PRE 14A 1 d479632dpre14a.htm PRE 14A PRE 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant                                Filed by a Party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under § 240.14a-12

AMERICAN AIRLINES GROUP INC.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount previously paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO

 

April     , 2018

To Our Stockholders:

On behalf of the Board of Directors of American Airlines Group Inc., we invite you to attend the 2018 Annual Meeting of Stockholders to be held at the offices of Latham & Watkins LLP, located at 885 Third Avenue, New York, New York 10022, on Wednesday, June 13, 2018, at 9:00 a.m. local time. The attached Notice of 2018 Annual Meeting of Stockholders and Proxy Statement describes the formal business to be transacted and procedures for voting at the meeting.

It is important that your shares be represented at the Annual Meeting and, whether or not you plan to attend the Annual Meeting in person, we request that you vote in advance on the matters to be presented at the meeting. Thank you for your continued support.

 

LOGO     

Sincerely,

 

     LOGO
    

 

W. Douglas Parker

    

Chairman of the Board of Directors and

Chief Executive Officer

 

 

 

 

The accompanying Proxy Statement is dated April     , 2018, and is first being released to stockholders of American Airlines Group Inc. on or about April     , 2018.

 

 


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NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

DATE AND TIME:

Wednesday, June 13, 2018

9:00 a.m., local time

 

PLACE:

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

 

RECORD DATE:

April 16, 2018

  

 

MEETING AGENDA

 

    

 

 

1

      

 

A proposal to elect 12 directors to serve until the 2019 annual meeting of
stockholders and until their respective successors have been duly elected and
qualified

 

    

 

2

      

 

A proposal to ratify the appointment of KPMG LLP as our independent
registered public accounting firm for the fiscal year ending December 31,
2018

 

    

 

3

      

 

A proposal to consider and approve, on a non-binding, advisory basis,
executive compensation as disclosed in the attached Proxy Statement

 

    

 

4

      

 

A proposal to amend our Restated Certificate of Incorporation to enable
stockholders who hold at least 20% of our outstanding common stock to call
special meetings

 

    

 

5

      

 

A shareholder proposal to enable stockholders who hold at least 10% of our
outstanding common stock to call special meetings

 

    

 

6

       

 

Such other business as properly may come before the 2018 Annual Meeting of
Stockholders or any adjournments or postponements of the Annual Meeting

 

 

     

VOTE IN ADVANCE OF THE MEETING

 

                   

VOTE IN PERSON AT THE MEETING

 

     
  

 

LOGO

 

  

 

Vote your shares at www.proxyvote.com.

          

 

LOGO

  

 

 

See page 1 —“Requirements to Attend Annual Meeting” for details on admission requirements to attend the Annual Meeting.

  

 

LOGO

 

  

 

Call toll-free number 1-800-690-6903

 

             
  

 

LOGO

  

 

Sign, date and return the enclosed proxy card or voting instruction form.

                
                         

For additional details on Internet and telephone voting and attendance at the meeting, please see page 2 of the Proxy Statement.

 

 

    Important notice regarding the availability of proxy materials for the Annual Meeting:

    Our Proxy Statement and 2017 Annual Report on Form 10-K are available at www.proxyvote.com.

You can help us reduce costs and the impact on the environment by electing to receive and access future copies of our proxy statements, annual reports and other stockholder materials electronically. If your shares are registered directly in your name with our stock registrar and transfer agent, American Stock Transfer & Trust Company, LLC, you can make this election by going to its website (www.astfinancial.com) or by following the instructions provided when voting over the Internet. If you hold your shares in a brokerage account or otherwise through a third party in “street name,” please refer to the information provided by your broker, bank or other nominee for instructions on how to elect to receive and view future annual meeting materials electronically.

 

LOGO   

By Order of the Board of Directors of American Airlines Group Inc.,

 

   LOGO
   Caroline B. Ray
  

Corporate Secretary

 

PLEASE READ THE ACCOMPANYING PROXY STATEMENT CAREFULLY.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOUR VOTE IS IMPORTANT AND WE

ENCOURAGE YOU TO VOTE BY SUBMITTING A PROXY OR VOTING INSTRUCTIONS PROMPTLY.

 

 


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PROXY STATEMENT SUMMARY

This summary contains highlights about our Company and the upcoming 2018 Annual Meeting of Stockholders (the “Annual Meeting”). This summary does not contain all of the information that you should consider in advance of the meeting and we encourage you to read the entire proxy statement and the Annual Report on Form 10-K for the year ended December 31, 2017 that accompanies this proxy statement before voting.

 

2018 Annual Meeting of Stockholders

 

 

 

LOGO

 

Date and Time:

Wednesday,

June 13, 2018 at

9:00 a.m., local time

 

 

LOGO

 

Location:

Latham & Watkins LLP

885 Third Avenue

New York, New York

10022

 

 
 

 

LOGO

 

Record Date:

April 16, 2018

 

 

LOGO

 

Proxy Mail Date:

On or about

April     , 2018.

 

 

Voting Matters and

Board Recommendations

 

  Matter  

Board

Recommendation

    Page

 

1. Election of Directors

 

 

 

 

FOR each Director

Nominee

 

 

 

 

 

5

 

2. Ratification of Public Accounting Firm

 

 

 

 

FOR

 

 

 

 

20

 

3. A proposal to consider and approve, on a non-binding, advisory basis, executive compensation as disclosed in the attached Proxy Statement

 

 

 

 

 

FOR

 

 

 

 

 

 

22

 

 

4. A proposal to amend our Restated Certificate of Incorporation (“Charter Amendment”) to enable stockholders who hold at least 20% of our outstanding common stock to call special meetings

 

 

 

 

 

FOR

 

 

 

 

 

 

24

 

 

5. A shareholder proposal to enable stockholders who hold at least 10% of our outstanding common stock to call special meetings

 

 

 

 

 

AGAINST

 

 

 

 

 

 

26

 

 

2017 In Review

2017 was a great year for American Airlines thanks to the work of our over 120,000 full-time equivalent team members.

We are focused on four long-term strategic objectives to guide our thinking and decisions and keep the entire team focused on managing American for the long-term. They are: Create a World-Class Customer Experience, Make Culture a Competitive Advantage, Ensure Long-Term Financial Strength and Think Forward, Lead Forward.

Create a World-Class Customer Experience

We are delivering value to all customers, especially premium customers, as well as driving operational excellence and strengthening our network by growing where we have a competitive advantage. During 2017:

    We recorded our best on-time departure and arrival performance since 2003, and our best baggage handling performance since DOT began reporting in 1994.

 

    We expanded the airline’s global footprint by launching Los Angeles-to-Beijing service, and announced service from Philadelphia to Prague, Czech Republic, and Budapest, Hungary; Dallas-Fort Worth to Reykjavik-Keflavik, Iceland; and Chicago-O’Hare to Venice, Italy, which will start this summer.

 

    We operate the youngest fleet among our peers and invested $4.1 billion in new aircraft, including our first Boeing 737 MAX. By the end of 2018 we expect to induct a total of 20 new MAX aircraft, which are replacing older, less fuel efficient aircraft.

 

    We introduced new streaming-capable satellite-based internet access on narrowbody aircraft, starting with the 737 MAX and expanding soon to most of our domestic mainline fleet.

 

    We introduced Basic Economy to compete with ultra low-cost carriers. This product is now offered nationwide and to leisure markets in Mexico and most of the Caribbean. We expect to expand it to some trans-Atlantic routes this spring.

 

    We expanded Premium Economy, which offers a wider seat, more legroom, an amenity kit, and enhanced meal choices on international flights. As
 

 

 

 

 

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  of March 14, 69 widebody aircraft offer this product. We expect to offer Premium Economy on most of our widebody fleet by mid-2019.

 

    We launched new products to meet customer demand, including the expansion of American’s best-in-class lounges by opening Flagship First Dining, a new exclusive experience for customers in Flagship First on international and A321T transcontinental flights. American now offers Flagship First Dining in Miami, Los Angeles, and New York- JFK. American is the only U.S. airline that offers international first class.

Make Culture a Competitive Advantage

American is creating an environment that cares for frontline team members, develops innovative, inspiring, and caring leaders, and equips our team with the tools to support our customers.

    We awarded each team member with two complimentary round-trip tickets across American’s global network to commemorate being named Air Transport World’s 2017 Airline of the Year.

 

    After hurricanes hit the Caribbean and Florida, American Airlines team members worked together to help the people of San Juan, Puerto Rico and other affected parts of the region. American and our team members delivered more than 2.5 million pounds of relief supplies, raised almost $2 million for the American Red Cross and contributed $788,000 to the Family Fund to provide emergency assistance to team members.

 

    We invested more than $300 million in facilities and equipment including renovations to team member spaces, mobile devices for pilots and flight attendants, and the One Campus One Team initiative at our global support center in Fort Worth.

 

    We kept team member pay competitive through initiatives such as a mid-contract salary increase for pilots and flight attendants and continued step increases, as well as a mid-contract pay increase for mechanics and fleet service workers. In early 2018 we also shared benefits of the recent Tax Cuts and Jobs Act through $1,000 payments to all non-officer team members.

 

    We introduced best-in-industry maternity and adoption benefits.

 

    We conducted our first team member engagement survey in over a decade, and we will continue to act on the results so that American continues to improve as a workplace.

 

    We provided customer service skills training to 35,000 team members through Elevate the Everyday Experience training.
    We rolled out our Leadership Model during 2017, which defines the attributes and expectations for leaders at American. Training was initiated to build skills that include improved listening and coaching to help our team lead differently. In 2017, 4,000 leaders participated in leadership training designed to help them support our frontline team members. Higher level leaders underwent additional training to further listening and coaching skills during 2017, and this same training will roll out more broadly in 2018. We also began development of implicit bias training for leaders and our frontline team during 2017. All of this training supports our imperative to make culture a competitive advantage for American Airlines by building leaders who support the frontline team.

Ensure Long-Term Financial Strength

To ensure our long-term competitiveness in the global aviation industry, we are focused on capturing the efficiencies created by the merger, delivering on American’s earnings potential, and creating value for our stockholders. In the four full years since the merger closed, the company’s cumulative pre-tax earnings were $15.2 billion, or $19.4 billion excluding net special items.

    We reported a 2017 pre-tax profit of $3.1 billion, or $3.8 billion excluding net special items.

 

    We returned $1.7 billion to shareholders in 2017, including the repurchase of 33.9 million shares and dividend payments of $198 million.

 

    Since mid-2014 we have returned $11.4 billion to shareholders, reducing our share count by 37 percent to 475.5 million shares at the end of 2017.

See Annex A for a reconciliation of pre-tax profit excluding net special items, a non-GAAP measure.

Think Forward, Lead Forward

We are committed to re-establishing American as an industry leader by creating an action-oriented culture that moves quickly to bring products to market, embraces technological change and quickly seizes upon new opportunities for our network and our product.

    We acquired 2.7% of the outstanding shares of China Southern Airlines, the largest airline in China.

 

    We extended our trans-Atlantic Joint Business Agreement with our airline partners.

 

    We committed more than $1.6 billion to improve LAX Terminals 4 and 5, setting the stage for American to receive additional gates, strengthen our Pacific gateway and be the pre-eminent airline for Los Angeles.
 

 

 

 

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    We have agreed on a new lease that will redevelop ORD over the next 10 to 15 years, giving us further room to grow our ORD operation. We built a five-gate expansion at ORD Terminal 3, which is due to open in April 2018, giving American a new advantage at this key competitive hub.

