American Airlines shielded executives pensions from bankruptcy

DAVID KOENIG
Associated Press

FORT WORTH, Texas - One day after American Airlines employees agreed to annual cuts of $1.8 billion, the cooperative spirit turned acrimonious Thursday as union leaders expressed outrage over newly disclosed perks granted to executives.

One angry union leader said if workers had known earlier about a pension trust created last year to protect executives' benefits in the event of a bankruptcy filing, they might have voted against the steep concessions intended to keep the world's largest carrier out of Chapter 11.

The executive perks, which included huge bonuses for a few, were disclosed late Tuesday in a filing with the Securities and Exchange Commission. The filing was made after the scheduled end of voting on the concessions.

"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. Flight attendants initially their rejected their of the $1.8 billion cost-cutting plan but reversed themselves Wednesday after the company extended the original deadline for voting.

James C. Little, leader of the ground workers' union, said he was considering whether to withhold signing the concessions contract that his members narrowly approved.

"If members had known about these compensation agreements, there would have been a higher turnout of 'No' votes," Little said in an interview.

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

According to the SEC filing, the company's board agreed to fund 60 percent of the pension trust established for 45 top executives and it approved bonuses for six top executives if they stay through January 2005. The bonuses would be double each executive's pay.

American spokesman Bruce Hicks said the benefits were designed to retain top talent and were similar to deals offered by other major companies.

"Retention benefits are designed to keep key senior management who are constantly being wooed by other companies - other airlines and non-airlines," he said.

Hicks said the extra pensions were similar to a supplemental plan for American's pilots, which he said would also be protected in bankruptcy. Ground workers and flight attendants, who earn far less than pilots, have no such a plan, he said.

Chairman and chief executive Donald J. Carty could get a $1.6 million bonus, based on his 2002 salary of $811,000. Carty told workers last month that he would take a 33 percent pay cut to demonstrate management's willingness to make sacrifices for the company's good.

Carty did not publicly discuss the bonus he could get in 2005.

Employees did not learn of the executive benefits until after they had approved concessions that call for pay cuts of about 16 percent for flight attendants and ground workers and 23 percent for pilots.

"It's pretty blatant to us that we found out about it after they disclosed it to the SEC. ... It was done intentionally that way to wait until after the voting process," said Little, the Transport Workers Union official. "This ... leaves the issue to us whether they were actually bargaining in good faith."

Hicks, the airline spokesman, had said union leaders were briefed on the new perks over the past several weeks but later corrected himself, saying that the briefings covered senior executive retention but did not detail the bonuses and pensions.

"The only thing we were told is that (Carty) wasn't going to receive any bonuses," Ward said. "We were not advised of anything like this."

Little said he asked union lawyers to study whether he could refuse to sign the final paperwork on a concessions deal that will cost ground workers $620 million a year.

John Darrah, president of the pilots' union, which approved $660 million a year in concessions, said he too was talking to lawyers and had asked management to rescind the perks.

"The world spotlight is on (management) with a crucial decision on compensation, the way it's been on the employees," Darrah said.

Ward, whose flight attendants agreed to $340 million in annual givebacks, held out little hope of canceling the employees' ratification of concessions.

"It's done," Ward said of the cost-cutting agreements.

Analysts said the episode would further damage American's already troubled relationship with employees.

"This puts a huge amount of pressure on AMR to come clean with details of how and why this was done, and possibly even to change it," said Michael Miller, an aviation-industry communications consultant.

On Thursday morning, AMR shares continued to enjoy a bounce from employee ratification of concessions, and they rose to nearly $6, before giving up some of the gain. In trading on the New York Stock Exchange, the shares closed at $5, up 77 cents, or 18 percent.