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Pilots Call American Airlines Bonuses "Stunning:" Airline Says They Are Routine

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On the American Airlines earnings call Friday,  CEO Doug Parker said management employees received 51% of their targeted bonus for 2018 – meaning some mid-level managers received bonuses of about 9% -- a disclosure that came as a surprise to the carrier’s pilots union.

American’s short-term incentive plan is tied to pretax profits: the threshold is $3 billion. Responding to an analyst’s questions about the plan, Parker said that while 2018 pretax earnings were slightly below $3 billion, the incentive is based on a total that is calculated before profit sharing and before payment of the incentives, and that total was “slightly above $3 billion.”

In an interview following the call, Don Carey, president of the 15,000 member Allied Pilots Association, said,  “Its troublesome to me that Mr. Parker and management are doing a second actuarial on the books, getting managers [bonuses] they haven’t earned and don’t deserve."

In a message to members scheduled to be released Friday afternoon, APA said that during the earnings call, Parker “was asked by an analyst how he was going to handle the fact that his managers were not getting their bonus/profit sharing due to AA making less than the $3 billion floor in 2018.

“The answer was stunning,” APA declared. “Mr. Parker confirmed that the company did not make enough ‘reported’ profits to pay managers profit sharing this year but then turned to a ‘planned calculation’ to trigger the profit sharing/bonuses for management.”

American spokesman Josh Freed said there has been no change in the way that American calculates management incentives.

“The 2018 short-term incentive program was calculated the same way it always is: Pre-tax profits excluding special items, profit sharing, annual incentive programs and related payroll taxes, and company contributions to the 401k,” Freed said. “We are transparent about this and publish it every year in our annual proxy statement.”

American’s 2018 proxy statement was released April 30, 2018. The 2019 statement is expected to be released soon, so Parker’s statement was the first specific disclosure of the 2018 bonuses. American has 130,000 employees including several thousand management employees.

APA spokesman Dennis Tajer provided the 9% figure for mid-level managers. He said the number represents 51% percent of the management target of 18%.

During the earnings call, Parker also answered a reporter’s question regard the course of pilot contract negotiations.

The existing six-year contract agreement took effect on Jan. 30, 2015 and becomes amendable on Jan. 1, 2020. It designates January 2019 as the time when “early openers,” or talks in advance of the amendable date could begin. Talks began in January.

“We just began negotiations with our pilots,” Parker said. “Those talks are happening well in advance of the amendable date in January 2020. So we’re happy to be talking well in advance of that.  It would be nice to get something done before the amendable date. “[That’s] both parties’ goal and we’ll keep working towards that.”

Tajer said a key issue in the contract talks is scheduling flexibility and reliability for pilots. Schedules are drawn up 30 days in advance. Some airlines incent pilots to alter their schedules when unusual conditions – generally aberrant weather – force last-minute scheduling changes. But American tends to keep a relatively large number of pilots on reserve and seeks to fill slots by calling reserve pilots rather than by incenting scheduled pilots, Tajer said.

“The real leaders at American Airlines are the frontline employees,” Carey said. “Frontline employees can restore American Airlines to being an industry leader [with] customer satisfaction at the top of the industry.

“But this is going to be a long arduous summer for American Airlines if they don’t sit down and deal with their employees,” Carey said.