American Airlines CEO Resigns

American Airlines CEO Donald Carty
The embattled chairman and chief executive of American Airlines, Donald J. Carty, resigned Thursday and labor leaders tentatively agreed to a sweetened package of cost cuts in a desperate effort to keep the company out of bankruptcy.

Carty's resignation came after flight attendants reportedly balked at the new deal, which improves potential bonuses for employees and shortens the length of concessions by one year to five years. The deal would also provide incentives for "additional cash compensation," said John Darrah, president of the pilots' union.

The boards of the pilots and transport workers unions approved the new concessions package, but flight attendants also would have to OK it, as would the company's board of directors.

A $1.8 billion cost-cutting package that was agreed upon last week unraveled after employees learned of previously undisclosed executive perks, including bankruptcy-proof pensions and huge bonuses.

Carty apologized for not telling workers sooner about the executive benefits, and the company eventually canceled bonuses for the top six executives but left in place the $41 million in pension funding for 45 executives.

Gerard Arpey, the company's president, will replace Carty as CEO, while board member Edward A. Brennan will take over as chairman.

Arpey, who will remain as president, said he would work to "restore the confidence of all employees in their great company."

It was not clear, however, whether the combination of Carty's resignation and the sweetened labor deal would be enough to prevent a bankruptcy filing by the world's largest carrier. AMR board members, who met all day Thursday, declined to comment, referring questions to the company.

The Dallas Morning News reported late Thursday that the flight attendants' union had rejected the revised concessions, and Carty resigned shortly afterward. The paper cited a board member for the flight attendants union, which was not immediately available for comment.

Adding to the pressure on Carty was Wednesday's first-quarter financial report from AMR, which posted a worse-than-expected $1.04 billion loss.

Airlines have been hit hard by a downturn in travel caused by the weak economy, the 2001 terrorist attacks, fear of new terrorism around the Iraq war, and the SARS outbreak. Major carriers like American have also found it difficult to raise prices because of competition from low-fare carriers on many of their routes.

AMR stock rose Thursday, as investors held out hope the airline can restore labor peace and avoid bankruptcy. In trading on the New York Stock Exchange, AMR shares rose 24 cents, 6.3 percent, to $4.04. They fell 16 cents in extended trading.