July 23, 2017

A Rise in Technology Keeps the Market Ahead

The stock market eked out small gains on Tuesday after an upturn in technology companies offset weakness in other parts of the market, including a drop in airline shares.

The gain in technology stocks was driven by Apple, which surged $22.21, or 4.8 percent, to $489.57 after the billionaire investor Carl C. Icahn posted on Twitter that he held a large position in the company and that its stock was undervalued.

August has begun as a lackluster month for the stock market as major indexes fail to add significantly to gains made in July. The Standard Poor’s 500-stock index has drifted lower since closing at a nominal high on Aug. 2. Still, the index is up 18.8 percent this year.

On Tuesday, the S. P. 500 rose 4.69 points, or 0.3 percent, to close at 1,694.16. The Nasdaq composite index gained 14.49 points, or 0.4 percent, to 3,684.44. The Dow Jones industrial average rose 31.33 points, or 0.2 percent, to 15,451.01.

A sharp rise in Treasury yields rippled through the stock market on Tuesday. The yield on the 10-year note climbed almost to its highest point in two years after an increase in July retail sales added to speculation that the Federal Reserve will begin to wind down its economic stimulus program sooner rather than later.

The president of the Federal Reserve Bank of Atlanta, Dennis P. Lockhart, said on Tuesday that it was too early to say when the bank would reduce its stimulus, but hinted that it probably would happen this year.

“You could argue that stocks would be up higher today if the bond market was behaving,” said John Canally, an investment strategist for LPL Financial. “The market’s trend right now is higher.”

Airline stocks slumped after the federal government challenged the proposed merger of US Airways and American Airlines, which is seeking to leave bankruptcy.

The Justice Department, which filed an antitrust lawsuit to block the merger of the airlines, which are among the nation’s largest, said the deal would substantially reduce competition, increase fares and curtail service. US Airways plunged $2.46, or 13.1 percent, to $16.36.

Among the stocks on the move, J. C. Penney fell 49 cents, or 3.7 percent, to $12.68. The struggling department store chain faces uncertainty after the activist investor William A. Ackman resigned from its board.

In government bond trading, the price of the 10-year Treasury note fell 27/32, to 98 3/32, while its yield jumped to 2.72 percent from 2.62 percent late Monday.

Article source: http://www.nytimes.com/2013/08/14/business/daily-stock-market-activity.html?partner=rss&emc=rss

DealBook: Studying the Dark Art of Leaking Deal Talks

A Dell stand at the CeBIT technology convention in March in Germany. Word of a Dell buyout leaked to the news media before it could be finished.Sean Gallup/Getty ImagesA Dell stand at the CeBIT technology convention in March in Germany. Word of a Dell buyout leaked to the news media before it could be finished.

Psst.

That’s how you might imagine a “leak” of a big merger or acquisition would start. A well-placed phone call. An off-handed comment over lunch. A confidential document accidentally left on an airplane.

It seems as if news of most big deals is invariably leaked ahead of the official announcement. Of the biggest deals of the year so far — the buyout of Dell, Warren Buffett’s acquisition of Heinz, American AirlinesUS Airways, Liberty Global-Virgin Media — none made it to the finish line without the news media finding out about it first, sometimes with weeks of advance notice, some with just hours to go.

An intriguing academic study casts new light on the dark arts of the leak — or what used to be affectionately known in London as “the Friday night drop.” (It’s a bit of lore, but deal leaks used to be delivered by envelope on Friday night on Fleet Street to the gossipy Sunday broadsheets where the news could be placed as a trial balloon ahead of the markets’ reopening on Monday.)

DealBook Column
View all posts


According to the study, conducted by the Cass Business School in London — and commissioned by Intralinks, a provider of electronic data rooms for deal makers — sellers are often perversely rewarded by leaks in the marketplace: buyers of companies involved in deals that leaked before the announcement paid a premium averaging 18 percentage points more than in deals that did not leak.

The study examined 4,000 deals between 2004 and 2012. On average, the study suggests, despite anecdotal evidence to the contrary, that leaks have actually been reduced in recent years. According to the study, 11 percent of all deals were leaked between 2008 and 2009. Between 2010 and 2012, it fell to 7 percent.

