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 7, 2006
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
2006 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 February 7, 2006 and a copy
of the AIP is attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
Exhibit 99.1 2006 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 10, 2006
EXHIBIT INDEX
Exhibit Description
99.1 2006 Annual Incentive Plan for American
Exhibit 99.1
2006 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 Board of Directors (sometimes referred
to as the "Board").
The Board has determined that for 2006 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 Airlines" is defined as American Airlines, Inc.
"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.
"Disabled", "Disability" or variants thereof will have the
meaning as defined in section 409(a)(2)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
"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, 2006
through December 31, 2006, 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 2006 Employee
Profit Sharing Plan.
"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, 2006
through December 31, 2006, 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, within 75 days after DOT Rank
and Survey America Rank are available and employee
eligibility is established.
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 2006.
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 2006 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 2006 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 (net of
applicable taxes).
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 (net of applicable taxes).
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"). Any payment
under the 20% Limitation shall be made by March 15, 2007.
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. Any payment under the program described in this
paragraph shall be made by March 15, 2007.
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) during the
applicable month 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 since the first day in the applicable month, if
they become employed by American during the applicable month
during 2006.
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 2006 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 (net of
applicable taxes) as soon as practicable after audited
financial statements for the year 2006 are available, but no
later than March 15, 2007. The customer service measure is
paid independently of the financial measure. The customer
service award will be paid (net applicable taxes) quarterly
within 75 days 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.
The employee shall not have the right to defer any payment
under the Plan. The Committee and American Airlines shall
not accelerate any payment under the plan.
Notwithstanding any provision to the contrary, if an
employee is a person subject to section 409(a)(2)(B)(i) of
the Code, any payment under the Plan due to Retirement or
termination of employment for reasons other than Death or
Disability shall be delayed until the sixth month
anniversary of the date of the separation from employment
due to Retirement or termination for Cause.