Our Commitment to Sustainability

 

    With our industry leading fleet renewal program, we continue to aggressively retire older aircraft and replace them with new, more fuel-efficient aircraft. By year-end 2017, we had introduced 496 new aircraft into the fleet since our merger, and retired 469 older aircraft, giving us the youngest fleet amongst the largest airlines. New aircraft entering American’s fleet, like the Boeing 737 MAX, improve per seat fuel efficiency by up to 40% and thus dramatically reduce emissions over similarly sized older aircraft.
    For 2017, American achieved a 2.5% improvement in fuel efficiency and it is now 5.4% more efficient than it was in 2014. Over the last 3 years American emitted approximately 4.9 million metric tons of CO2 less than it would have if its fuel efficiency had remained at its 2014 level.

 

    We received, for the 16th consecutive year, the highest possible ranking by the Human Rights Campaign in the 2017 Corporate Equality Index.

 

    Our team members participated in more than 21,000 volunteer events in their communities, contributing more than 155,000 hours of volunteer time in the communities where they live and where we provide service. In addition, as part of the Company’s Flights for 50 awards program, our team members donated more than 20 million frequent flier miles to nonprofit organizations in their communities.
 

 

Stockholder Engagement and Governance

We welcome and value communication with our stockholders. The following corporate governance and Board practices ensure accountability and enhance effectiveness in the boardroom:

 

Our Governance Best Practices

 

 

    Annual Board elections

 

    Majority voting standard

 

    11 of 12 director nominees are independent

 

    Robust Lead Independent Director role with responsibilities that conform to leading governance practices

 

    Routine review of Board leadership structure

 

    Regular executive sessions held without management present

 

    Stockholder right to proxy access

  

 

    Annual Board, committee and director evaluations

 

    Annual review of Board and committee composition

 

    All members of the Audit Committee are designated financial experts

 

    Diverse Board

 

    Significant stock ownership requirements for directors and senior vice presidents and above

 

    Comprehensive risk management with Board and committee oversight

 

    Commitment to corporate social responsibility

 

Executive Compensation—How We Link Pay and Performance

Our CEO and other executive officers have demonstrated their commitment to fair pay and pay for performance by initiating the following exceptional actions with respect to their compensation.

    Since 2015, at Mr. Parker’s request, we provide 100% of his direct compensation in the form of equity incentives in lieu of base salary and annual cash incentive compensation. That has helped to advance our commitment to paying for performance and aligning Mr. Parker’s interests with that of our stockholders. More than half of these equity
 

incentives will be earned not earlier than the third anniversary of the grant date based on our relative pre-tax income margin and total stockholder return (TSR) performance.

 

    At his request, Mr. Parker’s target direct compensation has been historically set at below the average for his peers at Delta and United.

 

    Also at his request, in 2016, our Compensation Committee agreed to eliminate Mr. Parker’s employment agreement so that he is no longer contractually entitled to receive a set level of compensation and benefits and is no longer protected by the change in control and severance provisions of that employment agreement.
 

 

 

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    In 2017, at their request, all of our executive officers who were party to change in control and severance benefit agreements voluntarily terminated their agreements. As a result, none of our executive officers is now contractually entitled to cash severance or continued health benefits upon any termination, nor are we contractually obligated to provide a gross-up to cover any excise taxes incurred by any named executive officer under Section 4999 of the Internal Revenue Code.

Our executives’ compensation is heavily weighted towards variable cash and long-term equity incentives, linking our executives’ pay opportunity to the execution of Company strategies and enhancing the interests of our stockholders.

    Our annual cash incentive program is based on pre-established pre-tax income targets (excluding special items). A pre-tax income measure maintains a focus on profitability and operating efficiency and is an effective measure of financial performance in our industry. In 2017, we achieved an adjusted pre-tax income of approximately $4.2 billion, which corresponded to achievement at 79.1% of the target
   

level under the 2017 cash incentive program. Based on the funding level, each participating executive officer received a bonus at 79.1% of target.

 

    Our 2017 equity incentive program for our named executive officers incorporates both performance- and time-vesting components, with the performance-vesting component weighted at least 50% by value. The performance-vesting component consists of restricted stock units that will be earned not earlier than the third anniversary of the grant date based on our relative three-year pre-tax income margin excluding special items as compared to that of a pre-defined group of airlines and our three-year relative TSR.

 

    The Compensation Committee adopted the three-year relative TSR modifier for the performance-vesting component of the restricted stock units as a new measure under our equity incentive program in 2017. Adjusting performance achievement positively or negatively based on relative TSR demonstrates our commitment to generating returns for our stockholders and further aligns management with stockholder interests.
 

 

What We Do

 

           

What We Do NOT Do

 

 

  Stock Ownership Guidelines that align our executive officers’ long-term interests with those of our stockholders.

 

Independent Compensation Consultant that is directly engaged by the Compensation Committee to advise on executive and director compensation matters.

 

 Annual Compensation Risk Assessment to identify any elements of our compensation program design or oversight processes that carry elevated levels of adverse risk.

 

 Equity Award Grant Policy that establishes objective, standardized criteria for the timing of equity awards granted to our team members.

 

Tally Sheet Review. We conduct a comprehensive overview of total compensation targets and potential payouts.

 

 Clawback Policy for all cash and equity incentive compensation paid to our executive officers.

 

At-Will Employment. None of our executive officers has an employment agreement.

 

     

 

No Severance or Change in Control Agreements. None of our executive officers has a severance or change in control agreement.

 

No Excessive Perquisites. Perquisites and other personal benefits are not a significant portion of any executive officer’s compensation. We do not provide company cars, personal club memberships, home security protection, private jet travel for personal use or protection on home sale loss in a relocation.

 

No Guaranteed Bonuses. Our executive officers’ bonuses are 100% performance-based and at risk.

 

No Payouts of Dividends accrued on unvested awards unless and until the award’s vesting conditions are satisfied.

 

No Active Executive Retirement Plans. We do not maintain any active executive-only or supplemental retirement plans.

 

No Hedging of our Stock or Pledging our stock as collateral for loans.

 

No Excise Tax Gross-Ups to cover excise taxes in connection with a change in control.

 

 

 

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What are Proposals 4 and 5 and how does the Board recommend stockholders vote?

As set forth in Proposal 4, the Board of Directors has approved the Charter Amendment to permit stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders. While the Board of Directors recognizes that providing a stockholder right to call special meetings is consistent with corporate governance best practices, the Board of Directors also believes that special meetings of stockholders should be extraordinary events that are held only when strategic concerns or other similar considerations require that the matters to be addressed not be delayed until the next annual meeting. The Board of Directors believes that an ownership threshold of at least 20% is appropriate based on the Company’s current size and stockholder composition, as it would provide the Company’s stockholders with a meaningful right to request a special meeting, while mitigating the risk that corporate resources are wasted to serve the narrow self-interests of a few minority stockholders.

This proxy season, the Company received a stockholder proposal for consideration at the Annual Meeting requesting that the Company take the steps necessary to

permit stockholders who hold at least 10% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders. The stockholder’s proposal is set forth in Proposal 5. The Corporate Governance and Nominating Committee and the Board of Directors carefully considered the stockholder proposal and determined that, while a 10% ownership threshold to call a special meeting of stockholders would not be in the best interest of our stockholders, establishing an ownership threshold of at least 20%, along with appropriate procedural requirements, would achieve a reasonable balance between enhancing stockholder rights and adequately protecting the long-term interests of the Company and its stockholders.

We are recommending that our stockholders approve the Charter Amendment, as set forth in Proposal 4, in order to allow stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders. We are recommending that our stockholders vote against the stockholder proposal in Proposal 5 because a lower 10% ownership threshold will unduly risk giving a stockholder or small group of stockholders a disproportionate amount of influence over the Company’s affairs.

 

 

For these reasons, the Board of Directors unanimously urges stockholders to vote “FOR” Proposal 4, the amendment to our Certificate of Incorporation to enable stockholders who hold at least 20% of our outstanding common stock to call special meetings, and “AGAINST” Proposal 5, the proposal to permit stockholders who hold at least 10% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders.

 

 

 

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PROXY STATEMENT    

 

 

 

 

TABLE OF CONTENTS

Proxy Statement Summary                                                      i  
The Meeting                                                                                    1  

Purpose, Place, Date and Time

    1  

Record Date; Stockholders Entitled to Vote

    1  

Requirements to Attend Annual Meeting

    1  

Quorum

    1  

Vote Required to Approve Each Proposal

    1  

Voting of Proxies

    2  

Revocation of Proxies

    3  

Solicitation of Proxies

    3  

Inspector of Election

    3  

Notice Regarding Internet Availability of Proxy Materials

    3  

Electronic Delivery of Proxy Materials

    3  

Householding of Proxy Materials

    4  
Proposal 1—Election of Directors                                        5  

Election of Directors

    5  

Director Nominees

    5  

Board Diversity

    6  

Qualifications and Principal Occupations

    6  
Board Composition                                                                     18  

How We Build a Board That is Right for American Airlines

    18  

Stockholder Recommendations or Nominations of Director Candidates

    18  
Proposal 2—Ratification of Appointment of Independent Registered Public Accounting Firm          20  

Ratification of Independent Registered Public Accounting Firm

    20  

Independent Registered Public Accounting Firm Fees

    20  

Policy on Audit Committee Pre-Approval

    21  
Proposal 3—Advisory Vote to Approve Executive Compensation (Say-on-pay)                               22  
Proposal 4—Approve an Amendment to our Restated Certificate of Incorporation to Enable Stockholders Who Hold at Least 20% of Our Outstanding Common Stock to Call Special Meetings                                                                                            24  
Proposal 5—Shareholder Proposal to Enable Stockholders Who Hold at Least 10% of Our Outstanding Common Stock to Call Special Meetings                                                                                            26  

Stockholder Proposal

    26  

Board of Directors Statement in Opposition

    27  
Security Ownership of Certain Beneficial Owners and Management                                                                           29  
Information About the Board of Directors and Corporate Governance                                                              32  

Governance Overview

    32  

Board Leadership and Structure

    32  

Director Independence

    33  

Board Tenure

    34  

Board Diversity

    34  

Board Self-Evaluation

    34  

Board Meetings

    34  

Committees

    35  

Board Role in Risk Oversight

    38  

Risk Assessment with Respect to Compensation Practices

    38  

Annual Meeting Attendance

    39  

Director Continuing Education

    39  

Communications with the Board of Directors and Non-Management Directors

    40  
Sustainability                                                                                  41  

Sustaining our Business

    41  

Codes of Ethics

    44  

Public Policy Advocacy and Political Contributions

    44  
Director Compensation                                                             45  

Director Compensation

    46  

Legacy Director Compensation Programs

    46  

Stock Ownership Guidelines

    47  
Certain Relationships and Related Party Transactions                                                                                   48  

Certain Relationships and Related Party Transactions

    48  

Policies and Procedures For Review and  Approval of Related Person Transactions

    48  
Report of The Audit Committee of The Board of Directors                                                                        49  
Compensation Discussion and Analysis                          50  

Overview

    50  

Executive Summary

    50  

2017 Compensation Objectives and Programs

    53  

Stockholder Approval of 2017 Executive Compensation

    54  

Determination of Executive Compensation

    54  

Executive Compensation Mix with an Emphasis on Performance-Based Pay

    55  

Base Salary

    55  

Annual Cash Incentive Program

    55  

Long-Term Incentive Programs

    56  

Change in Control and Severance Benefits

    58  

Other Benefits and Perquisites

    59  

Continuing Focus on Leading Practices

    60  
Compensation Committee Report                                         62  
Executive Officers                                                                       63  
Executive Compensation                                                         65  

Summary Compensation Table

    65  

Grants of Plan-Based Awards in 2017

    67  

Outstanding Equity Awards at 2017 Fiscal Year-End

    68  

Options Exercised and Stock Vested

    69  

Pension Benefits

    69  

Nonqualified Deferred Compensation

    70  

Potential Payments Upon Termination or Change in Control

    71  

Estimated Potential Payments

    73  

CEO Pay Ratio

    73  
Equity Compensation Plan Information                            75  
Section 16(a) Beneficial Ownership Reporting Compliance                                                                                      76  
Other Matters                                                                                  77  

Stockholder Proposals

    77  

Annual Report and Available Information

    77  
Annex A                                                                                            A-1  

Reconciliation of Certain GAAP to Non-GAAP Financial Information

    A-1  
Annex B                                                                                            B-1  

Amendment to Restated Certificate of Incorporation

    B-1  
 

 

 

 

 

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THE MEETING

Purpose, Place, Date and Time

We are furnishing this Proxy Statement to our stockholders in connection with the solicitation by the Board of Directors of proxies to be voted at the Annual Meeting and any adjournments or postponements of that meeting. The Annual Meeting will be held at the offices of Latham & Watkins LLP, located at 885 Third Avenue, New York, New York 10022, on Wednesday, June 13, 2018, at 9:00 a.m., local time, for the purposes described in the accompanying Notice of Annual Meeting.

