UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of earliest event
reported: February 2, 2005
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-2691 13-1502798
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
4333 Amon Carter Blvd. Fort Worth, Texas 76155
(Address of principal executive offices) (Zip Code)
(817) 963-1234
(Registrant's telephone number)
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
AMR Corporation's Compensation Committee has approved the 2005
Annual Incentive Plan for American Airlines, Inc.
("American")(the "AIP"). All employees of American are eligible
to participate in the AIP (including American's executive
officers, some of whom are officers of AMR Corporation). The AIP
is American's annual bonus plan and provides for the payment of
awards in the event certain financial and/or customer service
metrics are satisfied. The approval is effective as of Feb. 2,
2005 and a copy of the AIP is attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
Exhibit 99.1 2005 Annual Incentive Plan for American
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
American Airlines, Inc.
/s/ Charles D. MarLett
Charles D. MarLett
Corporate Secretary
Dated: February 4, 2005
EXHIBIT INDEX
Exhibit Description
99.1 2005 Annual Incentive Plan for American
Exhibit 99.1
2005 ANNUAL INCENTIVE PLAN
Background
As part of the restructuring process that took place in April
2003, three new broad-based variable compensation plans were
created: the Broad Based Employee Stock Option Plan, a new Profit
Sharing Plan and the Annual Incentive Plan (the "Plan" or "AIP").
The framework for the Plan was developed during the
restructuring, but the specific plan metrics were left to the
discretion of the AMR Board of Directors (sometimes referred to
as the "Board").
The Board has determined that for 2005 there will be two
components to the Plan - customer service and financial. While
related, the two components will be treated separately. The
financial component will provide an award if the company meets
annual financial goals. The customer service component will
provide an award if the company meets customer satisfaction and
dependability goals, regardless of its financial performance.
Providing the opportunity for a customer service payout without
meeting financial hurdles recognizes that the company's
performance in the two areas most important to our customers -
dependability and customer satisfaction - will contribute to
improved profitability.
These broad-based compensation plans have been designed to allow
all employees throughout the American Airlines team to share in
the company's success. The Plan provides the opportunity to
share immediately in that success by taking concrete steps in
each employee's everyday work that will move the company towards
profitability.
With input from our employees, the unions and the Board, these
broad-based variable compensation programs will continue to
evolve. Today, they form the building blocks necessary to ensure
that everyone is able to share in the company's success.
Definitions
Capitalized terms not otherwise defined in the Plan will have the
meanings set forth in the 2003 Employee Stock Incentive Plan (the
"2003 Stock Plan").
"AMR" is defined as AMR Corporation.
"Affiliate" is defined as a subsidiary of AMR or any entity that
is designated by the Committee as a participating employer under
the Plan, provided that AMR directly or indirectly owns at least
20% of the combined voting power of all classes of stock of such
entity.
"American" is defined as AMR less AMR subsidiaries other than
American Airlines, Inc. and its subsidiaries.
"American's Pre-Tax Earnings Margin" is a percentage and is
defined as American's earnings, relative to its revenues, before
any applicable income tax expense and is exclusive of any profit
sharing payments, payments under the Plan and any special,
extraordinary or one-time items as may be determined by the
Committee in its discretion, after consultation with AMR's
independent auditors.
"Committee" is defined as the Compensation Committee of the AMR
Board of Directors.
"Competitor" is defined as one of AirTran Airways, American Trans
Air (ATA), America West Airlines, Alaska Airlines, Continental
Airlines, Delta Air Lines, JetBlue Airways, Northwest Airlines,
Southwest Airlines, United Air Lines and US Airways.
"DOT Rank" is defined as American's relative rank with respect to
the Competitors in the category of "arrivals+14 (A+14)" as
determined by the U.S. Department of Transportation (DOT). This
monthly ranking is based on DOT's aggregated A+14 data for the
period January 1, 2005 through December 31, 2005, inclusive. To
the extent that at any point during the year a Competitor ceases
to report A+14 data, it will be excluded from the calculation for
the month in which it ceases to report A+14 data, and for future
months, until it begins to report A+14 data for a full month.
"Eligible Earnings" is defined by the nature of the work group.
For employees who are represented by a union, the definition of
Eligible Earnings will be the definition contained in the Letter
of Agreement between the union and the company. For employees
who are not represented by a union the definition of Eligible
Earnings will be identical to the term "Qualified Earnings" under
the 2003 American Airlines Employee Profit Sharing Plan.
