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AMR chief Arpey grilled over executive bonuses

AMR chief Arpey grilled over executive bonuses

Angry employees confronted the CEO of American Airlines' parent over management bonuses, underscoring troubled labor relations at the biggest U.S. carrier, but shareholders rejected a union-backed resolution to vote on executive compensation.
Union leaders said Wednesday the bonuses broke a management promise to share gains as AMR Corp. recovered from huge losses. But Chairman and Chief Executive Gerard Arpey declined to back down on the bonuses, which totaled about $160 million (euro118 million) in stock for nearly 900 managers.
Arpey moved to end the annual shareholders meeting abruptly after a pilot said executives were more focused on raising AMR's stock price than on growing the company.
Later Wednesday, the flight attendants' union asked the Securities and Exchange Commission to investigate the timing of $7.7 million (euro5.67 million) in stock sales by Arpey and $11.5 million (euro8.47 million) in sales by four other top executives immediately after getting the bonuses, paid in stock on April 18.
The union admitted it has no evidence laws were broken and the company denied wrongdoing. AMR shares have fallen 16.6 percent since the grants were issued, which Arpey said was due to concern about increasing competition in the airline industry.
AMR held the meeting at a company training center amid heavy security, which Arpey said was a response to last month's Virginia Tech massacre. A few miles (kilometers) away, Southwest Airlines Co. also held its annual meeting, and the tone could not have been more different.
The breezy Southwest meeting was hosted by wisecracking Chairman Herb Kelleher. Outside, employees on their lunch break played volleyball in a sand pit.
But even at Dallas-based Southwest, executives fretted openly about recent softness in demand for air travel. CEO Gary Kelly said the airline's planes flew about 72 percent full in April, 4 points lighter than April 2006.
As a result, Southwest is no longer shopping for planes after buying four in recent months.
"Things have changed," he said, "and right now, I don't think we want any more planes."
Kelly said it was too early for Southwest to cut back on plans to add flights, saying that was a decision for next year. He also predicted that consolidation is likely among U.S. airlines.
Kelly announced a new $500 million (euro368 million) Southwest share-repurchase program paid for with cash and debt. He added that Southwest, which sells most tickets on its own Web site, will begin selling seats through travel agents using the Galileo travel-reservation system.
Southwest remained profitable through the recession and terror attacks of 2001, while AMR and other U.S. carriers racked up huge losses. AMR turned that around in 2006, posting its first profitable year since 2000.
CEO Arpey said he was cautiously optimistic about this year, but he worried about a flood of new flights by upstart carriers.
"Carriers are continuing to offer very low prices and to grow in the face of deteriorating financial results," Arpey said. "That doesn't make sense."
The AMR meeting was dominated by talk of executive bonuses. Investors sided with management in rejecting a pilots' union proposal to let shareholders vote on executive compensation and trounced another resolution that would have required most executive stock and option awards to be based on performance.
Both measures grew out of stock bonuses paid to executives in the past two years. Last month, Arpey got a stock award then valued at $6.6 million (euro4.86 million), and four other executives got stock bonuses valued at $2.5 million (euro1.84 million) to $3.4 million (euro2.5 million).
The bonuses were based on the huge run-up in AMR's stock price between 2004 and the end of 2006, which has delighted shareholders.
Ed Shapiro, a partner at PAR Capital Management, said Arpey had done a great job by avoiding bankruptcy and rebuilding the company's market value from around $200 million (euro147.34 million) to more than $6 billion (euro4.42 billion).
The institutional investor was outnumbered at the meeting, however, by employees who said they made the company's turnaround possible by taking wage and benefit concessions. They said the executive bonuses betrayed management's 2003 promise to reward workers when AMR's finances improved.
Dave Eitel, a San Francisco-based pilot, mocked Arpey's slogan _ "Pull together, win together" _ and said other airlines were focused on growth while American rewarded executives just because the stock price increased, ignoring other measurements of success.
Arpey rushed to end the meeting. Some in the audience hooted at Arpey; others jeered the disgruntled employees.