Darrah expressed confidence in Arpey. "I can honestly tell you there's not a person I have more respect for or trust in, not only at this company, but on the planet," he said (April 25, 2003).
While some industry analysts, union executives, and employees still held reservations about Arpey's credibility, there was a consensus that he was making a concerted effort to communicate with employees in rehabilitating the company with his "pull together and win" attitude. John Ward, president of the flight attendants union, was instrumental in negotiating a new cost-cutting program with Arpey. Ward said that although his union would not fly by faith alone, he was encouraged by Arpey's willingness to negotiate openly, a phenomenon that was virtually nonexistent during Carty's tenure. Arpey firmly believed in open communication and even more firmly in cooperative involvement. He maintained that inviting employees to participate in the decision-making process was essential to their understanding of the conclusions eventually reached at the top.
Operating under his belief that actions speak louder than words, Arpey selected high-level managers who not only had the necessary technical skills to help turn the corporation around but also were people oriented. Furthermore, he agreed to have senior executives meet on a regular basis with union leaders. Goo quoted him as saying, "There is definite need to rebuild trust within our company, and that starts at the top" (April 25, 2003). In an action that spoke volumes to employees, Arpey did more than reject a pay increase when he was promoted: he took a 14 percent pay cut and refused stock awards for the upcoming year. In a novel approach that allowed managers and board members to engage in dialogue openly, he invited senior executives to make slide presentations at a board meeting to explain their new business strategies and present their own thoughts and ideas. Board member David L. Boren was quoted by Edward Wong of the New York Times as calling the approach "refreshing—what I see as a board member is more strategic thinking about the future going on from the leadership than we've seen in recent years" (October 10, 2003).
One industry analyst felt that while Arpey had a decent rapport with employees, who saw him as being gentle yet firm, he was still part of the leadership team that had created the aura of mistrust and disillusion in the first place. On the other hand, another analyst thought that Arpey was highly appropriate for the position because of his extensive experience with the corporation. The latter analyst expressed hope that Arpey would learn from the mistakes of his predecessors.
By the end of 2003 Arpey—one of the youngest CEOs in the corporation's history—had adopted several major plans that proved to be milestones in the company's recuperation. He implemented his Turnaround Plan, which aimed at making American more competitive, and created employee stock-option and profit-sharing plans that would kick in when pretax profits exceeded $500 million. He sold the company's 26 percent interest in a computer-reservation company for $180 million in cash and negotiated a savings of $175 million with suppliers, all in all more than doubling American's unrestricted cash balance. Less tangibly, he changed the stuffy and arrogant image American had earned over the years to a more open and relaxed one. As evidence of this, corporate executives became exempt from having to wear neckties.
Veteran captain Tim Whitby expressed his elation at Arpey's election as CEO in an interview with Lisa DiCarlo of Forbes (April 30, 2003). Whitby recalled how he had sent a scathing letter to corporate management while Carty was still CEO, documenting how "screwed up and shabby the company was in terms of service and attitude." When Arpey took over, he called Whitby to his office. Whitby had felt he was going to be fired but was instead invited to lunch at a restaurant in a strip mall that was, according to Whitby, "a complete dump." "The funny part is," he said of Arpey, "the staff all knew his name." Over tacos and enchiladas, Arpey listened attentively to Whitby's opinions and agreed that changes needed to be made. Whitby said it was amazing to him that Arpey wanted to hear employees' "gripes" and was willing to take them into account in order to help turn the company's image around.
In December 2003 Captain Sam Mayer, chairman of American's crew base at La Guardia, New York, expressed confidence in Arpey's skills but skepticism about his ability to overcome twenty years of company inertia. According to Margaret Allen of the Dallas Business Journal , Mayer said, "It's like trying to turn a battleship, which takes miles and miles. I just don't know if he's going to have the horsepower to do it" (December 26, 2003). In point of fact, as employee confidence in Arpey gradually increased, financial losses steadily decreased. His financial strategy raised revenues by 4 percent over the eight-month period following his appointment as CEO and cut costs by almost 12 percent. Although the corporation still lost money, net losses were reduced from $3.51 billion in 2002 to $1.23 billion in 2003. The amount lost per share dropped from $22.57 in 2002 to $7.76 in 2003. Fourth-quarter losses per share equaled $0.70 in 2003 compared with $3.39 in 2002, which defied industry analysts' predictions of losses of at least $1 per share.
Arpey refused to take credit for the turnaround, instead deferring to the company's employees. And while encouraging employees and management to pull together to ensure that the worst was behind them and the best yet to come, Arpey acknowledged that the company was far from being out of the woods. Allen quoted him as saying: "The first six months in this job was absolutely a sprint. Now we're not talking or worrying about bankruptcy. We're back to running the company again. We're still sprinting—but we recognize it's a marathon" (December 26, 2003).
See also entries on AMR Corporation and American Airlines in International Directory of Company Histories .
Allen, Margaret, "AMR Corp.'s CEO Off to a Flying Start," Dallas Business Journal , December 26, 2003.
DiCarlo, Lisa, "Arpey Could Give American a Fresh Start," Forbes.com , April 30, 2003. http://www.forbes.com/2003/04/30/cx_ld_0429arpey.html .
Goo, Sara Kehaulani, "Key Union Accepts Cuts at American," Washington Post , April 26, 2003.
Maynard, Micheline, "History of Loyalty Helps Successor Reach Top, but May Not Calm Unions," New York Times , April 25, 2003, http://www.mccombs.utexas.edu/news/mentions/arts/2003/04.25.nyt_arpey.asp .
Wong, Edward, "A Market Revival, and Less Turmoil, at American Air," New York Times , October 10, 2003.
Zellner, Wendy, "A First Officer: 'For Many Years to Come,'" BusinessWeek Online , March 22, 2003.
—Marie L. Thompson