DENNIS ODA / DODA@STARBULLETIN.COM
John Adams, left, former chief executive of Hawaiian Airlines, stood yesterday with Don Carty, former head of American Airlines. Carty has agreed to become chairman of the new Hawaiian Airlines and an investor, under a proposed reorganization plan.
Carty eyed
for HawaiianThe former head of American Airlines
has agreed to become chairman of
Hawaiian Airlines under one plan
to take the carrier out of bankruptcy
Sporting a light blue sling on his left arm, Don Carty, the former head of American Airlines' parent, grudgingly admits his hockey playing days may be behind him.
The injury, the 57-year-old Carty explains, is a massive tear to his rotator cuff that required recent surgery following an awkward fall to the ice during his 10-year-old's father-and-son hockey game.
Major airline exec
Under a reorganization plan being crafted by former Hawaiian Airlines CEO John Adams and others, Don Carty would be an investor in and chairman of the new Hawaiian Airlines.
looks to HawaiiPast positions: Chairman and chief executive officer of AMR Corp., 1998-2003; American Airlines executive, 1987-1998
Education: Harvard Business School
Board memberships: Dell Inc., Sears Roebuck & Co., Big Brothers Big Sisters of America
Career highlight: Restructured American Airlines following the Sept. 11 terror attacks, cutting thousands of jobs, securing labor concessions, simplifying the aircraft fleet and increasing automation.
"Having been born a Canadian, I assumed I could still play hockey," he said with a wry smile. "I learned much to my chagrin that I probably should have given it up."
While he may have to forgo hockey for awhile, Carty said yesterday that he's not ready to give up on the airline industry.
The former AMR Corp. chairman and chief executive, whose notable career at the world's largest carrier ended with his abrupt resignation last April, has agreed to become nonexecutive chairman of the new Hawaiian Airlines, as well as an investor, under parent company Hawaiian Holdings Inc.'s reorganization plan.
"I'm not coming here to manage this company, unlike what I did at American and what I've done most in my career," Carty said. "I've been looking to invest in unique opportunities."
Bankruptcies have become commonplace in the airline industry, with American itself teetering on the verge of Chapter 11 a year ago. In Hawaiian, though, Carty sees a different type of bankruptcy.
"Most airlines that have gone into bankruptcy are just in the beginning stages of restructuring themselves," said the Dallas resident. "Hawaiian is just the opposite. It's at the very end of restructuring."
Carty would become the managing partner of Hawaiian Holdings' proposed investment group if the company's reorganization plan is accepted. Like Adams, Carty is no stranger to controversy. While Adams is under Security and Exchange Commission scrutiny for a $25 million tender offer conducted in 2002, Carty has been living in the shadow of an executive disclosure misstep that ultimately forced him to resign from AMR.
Eleven months ago, Carty stepped down under union pressure when he failed to tell workers about planned executive bonuses and pension protections on the same day that most employees voted on $1.8 billion in job, pay and benefit cuts.
"The mistake we made is on the timing of the disclosure of that information and explaining it to the employees," Carty said. "It became public almost coincidental with the vote they all took to accept these very substantial changes to their contract. Letting that coincidence happen has to be the responsibility of management. I'm the CEO, so I'm the most responsible party."
Ironically, the decision to offer retention agreements to certain executives had been made a year earlier to stem an exodus of American executives from the financially troubled carrier. But Carty and the board decided not to announce it since public disclosure wasn't required at the time and the airline didn't want investors to know that some of its executives were anxious about the airline's future and were "bailing off the ship."
It all came to a head, however, when AMR delayed the reporting of its annual SEC financial report so that it could include information about a pending union vote. The filing, which contained the executive retention information, ended up coming out on the day of the vote and caught the unions by surprise.
"All of that happened on an afternoon when the unions were either going to accept this or we were going to file for bankruptcy," Carty said. "In anticipation of that, American literally hadn't paid their bills for two weeks. If we didn't file for bankruptcy ourselves, somebody was going to put us in bankruptcy. So we had no time, and when this blew up, I realized very clearly that something had to put it back in the bottle in 24 hours. I had a long meeting with the union ... and I said, 'Look, if what it's going to take is me stepping down, throwing myself on the sword, I'm fully willing to take responsibility.'"
Adams praised Carty for taking the bold step even though it meant the loss of his job.
"I felt that there was a lot of misinformation or lack of information, and I was extremely impressed when Don did what he did," said Adams, who plans to take a more passive role in Hawaiian Airlines. "I thought it showed remarkable leadership and remarkable character. I think that quality will not distract but bring a lot to Hawaiian Airlines, and I think we're going to be fortunate with him here."
Richard Aboulafia, an aviation consultant for the Teal Group in Fairfax, Va., said Carty has a big hurdle to overcome in getting union support.
"He's got deep pockets, but he's not going to inspire a huge amount of union love," Aboulafia said. "There's sort of an ongoing crisis in labor-management relations in the airline industry, and he was no exception to that ongoing problem."
Hawaiian Airlines pilots union Chairman Jim Giddings, who met with Carty yesterday, praised his experience but questioned Carty's relationship with unions.
"Mr. Carty does not have a good recent history when it comes to another important asset for any successful business: positive employee relations," Giddings said. "Many loyal American Airlines employees remember being asked for major pay concessions just before large management bonuses were announced. Mr. Carty needs to understand that Hawaiian's employees have already done their part and Hawaiian is now one of the most successful turnaround stories in the airline industry."
Aboulafia also said that Carty will face a different set of circumstances at Hawaiian than he did at American.
"Running a huge hub-and-spike empire is very different from Hawaiian's challenges, and the things that carry true for both are labor relations -- places where he didn't exactly shine," Aboulafia said. "Running an international hub-and-spike major airline is almost a different skill set."
But airline analyst Ray Neidl, who covers AMR for New York-based Blaylock & Partners LP, said he believes that Carty can overcome what happened at American. "He has a reputation in the business which is still solid, but might be tarnished after American," Neidl said. "I just think that having the Don Carty name attached might bring this particular offer more credence. Unfortunately, he was forced out at the moment of his crowning achievement."
Carty, who said he takes satisfaction in being able to restructure American without filing for bankruptcy, said his long-term relationship with Hawaiian's primary aircraft lessor, Boeing Capital Corp., should help smooth out any differences Boeing has with Adams.
"Relationships are important to credibility and I hope that will be helpful to Boeing," Carty said. "I think it's an important element I bring to the equation. I think my history in the business, my relationship with other airlines, my relationship with other suppliers are all things that allow me as an investor partner to not only bring money to the table but to bring something more than money. I hope I can offer (proposed CEO candidate Mark Dunkerley) and his team added value."
Boeing Capital spokesman Russ Young acknowledged the company has worked well with Carty in the past but said Boeing still believes the plan it co-proposed with turnaround firm Corporate Recovery Group -- including the choice of Bruce Nobles as CEO -- represents Hawaiian's best chance for a successful reorganization.
