In the annals of North Texas corporate general counsel, a handful of names demand immediate respect and admiration: Charles Matthews of Exxon Mobil, Gil Friedlander of EDS and Wayne Watts of AT&T
On that shortlist is former American Airlines General Counsel Gary Kennedy, whose accomplishments are unparalleled.
For three decades, Kennedy was at the center of extraordinary growth, extreme tumult and radical change at one of the world’s largest commercial airlines, including a dozen years as its chief legal officer.
Kennedy was there in 1989 when American purchased TWA. He oversaw dramatic $1 billion expansions at airport terminals at JFK, Miami and Los Angeles. He faced constant negotiating clashes with labor unions, but also had to engineer the removal of the very chief executive officer who hired him.
Internally, he implemented a groundbreaking mandatory pro bono program for the company’s 40 in-house counsel. He instituted an aggressive diversity effort that focused on his own team and those of his outside law firms.
He navigated the airlines through the tidal wave of litigation set in motion after the Sept. 11 terrorism attacks that involved two American jumbo jets – litigation that threatened the very existence of the airline. He negotiated and signed an historic agreement that settled a several-decades-long dispute with Southwest Airlines regarding Dallas Love Field.
Most of all, Kennedy will be remembered as the lead lawyer who guided American Airlines through one of the largest, most complex and financially successful bankruptcies in U.S. history – a restructuring that resulted in every creditor being paid 100 cents on each dollar they were owed and ended with an industry-shifting merger with competitor US Airways.
“I’m not going to lie, there were some incredibly stressful and intense times at American,” says Kennedy, who is now on the board of PIMCO Funds and the Marconi Group. “Every day presented new challenges. Every day, we were dealing with some of the most important issues facing the airline industry.”
Kennedy points out that the airline was losing billions of dollars a year when he was promoted to general counsel in January 2003. Financial stress certainly wasn’t the only trouble for American.
“A host of frightening risks were spelled out in our SEC filings and read like a Stephen King novel — future terrorist attacks; overseas conflicts and war; political instability in foreign countries; infectious diseases like avian bird flu, SARS, H1N1, and Ebola; earthquakes and volcanic eruptions; and fuel shortages,” Kennedy wrote in his 2018 book Twelve Years of Turbulence. “We often joked that the only thing missing from the list was an infestation of locusts.”
Citing extraordinary dedication to the legal profession and amazing success as the leader of one of the largest in-house legal departments in North Texas, the Association of Corporate Counsel’s DFW Chapter and The Texas Lawbook are pleased to present the 2019 Outstanding Corporate Counsel Lifetime Achievement Award to Gary Kennedy.
Crisis after crisis
“Gary was the general counsel of American at a time when airlines were experiencing tremendous transition and challenges,” says Paul Yetter, a partner at Yetter Coleman in Houston. “Costs were going through the roof. There was 9/11 and the Great Recession. Gary faced crisis after crisis, but he always seemed to rise above the problems and stayed focus on the issues and goals that were important.”
Those who worked with Kennedy agree.
“Gary navigated some hugely difficult matters,” says Alix Partners General Counsel Kathryn Koorenny, who served as an assistant GC at American under Kennedy. “Gary cared deeply about being a good leader. He listened to everyone – not just senior leaders. He insisted on workplace congeniality and collaboration.”
Koorenny and others say that Kennedy made it clear that he wanted the American legal department to be a shining light to the legal profession.
“I have always been deeply troubled by disparate opportunity afforded to people in this society, both at a professional level and in almost every other way,” Kennedy says. “The legal profession is not a level playing field. Enhancing and encouraging diversity is one way to begin to level the field of play.
“I thought it was important for American to give back to those with legal needs who could not afford a lawyer,” he says. “We decided it would be an integral part of being an American Airlines lawyer for us to do pro bono, including me. It was a hallmark of the American legal department.”
While Kennedy says he has no interest in being a general counsel again, he says there is nothing as fascinating as being a lawyer in the airline industry.
