Milton vs Carty

[zipped]

A tale of two airline CEOs

JENNIFER WELLS

There are so many things Robert Milton is not.

For example, Robert Milton is not Don Carty.

This is a sad shame, because Don Carty is just the kind of fellow you want running a troubled airline. Read, if you will, a small passage from a letter Mr. Carty posted on the American Airlines Web site. American is the largest airline in the world. Carty is the airline's CEO, and if you think Robert Milton has had airline woes, well, Don Carty has faced twice the task.

Carty's letter is addressed to the airline's employees, and it goes, in part, like this: "To demonstrate my commitment to you and this airline, I promised to lead the way by making significant changes to my compensation package .... Today (the letter was posted Monday), to honor my commitment and in recognition of the sacrifices you are being asked to make, the company is announcing the details of my restructured package that will keep my compensation well below the industry average. Given the times, the magnitude of our restructuring efforts and what is being asked of all of you, this is as it should be."

In a separate release, the company laid out the terms of Carty's new deal. His base salary $585,813 (U.S.) last year gets lopped by a third. There will be no bonus, his third consecutive bonus-free year. And he has asked the airline's board to consider reduced compensation for senior executives.

Keeping in mind the size and history of American Airlines closing in on 80 years of aviation; Charles Lindbergh flew for a predecessor company; the first airline to offer a frequent-flier program; the first to launch coast-to-coast service let's contrast Carty's share-the-pain philosophy with that of his northern peer, Robert Milton.

This won't take much time, as thus far Milton hasn't offered to give his own compensation a haircut.

What kind of message does this send?

Milton was churlish on this point back in February, when he announced that Air Canada needed to find $650 million (Canadian) in cost savings, which he intended to capture by reducing the "wage cost pile."

At the time, he reminded reporters that he had, once, taken a pay cut. This is true. In September, 2001, he took a 10 per cent cut to what his base salary would have been that year. Stated another way, Milton received less of the annual increase that had initially been approved by the board. Thus, Milton's base salary of $1 million in 2000 grew to $1.1 million in 2001 instead of the $1.2 million that was initially his due.

I could never figure out how Milton became a million-dollar CEO. His salary went from $540,318 the year he moved into the CEO's office, in 1999, to the million-dollar mark the next year.

His predecessor as CEO, Lamar Durrett, topped out at $606,250 in base salary.

The year he made a million, Milton also received a $600,000 bonus, deemed a "one-time exceptional incentive award" in recognition of the "merger and integration with Canadian." Wasn't that reward enough? Why did his salary virtually double? And who now assesses the integration of the two as anything approximating success?

No doubt about it, Milton's had a tough job: The meltdown in business travel after the tech boom went bust. Sept. 11. Who can forget his televised interview with Peter Mansbridge in which he insisted that his airline should receive compensation in line with whatever the American airlines might get? Iraq. And now SARS.

Don Carty's had it worse. How on earth does a leader get his staff back into the air when one of his planes has been flown into the World Trade Center and another into the Pentagon? That was Don Carty's Sept. 11.

Carty has not been characterized as a charismatic sort of CEO. Past profiles have suggested this may be due to the fact he's Canadian, or "classically Canadian," as one writer phrased it. "Though he has an affable, Jimmy Stewart manner even a bit of a Jimmy Stewart look," said the writer, "the Montreal native is more reserved."

It's hard to imagine how one could be more reserved than Jimmy Stewart without actually being dead. Carty, however, has proved he has punch enough to keep American Airlines out of bankruptcy protection, a feat achieved by a whisker this week after the company renegotiated 10 labour contracts to achieve $1.8 billion (U.S.) in restructured labour costs.

Like Milton, Carty has been hobbled by outsized labour costs (48.5 per cent of revenues), outsized debt and even an ill-considered acquisition (TWA).

There's plenty of equally bad news going around in the airline industry, at least among the major carriers, which have all awoken to the old news that profitability is a rare thing for big airlines and it's best never to count on sunny skies. For every year a major airline makes money it can pretty much count on a money-losing year to go with it.

Everyone knows now that the industry is experiencing cataclysmic change. Nothing will be as it once was. There will very likely be more bankruptcies ahead. Many analysts are predicting liquidation for one of the big six American carriers. Some are now even questioning the viability of the so-called "hub-and-spoke" system.