"Fund" is defined as the fund, if any, accumulated in accordance
with this Plan.
"Letters of Agreement" is defined as the agreements reached with
the Allied Pilots Association, Association of Professional Flight
Attendants and the Transport Workers Union during the April 2003
restructuring process that define the framework of the Plan.
"Measure" is defined, as appropriate, as American's Pre-Tax
Earnings Margin, DOT Rank or Survey America Rank.
"Named Executive Officers" is defined as the officers of American
who are named in the AMR proxy statement that reports income for
the year in which awards under the Plan are earned.
"Other Cash Compensation Programs" is defined as cash payments to
management employees that are not predicated upon the criteria
and thresholds contained in the Plan. Per discussions and as
specified in the Letters of Agreement, this term does not include
salary, stock-based compensation, severance, retirement benefits
or deferred payments of base compensation, or eligible cash
bonuses from prior years.
"Profit Sharing Plan" is defined as the 2005 Profit Sharing Plan
for Employees.
"Survey America Rank" is defined as American's relative rank with
respect to its Competitors in the category of "Overall Travel
Experience", using a blended ranking of first class and coach
cabin, as reported in Plog Inc.'s Survey America. The Survey
America ranking is based on monthly data for American and the
Competitors for the period January 1, 2005 through December 31,
2005, inclusive. To the extent that at any point during such
year a Competitor ceases to participate, it will be excluded from
the calculation for the month in which it ceased to participate,
and for future months, until it begins to participate again for a
full month period.
"Target Award" is defined as the award (stated as a percentage of
Eligible Earnings) for an eligible participant when target level
is achieved on the financial measure. The Target Award is
determined by the employee's job level.
Plan Measures
As outlined earlier, the Plan is comprised of two components:
customer service and financial.
Customer Service Component
The customer service component of the Plan will include two
performance metrics - customer satisfaction and dependability.
The Plan will reward employees if American achieves at least one
of the two metrics.
The customer satisfaction metric will be based on American's
Survey America Rank. The dependability metric will be based on
American's DOT Rank.
Monthly awards will be based on the higher of the monthly
rankings for DOT Rank or for Survey America Rank, as per the
payout schedule below. These award levels are the same for all
employees regardless of full-time or part-time status or job
level.
Payout
Per Person
Monthly Rank Per Month
First $100
Second - Third $ 50
Fourth - Sixth $ 25
If both metrics are achieved in any single month, the awards will
not be additive. Awards will be based solely on the higher
ranking of the two metrics.
Awards under the customer service component will be paid
regardless of performance under the financial component. The
awards under the customer service component will be paid, net of
applicable taxes, as soon as feasible after the end of a quarter.
For example:
Monthly Ranking
Survey Higher Rank
America DOT Achieved Payout
January 2 7 2 2nd place = $ 50
February 4 5 4 4th place = $ 25
March 3 1 1 1st place = $100
Quarterly Payout $175
Financial Component
The financial component of the Plan will be based upon American's
Pre-Tax Earnings Margin for the full-year 2005. The measure has
a threshold (performance below this level earns no award), a
target and a maximum as reflected below:
American's Pre-Tax
Earnings Margin
Threshold 5%
Target 10%
Maximum 15%
For non-management, support staff and management levels 1-4,
awards under the financial component, in combination with the
customer service awards, will provide total annual Plan payouts
ranging from 2.5% of Eligible Earnings at threshold, 5% of
Eligible Earnings at target and 10% of Eligible Earnings at
Maximum. Award levels have a linear progression as American's
Pre-Tax Earnings Margin increases between the threshold and
target levels, and between the target and maximum levels.
American's Pre-Tax Award as a % of
Earnings Margin Eligible Earnings
Threshold 5% 2.5%
Target 10% 5.0%
Maximum 15% 10.0%
For management Levels 5 and above, none of whom participate in
the Profit Sharing Plan, the Plan is the successor to the
traditional Incentive Compensation Plan. As in the past, the
awards for employees at Level 5 and above will be determined by
the senior management of AMR or, in certain instances, by the
Board; will vary by level; and will be based on an assessment of
individual performance.
If the company does not achieve the threshold level of American's
Pre-Tax Earnings Margin, there will be no financial performance
payout. However, a participant retains any awards earned in 2005
for customer service performance. When the threshold level of
American's Pre-Tax Earnings Margin is met, participants may be
entitled to a payment under the Plan (refer to the example
below). In this case, any customer service awards earned during
2005 act as a "deposit" against the amount to be awarded pursuant
to the financial component. The amount of the financial
performance payout a participant receives will be the difference,
if any, between what is earned under the financial performance
formula and what has already been earned through the customer
service awards.