Remarkably, there is a huge divergence based on region. During the period examined, 19 percent of all deals in Britain were leaked, while only 7 percent of deals in the United States were leaked; 10 percent of deals were leaked in Asia.

To the casual observer, those numbers may seem to understate the situation, especially because it is usually the big, complex transactions with brand names that receive the headlines.

In Britain, the Financial Services Authority published a report in 2010 suggesting that word of a whopping 30 percent of all deals was leaked before they were officially announced. At the time, the agency said, “Strategic leaks, designed to be advantageous to a party to a transaction, are particularly damaging to market confidence and do not serve shareholders’ or investors’ wider interests.” It went on to push for “a much stricter culture that firmly and actively discourages leaks.”

The Cass study also reflected a distinct downside to deal-leaking: a deal’s chances of completion drop significantly. Leaked deals were 9 percent less likely to close than those kept under wraps and took, on average, a week longer to complete, perhaps given the added commotion and complexity created by the leak. (The study did not look at what happened to deals that were leaked but never reached the point of being announced.)

So how did the study explain the reduction of leaks in recent years?

The authors attributed it to “a stricter regulatory environment with more active enforcement and, perhaps most significantly, the subdued deal-making environment and fewer buyers in the market, which has encouraged firms to play it safe and not complicate a deal by leaking.”

How true. With so few deals these days, everyone involved in a transaction — management, boards, bankers, lawyers, accountants, public relations professionals, consultants and other fixers — are reluctant to leak and risk their fees, many of which are typically contingent on a deal’s completion.

Still, of course, the art of leaking news of a deal has long been part of the mergers and acquisition machine.

Bryan Burrough, the author of “Barbarians at the Gate,” described how Henry Kravis reacted in 1986 when news that he was planning to bid for RJR Nabisco leaked, and he made a phone call to a banker he was convinced was responsible.

“I can’t believe you did this to me,” Mr. Kravis reportedly told Jeff Beck of Drexel Burnham Lambert.

“I didn’t do it! I didn’t do it! You’ve got to believe me! It was Wasserstein! It had to be Wasserstein!” Beck shot back, referring to Bruce Wasserstein. Years before Mr. Wasserstein died, he insisted to me that he wasn’t behind that leak, but he did say that leaking was part of every deal maker’s arsenal in the 1980s. I can confirm that Mr. Wasserstein never leaked to me.

Of course, the topic of this column hits a little too close to home. I will share a bit more, but not too much. A magician, as they say, never reveals his secrets.

First, leaks become exponentially more likely as more people are added to a transaction, whether it be people inside the acquirer or target, or perhaps, as additional advisers are included in the process. If a big deal needs financing — as in debt from banks — the risk of leaks jumps. Every bank contacted then knows about the deal, as does the bank’s law firm. And it is not just one or two bankers and lawyers who were first contacted — it’s often dozens of them. Every banker or lawyer who brings on a new client must clear the new assignment with a “conflicts committee.” That committee can have half a dozen or more people on it — and those people may have to check with others at the firm who are working on competitive projects. This is true not just of banks and law firms but of consulting firms, accounting firms and public relations firms.

The private equity world poses its own problem. Those firms often have large investment committees and also employ armies of outside consultants and law firms that typically do much of the heavy lifting when it comes to going through the books and records of prospective targets.

By the time deal talks begin in earnest, it is almost impossible that fewer than 100 people know about it; more likely it’s many more. If there is a “bake-off” — a competition among advisers for the assignment — the number is even higher. And if there is an auction, well, forget about it.

The Cass study suggests all sorts of motivations for deal leaks. “Leaks from the seller are seen primarily as a way to improve the target’s bargaining power,” for example. The authors added that “leaks from a buyer are seen as a tool to scupper a deal which has not progressed as originally hoped.” The authors also said that third parties, not involved in a deal but aware of it, are “seen as a source of leaks designed to sabotage a deal.” Yet, the authors also said that “some M.A. practitioners also feel that leaks can be used to help drive a deal through when one side is delaying.”