The approximate date we are first sending the Notice of Annual Meeting and accompanying proxy materials to stockholders, or sending a Notice Regarding the Availability of Proxy Materials and posting the proxy materials at www.proxyvote.com, is April     , 2018.

When used in this Proxy Statement, the terms “we,” “us,” “our” and “the Company” refer to American Airlines Group Inc. and its consolidated subsidiaries. “AAG” refers to American Airlines Group Inc. (which previous to the merger with US Airways in 2013 was AMR Corporation) and “American” refers to AAG’s wholly-owned subsidiary American Airlines, Inc.

Record Date; Stockholders Entitled to Vote

Stockholders of record at the close of business on April 16, 2018 (the “record date”) are entitled to receive notice of and to vote at the Annual Meeting. On the record date, there were      shares of our common stock, $0.01 par value per share (“Common Stock”), outstanding and eligible to be voted at the Annual Meeting. Each share of Common Stock entitles its owner to one vote on each matter submitted to the stockholders. As of the record date, approximately 24.5 million of the issued and outstanding shares of Common Stock were held in the Disputed Claims Reserve established in accordance with AMR Corporation’s fourth amended joint plan of reorganization. Pursuant to the plan, the shares held in the Disputed Claims Reserve will be voted by the disbursing agent holding these shares in the same proportion as the other outstanding shares of Common Stock are voted.

A list of the names of stockholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for any purpose germane to the Annual Meeting between the hours of 9:00 a.m. and 5:00 p.m., local time, at our headquarters, 4333 Amon Carter Blvd., Fort Worth, Texas 76155. The stockholder list will also be available at the Annual Meeting for examination by any stockholder present at the Annual Meeting.

Your vote is very important. You are encouraged to vote as soon as possible.

Requirements to Attend Annual Meeting

Stockholders who attend the Annual Meeting must check in at the registration desk in the lobby of the offices of Latham & Watkins LLP, located at 885 Third Avenue, New York, New York 10022. At check-in, you must provide:

 

    an admission ticket or other proof of ownership of our stock as of April 16, 2018 that is acceptable to us; and

 

    valid government-issued picture identification.

You can find your admission ticket on your proxy card or with your voting instruction form. A copy of a statement from your broker showing your stock ownership is an acceptable form of proof of ownership. A driver’s license or passport is an acceptable form of government-issued picture identification. If you fail to provide the required admission ticket or proof of ownership and valid government-issued picture identification, you will not be admitted to the Annual Meeting.

Quorum

The presence, in person or by proxy, of a majority of the outstanding shares of Common Stock as of the record date is necessary to constitute a quorum at the Annual Meeting.

Vote Required to Approve Each Proposal

With respect to Proposal 1 (Election of Directors), in uncontested elections of directors, such as this election, each director must be elected by the affirmative vote of a majority of the votes cast with respect to such director by the shares present in person or represented by proxy and entitled to vote for the election of directors. A majority of the votes cast means that the number of votes cast “FOR” a nominee exceeds the number of votes cast “AGAINST” that nominee. Brokers do not have discretionary authority to vote on this proposal. Abstentions and broker non-votes (as defined below) are not

 

 

 

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considered votes cast “FOR” or “AGAINST” a nominee’s election and will have no effect in determining whether a nominee has received a majority of the votes cast. In this election, an incumbent director nominee who does not receive the required number of votes for reelection is expected to tender his or her resignation to the Board of Directors in accordance with a policy adopted by the Board of Directors. Within approximately 90 days after certification of the election results of the stockholder vote, our Corporate Governance and Nominating Committee (or other committee as directed by the Board of Directors) will make a determination as to whether to accept or reject the tendered resignation. Following such determination, we will publicly disclose the decision regarding any tendered resignation in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”).

Approval of Proposal 2 (Ratification of Appointment of Independent Registered Public Accounting Firm), Proposal 3 (Advisory Vote to Approve Executive Compensation), and Proposal 5 (Shareholder Proposal) will require the affirmative vote of the holders of a majority of the shares represented, in person or by proxy, and entitled to vote on the matter at the Annual Meeting, provided a quorum is present. Abstentions are considered in determining the number of votes required to obtain the necessary majority vote for the proposal and will have the same legal effect as voting against each proposal. Approval of Proposal 4 (Management Proposal to Approve Charter Amendment) will require the affirmative vote of the holders of at least two-thirds of the voting power of the outstanding shares as of the record date. Abstentions will have the same legal effect as voting against Proposal 4. Brokers do not have discretionary authority and are not entitled to vote on Proposals 3 through 5. Broker non-votes (as defined below) will have no effect on the outcome of Proposals 3 and 5 but will have will have the same legal effect as a vote against Proposal 4. Because brokers have discretionary authority to vote on Proposal 2, broker non-votes are not expected on Proposal 2.

Voting of Proxies

A proxy is a legal designation of another person to vote your shares on your behalf. If you are a stockholder of record, you may submit a proxy for your shares by using the toll-free number or the website provided on your proxy card. You also may submit a proxy in writing by simply filling out, signing and dating your proxy card and mailing it in the prepaid envelope included with the proxy materials. You will need to follow the instructions when you submit a proxy using any of these methods to make sure your shares will be voted at the Annual Meeting. You also may vote by submitting a ballot in person if you attend the Annual Meeting. However, we encourage you to submit a proxy by mail by completing your proxy card, by telephone or over the Internet, even if you plan to attend the Annual Meeting.

If your shares are held in “street name” through a broker, bank or other nominee, you may instruct your broker, bank or other nominee to vote your shares by following the instructions that the broker, bank or other nominee provides to you with the proxy materials. Most brokers offer the ability for stockholders to submit voting instructions by mail by completing a voting instruction card, by telephone and over the Internet. If you hold shares through a broker, bank or other nominee and wish to vote your shares at the Annual Meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot when you vote at the Annual Meeting. In any case, voting in advance by phone, Internet or mail or through your broker, bank or other nominee will not prevent you from voting in person at the Annual Meeting provided you follow the instructions set forth below.

If your shares are held by a broker, bank or other nominee in “street name” and you do not provide the broker, bank or other nominee with specific voting instructions, the broker, bank or other nominee that holds your shares generally may vote on “routine” proposals but cannot vote on “non-discretionary” (non-routine) proposals. We believe that Proposal 2 is routine and that Proposals 1, 3, 4 and 5 are non-discretionary. If the broker, bank or other nominee that holds your shares in “street name” returns a proxy card without voting on a non-discretionary proposal because it did not receive voting instructions from you on that proposal, this is referred to as a “broker non-vote.” “Broker non-votes” are considered in determining whether a quorum exists at the Annual Meeting. The effect of broker non-votes on the outcome of each proposal to be voted on at the Annual Meeting is explained above. All properly executed proxies received by us by 11:59 p.m., Eastern Time, on Tuesday, June 12, 2018, and not revoked will be voted at the Annual Meeting in accordance with the directions noted in each proxy. In the absence of such instructions, shares represented by a signed and dated proxy card will be voted “FOR” the election of all director nominees, “FOR” the ratification of the appointment of the independent registered public accounting firm, “FOR” the approval, on a non-binding, advisory basis, of executive compensation as disclosed in this Proxy Statement, “FOR” the Charter Amendment to enable stockholders who hold at least 20% of our outstanding common stock to call special meetings, and “AGAINST” the shareholder proposal to enable stockholders who hold at least 10% of our outstanding common stock to call special meetings.

If any other matters properly come before the Annual Meeting, the persons named as proxies will vote upon those matters according to their judgment. The Board of Directors knows of no other items of business that will be presented for consideration at the Annual Meeting other than those described in this Proxy Statement.

 

 

 

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Revocation of Proxies

Any stockholder delivering a proxy has the power to revoke it at any time before it is voted by:

 

    giving notice of revocation to our Corporate Secretary, at American Airlines Group Inc., 4333 Amon Carter Blvd., MD 5675, Fort Worth, Texas 76155 (by mail or overnight delivery);

 

    executing and delivering to our Corporate Secretary a proxy card relating to the same shares bearing a later date;

 

    submitting a new proxy prior to the time at which the Internet and telephone voting facilities close; or

 

    voting in person at the Annual Meeting.

If you revoke your proxy other than by voting in person at the Annual Meeting, we must receive the notice of revocation or new proxy by 11:59 p.m., Eastern Time, on Tuesday, June 12, 2018, the date prior to the date of the Annual Meeting.

If your shares are held in “street name,” you must contact your broker, bank or other nominee to revoke your vote. The revocation must be made by the broker, bank or other nominee before your proxy is voted at the Annual Meeting. If you want to vote at the Annual Meeting, but your shares are held in “street name” by a broker, bank or other nominee, you will need to obtain proof of ownership as of April  16, 2018 and a proxy to vote the shares from such broker, bank or other nominee.

Solicitation of Proxies

In addition to soliciting proxies through the mail, we may solicit proxies through our directors, officers and employees in person and by e-mail, telephone or facsimile. We may also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record by them. We will pay all expenses incurred in connection with the solicitation of proxies. In addition, we have retained MacKenzie Partners, Inc. to assist in the solicitation for an anticipated fee of $25,000, plus expenses.

Inspector of Election

All votes at the Annual Meeting will be counted by Broadridge Financial Solutions, Inc., our inspector of election. The inspector of election will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

Important Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting to be held on June 13, 2018

The Notice of Annual Meeting, this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 are available at www.proxyvote.com.

Electronic Delivery of Proxy Materials

Stockholders can help us reduce costs and the impact on the environment by electing to receive and access future copies of our proxy statements, annual reports and other stockholder materials electronically. If your shares are registered directly in your name with our stock registrar and transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), you can make this election by going to AST’s website (www.astfinancial.com) and (1) clicking Client Login, then Shareholders & Investors, then Manage My Accounts, then select the type of Account—US Shareholder or Non Shareholder, then Login to Transact; (2) entering the information required to gain access to your account; and (3) clicking Receive Company Mailing via E-Mail, or by following the instructions provided when voting over the Internet. If you hold your shares in a brokerage account or otherwise through a third party in “street name,” please refer to the information provided by your broker, bank or other nominee for instructions on how to elect to receive and view future annual meeting materials electronically.

