American Air Unions Upset at Pension Fund

DALLAS (Reuters) - Mechanics and ground workers may have thrown a wrench into labor concession deals aimed at heading off a bankruptcy filing at American Airlines when their union leadership threatened on Thursday not to sign the pact over a dispute on executive compensation.

Two other major unions also expressed outrage at news of special pension funding for senior management, just as rank-and-file workers agreed to stiff pay cuts.

Jim Little, a senior member of the Transport Workers Union, berated a plan to provide funds for a pension trust that would pay top executives a portion of their pensions in the event of bankruptcy. He said unions were informed of the plan through a Securities and Exchange Commission (News - Websites) filing made as rank and file members were concluding the vote on the concession deals.

"We have signed no new agreement, and in light of the disclosure of American Airlines' SEC filing, we must reconsider whether we will sign off, even if the consequence is bankruptcy," Little said in a communication with members.

American Airlines, a division of AMR Corp. (NYSE:AMR - News), on Wednesday narrowly averted a massive bankruptcy filing when flight attendants joined two other unions in approving sweeping wage concessions needed to help turn the airline around.

The airline said the pension plan was not new, adding its "supplemental executive retirement plan" was established in 1985. The company described the plan as "conservative, responsible and well below what other U.S. companies have provided their senior executives."

In October 2002, the company established a pension trust to partially fund the SERP program. "The remainder of the SERP benefit is completely at risk in bankruptcy. The SERP is only 60 percent funded, lower than all other AA employee pension plans," it said.

The carrier's board of directors decided to partially fund the pension program in an attempt to avoid the loss of additional senior management.

But the head of the union that represents American's flight attendants called the pension package an "outrage."

"It's the equivalent of an obscene gesture from management to employees, especially after the gut-wrenching decision thousands of flight attendants and other union employees at American Airlines made in just the last two days to drastically change their lives and keep this company out of bankruptcy," said John Ward, president of the Association of Professional Flight Attendants.

Pilots at American Airlines said they were irate over news that executives at the airline had funded special pensions and wanted clarification as to why they were not informed while union concession negotiations took place.

The individual concession packages were $660 million from pilots, $620 million from mechanics and ground workers, $340 from flight attendants and $180 million from management and other nonunion groups.

AMR has lost billions since the Sept. 11, 2001, attacks sliced demand for air travel, including a record $3.5 billion in 2002. It narrowly avoided a Chapter 11 filing two weeks ago by securing the concession packages from union leadership.

American said on Thursday it is immediately reducing its management ranks by 5 percent and has the goal of reducing management by another 5 percent by July 1.

Associated Press

American's Pension Move Angers Employees

Friday April 18, 3:15 am ET

By David Koenig, AP Business Writer

News of American Airlines Shielding Executives Pensions From Bankruptcy Angers Employees

FORT WORTH, Texas (AP) -- American Airlines, which dodged bankruptcy this week, finds itself in the middle of another firestorm as employees facing huge pay cuts reacted angrily to news that top executives were promised big bonuses.

The leader of American's largest union suggested he may refuse to sign a labor-concessions agreement that would help the company save $1.8 billion a year -- even if that pushes the world's largest carrier into bankruptcy.

Leaders of all three of the airline's biggest unions said Thursday they are consulting attorneys to see whether they can prove American negotiated the concession packages in bad faith -- not telling the unions about the executive perks until workers voted on the cost cuts.

"We are appalled and just disgusted. It's the equivalent of an obscene gesture from management," said John Ward, president of the flight attendants' union, which rejected concessions -- then approved them after the union and the company agreed to extend voting by one day.

Just Wednesday, the mood at American's Fort Worth headquarters was one of celebration after the union narrowly approved the concessions deals.

"We have all shared in the sacrifices necessary to restructure our costs, and I have every reason to believe that by working together, we will be successful in creating a leaner, smarter, more competitive airline," said chairman and chief executive, Donald J. Carty, as headquarters employees cheered.

By Thursday, James C. Little was having none of the teamwork pep talk. Little directs the airline division of the Transport Workers Union, and he raised the threat of sinking the concessions package by refusing to sign the agreement.

In an interview, Little said the union's 34,000 members at American might have rejected the agreement if they had known about the executive perks. He said he was talking to union lawyers about his next move.

On the union's Web site, Little said members must consider rejecting the concessions deal "even if the consequence is a bankruptcy."

The unions' outrage was directed at perks American's parent, AMR Corp., did not disclose until a filing this week with the Securities and Exchange Commission.

