American to share its profit: Employees may get payout five years after taking big income cuts
02:26 a.m. 03/09/2007 Provided By McClatchy Business News -- Un
Mar 09, 2007 (The Dallas Morning News - McClatchy-Tribune Business News via COMTEX) -- AMERICAN AIRLINES INC. -- which will hand out stock valued at around $200 million to executives and other managers next month -- said Thursday that it expects to pay out profit-sharing to rank-and-file employees next year.
Speaking to investment analysts, executives said the company has begun accruing funds in anticipation of making a big enough profit this year to trigger profit-sharing, which starts when parent AMR Corp. earns at least $500 million in pretax profit.
The company has been trying to blunt sharp criticism from its unions, which have complained loudly that executives are getting a rich payout while lower-ranking employees aren't sharing in the company's recovering fortunes.
To make sure the message was heard, Jeff Brundage, senior vice president of human resources, announced it; chief financial officer Tom Horton repeated it to both the media and to analysts; and public-relations people e-mailed reporters to make sure they didn't miss it.
It's a touchy issue at American because all employees took big pay cuts in 2003 to keep the company out of bankruptcy.
However, the rapid rise in AMR's stock price has fattened the value and size of the stock payout.
The Allied Pilots Association has estimated that management will share in about $210 million in stock, based on AMR's closing price of $33.30 Thursday on the New York Stock Exchange. The exact value will depend on the stock price on April 18, the day the shares are to be distributed.
The consensus of analysts surveyed by Thomson Financial is that AMR will earn more than $5 a share, or more than $1.2 billion, in 2007. Employees would get profit-sharing equal to 15 percent of the profit over $500 million.
At $1.2 billion, the employees would get 15 percent of $700 million, or about $105 million.
In addition, employees can earn more from AMR's Annual Incentive Plan, which pays bonuses based on AMR's rankings on customer complaints and on-time arrivals. That plan also pays bonuses if AMR's ratio of earnings to revenue is high enough.
While employees have received some bonuses for customer service, no bonuses have been handed out for financial performance since 2001 for the 2000 fiscal year.
Speaking on a conference call with reporters, Mr. Horton said a lot of things could sidetrack AMR's profit this year, with uncertainty over such things as fuel prices, fares and the economy.
But if the company produces earnings as Wall Street expects, "you'll see our employees potentially sharing in a range of a couple of weeks' pay to an extra month or so of pay as they're rewarded for their part in improving our profitability," Mr. Horton said.
Mr. Horton and chief executive Gerard Arpey pointed to AMR's $323 million contribution to employee pension plans in 2006 as another example of how employees have benefited from the airline's recovery.
AMR pension plans were underfunded by $2.48 billion at the end of 2006, down from $3.23 billion on Dec. 31, 2005, when comparing the value of their assets to projected obligations. When comparing assets to current obligations, the underfunding was $1.59 billion, compared with $2.26 billion a year earlier.
The four-hour briefing gave American a chance to do some chest-beating over its success in reducing costs, increasing revenue and working with its unions, despite the anger over the stock plan.
In other matters, executives also said American is still mulling how to replace its aging fleet of more than 300 McDonnell Douglas MD-80 jets. But American's contract with the Boeing Co. provides that American can get delivery 15 to 18 months after placing an order, Mr. Horton said.
"We've got a lot of flexibility," he said. "We can get an airplane when we need one."
Asked why American's application for a China route failed, Mr. Arpey took full blame, saying he should have worked out an agreement with pilots before putting in the application. The pilots were fully within their rights to negotiate for a change in the contract to allow the super-long flights, Mr. Arpey said.
Mr. Arpey said a tentative aviation treaty with the European Union would hurt American's position at London Heathrow Airport, where it is one of only four airlines authorized to fly to the United States. But American could benefit if the final treaty allows airline alliances such as American's Oneworld coalition to get immunity from antitrust laws.
02:26 a.m. 03/09/2007 Provided By McClatchy Business News -- Un
Mar 09, 2007 (The Dallas Morning News - McClatchy-Tribune Business News via COMTEX) -- AMERICAN AIRLINES INC. -- which will hand out stock valued at around $200 million to executives and other managers next month -- said Thursday that it expects to pay out profit-sharing to rank-and-file employees next year.
Speaking to investment analysts, executives said the company has begun accruing funds in anticipation of making a big enough profit this year to trigger profit-sharing, which starts when parent AMR Corp. earns at least $500 million in pretax profit.
The company has been trying to blunt sharp criticism from its unions, which have complained loudly that executives are getting a rich payout while lower-ranking employees aren't sharing in the company's recovering fortunes.
To make sure the message was heard, Jeff Brundage, senior vice president of human resources, announced it; chief financial officer Tom Horton repeated it to both the media and to analysts; and public-relations people e-mailed reporters to make sure they didn't miss it.
It's a touchy issue at American because all employees took big pay cuts in 2003 to keep the company out of bankruptcy.
However, the rapid rise in AMR's stock price has fattened the value and size of the stock payout.
The Allied Pilots Association has estimated that management will share in about $210 million in stock, based on AMR's closing price of $33.30 Thursday on the New York Stock Exchange. The exact value will depend on the stock price on April 18, the day the shares are to be distributed.
The consensus of analysts surveyed by Thomson Financial is that AMR will earn more than $5 a share, or more than $1.2 billion, in 2007. Employees would get profit-sharing equal to 15 percent of the profit over $500 million.
At $1.2 billion, the employees would get 15 percent of $700 million, or about $105 million.
In addition, employees can earn more from AMR's Annual Incentive Plan, which pays bonuses based on AMR's rankings on customer complaints and on-time arrivals. That plan also pays bonuses if AMR's ratio of earnings to revenue is high enough.
While employees have received some bonuses for customer service, no bonuses have been handed out for financial performance since 2001 for the 2000 fiscal year.
Speaking on a conference call with reporters, Mr. Horton said a lot of things could sidetrack AMR's profit this year, with uncertainty over such things as fuel prices, fares and the economy.
But if the company produces earnings as Wall Street expects, "you'll see our employees potentially sharing in a range of a couple of weeks' pay to an extra month or so of pay as they're rewarded for their part in improving our profitability," Mr. Horton said.
Mr. Horton and chief executive Gerard Arpey pointed to AMR's $323 million contribution to employee pension plans in 2006 as another example of how employees have benefited from the airline's recovery.
AMR pension plans were underfunded by $2.48 billion at the end of 2006, down from $3.23 billion on Dec. 31, 2005, when comparing the value of their assets to projected obligations. When comparing assets to current obligations, the underfunding was $1.59 billion, compared with $2.26 billion a year earlier.
The four-hour briefing gave American a chance to do some chest-beating over its success in reducing costs, increasing revenue and working with its unions, despite the anger over the stock plan.
In other matters, executives also said American is still mulling how to replace its aging fleet of more than 300 McDonnell Douglas MD-80 jets. But American's contract with the Boeing Co. provides that American can get delivery 15 to 18 months after placing an order, Mr. Horton said.
"We've got a lot of flexibility," he said. "We can get an airplane when we need one."
Asked why American's application for a China route failed, Mr. Arpey took full blame, saying he should have worked out an agreement with pilots before putting in the application. The pilots were fully within their rights to negotiate for a change in the contract to allow the super-long flights, Mr. Arpey said.
Mr. Arpey said a tentative aviation treaty with the European Union would hurt American's position at London Heathrow Airport, where it is one of only four airlines authorized to fly to the United States. But American could benefit if the final treaty allows airline alliances such as American's Oneworld coalition to get immunity from antitrust laws.