This year, we intend both to mail our proxy materials to certain stockholders and to use the “Notice and Access” method of providing proxy materials to certain stockholders. Under the Notice and Access method, if you have not opted to receive an e-mail notification, you will receive by mail a simple “Notice Regarding the Availability of Proxy Materials,” which will direct you to a website where you may access proxy materials online. You will also be told how to request proxy materials (at no charge) via mail or e-mail, as you prefer. In order to eliminate the mailing of a paper notice and to speed your ability to access the proxy materials (including our Annual Report on Form 10-K for the year ended December 31, 2017), we encourage you to sign up for electronic delivery of the Notice Regarding Availability of Proxy Materials using the instructions described above.

 

 

 

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Householding of Proxy Materials

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports, or Notices Regarding the Availability of Proxy Materials, with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. In accordance with these rules, only one proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, will be delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders.

If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, please notify your broker, direct your written request to Caroline B. Ray, Corporate Secretary, American Airlines Group Inc., 4333 Amon Carter Blvd., MD 5675, Fort Worth, Texas 76155. Stockholders who currently receive multiple copies of the proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, at their address and would like to request “householding” of their communications should contact their broker.

 

 

 

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PROPOSAL 1—ELECTION OF DIRECTORS

Election of Directors

Upon the recommendation of the Corporate Governance and Nominating Committee, the Board of Directors has nominated the 12 director candidates listed below under the section “Director Nominees.” Each nominee is currently a director of the Company.

The authorized number of directors is currently set at 13, and the Board currently consists of 13 members. Richard P. Schifter will not stand for re-election at the Annual Meeting. The Board has approved reducing the authorized number of directors to 12 effective as of the Annual Meeting. If elected as a director at the Annual Meeting, each of the nominees will serve a one-year term expiring at the 2019 annual meeting of stockholders and until his or her successor has been duly elected and qualified.

Each of the nominees has consented to serve as a director, if elected.

 

 

The Board of Directors unanimously recommends that the stockholders vote “FOR” the proposal to elect the directors of the Company listed below under the section “Director Nominees” for a one-year term expiring at the 2019 annual meeting of stockholders and until his or her successors have been duly elected and qualified.

Director Nominees

 

  Name

 

 

Age

 

 

Director

Since

 

 

Principal Occupation

 

 

Independent

 

 

AC

 

 

CC

 

 

CGNC

 

 

FC

 

James F. Albaugh

  67   2013  

 

Advisor and consultant to financial services and investment firms; former President and Chief Executive Officer of The Boeing Company’s Commercial Airplanes business unit

 

      M   M  

 

Jeffrey D. Benjamin

 

 

 

56

 

 

 

2013

 

 

 

Senior advisor to Cyrus Capital Partners, L.P.

 

 

 

 

   

 

M

 

   

 

M

 

 

John T. Cahill

Lead Independent
Director

 

  60   2013  

 

Vice Chairman of The Kraft Heinz Company; former Chairman and Chief Executive Officer of Kraft Foods Group, Inc. and of The Pepsi Bottling Group, Inc.

 

    M     M  

 

Michael J. Embler

 

 

54

 

 

2013

 

 

Private Investor; Former Chief Investment Officer of Franklin Mutual Advisers LLC

 

    M       M

Matthew J. Hart

  66   2013  

 

Former President and Chief Operating Officer of Hilton Hotels Corporation; former Chief Financial Officer of Hilton Hotels

 

    C      

Alberto Ibargüen

  74   2013  

 

President and Chief Executive Officer of the John S. and James L. Knight Foundation; former Chairman of Miami Herald Publishing Co

 

    M   M    

 

Richard C. Kraemer

 

 

 

74

 

 

 

2013

 

 

 

President of Chartwell Capital, Inc.

 

 

 

 

   

 

C

 

   

Susan D. Kronick

  66   2015  

 

Operating Partner at Marvin Traub Associates; former Vice-Chairman of Macy’s, Inc.

 

        M   M

Martin H. Nesbitt

  55   2015  

 

Co-Chief Executive Officer of The Vistria Group, LLC; former President and Chief Executive Officer of PRG Parking Management

 

    M       M

 

Denise M. O’Leary

 

 

60

 

 

2013

 

 

Private Venture Capital Investor; former General Partner at Menlo Ventures

 

      M   M  

 

W. Douglas Parker

Chairman

 

 

56

 

 

2013

 

 

Chairman and Chief Executive Officer of American Airlines Group Inc. and American Airlines, Inc.

 

         

Ray M. Robinson

  70   2013  

 

Non-Executive Chairman of Citizens Trust Bank; former President of the Southern Region at AT&T

 

            C    

 

AC = Audit Committee    FC = Finance Committee
CC = Compensation Committee    M = Member
CGNC = Corporate Governance and Nominating Committee    C = Chairman

 

 

 

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Board Diversity

The Corporate Governance and Nominating Committee seeks to recommend individuals to the Board of Directors with, among other things, a diversity of skills, expertise and perspectives appropriate for the business and operation of the Company. The Corporate Governance and Nominating Committee also recognizes the benefits of racial and gender diversity in the boardroom, including better reflecting our diverse customer and employee base and the healthy debate that stems from different viewpoints that may result from diverse backgrounds. Accordingly, our Board of Directors is diverse in many ways, with differing geographic, business and racial backgrounds. Nearly 40% of our Board of Directors is diverse based on gender or ethnicity.

Qualifications and Principal Occupations

Additional information regarding our director nominees, including their qualifications and principal occupations (which have continued for at least the past five years unless otherwise noted), as well as the key experience and qualifications that led the Board to conclude each nominee should serve as a director, is provided below. There are no family relationships among the directors and our executive officers.

 

 

LOGO

 

Independent

 

Director Since:

2013

 

Committees:

Compensation; Corporate Governance

and Nominating

 

Key Skills:

 

  

Jim Albaugh

 

Select Business Experience:

  Senior Advisor to Perella Weinberg Partners, a global advisory and asset management firm (2016-Present)

  Senior Advisor to The Blackstone Group L.P., a private equity and financial services firm (2012-2016)

  President and Chief Executive Officer of The Boeing Company’s (“Boeing”) Commercial Airplanes business unit (2009-2012)

  President and Chief Executive Officer of Boeing’s Integrated Defense Systems business (2002-2009)

  Joined Boeing in 1975 and held various other executive positions prior to July 2002, including President and Chief Executive of Space and Communications and President of Space Transportation

 

Current Public Company Directorships

  Harris Corporation, a technology company, defense contractor and information technology services provider (2016-Present)

  Arconic Inc., a specialty metals company servicing the aerospace, auto and building sectors (2017-Present)

 

Past Public Company Directorships

  B/E Aerospace, Inc. (2014-April 2017)

  TRW Automotive Holdings Corp. (2006-2015)

 

Other Leadership Experience and Service:

Member of the boards of directors of the following private entities: Aloft Aeroarchitects (formerly PATS Aerospace), Belcan Corporation; Chairman of the National Aeronautic Association; past President of the American Institute of Aeronautics and Astronautics; past Chairman of the Aerospace Industries Association; elected member of the International Academy of Aeronautics; elected member of the National Academy of Engineering; member of the board of trustees of Willamette University and the Columbia University School of Engineering; and former member of Boeing’s Executive Council for over ten years.

 

Key Experience/Director Qualifications:

Executive leadership experience in the airplane and airline industry, including experience in the investment industry, and with complex systems, contracts and governmental oversight, as well as accounting and financial literacy and global public company board and corporate governance experience.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

  Board   
      
      
      
      
      
      
      
      

 

 

 

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Independent

 

Director Since:

2013

 

Committees:

Compensation; Finance

 

Key Skills and Experience:

 

  

 

 

Jeff Benjamin

 

Select Business Experience:

  Senior Advisor to Cyrus Capital Partners, L.P., a registered investment advisor (2008-Present)

  Senior Advisor to Apollo Management (2002-2008)

 

Current Public Company Directorships

  A-Mark Precious Metals, Inc., a full-service precious metals trading company (2014-Present)

 

Past Public Company Directorships

  Caesars Entertainment Corp., a casino-entertainment company
(2008-2017)

  Chemtura Corporation (2010-2017)

  Spectrum Group International, Inc. (2009-2014)

  Exco Resources, Inc. (2005-2016)

 

Other Leadership Experience and Service:

Member of the boards of directors of the following private entities: ImOn Communications LLC, Higher Learning Technologies Corporation, NRG Media, LLC and Rackspace Hosting Inc.

 

Key Experience/Director Qualifications:

Executive leadership experience in the investment industry, accounting and financial literacy, corporate governance and marketing expertise, success as an investor and extensive experience serving on the boards of directors of global public and private companies.

  LOGO   Senior Leadership   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

 

 

Marketing or Consumer Products

  
 

 

LOGO

  Real Estate/Facilities   
 

 

LOGO

  Board   

 

 

 

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LOGO

 

Lead Independent Director

 

Director Since:

2013

 

Committees:

Audit; Corporate Governance and Nominating

 

Key Skills and Experience:

 

  

 

 

John Cahill

 

Select Business Experience:

  Vice Chairman of The Kraft Heinz Company (“Kraft Heinz”), a food and beverage company (2015-Present)

  Chairman and Chief Executive Officer of Kraft Foods Group, Inc. (“Kraft Foods Group”), until its merger with H.J. Heinz Company
(2014-2015)

  Non-Executive Chairman of Kraft Foods Group (March 2014-December 2014)

  Executive Chairman of Kraft Foods Group (2012-2014)

  Executive Chairman, North American Grocery of Kraft Foods, Inc., the former parent of Kraft Foods Group (January 2012-December 2012)

 

Current Public Company Directorships

  Kraft Heinz (2015-Present)

  Colgate-Palmolive Company, a consumer products company
(2005-Present)

 

Past Public Company Directorships

  Kraft Foods Group (2012-2015)

  Legg Mason, Inc. (2009-2014)

  The Pepsi Bottling Group, Inc. (“Pepsi Bottling”) (1999-2007)

  Frontier Holdings, Inc. (1984-1985)

 

Other Leadership Experience and Service:

Former Industrial Partner at Ripplewood Holdings LLC; spent nine years with Pepsi Bottling, culminating in the position of Chairman and Chief Executive Officer; and worked at PepsiCo, Inc. for nine years in a variety of leadership positions.

 

Key Experience/Director Qualifications:

Leadership and operations experience in executive leadership roles at global public companies, as well as airline experience, investment, accounting and financial expertise, experience in the consumer products industries and public company board and corporate governance experience.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

 

 

Marketing or Consumer
Products

  
 

 

LOGO

  Board   

 

 

 

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Independent

 

Director Since:

2013

 

Committees:

Audit; Finance

 

Key Skills and Experience:

 

  

 

 

Mike Embler

 

Select Business Experience:

  Chief Investment Officer of Franklin Mutual Advisers LLC (“Franklin Mutual Advisers”), an asset management company (2005 to 2009)

  Head of Franklin Mutual Advisers’ Distressed Investment Group
(2001-2005)

 

Current Public Company Directorships

  NMI Holdings, Inc., a mortgage insurance provider (2012-Present)

  Taubman Centers, Inc., a shopping mall REIT (2018-Present)

 

Past Public Company Directorships

  CIT Group Inc. (2009-2016)

  Dynegy Inc. (2011-2012)

  AboveNet Inc. (2003-2012)

  Kindred Healthcare Inc. (2001-2008)

 

Other Leadership Experience and Service:

Worked at Nomura Holding America Inc. for almost a decade in positions of increasing responsibility culminating in the position of Managing Director; and member of the board of trustees of The Mohonk Preserve.

 

Key Experience/Director Qualifications:

Experience in finance, asset management and restructurings, capital markets and capital management, experience as a senior executive, perspective as an institutional investor, success as an investor and service as a director of global public and private companies.

