MIAMI — Airline management books can almost read like a thriller novel: there are good guys and bad guys, plot twists, emotional rollercoasters filled with hope followed by despair, and key takeaway lessons that provide fodder for everyone to share, from cabin crews to investors to the C-Suite.
For AvGeeks, even though the reader always knows how the story ends, the real delight comes from getting a first-hand narrative into the guts of running the day-to-day operation within an airline.
And, in an industry that has been ravaged by cyclical economic spirals, terrorist attacks, pricing wars and natural disasters, airlines have war stories that are often not fully revealed to the public.
Like any battle wound or honorable medal, sometimes the artifacts from war are hidden from public sight or enclosed in a dusty attic upstairs. For decades, particularly during the tumultuous period chronicled in Twelve Years, airline personnel and their families – from cabin crews to corporate staff to above the wing, below the wing to C-Suite to legal counsels and just about everyone in between – have seen and witnessed the hardships of turning around multi-billion dollar enterprises employing hundreds of thousands of people around the globe.
One of the most legendary “airline comeback” stories were documented by retired Continental Airlines CEO, Gordon Bethune, in his 1998 book, From Worst to First: Behind the Scenes of Continental’s Incredible Turnaround.
Bethune adopted a more topical approach to how prior leadership at Continental had failed the company, and no matter how many turnaround strategies would be presented to them by the Management Consulting firm de jour, what Continental really needed was an inspirational leader who would influence its employees to execute their tasks, benchmark, re-calibrate as necessary, and then share the rewards when they were successful.
Moreover, he instilled a trust-based culture that was modeled around working together – something that can be applied to any large organization that is struggling with high-performance.
As such, Bethune’s novel was far more oriented around leadership and soft skills; even though it predated the economic malaise that would eventually beset the industry after 9/11 some years later, its principles are still highly relevant to today’s corporate world and indeed is a must-read for both intelligent leaders and airline geeks alike.
Lately, however, comeback stories in the airline industry can be written based on events that have happened in the past decade alone. One of the more recent books, “Glory Lost and Found: How Delta Climbed from Despair to Dominance in the Post-9/11 Era,” was authored by Seth Kaplan and Jay Shabat, also the two airline gurus who publish Airline Weekly newsletter.
The story was told through a more objective lens as neither has been Delta employees at any point. The book provides more of a “birds-eye” view into the history of Delta Air Lines, its years leading up to 9/11 (which were troubled) and the brief honeymoon period it experienced post-9/11 while virtually every other carrier was losing millions of dollars per day. But the tides changed when oil prices soared, and Delta eventually landed in Chapter 11 in 2005.
In 2008, however, Delta completed its merger with Northwest, itself simultaneously emerging from bankruptcy reorganization. In so doing, the Atlanta-based carrier set off a wave of transactions that would ultimately lead to the consolidation of America’s airline industry to just four nationwide “mega-carriers” and, as such, eventually attract increasing scrutiny from the Department of Justice.
The Delta-Northwest merger was atypically smooth, avoiding common headaches such as contentious labor negotiations and complex, fraught IT systems integration.
By comparison, the merger of American Airlines and US Airways was far more painful. In fact, while Delta’s merger with Northwest was starting to pay its dividends in the early 2010s, American’s problems as a standalone carrier, both financial and perhaps more pressingly, cultural, were about to land the airline in Chapter 11.
This constitutes the primary subject of “Twelve Years of Turbulence: The Inside Story of American Airlines’ Battle for Survival,” written by Gary Kennedy with Terry Maxon.
It’s worth pointing out the subtle difference in the title of the book compared to the other two: it’s not just the American Airlines battle for survival, but the inside version.
Readers are warned: this is not some cuddly book with inspirational, “go-out-and-get ‘em” speeches on how to lead a company away from distress like in From Worst to First, nor is it a book hard-lined with granular, highly academic material that talks about Available Seat Miles and the economic impact of SimpliFares like in Glory Lost and Found.
Instead, this is a pretty gut-wrenching, somber, day-by-day, blow-by-blow account, narrated through the eyes of a seasoned and respect American Airlines executive, of how much blood, sweat, and tears went into crafting the carriers’ Chapter 11 exit plan and merger with US Airways.
Readers may recall that American Airlines did not enter Chapter 11 with the intention of merging with another airline. In fact, American had filed for Chapter 11 bankruptcy on November 29, 2011, after narrowly avoiding a trip to bankruptcy in April 2003 following successful wage concessions from its labor groups. As Kennedy and Maxon vividly detail, that was really when the airline’s post-9/11 troubles started.