Those explanations make sense. Over the years, I’ve heard it all: a chief executive who wanted to get a deal done despite opposition from his board and was convinced that if the market knew, investors would cheer and bolster his position; a board member who wanted to block a deal but didn’t have the votes and was convinced that if the market knew there would be an outcry; a banker who lost the business to a rival firm and wanted to make his competitor appear to be a leaker.

But the one problem with the Cass study is this: It assumes the leaks are rational and based on a considered strategy. As a reporter who has covered the world of deal-making for more than a decade, I can attest that most “leaks” are actually not that organized. More often than not, they start out as accidents — a tip from a competitor about a transaction they heard about that then gets passed on.

The rate of deal leaks may be down. But if the economy begins chugging along — and a merger boom, a good gauge of market sentiment, returns — keep your eyes peeled. The “Friday night drop” might stage a comeback.

Article source: http://dealbook.nytimes.com/2013/04/29/studying-the-dark-art-of-leaking-deal-talks/?partner=rss&emc=rss

On the Road: To Keep Fares Low, Airlines Charge for the Extras

YOU couldn’t hear the American Airlines gate agent mumbling into his tinny microphone about yet another delay at the Dallas-Fort Worth Airport because he was being drowned out by the voice of the woman who makes those annoying security announcements.

That didn’t matter, though, since my plane was not going anywhere for another couple of hours early Friday evening, as the air travel system lurched through the final days of systemwide delays caused by the furloughs of air traffic controllers.

Late that night, as we finally approached New York, the captain made a cheery announcement, which I hoped was also accurate. “Well, the worst part of the day is behind us,” he said.

And on Sunday, flying back home to Tucson from New York with a connection in Dallas, all delay-free, it appeared that the latest air travel crisis had abated.

So welcome back to the old normal — to long flights without food in coach, to overhead storage bins crammed like the roof of a Bangladesh bus, to cramped planes filled to capacity on every flight, to a general annoyance that is perhaps illustrated by my deep resentment of that large man in the row ahead of me with a head the size of a pumpkin who cranked his seat all the way back, reducing my personal space to about nine inches.

One big aspect of the old normal is airline fees, of course. Airlines cannot get enough of them. Last week, for example, US Airways, currently navigating a merger with American Airlines that will ultimately leave USAir in charge, announced that it would follow the lead of United Airlines and raise the penalty fees for changing most coach tickets to $200 from $150, and to $300 from $250 for some international flights.

It was not apparent on Monday whether Delta Air Lines and American Airlines were planning to match these increases. But change penalties are big revenue producers for airlines, which collected $2.4 billion in such penalties in 2011. The total rose about 7 percent for the first three quarters of last year, the most recent period for which data has been reported by the Transportation Department’s Bureau of Transportation Statistics.

The airlines justify the rising fees — for changing flights, checking bags and a host of other services like better (or less awful) seats in the coach cabins — as a necessity if they are to remain profitable in the face of intractable passenger demand for the lowest competitive fares. “We can continue to offer low fares by segmenting customer demand,” said Scott Kirby, the president of USAir, at the airline’s annual media day.

Increasingly sophisticated pricing is behind that segmenting of demand. Here is an example from my flight from Tucson to New York over the weekend on American Airlines. The round-trip coach fare, booked by a corporate travel office for last-minute travel, was $916.66 When I checked in, my assigned seat on both legs was 29E — a middle seat, one of the worst possible in the rear of an MD-80 aircraft. All the aisle or window seats in the dreaded back of the plane were shown as unavailable.

Ah, but I did have options. For an extra $36, I was able to choose a less-awful aisle seat. On the return trip, the surcharges for better aisle coach seats ranged up to $106. Yet on both trips, I saw that a few aisle seats in the back of the plane (which I would have opted for without paying a charge) were actually unoccupied. A spokesman for American said that those seats are often kept open for traveling employees and families that want to sit together, and not to encourage others to pay extra for better seats.

These are the realities as the airline industry consolidates globally. With ever more numerous layers of fees, airlines have essentially figured out a way to raise fares from business travelers, who are far more likely to choose to pay a little extra for a little less discomfort. Corporate travel managers are increasingly inclined to approve such extra charges on expense accounts, Derek Kerr, the US Airways chief financial officer, told me last week.

