The business stories that matter, by Fortune's Colin Barr
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April 11, 2008, 7:10 am

AMR still grounded

Can it get any worse for AMR’s (AMR) American Airlines? The Dallas-based carrier canceled 40% of its schedule Thursday and 25% of its schedule Friday after failing to meet Federal Aviation Administration airworthiness directives. To his credit, CEO Gerard Arpey took “full, personal responsibility for our being in this situation,” telling reporters at a press briefing Thursday that “our mechanics are absolutely not to blame.” The carrier hopes to have its entire fleet back in business Sunday.

In the meantime, lost flights are hitting AMR and its shareholders in the pocketbook. Arpey said Thursday that the cancellations’ cost will run “in the tens of millions of dollars,” the Dallas Morning News reports. As it happens, Arpey’s comment describes his pay as well, according to last year’s AMR proxy filing. Arpey made $10.2 million in cash and stock for 2006, the document reports - a year in which he certainly earned his pay, with the airline’s stock rising 36%.

But since then, AMR - and the rest of the industry - has been losing altitude fast. AMR stock lost 53% of its value last year, amid increasing competitive pressure and soaring energy costs, and has dropped an additional 30% so far in 2008, in part because of the maintenance mess. The past week has seen smaller rivals such as Aloha, ATA and Frontier (FRNT) stop flying or file for bankruptcy protection. When AMR makes its 2007 proxy filings in the next week or two, it will be interesting to see how the increasingly bumpy ride affects Arpey’s paycheck.

that’s the most interesting thing anyone has said about this mess yet. where’s the $1,300 figure come from?

Posted By Colin Barr : April 11, 2008 3:48 pm

In your post you omitted 3 pertinent facts about this FAA directive and AA’s delayed action: This AD was effective 9/5/06 and airlines had 18 months, or until 3/5/08, to comply. The correction was to prevent the potential for hydraulic failure or fire or explosion or - in the extreme - loss of aircraft. The cost to AA, given 299 MD80s @ $1300/per would have been under $400K.

Today, this $400K fix will cost AA and shareholders “tens of millions” according to ten-million dollar CEO, Gerard Arpey. By any measure, this is bad math.

Posted By Sion, Dallas TX : April 11, 2008 2:44 pm

yes, these are fair points. it’s probably not much to arpey’s credit that he took responsibility for the problems, it being his job and all to prevent them. well said, sion and machleidt.

Posted By Colin Barr : April 11, 2008 2:39 pm

“To his credit, CEO Gerard Arpey took “full, personal responsibility for our being in this situation”

Honestly? How can you credit Arpey for a week’s worth of passenger inconvenience, air traffic disruption and financial losses? Hes’tone deaf to the expectations of his customers and shareholders. He should be fired, not admired.

Posted By Sion, Dallas TX : April 11, 2008 1:28 pm

I find it hilarious when one of those execs takes “full personal responsibility”. What does it amount to - do they give back their stock option, resign? Taking responsibility means nothing in the absence of any real consequences (as in “losing your job, license, getting disbarred etc” - whatever happens to normal employees if they screw it up). Its a complete farce and an insult to those who have to suffer the consequences of incompetence (or worse).

Posted By Machleidt, Madison, WI : April 11, 2008 10:30 am
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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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