American Airline workers, facing pay and job cuts, offered a silver lining: stock options By ANGELA K. BROWN The Associated Press 4/3/03 5:15 AM FORT WORTH, Texas (AP) -- After swallowing the bitter pill of steep pay and job cuts around the corner, American Airlines employees have also been offered a taste of something more soothing -- a company proposal to give workers stock options and an ownership stake. Employees learned Wednesday they would receive options to buy nearly 38 million shares of parent AMR Corp. as part of concession agreements negotiated with American this week. The new labor pacts, still subject to employee approval, are designed to keep the world's largest carrier out of bankruptcy. "There's some mitigation of the negative impact," said Steve Blankenship, an American pilot for 12 years. "This hurts. This is bad. It's devastating, but bankruptcy is the abyss." Stock options, profit sharing of up to 15 percent annually and 1.5 percent annual pay raises beginning in May 2004 are part of the Allied Pilots Association's plan to cut $660 million annually by eliminating 2,500 jobs. Pilots also will have their salaries slashed by 23 percent this year. American, based in Fort Worth, Texas, has lost nearly $5.3 billion in the past two years and has faced increasing competition from low-fare carriers. After more than a month of intense wrangling, American temporarily avoided a Chapter 11 filing Monday by securing from labor leaders about $1.8 billion in concessions -- including $620 million from the Transport Workers Union and $340 million from the Association of Professional Flight Attendants. Analysts say stock options likely will benefit American's employees, who could end up owning more than 20 percent of AMR. "This is more than a postdated check on a crashing bank," said Richard Aboulafia of the Teal Group, a consulting company in Fairfax, Va. "This is potentially a respectable carrot to dangle." In 1993, Northwest Airlines was on the brink of bankruptcy when employees agreed to $886 million in cuts in exchange for receiving about 30 percent of the company's stock. Within two years, the stock price doubled. In 1994, Southwest Airlines pilots agreed to a contract in which they received 10,000 stock options while their pay was frozen for five years. Southwest went on to become the industry's most consistent financial performer. Before the stock fell last year, each senior pilot's stake was worth nearly $1 million. But it's a different story at United Airlines, where an employee stock ownership plan launched in 1994 now is all but worthless. The options would be exercised at the closing share price on the day after the last union has ratified its agreement, which is expected to be April 15. AMR shares closed at $4.25 Wednesday on the New York Stock Exchange. Stock options allow their holder to buy a company's shares at the price at which they were granted, serving as a potentially lucrative reward in a profitable enterprise. Pilots would receive 12.3 million options, and flight attendants 6.8 million. Mechanics and fleet-service workers would receive 7 million options and 5.4 million options, respectively. Other ground workers represented by the union would get 750,000 options. Nonunion agents and customer service employees would receive 2.7 million options. Management would receive 2.9 million options. Copyright 2003 Associated Press. All rights reserved.