  LOGO   Senior Leadership   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

  Real Estate/Facilities   
 

 

LOGO

  Board   

 

 

 

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LOGO

 

Independent

 

Director Since:

2013

 

Committees:

Audit

 

Key Skills and Experience:

 

  

 

 

Matt Hart

 

Select Business Experience:

  President and Chief Operating Officer of Hilton Hotels Corporation (“Hilton”), a hotel developer and operator, until its acquisition by a private equity firm (2004-2007)

  Executive Vice President and Chief Financial Officer of Hilton (1996-2004)

 

Current Public Company Directorships

  American Homes 4 Rent, a company real estate investment trust (2012-Present)

  Air Lease Corporation, an aircraft leasing company (2010-Present)

 

Past Public Company Directorships

  B. Riley Financial, Inc. (2009-2015)

  US Airways Group, Inc. (2006-2013)

  America West Holdings Corporation (2004-2005)

  Kilroy Realty Corporation (1997-2008)

 

Other Leadership Experience and Service:

Former Senior Vice President and Treasurer of The Walt Disney Company; former Executive Vice President and Chief Financial Officer of Host Marriott Corp.; and member of the boards of directors of the following private entities: Keypr and Heal the Bay.

 

Key Experience/Director Qualifications:

Financial expertise, extensive experience as a senior operating and finance executive for large global public companies, including companies in the consumer travel industry, investment and mergers and acquisitions experience, service as a public company director and airline experience.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

 

 

Marketing or Consumer Products

  
 

 

LOGO

  Real Estate/Facilities   
 

 

LOGO

  Board   

 

 

 

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LOGO

 

Independent

 

Director Since:

2008

 

Committees:

Audit; Compensation

 

Key Skills and Experience:

 

  

 

 

Alberto Ibargüen

 

Select Business Experience:

  President and Chief Executive Officer of the John S. and James L. Knight Foundation, a non-profit corporation dedicated to journalism and the arts (2005-Present)

  Chairman of Miami Herald Publishing Co., a wholly owned subsidiary of Knight-Ridder, Inc., a publishing company (1998-2005)

 

Past Public Company Directorships

  PepsiCo, Inc. (2005-2016)

  AOL, Inc. (2011-2015)

  AMR Corporation (2008-2013)

 

Other Leadership Experience and Service:

Former publisher of The Miami Herald and of El Nuevo Herald; former member of the advisory committee of the Public Company Accounting Oversight Board; and former chairman of the board of directors of the following non-profit organizations: the Public Broadcasting Service (PBS), Newseum in Washington, DC and the World Wide Web Foundation.

 

Key Experience/Director Qualifications:

International media and financial expertise, food and beverage products and philanthropic experience, executive leadership experience, and extensive experience serving as a director and member of board committees and airline experience.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  International & Global   
 

 

LOGO

 

 

Marketing or Consumer Products

  
 

 

LOGO

  Legal/Regulatory   
 

 

LOGO

  Media/Communications   
 

 

LOGO

  Board   

 

 

 

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Independent

 

Director Since:

2013

 

Committees:

Compensation

 

Key Skills and Experience:

 

  

 

 

Rich Kraemer

 

Select Business Experience:

  President of Chartwell Capital, Inc., a private investment company (2006-Present)

 

Current Public Company Directorships

  Knight Swift Transportation Holdings, Inc., a provider of full truckload transportation and logistics services (2012-Present)

 

Past Public Company Directorships

  US Airways Group, Inc. (2005-2013)

  America West Holdings Corporation (1992-2005)

  UDC Homes Inc. (1985-1996)

 

Other Leadership Experience and Service:

Trustee of the William and Mary Mason School of Business Foundation; served as an officer of UDC Homes Inc. for over twenty years, including 11 years as President and two years as Chief Executive Officer.

 

Key Experience/Director Qualifications:

Financial expertise, corporate governance, human resources and labor relations expertise, executive leadership experience in developing strategy for and managing a large public company, success as an investor, airline experience and experience serving as a director and member of board committees.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  Real Estate/Facilities   
 

 

LOGO

  Board   

 

 

 

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Independent

 

Director Since:

2015

 

Committees:

Corporate Governance and Nominating; Finance

 

Key Skills and Experience:

 

  

 

 

Sue Kronick

 

Select Business Experience:

  Operating Partner at Marvin Traub Associates, a New York based retail consulting firm (2012-Present)

  Vice Chairman of Macy’s, Inc. (“Macy’s”), a department store
(2003-2010)

  Group President, Regional Department Stores of Macy’s (2001-2003)

  Chairman and Chief Executive Officer of Burdines/Macy’s Florida (1997-2001)

 

Current Public Company Directorships

  Hyatt Hotels Corporation, a hospitality company (2009-Present)

 

Past Public Company Directorships

  Pepsi Bottling (1999-2010)

 

Other Leadership Experience and Service:

Member of the board of directors of the following non-profit organizations: the John S. and James L. Knight Foundation and the Miami City Ballet.

 

Key Experience/Director Qualifications:

Financial, marketing and operational expertise, as well as experience serving as a global public company director and building industry leading brands as a result of the various executive management positions held with Macy’s.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  International & Global   
 

 

LOGO

 

 

Marketing or Consumer Products

  
 

 

LOGO

  Board   

 

 

 

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Independent

 

Director Since:

2015

 

Committees:

Audit; Finance

 

Key Skills and Experience:

 

  

 

 

Marty Nesbitt

 

Select Business Experience:

  Co-Chief Executive Officer of The Vistria Group, LLC, a private-equity investment firm (2013-Present)

  President and Chief Executive Officer of PRG Parking Management (known as The Parking Spot), an owner and operator of off-airport parking facilities (1996-2012)

 

Current Public Company Directorships

  Norfolk Southern Corporation, a public rail transportation company (2013-Present)

  Jones Lang LaSalle Incorporated, a public commercial real estate company (2011-Present)

 

Past Public Company Directorships

  Pebblebrook Hotel Trust (2009-2010)

 

Other Leadership Experience and Service:

Member of the board of directors of PRG Parking Management (known as The Parking Spot); former officer of the Pritzker Realty Group, L.P.; former Vice President and Investment Manager at LaSalle Partners, one of the predecessor corporations of Jones Lang LaSalle Incorporated; Trustee of Chicago’s Museum of Contemporary Art; and Chairman of the Barack Obama Foundation.

 

Key Experience/Director Qualifications:

Executive leadership, operational, financial and investment experience, as well as global public company board experience.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

  Real estate/facilities   
 

 

LOGO

  Board   

 

 

 

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Independent

 

Director Since:

2013

 

Committees:

Compensation; Corporate Governance and Nominating

 

Key Skills and Experience:

 

  

 

 

Denise O’Leary

 

Select Business Experience:

  Private venture capital investor (1997-Present)

  Partner (1987-1996) and associate (1983-1987) at Menlo Ventures, a venture capital firm

 

Current Public Company Directorships

  Medtronic plc, a medical technology company (2000-Present)

 

Past Public Company Directorships

  Calpine Corporation, a wholesale power producer (2016-March 2018)

  US Airways Group, Inc. (2005-2013)

  Chiron Corporation (2002-2006)

  America West Holdings Corporation (1998-2005)

 

Other Leadership Experience and Service:

Member of the boards of directors of the following private entities: Connect for Health Colorado and Galvanize, Inc.; member of the boards of trustees of the Bonfils-Stanton Foundation and the University of Denver; member of the Smithsonian National Board; and former member of the boards of directors of the following private entities: Lucile Packard Children’s Hospital, Stanford Hospital & Clinics, the Denver Foundation, the Corporation for Supportive Housing, University of Colorado Hospital Authority and former member of the board of trustees of Stanford University.

 

Key Experience/Director Qualifications:

Executive leadership experience in the investment industry, financial expertise, experience in the oversight of risk management, human resources expertise, extensive service as a global public company director, success as an investor and airline industry expertise.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

  Board   

 

 

 

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Chairman

 

Director Since:

2013

 

Key Skills and Experience:

 

  

 

 

Doug Parker

 

Select Business Experience:

  Chairman of the board of directors of AAG (2014-Present)

  Chief Executive Officer of AAG and American (2013-Present)

  Chairman of the board of directors of and Chief Executive Officer of US Airways Group, Inc. and US Airways, Inc. (2005-2013)

 

Current Public Company Directorships

  AAG (2013-Present)

 

Past Public Company Directorships

  US Airways Group, Inc. (2005-2013)

  America West Holdings Corporation (1999-2005)

  Pinnacle West Capital Corporation, a holding company that, provides wholesale and retail electric services primarily in Arizona (2007-2012)

 

Other Leadership Experience and Service:

Former Chairman of the board of directors of and Chief Executive Officer of America West and AWA; Chairman of Airlines for America; former Senior Vice President and Chief Financial Officer of AWA; and member of the Board of Advisors for the Cox School of Business at Southern Methodist University.

 

Key Experience/Director Qualifications:

Financial, airline, marketing, human resources and labor relations experience, as well as 30 years of experience in the airline industry, over 15 years of experience as an airline Chairman and Chief Executive Officer, mergers and acquisitions experience and experience as a global public company director.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  Investment   
 

 

LOGO

  International & Global   
 

 

LOGO

 

 

Marketing or Consumer Products

  
 

 

LOGO

  Board Experience   
      
      

 

 

 

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LOGO

 

Independent

 

Director Since:

2005

 

Committees:

Corporate Governance

and Nominating

 

Key Skills and Experience:

 

  

 

 

Ray Robinson

 

Select Business Experience:

  Director and non-executive Chairman of Citizens Bancshares Corporation and its subsidiary, Citizens Trust Bank, an African American-owned bank (2003-present)

  Non-executive Chairman of the board of directors of Aaron’s, Inc. (“Aaron’s”), a lease-to-own retailer (2014-Present)

  Held several executive positions at AT&T from 1968-2003, including President of the Southern Region, its largest region, President and Chief Executive Officer of AT&T Tridom, Vice President of Operations for AT&T Business Customer Care, Vice President of AT&T Outbound Services and Vice President of AT&T Public Relations

 

Current Public Company Directorships

  Aaron’s (2002-Present)

  Acuity Brands, Inc., a public lighting solutions company (2001-Present)

  Fortress Transportation and Infrastructure, a public company that invests in transportation infrastructure and equipment

 

Past Public Company Directorships

  Avnet, Inc. (2000-2017)

  AMR Corporation (2005-2013)

  RailAmerica Inc. (2009-2011)

 

Other Leadership Experience and Service:

Member of the board of directors of the Georgia Aquarium; and Vice Chairman of the East Lake Community Foundation.

 

Key Experience/Director Qualifications:

Extensive airline, technology, banking, communications, strategic and executive leadership and marketing experience, as well as experience serving as a global public company director.

  LOGO   Senior Leadership   
 

 

LOGO   

  Airline/Travel/Transportation Industry   
 

 

LOGO

  Financial or Accounting   
 

 

LOGO

  International & Global   
 

 

LOGO

  Marketing or Consumer Products   
 

 

LOGO

 

 

Media/Communications

  
 

 

LOGO

  Board   
      
      

 

 

 

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BOARD COMPOSITION

How We Build a Board That is Right for American Airlines

Each of the 12 current nominees for director recommended for election at the Annual Meeting is a current member of the Board of Directors. The effectiveness of the Board of Directors and the recruitment of directors are overseen by the Corporate Governance and Nominating Committee. In evaluating candidates for director, the committee considers the qualifications described below. Based on its evaluation of each of the current nominees’ qualifications and his or her prior performance as a director, the committee determined to recommend each nominee for election. The committee received no nominations from stockholders for the Annual Meeting.