But first, let’s introduce the narrator, Gary Kennedy. He was the Senior Vice President, Chief Compliance Officer and General Counsel for American Airlines, who was employed by the company for almost three full decades from June 1984 through January 2014.
After he graduated from University of Utah Law School in 1980, residing in Salt Lake City, a friend rang him up in March of 1984 and floated the idea of having Kennedy joined the legal team at American Airlines, enticing him with a loaded statement about the airline business: “it’s a sexy industry.”
And so Kennedy became an attorney at American during the Glory Years following de-regulation. He was introduced into the world of commercial aviation at American Airlines, and its parent AMR Corp, at the zenith of its prestige and influence, buzzing with nonstop energy and growth under the leadership of its brash, charismatic and innovative Chief Executive, Bob Crandall.
At the time, in the immediate aftermath of U.S. domestic deregulation when competitors were struggling and failing, American was differentiating itself as one of the most technologically advanced, and profitable, airlines in the world, leveraging its Sabre computer reservation system, sophisticated revenue management systems and the world’s first frequent flyer program, AAdvantage, to dominate rivals.
From the moment he stepped foot inside American’s Fort Worth, Texas headquarters, just south of D/FW Airport, Kennedy was in the left seat. He remarked how the Executive Offices were located adjacent to Legal Department, and how the legendary Bob Crandall’s workaholic tendencies permeated through the entire floor. Kennedy lived in both awe and fear of Crandall, a sentiment all too common among American employees at HQ back in the day.
His work-life balance those first fifteen years could be described as nothing but, “fast-and-furious.” Kennedy traveled the world, negotiating contracts, suing Pan Am, leading the acquisition of TWA’s route system, and overseeing multi-billion dollar construction projects in New York, Dallas/Ft. Worth, Miami, and Los Angeles.
He felt like a rock star, despite the crazy workaholic schedule. Despite simmering tensions from the flight attendant and pilot strikes in the 1990’s, internal sentiment generally remained upbeat.
The year 1997 was American’s single most profitable year ever to that point. Nevertheless, the adventure and grueling work hours from the first half of Kennedy’s career trajectory at American would take a sobering turn after Crandall retired in May 1998.
Upon his retirement, Crandall was replaced with his longtime protégé, Donald Carty, and when American’s longtime general counsel, Anne McNamara, elected to retire in late 2002, Carty asked Kennedy assume that post.
Being appointed as General Counsel of the world’s largest airline in the spring of 2003 may have been Kennedy’s longtime ambition, but in retrospect, it was also arguably something that he may have wanted to avoid, given what was to come for American.
The company was losing several million dollars per day, attempting to rationalize its network and workforce while still digesting the acquisition of TWA’s assets out of liquidation, all while still mired in the fallout from 9/11.
By this point, American’s already contentious labor relations had become toxic. The pivotal turning point was that April 2003 near-brush with bankruptcy, when American’s organized labor groups agreed to $2 billion in wage and benefit concessions to stave off reorganization, only to learn days later in a regulatory filing that top AMR executives would have their pensions protected in a specialized trust in case of an eventual Chapter 11 filing.
This led to Don Carty’s ouster, and Kennedy would soon learn that bidding farewell to the CEO who appointed him General Counsel would be just one of the numerous chaotic surprises that would take place over the next decade.
This is where Twelve Years of Turbulence truly shines: many of us became so numb to the negative headlines that involved American Airlines through the late 2000’s that it’s pretty much unimaginable to think how it could ever survive without a Chapter 11 restructuring.
And the details became pretty gory. The fallout from the executive pensions was just the tip of the proverbial iceberg for Kennedy. There would eventually be the multifaceted Wright Amendment saga involving hometown competitor Southwest Airlines, and the cities of Dallas and Fort Worth, that would be a drain on the company’s resources for several years.
Then, there was the 2004 release of the National Transportation Safety Board (NTSB) report on the November 2001 crash of American 587 in Queens, New York, which resulted in 374 wrongful death lawsuits against American and Airbus.
There were a few bright years in 2006 and 2007, but by 2008, everything was back in the red. By then, four of American’s six largest competitors had filed for bankruptcy (including future merger partner US Airways, twice), and the merger game was already afoot.
As such, competitors were realizing wage, benefit and work rule concessions from their labor groups far more substantial than those achieved consensually with AMR’s unions in 2003, and leveraging the scale of more extensive, broader networks to steal valuable corporate share and generate premium revenue.
That year brought negotiations with the labor unions to restore many of those 2003 concessions, all at the same time as a massive spike in fuel costs and a Global Economic Crisis, and the emergence and proliferation of ultra-low-cost competitors such as Spirit Airlines.