As it merges with American (the merger is expected to formally close this fall), US Airways’ management, which will run what it calls the “new American,” will be operating a giant global airline with more than 1,500 aircraft making 6,700 daily flights to 336 destinations in 56 countries. Under the American AAdvantage brand, its combined frequent-flier program will have more than 100 million members.

Given the enormous complexity of the merger, USAir officials say they are not contemplating introducing a lot of basic changes. But fees for new levels of service will certainly become more common.

At its corporate event in Scottsdale, Ariz., last week, US Airways had a display of one of its new products, called DineFresh. It’s a premium boxed meal with a small bottle of wine, available as an upgrade from the free coach meals on international flights to Europe, the Middle East and South America. The meals looked enticing enough to pay extra for, from a chilled charcuterie with salad and cheesecake to a vegetarian orzo with portobello mushrooms. But the price was bracing.

I caught Doug Parker, the chief executive of USAir, as he passed by. “Doug,” I said, “great-looking choices — but $21.99 for a meal in coach?”

“Heh-heh,” Mr. Parker said.

E-mail: jsharkey@nytimes.com

Article source: http://www.nytimes.com/2013/04/30/business/to-keep-fares-low-airlines-charge-for-the-extras.html?partner=rss&emc=rss

Judge Clears United Airlines in a 9/11 Collapse

A federal judge in Manhattan ruled Wednesday that United Airlines was not responsible for the collapse of a third World Trade Center building on Sept. 11, 2001.

The plaintiff in the case, Larry Silverstein, the leaseholder of the World Trade Center property, claimed that the collapse of 7 World Trade Center stemmed from airport security lapses that allowed hijackers to crash an American Airlines plane into the complex.

Judge Alvin K. Hellerstein granted a request by United and its parent, United Continental Holdings, to dismiss Mr. Silverstein’s claims. Tower 7 collapsed several hours after being pierced by debris from the crash of American Airlines Flight 11 into the nearby 1 World Trade Center. Two of the Flight 11 hijackers, Mohammed Atta and Abdulaziz Alomari, began their trip to New York at the Portland International Jetport, in Maine. They boarded a flight to Logan International Airport in Boston, from which they connected to the American Airlines plane.

Mr. Silverstein’s lawyers argued that because United was among the airlines that ran Portland’s only security checkpoint, it was legally responsible for the screening of all passengers and had missed a “clear chance” to prevent the hijacking.

But Judge Hellerstein of Federal District Court in Manhattan concluded that United could not have foreseen the events that led to the destruction of Tower 7.

“It was not within United’s range of apprehension that terrorists would slip through the security screening checkpoint, fly to Logan, proceed through another air carrier’s security screening and board that air carrier’s flight, hijack the flight and crash it into 1 World Trade Center, let alone that 1 World Trade Center would therefore collapse and cause Tower 7 to collapse,” Judge Hellerstein wrote.

In 2009, he dismissed claims against other airlines for damages caused by United Flight 175, which also hit the Twin Towers.

Bud Perrone, a spokesman for Silverstein Properties, said it was disappointed in Wednesday’s ruling, but would continue to pursue a negligence case over Flight 175.

Article source: http://www.nytimes.com/2012/11/22/business/judge-clears-united-airlines-in-a-9-11-collapse.html?partner=rss&emc=rss

Bucks Blog: Friday Reading: Letting Patients Read the Doctor’s Notes

October 05

Friday Reading: Letting Patients Read the Doctor’s Notes

Entrepreneurs are starting up with fewer employees, American Airlines grounds planes to fix loose seats, and other consumer-focused news from The New York Times.

Article source: http://bucks.blogs.nytimes.com/2012/10/05/friday-reading-letting-patients-read-the-doctors-notes/?partner=rss&emc=rss

Bucks Blog: Delta Cracks Down on Mileage Tracking Sites

Associated Press

Delta Air Lines is the latest big carrier to crack down on start-up Web sites that aim to help travelers manage their frequent flier miles from multiple airlines.

Travelers provide their user names and passwords for their airline mileage programs (and other loyalty programs, like those offered by hotels). The Web sites use them to obtain balances and mileage expiration dates, so the travelers can see all this information in one place. The sites can also help users figure out when to pay cash for a ticket, and when it makes sense to use miles.