Don Carty came within minutes of having to make a bankruptcy protection filing Monday. He may have to yet. Those labour concessions still have to be ratified. And there are so many unknowns, not the least of which is the war in Iraq and its impact on travel. American Airlines, said the CEO, will continue its "resolute march toward survival."

The imagery was apt, given the times. The message that he will personally make significant financial concessions was precisely on point.

Robert Milton has done nothing of the kind yet. And he appears to have scant emotional capital left at the airline. If he's waiting for unions to swallow a pay cut on the scale of 22 per cent, he should be prepared to stick his head up for a similar trim. If he's not, he had better be prepared to explain to the unions, and the shareholders, and perhaps even the seemingly dozy Air Canada board, how he can possibly remain the right guy for the job.

Additional articles by Jennifer Wells

[Tiho]

I wonder when they'll be publishing the article comparing the reactions (actions - or lack there of) of the governments' of Canada and the USA to the crisis facing our industry?

AC has 60 days to come up with a viable business plan. That plan will involve employees, management, investors and creditors all taking a hit. 60 days. When asked what the government is willing to do in terms of easing some of the financial charges it imposes on the airline industry, our transport guru sys that they are analyzing the situation and hope to have a response within a MONTH or TWO. Anybody wanna bet that it turns out to be two...or three or whatever time + a day or two after the business plan, with all its concessions revealed, is released. That's when Davey will step up to the microphone and announce something like - We were ready, willing and able to help out, but it appears that the parties concerned were able to resolve the issue without the need of our assistance. - or some such BS.

In the meantime, for the next 60 days or so, expect to see a lot more of this type of media distraction so that Davey can keep on playing with his train set. In a couple of months or so, he'll grab a mike and tell us all what he was "willing" to do.

Would we be better off if Milton cuts his salary in half or if Davey cuts the airport rents and fuel excise tax in half. The first represents about $500,000 (if you believe the Star's figures), and the second about $200,000,000.

Please don't be fooled by the smokescreen.

[Tiho]

I wonder when they'll be publishing the article comparing the reactions (actions - or lack there of) of the governments' of Canada and the USA to the crisis facing our industry?

AC has 60 days to come up with a viable business plan. That plan will involve employees, management, investors and creditors all taking a hit. 60 days. When asked what the government is willing to do in terms of easing some of the financial charges it imposes on the airline industry, our transport guru sys that they are analyzing the situation and hope to have a response within a MONTH or TWO. Anybody wanna bet that it turns out to be two...or three or whatever time + a day or two after the business plan, with all its concessions revealed, is released. That's when Davey will step up to the microphone and announce something like - We were ready, willing and able to help out, but it appears that the parties concerned were able to resolve the issue without the need of our assistance. - or some such BS.

In the meantime, for the next 60 days or so, expect to see a lot more of this type of media distraction so that Davey can keep on playing with his train set. In a couple of months or so, he'll grab a mike and tell us all what he was "willing" to do.

Would we be better off if Milton cuts his salary in half or if Davey cuts the airport rents and fuel excise tax in half. The first represents about $500,000 (if you believe the Star's figures), and the second about $200,000,000.

Please don't be fooled by the smokescreen.

[Guest Airmail]

It would be nice that before Jennifer Wells writes articles she did some reasearch.

Facts:

- Carty did NOT take a pay cut until all the unions agreed to US$1.3 billion in annual labor cost reductions.

- Milton has already said (at least according to one union bulletin) that he would take a 30% pay reduction as soon as the unions also agreed to reductions. In addition, Milton also already took a pay reduction of 10% last year in addition to a pay freeze starting the year before. Did he get any credit for the pay cut? No. Did the union employees take pay cuts too? No.

- For sure Milton's salary increased when he was named CEO -- it's disingenuous of Wells to trumpter the CUPE line that Milton's salary "doubled" in one year without saying that it was the year he went from COO to CEO (ie. from one of two Senior Executive VPs to President and COO to CEO). Do people not expect to see a raise when someone gets the top job?

- It's nice to see the revisionist history that takes place in the Canadian media when they try to make comparisons between AC and some other carrier (it's always, the grass is greener elsewhere). But don't forget what the APA were saying about Carty just last week! (ie. "negotiating in bad faith", etc etc).

[zipped]

It may be that she just doesn't like Milton like many of his employees.