‘It’s like magic’
“Ever since the Wright brothers took the first flight at Kitty Hawk, people have been fascinated by air travel,” he says. “The miracle of flight carries with it a certain allure, one that captivates people like no other industry. Think about it. We take hundreds of people and pack them into a long metal or composite tube, hurtle down a runway, then ascend to an altitude 6 miles above the surface of the earth at speeds exceeding 500 miles an hour, all while people enjoy a hot meal, a movie or surf the internet. And it happens safely tens of thousands of times a day, 365 days a year.
“It’s like magic.”
Born on Long Island, Kennedy and his parents moved to Utah when he was five because his father, who was a mechanical engineer, landed a job in Ogden, which is an hour north of Salt Lake City.
Even though there were no lawyers in the family, Kennedy started thinking about becoming a lawyer as an early teen.
“I decided to become a lawyer at age 13 after I realized that my pitching arm wasn’t good enough for the Major Leagues,” says Kennedy, who attended college and law school at the University of Utah. “I attribute my oral communication skills to my college debate coach. Collegiate debate is a terrific venue for sharpening analytical and oral advocacy skills.”
Kennedy worked on the campaigns of two candidates for governor and had thoughts for a while of being a politician. But the law won out.
Upon getting his law license in 1980, Kennedy worked for a small Utah firm that specialized in business bankruptcies. His hourly billing rate was $80 and his annual salary was $17,000.
“I was much more interested in litigation, but how ironic or foreshadowing is it that I would eventually oversee one of the largest corporate bankruptcies in history,” he says.
In 1983, a classmate from Utah joined the legal department at American Airlines. The friend called Kennedy about another opening on the team.
Must have been First Class
“I remember asking my friend why I would want to leave the mountains of Utah for the flats of Texas,” he says. “But I still remember walking in the front entrance of American’s headquarters and seeing the planes hanging from the ceiling. I was hooked. Maybe it had something to do with the fact that they flew me from Salt Lake to Dallas in first class.”
American had a dozen in-house lawyers in 1984. They handled everything from litigation to labor and employment to M&A transactions. The airline had 40,000 employees and was “growing as rapidly as possible to get as much market share as possible.
“Beginning on the first day that I started at AA, I decided that my goal was to become GC of the airline,” he says. “The aviation business is like a magnet. It pulls you in and doesn’t let go despite the fact that it’s a high-risk business, filled with one crisis after another. But intellectually it is a gold mine.”
Early in his career at American, Kennedy worked with Dallas lawyer Mike McKool in a lawsuit against Pan Am for allegedly breaching a technology sharing agreement.
“Gary faced some extraordinary challenges during his years at American, but he never lost focus on his core principle of doing what was right,” says Mike McKool, who worked on several litigation matters with Kennedy. “It is obvious to anyone who has worked with or for Gary that he is incredibly smart, wise beyond his years when it comes to decision-making and an individual of great character.”
In 1989, Kennedy was assigned to work on American’s acquisition of TWA’s European routes for $445 million.
“For two to three weeks, we worked nearly around the clock to get the deal done,” he says.
In 1991, American CEO Robert Crandall asked Kennedy to run the real estate and construction business units.
“I could hardly operate an electric drill, but I traded my lawyer hat for a hard hat and blueprints,” he says. “Crandall believed that if you are smart, you could do other parts of the business, too.”
During his decade heading the real estate unit, Kennedy negotiated leases at dozens of airports around the world and led billion-dollar construction and redevelopment projects.
At the end of 2002, American’s longtime general counsel, Ann McNamara, retired. Then-CEO Don Carty asked Kennedy if he was still interested in being the GC.
‘What could possibly go wrong.’
“I had been telling everyone who would listen for many years that being GC was my dream job,” Kennedy says. “But I hadn’t practiced law in over 10 years and the company was basically insolvent. American was hemorrhaging billions of dollars a year and would soon run out of cash. I thought, ‘What could possibly go wrong.’