Back in April, the Your Money columnist Ron Lieber wrote about American Airlines and Southwest’s efforts to block several such sites, including MileWise, from gaining access to information from the airlines’ Web sites.

Now, MileWise executives say their site has stopped offering access to information to users’ accounts at Delta, after the airline last month sent the site a “cease and desist” letter.

Another site, AwardWallet, has also stopped serving Delta fliers after it got a letter from Delta’s lawyers. AwardWallet’s co-founder and chief technology officer, Alexi Vereschaga, said the site could address Delta’s concerns by using different methods to get access to customer information, but it has not been able to talk to the airline — even though some 70,000 Delta frequent fliers, including 10,000 elite Medallion members, used the site. An online petition has been started to ask Delta to reconsider its decision.

Sanjay Kothari, MileWise’s chief executive, said the site complied with Delta’s demand because it did not have the financial resources for a legal fight, and because the site held out hope of working out an arrangement with Delta. MileWise would like to talk with Delta officials so it can address the airline’s concerns, he said, but so far it has not been able to do so.

“We have complied with their request,” he said, “but we’re hoping to speak with them and have a business conversation.”

A Delta spokesman, Paul Skrbec, said in an e-mail, “While we understand some customers have become accustomed to using tools like AwardWallet, we do not have a contractual relationship with them.” He added, “The use of information from delta.com was unauthorized and employed automated screen scraping techniques that we don’t allow.”

He said that the Fly Delta app “has been consistently rated highly by our customers and we plan to continue offering highly usable information for their travel experience.”

Mr. Kothari said airlines had said they were concerned that “screen scraping” — in which access to customer information on the airlines’ Web sites is obtained automatically — might impair the performance of the airlines’ own Web sites.  That could potentially be true, he said, if the volume of accounts to which access was being gained was large — say, in the millions.  But he said technology was available that the airlines could employ to counteract any slowdown that might occur.

Have you used one of the mileage tracking Web sites? Do you find that they offer information you cannot find on the airlines’ sites?

Article source: http://bucks.blogs.nytimes.com/2012/09/19/delta-cracks-down-on-mileage-tracking-sites/?partner=rss&emc=rss

Bits Blog: F.A.A. Approves iPads in Cockpits, But Not for Passengers

American AirlinesAmerican Airlines proudly showed how pilots would use iPads instead of paper charts.

The Federal Aviation Administration said Tuesday that pilots on American Airlines flights would be allowed to use iPads instead of paper flight manuals in the cockpit starting Friday, even during takeoff and landing. But, passengers are still required to shut down anything with the slightest electronic pulse from the moment a plane leaves the gate until it reaches an altitude of 10,000 feet.

The rule barring passengers from using a Kindle, an iPad, or even a calculator, were originally made to protect the electronics of an aircraft from interference. Yet pilots with iPads will be enclosed in the cockpit just a few inches from critical avionics on a plane.

There is some thought that the rule disallowing devices during takeoff and landing was made to insure passengers paid attention. The F.A.A. has never claimed this. (If this was the case, passengers would not be allowed to have books, magazines or newspapers during takeoff and landing.)

The F.A.A.’s stance regarding devices on planes has been revised several times. Last month, in my weekly Disruptions column, I noted that the rules requiring passengers to shut down devices, like Kindles and iPads, seem outdated. At the time I spoke with Les Dorr, a spokesman for the F.A.A., who said the reason for the ban was that the agency would rather err on the side of caution when it came to allowing digital devices on planes.

Yet in a statement issued to The New York Times, the F.A.A. said that it conducted ”rigorous testing of any electronic device proposed for use in the cockpit as an electronic flight bag, in lieu of paper navigation charts and manuals.”

The F.A.A. did not say why the testing that has been used for pilots could not also be used to test the seating area where passengers sit, so they could use iPads and Kindles, too.

The F.A.A. did say it had limited the number of approved devices in the cockpit to two, one for each pilot. “This involves a significantly different scenario for potential interference than unlimited passenger use, which could involve dozens or even hundreds of devices at the same time,” the F.A.A. said in the statement.