Consistent with its charter, the Corporate Governance and Nominating Committee proposes for nomination existing directors and new candidates who have the highest personal and professional integrity, have demonstrated exceptional intelligence and judgment, have proven leadership skills, as well as the requisite skills necessary to advance our long term strategic plan, are committed to our success and have the ability to work effectively with the Company’s Chief Executive Officer and other members of the Board of Directors. Also, a nominee must possess skills, experience and expertise appropriate to best serve the long-term financial interests of our stockholders.

The Corporate Governance Guidelines (the “Governance Guidelines”) specify that it is the objective of the Board of Directors that it be composed of individuals who have, among other things, a diversity of skills, expertise and perspective appropriate for the business and operation of the Company. The Board of Directors currently includes a group of individuals who have demonstrated success and leadership in a variety of fields and endeavors, with a broad diversity of experience, opinions, perspectives, professions, skills, expertise, education, geographic representation and backgrounds. The Corporate Governance and Nominating Committee and the Board of Directors believe that the Board of Directors is, and should continue to be, comprised of persons who can contribute experience in public company board service and corporate governance and areas such as strategic planning, leadership of large, complex organizations, international and global operations, the airline, travel and transportation industry, accounting, financial literacy, finance and investment (including, capital markets and capital management), risk management, legal analysis and regulatory, customer service, marketing and consumer products, media and communications, labor relations and human resources (including leadership assessment and diversity), real estate and facilities, safety, information technology and community service and nonprofit. The Corporate Governance and Nominating Committee does not assign specific weight to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.

The Corporate Governance and Nominating Committee recognizes the benefits of diversity in the boardroom, including better reflecting our diverse customer and employee base and the healthy debate that stems from different viewpoints that may result from diverse backgrounds. Accordingly, our Board of Directors is diverse in many ways, with differing geographic, business, gender and racial backgrounds.

The Governance Guidelines also require that any directors who also serve as chief executive officers of public companies should not serve on more than two boards of public companies other than the Company’s Board, and other directors should not serve on more than four boards of public companies, other than the Company’s Board.

The Corporate Governance and Nominating Committee periodically evaluates the performance of the Board of Directors, its committees and the directors in an effort to facilitate the continuous improvement of the Board of Directors, as well as to assess the specific qualifications, experiences and perspectives of future director candidates that would be most valuable and have the most impact on our success.

In accordance with applicable NASDAQ listing standards, the Board of Directors confirms that at least a majority of the Board of Directors is independent in accordance with the NASDAQ definition of independence and that the members of the Board of Directors, as a group, maintain the requisite qualifications under applicable NASDAQ listing standards for service on the Audit, Compensation, and Corporate Governance and Nominating Committees.

Stockholder Recommendations or Nominations of Director Candidates

The Board welcomes recommendations from its stockholders for good director candidates that they believe will help the Company increase stockholder value. We encourage stockholders with any such director candidate recommendations to contact us directly prior to going through the formal director nomination procedures described below.

Under our Bylaws, any stockholder wishing to nominate a director should submit in writing the candidate’s name, biographical information, business qualifications and other information required by the Bylaws, to Ray M. Robinson, Chair

 

 

 

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of the Corporate Governance and Nominating Committee, American Airlines Group Inc., 4333 Amon Carter Blvd., MD 5675, Fort Worth, Texas 76155. All submissions must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director, if elected, and must otherwise be in compliance with our Bylaws.

The Bylaws require that written nominations be received by the Company no sooner than 120 days and no later than 90 days prior to the first anniversary of the preceding year’s annual meeting of stockholders. For the 2019 annual meeting of stockholders, notice must be delivered no sooner than February 13, 2019 and no later than March 15, 2019. All qualified submissions will be reviewed by the Corporate Governance and Nominating Committee at the next appropriate meeting. The Corporate Governance and Nominating Committee has a policy of considering candidates who are nominated by stockholders for membership to the Board of Directors in the same manner as candidates recommended by members of the Board of Directors.

In addition, our Bylaws permit certain of our stockholders who have beneficially owned 3% or more of our outstanding common stock continuously for at least three years to submit nominations to be included in the Company’s proxy materials for up to 20% of the total number of directors then serving. Notice of proxy access director nominations for the 2019 annual meeting of stockholders must be delivered to our Corporate Secretary at our principal executive offices no earlier than December 1, 2018 and no later than the close of business on December 31, 2018. The notice must set forth the information required by our Bylaws with respect to each proxy access director nomination that eligible stockholder or stockholders intend to present at the 2018 annual meeting of stockholders and must otherwise be in compliance with our Bylaws.

 

 

 

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PROPOSAL 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ratification of Independent Registered Public Accounting Firm

Our Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. Our Audit Committee annually reviews the independent registered public accounting firm’s qualifications, performance, fees and independence. Following its review, our Audit Committee has selected KPMG LLP (“KPMG”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2018, and our Board of Directors has directed that KPMG’s appointment be submitted to our stockholders for ratification at the Annual Meeting.

KPMG has served as our independent registered public accounting firm since 2014. The Audit Committee believes it is important for the independent registered public accounting firm to maintain its objectivity and independence. In accordance with SEC rules and KPMG policies, the firm’s lead engagement partner rotates every five years. The Audit Committee and its Chair are directly involved in the selection of KPMG’s new lead engagement partner. Furthermore, in order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm.

The Board of Directors has directed that KPMG’s appointment for the fiscal year ending December 31, 2018 be submitted to our stockholders for ratification at the Annual Meeting. The Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company’s independent external auditor is in the best interests of the Company and its stockholders. If the stockholders do not ratify the appointment of KPMG, the Audit Committee will reconsider the appointment.

A representative of KPMG is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if he or she desires to do so, and the representative is also expected to be available to respond to appropriate questions from stockholders.

 

The Audit Committee and the Board of Directors unanimously recommend that the stockholders vote “FOR” the proposal to ratify the appointment of KPMG as our independent registered public accounting firm for the fiscal year ending December 31, 2018.

Independent Registered Public Accounting Firm Fees

The following table presents fees billed for professional services rendered by KPMG, AAG’s principal accountant for the audit of the financial statements of AAG and its subsidiaries as of and for the fiscal years ended December 31, 2017 and 2016, as well as fees billed in this period for other services rendered by KPMG.

 

       

Fiscal Year 2017

($)

      

Fiscal Year 2016

($)

 

 

Audit Fees

 

    

 

 

 

 

3,915,000

 

 

 

 

    

 

 

 

 

3,915,000

 

 

 

 

 

Audit-Related Fees

 

    

 

 

 

 

971,000

 

 

 

 

    

 

 

 

 

1,243,000

 

 

 

 

 

Tax Fees

 

    

 

 

 

 

654,000

 

 

 

 

    

 

 

 

 

826,000

 

 

 

 

 

All Other Fees

 

      

 

 

 

 

      

 

 

 

 

 

Total

 

    

 

 

 

 

5,540,000

 

 

 

 

    

 

 

 

 

5,984,000

 

 

 

 

“Audit Fees” are for professional services rendered for the audits of the annual financial statements included in our Annual Report on Form 10-K (including fees for the audits of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended) and quarterly reviews of the financial statements included in our quarterly reports on Form 10-Q.

 

 

 

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“Audit-Related Fees” are for services rendered in connection with securities offerings and other SEC filings, significant auditing work on transactions and consultations concerning financial accounting and reporting standards and attest services.

“Tax Fees” primarily include fees for professional services related to (i) expatriate tax services and (ii) bankruptcy-related tax services.

There were no fees that fall into the classification of “All Other Fees” for the fiscal years ended December 31, 2017 and 2016.

Policy on Audit Committee Pre-Approval

The Audit Committee is responsible for appointing, setting compensation for and overseeing the work of the independent registered public accounting firm. The Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm, including audit services, audit-related services, tax services and other services. The Audit Committee has delegated pre-approval authority to its Chair. Under this delegation, the Chair must report any pre-approval decision he or she makes to the Audit Committee at its next meeting following such approval.

 

 

 

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PROPOSAL 3—ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (SAY-ON-PAY)

Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), allows our stockholders to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC. The Board of Directors has adopted a policy providing for an annual say-on-pay advisory vote. Unless the Board of Directors modifies its policy on the frequency of future say-on-pay advisory votes, we will bring these proposals to our stockholders annually and the next say-on-pay advisory vote will be held at the 2019 annual meeting of stockholders.

Our Compensation Committee and the Board of Directors believe that our compensation practices align our executive compensation structure with stockholders’ interests and current market practices. Our compensation strategy is designed to provide a total compensation package that will attract and retain high-caliber executives and align their objectives, incentives and contributions with corporate objectives and stockholder interests, as well as to be flexible and complementary to meet our compensation objectives. At the 2017 annual meeting of stockholders, our stockholders overwhelmingly approved the compensation of our named executive officers (with an approval representing over 97% of the shares represented in person or by proxy at the meeting and entitled to vote).

Highlights of our compensation program include:

A commitment to pay-for-performance with a substantial portion of each executive officer’s compensation being “at risk” and aligned with stockholder interests, as shown by the following:

 

    100% of Mr. Parker’s direct compensation is provided in the form of equity incentives, the majority of which vest based upon the achievement of performance objectives, underscoring our commitment to paying for performance and further aligning his interests with that of our stockholders. At his request, Mr. Parker does not receive any base salary and does not participate in the Company’s Short-term Incentive Program.

 

    In 2016, at Mr. Parker’s request, our Compensation Committee agreed to eliminate his employment agreement, so that he is no longer contractually entitled to receive a set level of compensation and benefits and is no longer protected by the change in control and severance provisions of the employment agreement.

 

    For 2017, on average, 86.5% of the total target compensation of our other named executive officers was variable, at risk and tied directly to measurable performance. Consistent with this focus, the largest portion of our 2017 executive compensation was in the form of performance-based annual cash incentives tied to pre-established pre-tax income targets and long-term equity incentives that reward stock performance and are tied to our relative three-year pre-tax income margins and relative TSR.

 

    In 2017, at their request, all executive officers who were party to change in control and severance benefit agreements voluntarily terminated their agreements. As a result, none of our executive officers is contractually entitled to any cash severance or continued health benefits upon any termination, nor are we contractually obligated to provide a gross-up to cover any excise taxes incurred by any named executive officer under Section 4999 of the Internal Revenue Code (the “Code”).

Ensuring competitive pay, with the target direct compensation provided to our named executive officers being competitive with that of the other large network airlines, except for our Chief Executive Officer. Mr. Parker’s 2017 total target direct compensation remained below his peers at Delta and United (using the most recent publicly available data as of June 2017).

A continued commitment to good compensation governance practices, where compensation packages for our executive officers are established by our Compensation Committee that consists solely of independent, outside directors, and are consistent with market practice and reasonable in light of our corporate and each individual executive’s performance.

Clawback provisions for all incentive compensation paid to our executive officers and stock ownership guidelines that further align their long-term interests with those of our stockholders, as well as good disclosure practices.

Mitigating compensation risk by, among other things, providing a compensation package that focuses on both short- and long-term goals and requiring a substantial stock ownership commitment, encouraging our executives to focus on the Company’s success both during the immediate fiscal year and for the future.

For more information about our compensation practices and philosophy, see the section entitled “Compensation Discussion and Analysis” beginning on page 50.

 

 

 

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We are asking our stockholders to indicate their support for our named executive officer compensation as described in this Proxy Statement pursuant to the compensation disclosure rules of the SEC. This proposal, commonly known as a “say-on-pay” proposal, gives stockholders the opportunity to express their views on the named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our executive officers and our philosophy, policies and practices described in this Proxy Statement. Accordingly, we are asking our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that AAG’s stockholders approve, on a non-binding, advisory basis, the compensation of AAG’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC in the Compensation Discussion and Analysis section, the compensation tables, narrative discussion and any related material disclosed in this Proxy Statement for the Annual Meeting.”