“Nevertheless, I accepted, no questions asked,” he says. “My main role was to deal with the aftermath of the 9/11 tragedy. As expected, the succeeding years turned out to be the most challenging in the company’s history.”
Carty told Kennedy that his first task was to start preparing the company to file bankruptcy. The airline was in the midst of heated contract negotiations with its three labor unions. American sought significant compensation reductions in order to lower costs and avoid court-ordered restructuring.
Carty and the American board took a huge risk nominating Kennedy, especially considering that the airline was in a state of financial ruin and that Kennedy had not practiced law in a decade.
“Under today’s governance standards, I doubt a board today would approve such an appointment,” he says. “When Don offered me the job, he asked me if I, as GC, could stand up to him in difficult times and make tough decisions as a GC. It was a question foreshadowing of things to come.”
In April 2003, American union leaders agreed to $1.6 billion in compensation reductions, which allowed the airline to avoid bankruptcy.
The very next day, however, American officials filed documents with the U.S. Securities and Exchange Commission disclosing that executives at the airline were receiving seven-digit retention bonuses. Kennedy and the chief financial officer had argued that the bonuses needed to be disclosed to the unions prior to their votes, but Carty decided against it.
“Within 30 minutes of the SEC disclosure, all hell broke loose,” he says. “We really bungled it. We fumbled on the two-yard line. Within days, the entire airline was in complete turmoil. Rome was burning.”
Only four months after Carty had given Kennedy the job he always wanted, Kennedy stood before the airline’s board of directors informing them that they needed to demand the CEO’s resignation.
“I had an enormous debt of gratitude owed to the Don, and I felt tremendous loyalty to him,” Kennedy says. “Now, there I was seeking his ouster. It was an extremely difficult thing to do.”
The board agreed and Carty resigned the same day.
Unfortunately for Kennedy and American, the airline’s fortunes did not reverse. Fuel prices continued to increase. Competition from low-fare operations kept ticket prices at unnaturally depressed levels. And then the Great Recession of 2008 hit American extra hard.
‘Crisis du jour.’
“The airline moved from one crisis to another, and our financial performance was always challenging,” he says. “Crisis became commonplace. We used to refer to it as the ‘crisis du jour.’ In terms of running a legal department, we were constantly in battle mode and it just became a way of life. Our attorneys performed extraordinary work during these years, and I credit our legal successes directly to the attorneys I worked with day in and day out.”
One of Kennedy’s biggest successes came in 2006. A few months earlier, then-Dallas Mayor Laura Miller visited with Kennedy and other American Airlines executives about modifying the 25-year-old Wright Amendment, a federal law that allowed Southwest Airlines to operate gates at Dallas Love Field under certain restrictions.
For example, Southwest was in the destinations it could service from the airport that was nearly seven miles outside of downtown Dallas. Southwest officials wanted the Wright Amendment repealed. American, which operated at DFW International Airport, wanted the law and the restrictions on Southwest to remain in place.
But Kennedy realized that public sentiment had changed in the two and a half decades since the Wright Amendment was enacted. American needed to make compromises.
“We had Laura Miller kicking us back and forth, and dealing with [Southwest Airlines founder] Herb Kelleher was fascinating,” he says.
Over several months, Kennedy and lawyers for Southwest, Love Field, and the cities of Dallas and Fort Worth renegotiated a long-term agreement that limited the number of gates at Love Field but lifted many other restrictions.
“We took a complicated problem that had been brewing for decades and fashioned a permanent resolution, one that is a win-win for all parties,” Kennedy says. “While I had to endure a smoke-filled conference room with Herb Kelleher, it was well worth the dry cleaning bill.”
Then came November 2011. American was still reeling from the economic turndown in 2008 and 2009. Fuel prices were high. The airline was running huge deficits.
Supporting Kennedy’s recommendation, American filed for bankruptcy in the Southern District of New York on Nov. 29 – the week after Thanksgiving.