For example (an individual employee's sample annual payout):
Customer Service
1 month ~ 1st Place 1 x $100 = $100
3 months ~ 2nd - 3rd Place 3 x $50 = $150
8 months ~ 4th - 6th Place 8 x $25 = $200
Customer Service Payout $450
Financial ~ achieve 5% American's pre-tax earnings threshold and
have $40,000 in Eligible Earnings
2.5% x $40,000 = $1,000
less Customer Service payout ($450)
Financial Payout $550
Total Annual payout is $1,000 ($450 + $550), or 2.5% of Eligible
Earnings.
The AIP Letters of Agreement provide that Other Cash Compensation
Programs for management employees may be no more than 20% of the
maximum possible award that was or could have been earned by the
individual management employee under the Plan formula (the "20%
Limitation").
The Board has established a program that, based on an
individual's performance, anticipates payouts to Level 5 and
above management employees up to the 20% Limitation. (Level 5 and
above employees are not eligible for the Profit Sharing Plan)
This program is designed to commence payments at $500 million in
American's pre-tax earnings, the same financial threshold as
exists in the Profit Sharing Plan. This is consistent with the
company's past practice of restricting payouts under any
management incentive compensation program until payouts occur
under the corresponding employee Profit Sharing Plan. Payouts
under this program will cease when the financial threshold under
the Plan (a 5% Pre-Tax Earnings Margin for American) is achieved.
Although the Board has determined that a program to use the
flexibility provided for in the Letters of Agreement will not
commence until reaching a threshold of $500 million in American's
pre-tax earnings and will be discontinued when the financial
threshold of the Plan is achieved, the company also retains the
ability to make a payment to an individual under the 20%
Limitation as provided for in the Letters of Agreement.
The Letters of Agreement and related discussions specify that for
purposes of the 20% Limitation, Other Cash Compensation Programs
does not include salary, stock-based compensation, severance,
retirement benefits or deferred payments of base compensation, or
eligible cash bonuses from prior years.
Eligibility for Participation
Customer Service Component:
To earn an award under the customer service component of the
Plan, an individual must have been employed as a regular full-
time or part-time employee at American, in a participating
workgroup (employees in the United States, Puerto Rico and the
U.S. Virgin Islands) and must have an adjusted seniority date
prior to the first day in the applicable month during 2005.
The Committee, at its discretion, may permit participation by
employees of Affiliates who have been so employed by the
Affiliate since the first day in the applicable month, if they
become employed by American during the applicable month during
2005.
In addition to the terms listed above, in order for full-time and
part-time employees to earn a payout under the customer service
measure, an individual cannot be on any type of leave during the
applicable month, except approved FMLA, injury on duty, military,
overage or time-card leave, as provided for under the company's
policies, collective bargaining agreement or state law as
applicable.
Moreover, an individual will not be eligible to earn a customer
service award if such individual is, at the same time, eligible
to participate in:
i) any incentive compensation, profit sharing, commission
or other bonus plan sponsored by an Affiliate of
American
ii) any commission or bonus plan, with the exception of
American's Profit Sharing Plan or provisions of the Annual
Incentive Plan, sponsored by American, any division of American
or any Affiliate of American
In order to earn a customer service award under the Plan, an
individual must satisfy the aforementioned eligibility
requirements and must be an employee of American or an Affiliate
at the time an award under the Plan is paid. If at the time
awards are paid under the Plan, an individual has retired from
American or an Affiliate, has been laid off, is on leave of
absence with reinstatement rights, is disabled, or has died, the
award which the individual otherwise would have received under
the Plan but for such retirement, lay-off, leave, disability, or
death will be paid (on a pro rata basis) to the individual, or
his/her estate in the event of death.
The percentage of the payout that an individual receives for any
given month will be determined based upon the percentage of
his/her schedule that the individual fulfills in that month. For
Plan purposes, an individual will be considered to have fulfilled
his/her schedule if he/she actually works at least 50% of his/her
scheduled time (50% of monthly guarantee hours for flight crew)
or takes a scheduled vacation or time-card leave, which, together
with his/her actual work time, amounts to at least 50% of his/her
scheduled time for the month. If an individual does not fulfill
his scheduled time due to one of the aforementioned leaves, his
award will be pro rated based on actual hours worked in that
month (vis-a-vis hours scheduled in that month); otherwise, no
payment will be made.
