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Sat, Apr 19, 2003

Is This Any Way To Run An Airline?

AMR Execs Forego Big Bonuses, But Keep Supplemental Pensions

They gave up money, favorable work rules and, in some cases, their jobs. So imagine the reaction from American Airlines employees when they found that top management had a secret, irrevocable trust fund set up just in case the carrier goes bankrupt. Imagine their reaction upon finding out that American's top executives were slated for huge retention bonuses, in spite of the carrier's ill financial health.

It Ain't Pretty.

"I think it's appropriate to call on the federal government, on the AMR Board of Directors as well as the stockholders to severely scrutinize this current management team regarding their actions," said an obviously enraged spokesman for the Allied Pilot's Union, Capt. Steve Blankenship.

"The damage is done. The element of trust with senior management of this company has been destroyed," George Price, a spokesman for the flight attendant's union, told reporters.

A Vote, A Disclosure And A Firestorm

Earlier this week, the three major unions representing American workers - the APA, the Association of Professional Flight Attendants and the Transport Workers' Union, agreed to $1.8 million in wage cuts, reduced benefits, and thousands of layoffs. In the case of the APFA, the initial vote was to turn down the concession package, a move that American threatened would send it straight to bankruptcy court and Chapter 11. So, the flight attendants voted again the next day and narrowly passed the measures.

That's when it hit: an AMR Corp. filing with the Securities and Exchange Commission showing that, shortly after the September 11th terror attacks, the company created a pension fund to protect income earned by American's top 45 managers, should the carrier go bankrupt. The SEC disclosure also showed the company had offered huge retention bonuses to its top six leaders if they stayed on board beyond 2005. In some cases, those bonuses amounted to twice the executives' base salaries.

Carty: I Blame Myself

"The goal was to give senior officers an incentive to stay with the company when many were being offered more generous packages to go elsewhere," said American CEO Don Carty in a prepared statement from the airline's Fort Worth (TX) headquarters. "We did not give our senior executives a pay increase. In fact, I gave up my salary entirely for the last quarter of 2001, and my entire senior management team took voluntary pay cuts."

Carty admitted he wasn't totally forthcoming with union leaders about the senior management compensation package. "I have apologized to our union leaders for this and for the concern it has caused our employees," Carty said. "Those executives who have made the personal commitment to remain with American during this financial crisis, myself included, are not here solely for monetary reasons and we have all agreed to give up these retention payments in order to give our employees confidence in management's on-going commitment to shared sacrifice."

And with that, American dropped the bonus plan for those top six executives. The airline refuses, however, to give up the supplemental pension funds for its top 45 managers.

That prompted the TWU to threaten nullification of its concession vote. It also prompted the APA to demand a full-blown investigation into just how American Airlines keeps the books.

"What more can you ask?" he said in an interview with USA Radio Network News Friday. "Listen, what more can you ask of working families at American Airlines, the sacrifice that they've already given? What more? You can't. It's time that the management team at American Airlines do even more than this. Let's have full disclosure to the irrevocable retirement funds in the event that this airline goes into bankruptcy."

The Supplemental Pension Plan (SEP) provides benefits above and beyond the tax-deductible for American's top managers. American made its first payment to the plan earlier this year and claims it's terribly underfunded.

"My mistake was failing to explicitly describe these retention benefits, and because of that, many employees felt they were kept in the dark," Carty said Friday in a letter to employees. "Please know that it was never my intention to mislead you. I offer you my sincere apology, as I have to our union leaders."

Unions: Not In A Forgiving Mood

"It requires a lot for working people to forgive," said Blankenship. "There's a corporate culture here that we have worked hard not to be adversarial in. We can go to our people again and again and say, 'Let's forgive and go along for the goodwill of the company. But it requires leadership, integrity - moral integrity - and it starts at the top. It starts at the top and works its way down through the corporate culture and into working families at American Airlines."

That integrity, alleged Blankenship, is missing, as evidenced in the post-union vote disclosure of management compensation. Carty's apology and the withdrawal of the retention bonuses helps the situation, he said. But not enough. "I think, in fairness to Mr. Carty and the current management team, this is a move in the right direction. With that said, this should have been done long before now. It's one thing to be up-front with your employees. Full disclosure. Our retirement plans are in full disclosure under the Railway Labor Act. We are under the light and the scrutiny of the federal government from day one to the end of the road." That same disclosure, said the APA spokesman, should be required of senior management at AMR.

Reporters Judy Hydock and Curt Lewis contributed to this article

FMI: www.aa.com, www.alliedpilots.org

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