American Airlines did not respond to a request for comment. Last week the airline caused a kerfuffle when it ejected Alec Baldwin, a co-star on the NBC show 30 Rock”, from a flight for playing a game of Words with Friends on his iPhone while the plane was parked at the gate.

Article source: http://feeds.nytimes.com/click.phdo?i=9883e46e952173be4aab9efa43537e52

Letters: Letters: Women at the Forefront of Union Leadership

Re “Redefining the Union Boss” (Nov. 20), which described how more women were assuming leadership roles in the labor movement:

I know about these strides first-hand. Over the last few decades, I have witnessed a middle-class revolution thanks to the tireless efforts of strong, primarily female union leaders. Together in the flight attendant profession, we worked to ban discrimination in the workplace based on marriage, weight, sex and pregnancy. We worked to have smoking outlawed in airline cabins and to enact stronger safety guidelines to protect ourselves and our passengers. The tireless effort of union leaders brought equity and dignity to my profession.

The early days of flying were fun and glamorous for a “stewardess.” Today, the job is much different, and the challenges union leaders face are infinitely more complicated. On Tuesday, American Airlines filed for bankruptcy protection. As I help my colleagues navigate these difficult times, I draw on the strength of the women who came before me.

Laura Glading

Waccabuc, N.Y., Nov. 29

The writer is president of the Association of Professional Flight Attendants, which represents more than 17,000 American Airlines employees.

Letters for Sunday Business may be sent to sunbiz@nytimes.com.

Article source: http://feeds.nytimes.com/click.phdo?i=58b408a7cf87e3f6fdc973821fad6cf2

Op-Ed Contributor: At American Airlines, a Departing C.E.O.’s Moral Stand

IT seems that every week we hear of a C.E.O. who earned millions from a golden parachute after demonstrating poor business judgment or cutting thousands of jobs with no financial downside for executives. These stories feed the fires of the Occupy movement growing all over the world.

But on Tuesday, we heard something different. American Airlines, once the largest airline in the United States, declared bankruptcy. This is not surprising news for the beleaguered airline industry; what is different is what is emerging from the wreckage. Gerard J. Arpey, American’s chief executive officer and chairman, resigned and stepped away with no severance package and nearly worthless stock holdings. He split with his employer of 30 years out of a belief that bankruptcy was morally wrong, and that he could not, in good conscience, lead an organization that followed this familiar path.

Things have been tough for the so-called legacy carriers since the Airline Deregulation Act of 1978, as they have been pulled in opposing directions by customer demands for lower fares and labor demands for higher wages. The events of 9/11 further shook up the industry, closely followed by the oil crisis and the recent recession.

Since Congress deregulated the industry, it has been common for airlines to claim bankruptcy and regroup under the temporary shelter provided by Chapter 11. Continental filed in 1983 and 1990, United in 2002, US Airways in 2002 and 2004, and Delta and Northwest in 2005. In each situation, bankruptcy gave the airlines the chance to cancel their debt, get rid of responsibility for employee pensions and renegotiate more favorable contracts with labor unions.

For a long time, Mr. Arpey voiced his opposition to bankruptcy, but the airline struggled because of it. “Our bankrupt colleagues all made net profits, good net profits last year, and we didn’t,” Mr. Arpey told me a few months ago. “And you can mathematically pinpoint that to termination of pensions, termination of retiree medical benefits, changes of work rules, changes in the labor contracts. That puts a lot of pressure on our company, not to be ignored.”

Over the last eight years, I have interviewed hundreds of senior executives for a major academic study on leadership, including six airline C.E.O.’s. Mr. Arpey stood out among the 550 people I talked with not because he believed that business had a moral dimension, but because of his firm conviction that the C.E.O. must carefully attend to those considerations, even if doing so blunts financial success or negates organizational expediency. For him, it is an obligation that goes with the corner office.

When we discussed the prospect of bankruptcy at American he spoke with an almost defiant tone of the company’s commitment to its employees and holders of its stock and debt. “I believe it’s important to the character of the company and its ultimate long-term success to do your very best to honor those commitments,” he said. “It is not good thinking — either at the corporate level or at the personal level — to believe you can simply walk away from your circumstances.”