Financial Component
To earn an award under the financial component of the Plan, an
individual must have been employed as a regular full-time or part-
time employee at American, in a participating workgroup
(employees in the United States, Puerto Rico and the U.S. Virgin
Islands) during 2005 to be eligible to participate in the Plan.
The Committee, at its discretion, may permit participation by
employees of Affiliates who have been so employed by the
Affiliate during the Plan year, if they become employed by
American during the Plan year. In such instances, only eligible
earnings at American will be included in the payout calculation.
Notwithstanding the forgoing, however, an individual will not be
eligible to participate in the Plan if such individual is, at the
same time, eligible to participate in:
i) any incentive compensation, profit sharing, commission or
other bonus plan sponsored by an Affiliate of American
ii) any commission or bonus plan, with the exception of
American's Employee Profit Sharing Plan or provisions of the
Annual Incentive Plan, sponsored by American, any division of
American or any Affiliate of American
In order to earn an award under the financial component of the
Plan, an individual must satisfy the aforementioned eligibility
requirements and must be an employee of American or an Affiliate
at the time such financial award under the Plan is paid. If at
the time such awards are paid under the Plan, an individual has
retired from American or an Affiliate, has been laid off, is on
leave of absence with reinstatement rights, is disabled, or has
died, the award which the individual otherwise would have
received under the Plan but for such retirement, lay-off, leave,
disability, or death may be paid (on a pro rata basis) to the
individual, or his/her estate in the event of death, at the
discretion of the Committee.
Allocation of Individual Awards
The Committee, in consultation with the Chairman, President and
CEO of American, will approve awards for officers of American,
including the Named Executive Officers. The award for an officer
will be equal to an amount calculated in accordance with this
Plan, as adjusted for individual performance. Provided, however,
that the sum of all awards made to officers may not exceed the
sum of officer awards as calculated in accordance with this Plan.
Awards for the Named Executive Officers will be equal to the
award earned under the financial component of the Plan. An award
under the Plan to an officer may not exceed the amount set forth
in Section 11 of the 1998 Long Term Incentive Plan, as amended.
The Chairman, President and CEO of American, in consultation with
the executive and senior vice presidents of American, will
approve awards for non-officer eligible employees (Level 5 and
above). An award for a non-officer will be equal to an amount
calculated in accordance with this Plan, as adjusted for
individual performance. Provided, however, that the sum of all
awards made to non-officers may not exceed the sum of non-officer
awards calculated in accordance with this Plan.
Administration
The Committee shall have authority to administer and interpret
the Plan, establish administrative rules, approve eligible
participants, and take any other action necessary for the proper
and efficient operation of the Plan, consistent with the Letters
of Agreement reached with each of the unions. The amount, if
any, of the Fund shall be audited by the General Auditor of
American based on a certification of American's Pre-Tax Earnings
Margin by AMR's independent auditors. For the Financial Measure,
a summary of awards under the Plan shall be provided to the
Committee at the first regular meeting following determination of
the awards. To the extent a Measure is no longer compiled by the
DOT or Survey America as applicable, during a Plan year, the
Committee will substitute a comparable performance measure for
the remainder of the Plan year.
Method of Payment
The Committee will determine the method of payment of awards.
The financial awards shall be paid as soon as practicable after
audited financial statements for the year 2005 are available, but
no later than March 15, 2006. The customer service measure is
paid independently of the financial measure. The customer
service award will be paid quarterly as soon as practicable after
the DOT Rank and Survey America Rank are available and employee
eligibility is established.
General
Neither this Plan nor any action taken hereunder shall be
construed as giving any employee or participant the right to be
retained in the employ of American or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any
right, contractually or otherwise, to participate in the Plan or
in any benefits hereunder, other than the right to receive
payment of such incentive compensation as may have been expressly
awarded by the Committee.
In consideration of the employee's privilege to participate in
the Plan, the employee agrees (i) not to disclose any trade
secrets of, or other confidential/restricted information of,
American or its Affiliates to any unauthorized party and (ii) not
to make any unauthorized use of such trade secrets or
confidential or restricted information during his or her
employment with American or its Affiliates or after such
employment is terminated, and (iii) not to solicit any then
current employees of American or any other subsidiaries of AMR to
join the employee at his or her new place of employment after his
or her employment with American or its Affiliates is terminated.