The say-on-pay vote is advisory, and therefore not binding on us, our Compensation Committee or the Board of Directors. However, the Board of Directors and Compensation Committee value the opinions of our stockholders and will consider the outcome of this advisory vote when making future decisions about executive compensation.

 

The Board of Directors unanimously recommends that the stockholders vote “FOR” the approval of executive compensation.

 

 

 

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PROPOSAL 4—APPROVE AN AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO ENABLE STOCKHOLDERS WHO HOLD AT LEAST 20% OF OUR OUTSTANDING COMMON STOCK TO CALL SPECIAL MEETINGS

The Board of Directors has approved an amendment to our Restated Certificate of Incorporation (the “Charter Amendment”) to permit stockholders of record who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders, subject to the requirements and procedures set forth in the Company’s Bylaws, as now or hereinafter in effect. Currently, only the Chairman of the Board of Directors, the Chief Executive Officer of the Company or the Board of Directors may call a special meeting of stockholders. The description in this proxy statement of the proposed Charter Amendment is qualified in its entirety by reference to, and should be read in conjunction with, the full text of the proposed Charter Amendment, which is attached to this proxy statement as Annex B.

The ability of stockholders to call special meetings is increasingly considered an important aspect of good corporate governance. While the Board of Directors recognizes that providing a stockholder right to call special meetings is consistent with corporate governance best practices, the Board of Directors also believes that special meetings of stockholders should be extraordinary events that are held only when strategic concerns or other similar considerations require that the matters to be addressed not be delayed until the next annual meeting. Moreover, because special meetings are expensive and time-consuming for the Company and potentially disruptive to its normal business operations, the Board of Directors believes that a small percentage of stockholders should not be entitled to utilize the right to call a special meeting for their own interests, which may not be shared by the majority of the Company’s stockholders. Finally, the Company has an established process by which stockholders may communicate directly with the Board of Directors, including the non-management directors, throughout the year on any topics of interest to stockholders. The Board of Directors and the Company will continue to maintain existing governance mechanisms that afford management and the Board of Directors the ability to respond to the concerns of all stockholders, regardless of the level of share ownership.

The Company also reminds stockholders that the power to call a special meeting of stockholders has historically been a tool for acquirers in the hostile merger and acquisition context. Potential acquirers seeking to take over the Company for an inadequate price could use a special meeting of stockholders to increase their negotiating leverage or to avoid negotiating at all with the Board, which has the legal duty to protect the interests of all stockholders. This concern is heightened when certain hedge funds and others who wish to promote their short-term interests could also borrow shares from other stockholders for the sole purpose of meeting the required threshold necessary to call a special meeting of stockholders.

In light of these considerations, the Board of Directors believes that establishing an ownership threshold of at least 20%, along with specified procedural requirements and limitations, for stockholders to call a special meeting achieves a reasonable balance between enhancing stockholder rights and adequately protecting the long-term interests of the Company and its stockholders. The Board of Directors believes that an ownership threshold of at least 20% is appropriate based on the Company’s current size and stockholder composition, as it would provide the Company’s stockholders with a meaningful right to request a special meeting, while mitigating the risk that corporate resources are wasted to serve the narrow self-interests of a few minority stockholders. A 20% special meeting ownership threshold is in line with market practice and, in fact, is less restrictive than the majority of the special meeting rights adopted by companies in the S&P 500. However, unlike a number of other companies, including some in our industry, stockholders are not subject to a one-year holding period requirement with respect to their stock to exercise this right.

The Board has approved amendments to the Bylaws to establish the procedural and disclosure requirements in connection with permitting stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders. The requirements set forth in the amendments to the Bylaws include that:

 

    The requesting stockholder must follow certain procedural requirements for requesting that the Company set a record date to determine whether the requesting stockholder meets the share ownership requirement.

 

    Any record date or special-meeting request must set forth the same information as is required for stockholders proposing business or director nominations at an annual stockholder meeting, including, (1) the business proposed to be conducted at the meeting, (2) information about any director candidate nominated and (3) information with respect to the requesting stockholder(s) and the beneficial owner(s), if any, on whose behalf the proposal is made.

 

 

 

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    A special meeting request will not be valid if:

 

    The business proposed to be conducted at the meeting is identical or substantially similar to an item of business for which a record date was previously fixed, that is delivered between the 61st day after and the one-year anniversary of such record date;

 

    if an identical or substantially similar item of business was covered at the most recent annual meeting or at a special meeting held within one year prior to the date on which the request was received; or

 

    if an identical or substantially similar item of business is to be covered at a stockholder meeting called by the Board to be held within 120 days after the request is received.

Our Board believes that the requirements described above are important to, among other things, avoid duplicative and unnecessary special meetings regarding matters recently considered by stockholders or that stockholders will imminently consider at an upcoming stockholder meeting. The effectiveness of the amendments to the Bylaws related to special meetings is subject to the approval of the Charter Amendment. A complete copy of the Company’s Bylaws are filed as Exhibit 99.2 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2018.

An affirmative vote of the holders of at least two-thirds of the voting power of outstanding shares entitled to vote for the election of directors is required to adopt the Charter Amendment. If approved, this proposal would become effective upon the filing of the Charter Amendment with the Secretary of State of Delaware, which we intend to do promptly after the required stockholder approval is obtained.

 

The Board of Directors unanimously recommends that you vote “FOR” the amendment to our Certificate of Incorporation to enable stockholders who hold at least 20% of our outstanding common stock to call special meetings.

 

 

 

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PROPOSAL 5—SHAREHOLDER PROPOSAL TO ENABLE STOCKHOLDERS WHO HOLD AT LEAST 10% OF OUR OUTSTANDING COMMON STOCK TO CALL SPECIAL MEETINGS

A stockholder has informed the Company that he intends to present the proposal set forth below at our Annual Meeting. The name and address of the stockholder and the number of the Company’s securities that the stockholder own will be provided to stockholders promptly upon request. If the stockholder (or his “qualified representative”) is present at the Annual Meeting and properly submits the proposal for a vote, then the stockholder proposal will be voted upon at the Annual Meeting. In accordance with federal securities laws, the stockholder proposal is presented below as submitted by the stockholder, is quoted verbatim and is in italics. The Company disclaims all responsibility for the content of the proposal and the supporting statement, including other sources referenced in the supporting statement.

 

For the reasons stated in the Board of Directors’ Statement in Opposition, which follows the stockholder proposal, the Board of Directors unanimously recommends that you vote “AGAINST” the stockholder proposal.

Stockholder Proposal

Proposal 5—Special Shareholder Meeting Improvement

Resolved, Shareowners ask our board to take the steps necessary (unilaterally if possible) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 10% of our outstanding common stock the power to call a special shareowner meeting (or the closest percentage to 10% according to state law). This proposal does not impact our board’s current power to call a special meeting.

Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. This proposal topic won more than 70%-support at Edwards Lifesciences and SunEdison in 2013.

American Airlines shareholders currently do not have the full right to call a special meeting that is available under Delaware law. Plus the current shareholder right to call a special meeting is further restricted by 2500-words of tedious text in our bylaws.

A shareholder ability to call a special meeting would put shareholders in a better position to ask for improvement in our board of directors after the 2018 annual meeting.

For instance, Mr. Ibargüen was designated a “flagged director” due to his involvement with the AMR Corporation board, which filed for Chapter 11 Bankruptcy in 2011. Mr. Benjamin was designated a “flagged director” due to his involvement with the Caesars Entertainment board, which placed its largest operating unit into bankruptcy in 2015. Mr. Schifter was designated a “flagged director” due to his involvement with the US Airways board, which filed for bankruptcy in 2004. This is worse because Mr. Ibargüen and Mr. Benjamin controlled 40% of our Executive Pay Committee.

Limits on shareholder influence include our company’s lack of a full majority director election standard requiring automatic removal of directors who fail to receive a majority of votes cast in uncontested elections. In 2014, it was reported American Airlines took a $600 million loss on fuel hedging.

Please vote to increase management accountability to shareholders:

Special Shareholder Meeting Improvement—Proposal 5

 

 

 

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Board of Directors’ Statement in Opposition

The Board of Directors has carefully considered this proposal and believes that it is not in the best interests of stockholders in light of the special meeting right that we have already approved and are asking our stockholders to adopt at the Annual Meeting, which will allow stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders (the “Special Meeting Right”). Accordingly, the Board unanimously recommends a vote AGAINST this proposal for the following reasons.

The Board of Directors recommends that the Company’s stockholders oppose this proposal and instead adopt the Special Meeting Right in Proposal 4, which protects the long-term interests of the Company and its stockholders and is in line with market practice.

The Board of Directors believes that allowing stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders achieves a reasonable balance between enhancing stockholder rights and adequately protecting the long-term interests of the Company and its stockholders. After careful consideration, on February 20, 2018, the Board of Directors:

 

    adopted a resolution setting forth an amendment to the Company’s Certificate of Incorporation in order to remove the existing prohibition on the right of stockholders to call a special meeting and instead permit stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders (the “Charter Amendment”), and

 

    approved amendments to the Company’s Second Amended and Restated Bylaws in order to permit stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders, which shall become effective upon the effectiveness of the Charter Amendment.

At the Annual Meeting, we are recommending that our stockholders approve the Charter Amendment, in order to allow stockholders who hold, in the aggregate, at least 20% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders.

A 20% special meeting ownership threshold is in line with market practice and, in fact, is less restrictive than the majority of the special meeting rights adopted by companies in the S&P 500. As of March 27, 2018, we understand that 302 of the companies included in the S&P 500 afford stockholders the right to call a special meeting. Of those companies, 67% have set the ownership threshold for allowing stockholders to call a special meeting at 25% or greater, while only 16% have adopted a 10% ownership threshold.

A 20% ownership threshold provides a procedural safeguard against abuse, corporate waste and investors with short-term goals. A lower 10% ownership threshold will risk giving a stockholder or small group of stockholders a disproportionate amount of influence over the Company’s affairs.

Our Special Meeting Right as set forth in Proposal 4 strikes the appropriate balance between ensuring that stockholders have the ability to call a special meeting to act on extraordinary and urgent matters, while at the same time protecting against a misuse of this right by one stockholder or a small number of stockholders whose interests may not be aligned with the remaining 90% of our stockholders.

Failure to aggregate sufficient stock ownership to reach the 20% ownership threshold is a strong indicator that sufficient interest among the majority of stockholders does not exist to call a special meeting. Lowering this threshold risks giving a single stockholder or a very small group of stockholders a disproportionate amount of influence over the Company’s affairs.

Convening a special meeting of stockholders imposes significant costs, both administrative and operational. Our Board members, management and employees must devote a significant amount of time and attention to preparing for a special meeting, which distracts them from their primary focus of operating our business in the best interest of stockholders in order to maximize long-term financial returns. In addition, with each special meeting, we must incur significant expenses in order to prepare the disclosures required for such meeting, print and distribute materials, solicit proxies and tabulate votes. As a result, special meetings of stockholders should be limited to circumstances where a substantial number of stockholders believe a matter is sufficiently urgent and extraordinary to justify calling a special meeting.

The Company’s Special Meeting Right also serves as a protective mechanism against investors with short-term goals. Event-driven hedge funds or other activists may pursue a special meeting with the goal of being disruptive to our business or to propose matters that facilitate their own short-term exit strategies over the long-term interests of the rest of our stockholders. A 20% special meeting threshold ensures that a special meeting may only be called by a stockholder or group of stockholders with a substantial stake in our Company. The Special Meeting Right appropriately safeguards stockholder interests and prevents corporate waste, while at the same time ensuring that stockholders have the ability to call special meetings when appropriate.

