American Air boss speaks softly, carries stick

Tue Apr 17, 2012 3:23am IST

Tom Horton briefs reporters on the state of AMR, which is the parent company of American Airlines, at the Reuters Aerospace and Defense Summit, in Washington December 3, 2007. REUTERS/Mike Theiler/Files

Tom Horton briefs reporters on the state of AMR, which is the parent company of American Airlines, at the Reuters Aerospace and Defense Summit, in Washington December 3, 2007.

Credit: Reuters/Mike Theiler/Files

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REUTERS - AMR Corp (AAMRQ.PK) Chief Executive Tom Horton may have a soft-spoken demeanor, but people who know him say he has a backbone of steel and will not flinch if he has to cut thousands of jobs to save the bankrupt American Airlines.

AMR last month asked the U.S. Bankruptcy Court in Manhattan for permission to void labor contracts with unions that do not agree to the concessions that the world's third-largest airline is demanding. A hearing on the issue is scheduled to begin on April 23.

The right to end labor contracts is perhaps the sharpest knife a company can wield in bankruptcy, and people who have worked with Horton say he is prepared to use it.

"If people want to test his resolve, they'll find that he's got a steel backbone," said former AT&T CEO David Dorman, who recruited Horton to be chief financial officer of the telecom company in 2002.

In 2004, AT&T announced plans to trim its work force by 20 percent, or about 12,300 jobs. Dorman recalled that Horton did not hesitate when AT&T's restructuring plan called for a 25 percent cut in management staff, a move that met pushback from managers close to Horton.

"Look, this is not my first rodeo," Horton said in a March 16 interview at his sixth-floor corner office at AMR's headquarters in Fort Worth, Texas.

"I've done a fair bit of M&A (mergers and acquisitions) in a pretty public way in the telecom industry and here at this company in the past. I have done some restructuring work."

The 50-year-old Horton became CEO of AMR as it filed for bankruptcy in November 2011, citing the need to cut labor costs to match those of rival airlines. Horton replaced his friend Gerard Arpey who had resisted a Chapter 11 filing, preferring negotiated labor deals to court-imposed contracts.

Arpey had won steep voluntary concessions from the unions in 2003 but the cuts were not enough. A MR lost $10 billion over the past decade and has posted net losses for the last four years.

The carrier now aims to shed 13,000 jobs from its 74,000 work force to trim labor costs by $1.25 billion. T he cost cuts, opposed by the unions, also could mean changes to work rules as well as pay and benefit reductions.

LESSONS LEARNED

Born in Virginia but raised in Texas where his father worked for NASA, Horton holds a degree in accounting from Baylor University in Waco, Texas, and a master of business administration degree from Southern Methodist University in Dallas.

He began his career with AMR in 1985 and held various financial positions. He was appointed chief financial officer in 2000, but left two years later to join AT&T as CFO. Horton later helped lead the 2005 sale of AT&T Inc to SBC Communications, which led to more layoffs.

Horton returned to AMR in 2006 as CFO with expanded responsibilities for network, fleet and alliances. He became AMR's president in 2010.

Horton told Reuters that he is focused on stabilizing AMR. He said abrogating deals is a last resort and that he prefers negotiated labor contracts.

His office, with a view of a nearby building that houses labor talks, is a modest room, decorated with aviation memorabilia, including an autographed photograph of astronaut John Glenn that Horton received when he was 5 years old. Glenn wrote: "Best regards to my friend Tommy Horton."

Bob Crandall, AMR's former CEO, said Horton's skills in finance and restructuring will serve him well as he navigates the maze ahead. In many ways, running an airline and restructuring one are a matter of arithmetic, he said.

"I was a former finance guy. That's where I started," Crandall said. "In the end, the airline business is about lots and lots of numbers."

A NEW CHALLENGE

When Horton returned to AMR at the request of Arpey, he shared the prevailing view at the company that bankruptcy was an "un-American" solution to its woes.

But after years of fruitless talks with unions on concessions, American lagged profitable rivals like United Airlines and Delta Air Lines Inc. Those carriers restructured in Chapter 11 and later took merger partners. They overtook American in size, knocking it from No. 1 to No. 3.

By late November, the writing was on the wall. AMR's board of directors decided on Chapter 11. The company was able to show sufficient hardship to declare bankruptcy despite having $4 billion in cash - enough to operate without outside financing.

"Circumstances change," Horton said. "I think it's fair to say that our company fought that battle as long as it possibly could, did everything possible to avoid going down this path."

Horton shrugged off merger interest from US Airways Group Inc, saying AMR plans to exit Chapter 11 as a stand-alone company. He dismissed talk of meetings between US Airways and members of AMR's creditors committee, saying objections to a business plan are normal. "There's a lot of due diligence that is done on the plan," he said.

Gordon Bethune, the former Continental CEO credited with turning around the troubled airline in the 1990s, said Horton has a big challenge to preserve the airline's independence.

"He has a 50/50 chance," Bethune said.

'RUTHLESS' DEMANDS

Horton's supporters like Larry Kellner, a former CEO of Continental Airlines, regard him as smart and analytical. "He's a very strong leader," Kellner said.

His critics frame him as a detached executive who keeps his customers and employees at arm's length.

"He doesn't care about his customers and he doesn't listen to his employees," Laura Glading, president of the Association of Professional Flight Attendants, said in an emailed statement. The union has called AMR's demands "ruthless."

The union representing American Airlines' pilots declined to comment on Horton. A spokesman for the Transport Workers Union, which represents seven work groups at the airline, also declined to comment, saying union leaders do not know the former finance executive well enough to assess his leadership.

Robert Mann, an airline consultant and former AMR executive, ended his career at AMR in 1985, briefly crossing paths with Horton, who was just starting out. He said that while Arpey showed strong resistance to bankruptcy and the toll it takes on workers, Horton embraced the challenge.

"It almost appears that when Arpey refused to carry the pointed stick and poke people in the eye with it, Horton was more than willing to," Mann said.

(Reporting By Kyle Peterson in Chicago; Editing by Patricia Kranz and Matthew Lewis)

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