But after being the only major airline with a net loss last year and with dismal prospects ahead, American joined the rest of its major competitors when the board declared bankruptcy. The board requested that Mr. Arpey stay on, but as he wrote to American’s employees, “executing the board’s plan will require not only a re-evaluation of every aspect of our business, but also the leadership of a new chairman and C.E.O. who will bring restructuring experience and a different perspective to the process.”

Mr. Arpey may be the only airline C.E.O. who regarded bankruptcy not simply as a financial tool, but more important, as a moral failing. In a day and age of outrageous executive compensation and protest movements justifiably angered at the self-serving nature of the 1 percent, it is refreshing to see a C.E.O. leave a position with honor even as he loses a long-fought battle.

Protesters at Occupy Wall Street are mad because, to them, financial considerations are inherently moral. It is a troubling commentary on American business that perhaps the last C.E.O. who agreed with them no longer calls the shots for one of the nation’s most venerable companies.

D. Michael Lindsay, the president of Gordon College, is writing a book about executive leadership.

Article source: http://feeds.nytimes.com/click.phdo?i=88a969ba3eeeb35cd3c15522973ea1b9

DealBook: In Chapter 11, a Bid to Cut Costs at American Airlines

After resisting for a decade, the parent company of American Airlines announced Tuesday that it would now follow a strategy that the rest of the industry chose long ago: filing for bankruptcy protection so it can shed debt, cut labor costs and find a way back to profitability.

American’s parent, the AMR Corporation, was the last major domestic airline that had never sought Chapter 11 protection. Its main rivals, including Delta Air Lines and United Airlines, used the bankruptcy courts to reorganize their businesses in recent years and emerged as stronger, more profitable rivals.

Related Links

American, meanwhile, has lost more than $11 billion since 2001, while falling off its perch as the nation’s largest airline as mergers between first Delta and Northwest, and then United and Continental, created bigger competitors. The airline’s troubles were compounded by high labor costs, including pensions that are the richest in the industry, and surging fuel prices.

The decision to file for bankruptcy, which was endorsed by a unanimous vote of the company’s board on Monday evening, was a defeat for Gerard J. Arpey, who has run the airline since 2003 and had staunchly resisted such a move.

American's counter at La Guardia Airport on Tuesday. The airline says it will run a full schedule while it is in bankruptcy.Ángel Franco/The New York TimesAmerican’s counter at La Guardia Airport on Tuesday. The airline says it will run a full schedule while it is in bankruptcy.Thomas Horton, left, succeeds Gerard Arpey as chief executive.Richard W. Rodriguez/Associated Press and Brandon Thibodeaux/Getty ImagesThomas Horton, left, succeeds Gerard Arpey as chief executive.

“It’s no secret that we have tried exceptionally hard over the last decade to avoid this outcome,” he wrote in an emotional message to employees.

Rather than guide the airline through bankruptcy, Mr. Arpey, 53, decided to retire as chairman and chief executive and take a job in private equity investing. He was succeeded by AMR’s president, Thomas W. Horton, 50, another longtime hand at the airline, who was ATT’s chief financial officer for four years before returning to AMR in 2006.

Despite Mr. Arpey’s long tenure as AMR’s chief executive, he does not appear to be bailing out with a golden parachute. Under the terms of his contract, he will not receive any severance, according to the research firm Equilar. And with AMR closing at 26 cents a share on Tuesday, his stock holdings are essentially worthless.

As other airlines have done in similar cases, American said it would continue to operate its regular schedule throughout the bankruptcy process. It said flights, ticket sales, overseas alliances and frequent flier programs would not be affected. Employees will continue to be paid and receive health benefits.

Wall Street analysts said AMR, which has about $4.1 billion in cash and short-term investments, was seeking court protection before its financial position completely deteriorated.

“This is not a defensive move, but an offensive bankruptcy where they go after their labor groups to reduce costs,” said Bob McAdoo, an airline analyst at Avondale Partners. “They have a great franchise and a lot of cash. They are not being forced into bankruptcy here. They have a problem with their cost structure that they want to tackle.”