The company said it agreed to partially fund a pension trust for 45 top executives and shield those benefits if there is an AMR bankruptcy. In addition, the company promised six top executives bonuses equal to twice their salaries if they stay through January 2005.

Carty, who has a base salary of $811,000, could get a $1.6 million bonus at a time when employees will still be struggling under huge pay cuts.

Bruce Hicks, a company spokesman, said the retention benefits were a standard policy at many large companies to prevent senior executives from leaving. He also said the supplemental pension plan is similar to one for American's pilots.

The timing of the disclosure also angered employees. AMR delayed filing the documents until the last scheduled day for employees to vote on the concessions deals. Union officials doubted it was a coincidence.

The flap appears to have already worsened management-labor relations at a company famous in the industry for bad relations.

"People have this view of management. They don't deal fairly with their employees," said Ward, the president of the flight attendants' union. "You ask probing questions and they dodge the question or they provide limited information or just don't provide it."

John Darrah, president of the pilots' union, urged company executives to withdraw the perks. If not, he was consulting with lawyers on a next step. Darrah stopped short of vowing to unravel the concessions deal, but said he would decide a course of action next week.

You can read it all here:
http://www.thecorporatelibrary.com/companies/a/amr/ceo_amr.htm

iii) Termination of the Executive's employment with the Company and its subsidiaries for Cause. For the purposes hereof, "Cause" shall be defined as a felony conviction of the Executive or the failure of the Executive to contest prosecution for a felony, or the Executive's wilful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company or any subsidiary or affiliate. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. This Section 2(c) shall not preclude the payment of any amounts otherwise payable to the Executive under any of the Company's employee benefit plans, stock plans, programs and arrangements and/or under any Employment Agreement. (d) Notwithstanding anything contained in this Agreement to the contrary, in the event of a Change in Control, the Executive may terminate employment with the Company and any subsidiary for any reason, or without reason, by providing Notice of Termination pursuant to Section 3 during the 30?day period immediately following the first anniversary of the first occurrence of a Change in Control with the right to the benefits set forth in Section 4. (e) Any termination of employment of the Executive, including a termination for "Good Reason," but excluding a termination for "Cause," or the removal of the Executive from the office or position in the Company or any subsidiary that occurs (i) not more than 180 days prior to the date on which a Change in Control occurs and (ii) following the commencement of any discussion with a third person that ultimately results in a Change in Control shall be deemed to be a termination or removal of the Executive after a Change in Control for purposes of this Agreement. 3. Notice of Termination

Any termination of the Executive's employment with the Company and its subsidiaries as contemplated by Section 2 shall be communicated by written "Notice of Termination" to the other party hereto. Any "Notice of Termination" shall indicate the effective date of termination which shall not be less than 30 days or more than 60 days after the date the Notice of Termination is delivered (the "Termination Date"), the specific provision in this Agreement relied upon, and, except for a termination pursuant to Section 2(d), will set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination including, if applicable, the failure after provision of written notice by the Executive to effect a remedy pursuant to the final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi). 4. Termination Benefits Subject to the conditions set forth in Section 2, the following benefits shall be paid or provided to the Executive: (a) Compensation The Company shall pay to the Executive three times the sum of (i) "Base Pay", which shall be an amount equal to the greater of (A) the Executive's effective annual base salary at the Termination Date or (B) the Executive's effective annual base salary immediately prior to the Change in Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual bonus payable to the Executive under the Company's Incentive Compensation Plan or any other annual bonus plan for the fiscal year of the Company in which the Change in Control occurred or (y) the highest annual bonus earned by the Executive under the Company's Incentive Compensation Plan or any other annual bonus plan (whether paid currently or on a deferred basis) with respect to any 12 consecutive month period during the three fiscal years of the Company immediately preceding the fiscal year of the Company in which the Change in Control occurred, plus (iii) "Performance Returns" equal to the highest annual payment of performance returns paid to the Executive with respect to any 12 consecutive month period during the three fiscal years of the Company immediately preceding the fiscal year of the Company in which the Change in Control occurred.

