American Chief Takes Blame on China Failure

Gerard Arpey admits he made 'foolish' presumptions in negotiating service to Bejing with pilots.
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American Airlines CEO Gerard Arpey took an unusual step last week, apologizing for assuming that the airline's pilots would agree to overlook a contract provision to make the carrier's bid for

China

service work.

Speaking during an investor Webcast, Arpey provided an explanation for the pilots' controversial failure to support American's 2006 bid to fly Dallas-Beijing, and shouldered the blame for the bid's rejection. "In the case of this application, I made presumptions that in retrospect were foolish to make," Arpey said.

"You have to give him credit for saying that," says aviation consultant Mike Boyd. "What other CEO in the airline business has said 'I made a mistake'?" At the same time, American, a unit of

AMR

(AMR)

, overreacted to the pilots' November assertion that they would not fly the route without contract changes, Boyd says.

American, alone among major international airlines, lacks contract language to govern long-haul international flying. The Dallas-Beijing flight would have exceeded the maximum 16 on-duty hours permitted under the contract. Pilots have made exceptions for routes from Chicago to Delhi and Shanghai, but were unwilling to make additional exceptions without changes, says pilot spokesman Denis Breslin.

As a result, American

altered its application at the last minute, seeking to add a Chicago stop on the way to Beijing. The Transportation Department rejected the application, declining to consider the late change, and instead

awarded a Washington-Beijing route to

United

(UAUA)

.

The Clarity of Hindsight

"I made a lot of presumptions in the application process about the pilots union and what we would be able to accomplish," Arpey said on the Webcast. "That was really my failure, to not recognize the changing landscape. To do it over again, we should have sat down with the union prior to applying."

Breslin says pilots agreed to the previous exceptions before it was revealed that American management would share in nearly $100 million worth of bonuses based on a stock-price increase. "The bonuses rankled the hides of every single labor leader and rank-and-file worker," he says. "The opportunity to get an agreement (without) a quid pro quo ceased to exist."

In November, Breslin says, pilots proposed contract changes allowing the Beijing flight in return for pilot pay protections if scheduled flights are canceled, as well as other lesser adjustments. Additionally, "we offered the ability to complete flights in the event of a diversion, which is a significant improvement from what exists now," he says. But the company declined.

Boyd, who has consulted for both American and its pilots during the past two years, says American's proposal for Dallas-Beijing had stood a good chance to be selected. But once American sought to add a Chicago stop, the application was doomed, he says.

After pilots said their contract did not allow Dallas-Beijing flying, "American should have said to the DOT, 'Give us the route, and we'll make it work,'" Boyd says. "It could have been negotiated to everybody's benefit."