The decision might eventually lead to a smaller airline, with fewer employees, fewer planes and fewer destinations. Seth Kaplan, an aviation specialist with Airline Weekly, said hubs like Dallas and Miami, where American has a strong competitive position, would probably be spared, while Los Angeles and Chicago, where it is not a market leader, might be more vulnerable to cuts.

American has long argued that its labor costs were $800 million a year higher than its rivals’ because its pilots fly fewer hours and have less flexible work rules. Its cost per available seat mile, a common industry metric that includes labor and operating costs, is about 10 percent higher than Delta’s.

But labor is only part of the picture. American owns and operates a regional carrier, American Eagle, that flies 50-seat jets that are among the least efficient to operate. It is also the only major airline to perform most of its major maintenance internally. And more than a third of its 600 planes are McDonnell Douglas MD-80s, an aging design that burns more fuel than newer models.

“If oil was still at $50 a barrel, we wouldn’t be having this conversation,” said Mike Boyd, an airline consultant. “Their bet was to hold on to their older MD-80s until Boeing came up with a new airplane. As we know, that didn’t happen.”

The decision to file for bankruptcy was not entirely unexpected. Speculation about a bankruptcy sent the company’s shares down 79 percent this year even before the filing. However, its timing did take many analysts by surprise because they thought the company had enough cash to finance its operations for at least the next 12 months.

Mr. Horton said in an interview that AMR’s board did not want to wait. “This was the time to move from a position of relative strength,” he said. As of Sept. 30, AMR had $24.7 billion in assets and $29.6 billion in debt, according to a filing with the Federal Bankruptcy Court in Manhattan. Creditors include the holders of AMR bonds as well as companies like General Electric that leased aircraft to the airline.

The airline managed to avoid filing for bankruptcy in 2003 after it obtained major concessions from its labor groups, including lower pay for its pilots. But talks for a new contract had been dragging on since 2008 with no resolution. The latest round stalled in recent weeks when the pilots’ union refused to send a proposal to its members for a vote.

“It appears the board of directors ran out of patience after the last discouraging signals from the pilot unions,” said Philip Baggaley, a managing director at Standard Poor’s Ratings Services.

Airlines have used federal bankruptcy rules in the past to force new contracts on their employees, and American may now take a tougher position with its own unions.

“We had been hopeful that bankruptcy could be averted, but we were aware of the possibility,” said Gregg Overman, a spokesman for the Allied Pilots Association, which represents American pilots.

James C. Little, the president of the Transport Workers Union of America, which represents 25,000 employees, including ground workers, struck a more defiant tone. The union reached a series of tentative agreements in recent weeks with the airline and American Eagle.

“This is likely to be a long and ugly process, and our union will fight like hell to make sure that front-line workers don’t pay an unfair price for management’s failings,” he said.

The mergers of Delta and Northwest, and United and Continental, helped those airlines cut capacity, increase fares and return to profitability last year. American, meanwhile, has had just two profitable years in the last decade, while losses from 2001 to 2010 were $11.4 billion. It recorded a $982 million loss through the first nine months of this year and is expected to post another loss in 2012.

In the long run, the airline is counting on a significant overhaul of its fleet to cut long-term costs. In July, it announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing. American’s fleet has an average vintage of 15 years, making it one of the oldest and least fuel-efficient among the six major United States carriers.

The company said it still intended to buy these planes, for which it has already secured $13 billion in financing from the plane makers themselves.

The impact of the bankruptcy is likely to be more immediate for some jet leasing companies. In a letter addressed to lessors, American’s treasurer, Beverly K. Goulet, said the airline could not afford to maintain all of its leased aircraft at their current rates and said it had no choice other than to begin canceling contracts on an unspecified number of planes. American leases roughly 29 percent of its fleet, according to data compiled by Ascend, an aviation consultancy based in London.

Although other airlines have improved their finances by taking a trip through bankruptcy court, some analysts were still skeptical about American’s long-term prospects.

“The industry is chronically oversupplied and AMR has no dominance or significant competitive edge in any particular market — we are not convinced that a reinvented, scaled-down iteration will change that,” said Vicki Bryan, an analyst at Gimme Credit.

Article source: http://feeds.nytimes.com/click.phdo?i=36a3aff91655e51e5d0c196efa1d47b0