(b) Welfare Benefits For a period of 36 months following the Termination Date (the "Continuation Period"), the Company shall arrange to provide the Executive with benefits, including travel accident, major medical, dental, vision care and other welfare benefit programs in effect immediately prior to the Change in Control ("Employee Benefits") substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Termination Date (or, if greater, immediately prior to the reduction, termination, or denial described in Section 2(b)(ii)(C)). If and to the extent that any benefit described in this Section 4(b) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company or any subsidiary, as the case may be, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such Employee Benefits along with, in the case of any benefit which is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company or any subsidiary, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Employee Benefits otherwise receivable by the Executive pursuant to this Section 4(b) will be reduced to the extent comparable welfare benefits are actually received by the Executive from another employer during the Continuation Period, and any such benefits actually received by the Executive shall be reported by the Executive to the Company. (c) Retirement Benefits

The Executive shall be deemed to be completely vested in Executive's currently accrued benefits under the Company's Retirement Benefit Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the date of Change in Control (collectively, the "Plans"), regardless of his actual vesting service credit thereunder. In addition, the Executive shall be deemed to earn service credit for benefit calculation purposes thereunder for the Continuation Period. Benefits under the Plans will become payable at any time designated by the Executive following termination of the Executive's employment with the Company and its subsidiaries after the Executive reaches age 55, subject to the terms of the Plans regarding the actuarial adjustment of benefit payments commencing prior to normal retirement age. The benefits to be paid pursuant to the Plans shall be calculated as though the Executive's compensation rate for each of the five years immediately preceding his retirement equaled the sum of Base Pay plus Incentive Pay plus Performance Returns. Any benefits payable pursuant to this Section 4(c) that are not payable out of the Plans for any reason (including but not limited to any applicable benefit limitations under the Employee Retirement Income Security Act of 1974, as amended, or any restrictions relating to the qualification of the Company's Retirement Benefit Plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid directly by the Company out of its general assets. (d) Relocation Benefits If the Executive moves his residence in order to pursue other business or employment opportunities during the Continuation Period and requests in writing that the Company provide relocation services, he will be reimbursed for any expenses incurred in that initial relocation (including taxes payable on the reimbursement) which are not reimbursed by another employer. Benefits under this provision will include assistance in selling the Executive's home and all other assistance and benefits which were customarily provided by the Company to transferred executives prior to the Change in Control. (e) Executive Outplacement Counseling

At the request of the Executive made in writing during the Continuation Period, the Company shall engage an outplacement counseling service of national reputation to assist the Executive in obtaining employment. (f) Stock Based Compensation Plans (i) Any issued and outstanding Stock Options (to the extent they have not already become exercisable) shall become exercisable as of the date on which the Change in Control occurs, unless otherwise specifically provided at the time such options are granted. (ii) The Company's right to rescind any award of stock to the Executive under the Company's 1988 Long Term Incentive Plan or the Company's 1998 Long Term Incentive Plan (or any successor plan) shall terminate upon a Change in Control, and all restrictions on the sale, pledge, hypothecation or other disposition of shares of stock awarded pursuant to such plan shall be removed at the Termination Date, unless otherwise specifically provided at the time such award(s) are made. (iii) The Executive's rights under any other stock based compensation plan shall vest (to the extent they have not already vested) and any performance criteria shall be deemed met at target as of the date on which a Change in Control occurs, unless otherwise specifically provided at the time such right(s) are granted. (g) Split Dollar Life Insurance

The Company shall pay to the Executive a lump sum equal to the cost on the Termination Date of purchasing, at standard independent insurance premium rates, an individual paid up insurance policy providing benefits equal to the benefits provided by the Company's Split Dollar Life Insurance coverage immediately prior to the date of the Change in Control. (h) Other Benefits (i) The Executive shall have all flight privileges provided by the Company to Directors as of the date of Change in Control until the Executive reaches age 55, at which time he shall have all flight privileges provided by the Company to its retirees who held the same or similar position as the Executive immediately prior to the Change in Control. (ii) The Executive, at the Executive's option, shall be entitled to continue the use of the Executive's Company-provided automobile during the Continuation Period under the same terms that applied to the automobile immediately prior to the Change in Control, or to purchase the automobile at its book value as of the Termination Date. (iii) The Company shall pay to the Executive an amount equal to the cost to the Company of providing any other perquisites and benefits of the Company in effect immediately prior to the Change in Control, calculated as if such benefits were continued during the Continuation Period. (i) Accrued Amounts The Company shall pay to the Executive all other amounts accrued or earned by the Executive through the Termination Date and amounts otherwise owing under the then existing plans and policies of the Company, including but not limited to all amounts of compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company, and any accrued vacation pay not yet paid by the Company.

(j) The Company shall pay to the Executive the amounts due pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first business day of the month following the Termination Date. The Company shall pay to the Executive the amounts due pursuant to Section 4(i) in accordance with the terms and conditions of the existing plans and policies of the Company. 5. Certain Additional Payments by the Company.

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