The plan was to restructure its contracts with the labor unions and eliminate some of its debt. Right from the start, there were challenges. The federal bankruptcy judge appointed leaders from the labor unions on the creditors committee.
Then came the big shocker: US Airways, which was based in Phoenix, announced it wanted to merge with American as part of American’s corporate restructuring. At first, Kennedy and American rejected the offer. But as talks continued, it became apparent that the deal was the best option for the Dallas-based airline.
Within a few months of announcing the merger, the U.S. Department of Justice announced its opposition to the combination on antitrust grounds. The federal government, joined by several state attorneys general, including then Texas AG Greg Abbott, joined the lawsuit.
Greg Abbott makes no sense
“I was speechless. It made no sense for Abbott to do this,” Kennedy says.
Under the agreement, Texas would be the corporate home of the combined company, with the potential for significant increases in employment and collateral benefits.
“Even more shocking was the fact that when United and Continental merged in 2010, Abbott did not contest that merger even though the headquarters of the new airline would be located in Chicago, not Houston, Continental’s then home base,” Kennedy wrote in Twelve Years of Turbulence. “I was left to ponder two questions: How in the world did Abbott’s advisors convince him to join hands with Justice, and what were we going to do about it?”
Kennedy and American Deputy GC Bruce Wark flew to Austin a few weeks later to try to convince Abbott and his team to discuss settlement.
“It didn’t take long to realize that Attorney General Abbott’s staff wanted out of the lawsuit and they wanted to do it quickly,” Kennedy writes. “Abbott must have experienced buyer’s remorse soon after the State of Texas signed on as a plaintiff. Abbott was in the middle of a campaign for Texas governor against Texas State Senator Wendy Davis, and the lawsuit was like a neon-lit theater marquee advertising a coming attraction: ‘Worst Decision by a Politician, Starring Attorney General Greg Abbott.’”
Kennedy and Abbott’s team reached an agreement quickly that in reality gave the state no concessions.
“I can’t take much credit for the deal because the state was so anxious to get out of the litigation,” Kennedy states. “The terms of the agreement were simple. We agreed to a number of ‘behavioral’ remedies. We promised to keep our headquarters in the DFW area, to maintain DFW Airport as a major hub, and to retain daily service to the twenty-two Texas cities we currently served, for at least three years.
“In other words, the settlement required us to do exactly what we were planning to do all along,” the book states.
‘What is a fuck knuckle?’
Kennedy says lawyers for American approached Bill Baer of the DOJ with a similar settlement offer. Baer didn’t take long to respond.
“He called it a fuck knuckle,” Jones Day antitrust partner Joe Sims, who represented American, told Kennedy in relaying the DOJ’s response.
“What the hell is a fuck knuckle?” Kennedy asked.
“I have no idea, but it can’t be good,” Sims responded.
But Kennedy went back to work and agreed to divest a significant number of gates at critical airports – a concession that satisfied the DOJ.
On Dec. 9, 2013, Kennedy arrived at the offices of Weil, Gotshal & Manges at the Crescent in Dallas to sign the official closing documents. David Gail, a young lawyer who is now a partner at Weil, presided over a conference call that included about 75 lawyers from the various entities involved.
Gail asked Kennedy one question: “Have all closing conditions been satisfied and do you release your signature pages?”
“Yes,” Kennedy responded.
Gail asked the same questions of US Airways Senior Vice President for Legal Stephen Johnson.
“Yes.”
With that, one of the largest bankruptcies in U.S. history was over. Every creditor was fully paid.
“It all came so close to ending very badly,” Kennedy says, looking back. “We were concerned that the employees would lose their pensions. We were afraid that we would have massive layoffs. We were afraid that American’s stock price would drop to pennies.”
None of that happened.
“Some of it was luck, but a lot of hard work and greatly lawyering went into the restructuring and the merger,” Kennedy says. “The result was one of the most successful corporate bankruptcies in American history. That is something that every member of the team can be proud of.”