Airline has trust to protect execs in case of bankruptcy

FORT WORTH, Texas -- Even as it was piling up losses and pleading with unions to cut labor costs, American Airlines created a pension fund that protected the benefits of dozens of top executives in case of bankruptcy.

Union leaders at American Airlines, whose employees had just agreed to $1.8 billion in wage concessions, expressed outrage Thursday over the management perquisites.

"It's the equivalent of an obscene gesture from management," said John Ward, president of the flight attendants' union, which initially rejected concessions but reversed itself Wednesday after voting was extended.

James C. Little, the leader of the ground workers' union, said he would consult with lawyers before deciding whether to sign the new contract his union narrowly approved.

Pilots' union president John Darrah said he also was talking to attorneys.

The executives' deal, which includes huge bonuses for a few, was disclosed late Tuesday as the world's largest airline was trying to sew up the wage concessions it says it needs to stay afloat.

Few employees learned of the executive benefits until after they had approved the benefit cuts.

Voting by the pilots' and ground workers' unions had ended by the time the deal was disclosed in a filing with the Securities and Exchange Commission.

Company spokesman Bruce Hicks had said union leaders were briefed on the perks in recent weeks but later corrected himself, saying the briefings covered executive retention but did not detail the bonuses and pensions.

"Retention benefits are designed to keep key senior management who are constantly being wooed by other companies," Hicks said.

Ward and Little said they were given general information about executive compensation but denied being told about the bonuses and pension funding.

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

According to the SEC filing by American's parent, AMR Corp., the company funded a pension trust for 45 top executives in October that protected some of their benefits even if the carrier filed for bankruptcy protection. The company did not indicate the cost of funding the trust.

In addition, the company offered its six top executives bonuses double their annual base salaries if they remain until early 2005.

Among the executives in line to receive the bonuses is chairman and chief executive Donald Carty, who told workers last month that he would take a 33 percent pay cut. Carty could get a $1.6 million bonus, based on his 2002 salary of $811,000.

Analysts predicted 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.

Darrah, of the pilots' union, said he asked American to rescind the benefits, and added, "The world spotlight is on (management) with a crucial decision on compensation, the way it's been on the employees."

In the months since the trust was created, the company has demanded pay cuts of 23 percent from pilots and 16 percent from flight attendants and ground workers, effective May 1. And after the unions approved wage cuts, American executives said bankruptcy remains a possibility.

"We are not out of the woods yet," Carty said, citing the economy and other factors beyond the company's control.

Airlines are struggling through the worst downturn in the industry's history. United Airlines is already in bankruptcy, and US Airways only recently emerged from it.