Kennedy outlines all of the creative levers that Finance would use to try and keep cash flowing. Examples are divulged that will shock readers, such American “pre-purchasing” AAdvantage miles from its credit card partner Citi, and examining every “stick” of furniture in the building to see what could be sold (reminiscent of the expression, “burning the furniture to keep the house warm.”)
And, only further complicating American’s challenges was the chronic under-investment in its capital base. At a time when fuel prices surged, American was stuck with a glut of MD-80s and 767s, which, once cutting-edge when Kennedy joined the company in 1984, by the late 2000s were fuel guzzlers with an uncompetitive product. American had neither the cash nor credit to replace hundreds of these aging aircraft.
This led back to the labor concessions. Without the ability to reach agreements with its groups, American could not order new planes, grow its network, or improve its in-flight products.
These financial and accounting gymnastics, while “successful,” only prolonged the underlying problems, and it becomes painfully obvious to the readers that AMR’s former leadership tried to do everything possible to avoid Chapter 11 beyond reasonable measures.
Everything just kept stalling, until it could stall no more
After American filed on November 29, 2011 – a day that Kennedy describes as “low-key” in its execution – the next two years became the “two-year odyssey” for American’s general counsel. Days and nights were a continuous blur of discussions, calls, negotiations, and firefighting that would only present new challenges the following day.
What is fascinating is that the second half of the book is entirely focused on the various aspects of the Chapter 11 filing and the largest pain points and success factors that paved the way to the eventual emergence two years later.
Kennedy deftly recounts the untold stories of what really went on in the boardrooms and courtrooms as the months wore on. Particularly poignant are the reflections on the leadership transition from Gerard Arpey to Tom Horton at the time of American’s Chapter 11 filing.
Arpey, who had replaced Don Carty in April 2003, had for eight years steadfastly opposed bankruptcy on not only financial but also moral, grounds. Kennedy pays an enormous testament to Arpey’s leadership style and the things we might not have known about American’s former CEO before he stepped down in November 2011.
We also learned a great deal about how it was to work for Tom Horton, who succeeded Gerard Arpey, as well as the US Airways leadership team following that carrier’s pursuit of a combination with American.
He talks about the professional nature of the US Airways folks, along with the wealth of intellectual and human capital that Doug Parker and Scott Kirby brought to the table from Tempe.
But, even more earnestly, we learned about what goes on in bankruptcy court through the eyes of legal counsel at a major airline, including the DOJ lawsuit that attempted to block the American- US Airways merger. Every decision required careful planning, reflection, deliberation, and some re-visitation.
Nothing could be taken for granted, and anything could change on a minute’s notice. There were times when the situation appeared bleak, and internal trust between legal advisory teams (external to the airlines) was fractured.
It was a political stress ball that required the sharpest negotiators, lobbyists, and consultants to push the merger plans across the finish line. Kennedy does not hold back on the details, and we learn about everything that led up to the successful closing day on December 9, 2013.
But it was a bittersweet ending for Kennedy, for even though he was offered the opportunity to stay on at the company by Doug Parker, that would have meant losing the direct reporting relationship to the CEO and Board that he so valued. Understandably viewing this as somewhat of a demotion, he opted to depart American after over 29 years.
In the epilogue, Kennedy acknowledges that upon retiring from American, he struggled for years over whether to write this book, and it is understandable why. The details themselves are painful to relive, however favorable the outcome may be.
The book serves as a reminder of the toils and sacrifices made by hundreds of thousands of employees, and their families, at American and other airlines during those twelve years from 2001 to 2013, and also illustrates how these painful years eventually paved the way for the successful, profitable and stable industry of today.
But it is a story that must be told. Few of American Airlines senior-most executives have remained at the new American, and even fewer have stuck around through the previous four leaders that have held the CEO position at the company since deregulation.
Kennedy speaks of all of them, along with the other leaders at American during that difficult period, with fondness and respect.
Furthermore, we must credit former Dallas Morning News columnist Terry Maxon for his contributions to the book, for he was one of the few reporters who had learned of the Chapter 11 filing ahead of time and ran a front-page story that chilly morning in Dallas, TX.
As a Dallas-site, I was among the many who were sad to see Terry retire from covering the Aviation Beat at the Morning News in September 2015. Maxon, to put it simply, had “seen it all,” and I can’t think of a better Texas-based reporter to provide facts, dates, and insights from those 12 turbulent years to supplement Kennedy’s story.
Above all, Twelve Years of Turbulence underscores that the industry, albeit fascinating and “sexy,” is also full of drama, noise, and constant excitement. Pick-up a copy to read the latest aviation thriller, for you’ll not want to miss out on the first one written about the world’s largest airline.