AMR chief Carty quits

Unions debate cost-cutting revisions as American Airlines fights bankruptcy.

FORT WORTH, Texas - The embattled chairman and chief executive of American Airlines resigned Thursday as the flight attendants union split bitterly over an easier-to-swallow cost-cutting package that was the last hope for the world's largest air carrier to avoid bankruptcy.

Other unions representing pilots and ground workers agreed to the company's sweetened offer, but leaders of the flight attendants were said to be embroiled in a "holy war" over whether to go along. The flight attendants' board rejected the deal, but the executive committee reportedly was seeking to overturn the decision.

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

With the airline's fate unsure, Donald J. Carty resigned as chairman and chief executive of AMR Corp., the airline's parent company. 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 from six years to five. The deal would also provide incentives for "additional cash compensation," said John Darrah, president of the pilots union.

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 the $41-million in pension funding for 45 executives.

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

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

After details of the executive perks were made public, the flight attendants and ground workers unions called for new elections, which threatened American's plans to cut spending by imposing the concessions May 1. Some company directors 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 issued by the company, 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."

AMR Corp. directors declined to comment after meeting all day Thursday.

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