 

 

 

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The Company’s Special Meeting Right set forth in Proposal 4 will provide our stockholders with a meaningful right to call a special meeting.

The 20% ownership threshold provided in the Special Meeting Right as set forth in Proposal 4 will provide our stockholders a meaningful right to call a special meeting. Based on our current stockholder base, any two of our three largest stockholders could act together to call a special meeting, and a combination of three or fewer of our top five stockholders could do the same.

Under a 10% ownership threshold as proposed in this proposal, either of our two largest stockholders could individually call a special meeting, which the Board believes is inappropriate.

We are committed to strong and effective corporate governance policies and practices, and provide sufficient avenues for stockholders to meaningfully engage in Company affairs.

Our existing governance policies and practices provide stockholders with numerous avenues to address and discuss our business and governance policies with the Board, and ensure that our Board of Directors acts independently and maintains accountability to our stockholders. This includes the following:

 

    11 of the 12 director nominees are independent, the one exception being our CEO, Mr. Parker;

 

    Mr. Cahill has served as Lead Independent Director since 2013, and regularly presides over executive sessions of the Board of Directors without the CEO;

 

    our Lead Independent Director is designated solely by the independent directors of the Board;

 

    all four Board committees are independent;

 

    we conduct annual director elections which are subject to a majority voting standard;

 

    we conduct annual Board and committee assessments;

 

    we provide for proxy access;

 

    we have significant stock ownership requirements for our directors and for senior vice presidents and above; and

 

    we provide opportunities for our stockholders to communicate directly with any Board member.

In addition, we strive to maintain an open dialogue with our stockholders and believe investor input enables the Board to more effectively evaluate our governance practices. Our Board and management have found this engagement constructive and informative, and we plan to continue these engagement efforts.

In light of our existing policies and practices and the Special Meeting Right, the Board believes that the adoption of this proposal will not make a meaningful difference in our stockholders’ ability to engage with the Board or influence our business or governance policies but will risk giving a small group of stockholders a disproportionate amount of influence over the Company’s affairs.

For the above reasons, the Board of Directors does not believe that it is in the best interests of the Company or its stockholders to adopt this proposal.

 

For these reasons, the Board of Directors unanimously urges stockholders to vote “AGAINST” the proposal to permit stockholders who hold at least 10% of the voting power of the outstanding shares of the Company to call a special meeting of stockholders.

 

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information regarding the beneficial ownership of our Common Stock as of April     , 2018, by (1) each of our directors and nominees for director, (2) each of the individuals named in the section entitled “Executive Compensation—Summary Compensation Table” on page 65 and (3) all of our directors and executive officers as a group, based in each case on information furnished to us by these persons. We believe that each of the named individuals and each director and executive officer included in the group has sole voting and investment power with regard to the shares shown, except that certain individuals may share voting and investment power with their spouses and except as otherwise noted.

 

     AAG Common Stock Beneficially Owned(1)    
  Name of Beneficial Owner and Relationship to Company   

Amount and Nature

of Beneficial Ownership

      

Percent

of Class

    

 

Doug Parker

Chairman and Chief Executive Officer

 

    

 

1,356,431

 

(2) 

 

     *

 

 

 

Derek Kerr

Executive Vice President and Chief Financial Officer

 

    

 

345,285

 

(3) 

 

     *

 

 

 

Robert Isom

President

 

    

 

465,477

 

(4) 

 

     *

 

 

 

Maya Leibman

Executive Vice President and Chief Information Officer

 

    

 

76,084

 

(5) 

 

     *

 

 

 

Steve Johnson

Executive Vice President—Corporate Affairs

 

    

 

397,009

 

(6) 

 

     *

 

 

 

Jim Albaugh

Director

 

    

 

17,774

 

(7) 

 

     *

 

 

 

Jeff Benjamin

Director

 

    

 

53,652

 

(8) 

 

     *

 

 

 

John Cahill

Director

 

    

 

43,652

 

(9) 

 

     *

 

 

 

Mike Embler

Director

 

    

 

18,652

 

(10) 

 

     *

 

 

 

Matt Hart

Director

 

    

 

35,808

 

(11) 

 

     *

 

 

 

Alberto Ibargüen

Director

 

    

 

40,837

 

(12) 

 

     *

 

 

 

Rich Kraemer

Director

 

    

 

59,229

 

(13) 

 

     *

 

 

 

Sue Kronick

Director

 

    

 

9,417

 

(14) 

 

     *

 

 

 

Marty Nesbitt

Director

 

    

 

9,417

 

(15) 

 

     *

 

 

 

Denise O’Leary

Director

 

    

 

84,706

 

(16) 

 

     *

 

 

 

Ray Robinson

Director

 

    

 

26,838

 

(17) 

 

     *

 

 

 

Rick Schifter

Director

 

    

 

21,693

 

(18) 

 

     *

 

 

 

All directors and executive officers as a group (18 persons)

 

    

 

3,290,567

 

(19) 

 

     *

 

   

 

* Represents less than 1% of the outstanding shares of our Common Stock.

 

(1) Beneficial ownership as reported in the table has been determined in accordance with SEC rules and regulations and includes shares of our Common Stock that may be issued upon the exercise of stock options that are exercisable within 60 days of April 16, 2018 and restricted stock units (“RSUs”) that vest within 60 days of April 16, 2018. Pursuant to SEC rules and regulations, all shares not currently outstanding that are subject to stock options

 

 

 

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  exercisable within 60 days of April 16, 2018 and RSUs that vest within 60 days of April 16, 2018 are deemed to be outstanding for the purpose of computing “Percent of Class” held by the holder of the class but are not deemed to be outstanding for the purpose of computing the “Percent of Class” held by any other stockholder. Beneficial ownership as reported in the table excludes shares of Common Stock that may be issued upon the exercise of stock appreciation rights (“SARs”), whether or not they are exercisable within 60 days of April 16, 2018. The number of shares that will be received upon exercise of such SARs is not currently determinable, and therefore is not included in the table above, because each SAR gives the holder the right to receive an amount in excess of the market price of one share of stock at the date of exercise over the exercise price and such amount is not determinable until the date of exercise.

 

(2) Includes 1,144,638 shares held directly and 211,793 shares underlying unvested RSUs that vest within 60 days of April 16, 2018. Excludes 312,501 unvested RSUs that will not vest within 60 days of April 16, 2018. Excludes the following vested SARs: 294,748.

 

(3) Includes 315,918 shares held directly and 29,367 shares underlying unvested RSUs that vest within 60 days of April 16, 2018. Excludes 69,138 unvested RSUs that will not vest within 60 days of April 16, 2018.

 

(4) Includes 417,238 shares held directly and 48,239 shares underlying unvested RSUs that vest within 60 days of April 16, 2018. Excludes 135,137 unvested RSUs that will not vest within 60 days of April 16, 2018.

 

(5) Includes 45,679 shares held directly, 1,038 shares held indirectly for the benefit of Ms. Leibman’s spouse and 29,367 shares underlying unvested RSUs that vest within 60 days of April 16, 2018. Excludes 73,078 unvested RSUs that will not vest within 60 days of April 16, 2018.

 

(6) Includes 367,642 shares held directly and 29,367 shares underlying unvested RSUs that vest within 60 days of April 16, 2018. Excludes 69,138 unvested RSUs that will not vest within 60 days of April 16, 2018. Excludes the following vested SARs: 117,287.

 

(7) Includes 14,737 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(8) Includes 15,615 shares held directly, 35,000 shares held indirectly for the benefit of the Jeffrey Benjamin 2009 Family Trust and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(9) Includes 40,615 shares held indirectly for the benefit of the John Tobin Cahill Revocable Trust and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(10) Includes 15,615 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(11) Includes 30,221 shares held directly, 2,550 shares held indirectly for the benefit of Mr. Hart’s children and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(12) Includes 37,800 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(13) Includes 50,192 shares held directly, 6,000 shares held indirectly for the benefit of Chartwell Capital Investments and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(14) Includes 6,380 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(15) Includes 6,380 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(16) Includes 81,699 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(17) Includes 23,801 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(18) Includes 18,656 shares held directly and 3,037 shares underlying unvested RSUs that vest within 60 days of April 16, 2018.

 

(19) Includes 2,791,420 shares held directly, 1,038 shares held indirectly for the benefit of an officer’s spouse, 35,000 shares held indirectly for the benefit of the Jeffrey Benjamin 2009 Family Trust, 40,615 shares held indirectly for the benefit of the John Tobin Cahill Revocable Trust, 2,550 shares held indirectly for the benefit of a director’s children, 6,000 shares held indirectly for the benefit of Chartwell Capital Investments and 413,944 shares underlying unvested RSUs that vest within 60 days of April 16, 2018, held by our executive officers and directors as a group. Excludes 728,130 shares underlying unvested RSUs that will not vest within 60 days of April 16, 2018 and excludes 412,035 vested SARs.

 

 

 

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The following table sets forth information regarding the beneficial ownership of our Common Stock as of April     , 2018 for each person known to us to be the beneficial owner of more than 5% of our outstanding Common Stock.

 

     Common Stock Beneficially Owned  
  Name and Address of Beneficial Owner   

Amount and Nature

of Beneficial Ownership

       Percent of Class  

 

T. Rowe Price Associates, Inc.

100 E. Pratt Street

Baltimore, MD 21202

 

     68,414,157 (a)         14.6

 

PRIMECAP Management Company

177 E. Colorado Blvd., 11th Floor

Pasadena, CA 91105

 

     50,119,814 (b)         10.7

 

Warren E. Buffet and Berkshire Hathaway Inc.

3555 Farnam Street

Omaha, NE 68131

 

     46,000,000 (c)         9.8

 

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

 

     28,506,633 (d)         6.1

 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

 

     24,544,507 (e)         5.3

 

(a) The amount shown and the following information are derived solely from the Schedule 13G/A filed by T. Rowe Price Associates, Inc. on February 14, 2018. T. Rowe Price Associates, Inc. has sole dispositive power with respect to all of such shares and sole voting power with respect to 24,932,672 of such shares.

 

(b) The amount shown and the following information are derived solely from the Schedule 13G/A filed by PRIMECAP Management Company on February 27, 2018. PRIMECAP Management Company has sole dispositive power with respect to all of such shares and sole voting power with respect to 18,376,164 of such shares.

 

(c) The amount shown and the following information are derived solely from the Schedule 13G/A filed on February 14, 2018 by Warren E. Buffet, Berkshire Hathaway Inc. and certain other reporting persons. In the Schedule 13G/A, Mr. Buffet reports that he has shared power to vote or direct to vote and shared power to dispose of or direct the disposition of all shares. Berkshire Hathaway Inc. reports that it has shared power to vote or direct to vote and shared power to dispose of or direct the disposition of all shares.

 

(d) The amount shown and the following information are derived solely from the Schedule 13G/A filed by The Vanguard Group on February 12, 2018. The Vanguard Group has sole voting power with respect to 511,952 of such shares, shared voting power with respect to 28,290 of such shares, sole dispositive power with respect to 27,975,855 of such shares and shared dispositive power with respect to 530,778 of such shares.

 

(e) The amount shown and the following information are derived solely from the Schedule 13G filed by BlackRock, Inc. on February 8, 2018. BlackRock, Inc. has sole dispositive power with respect to all of such shares and sole voting power with respect to 22,028,761 of such shares.

 

 

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

Governance Overview

Maintaining leading governance practices is and has been a long-standing priority, and we regularly assess and refine our corporate governance policies and procedures to take into account evolving best practices.

Our Board of Directors has adopted the Governance Guidelines to facilitate our mission and to establish general principles and policies by which the Board of Directors manages its affairs. The Governance Guidelines are reviewed periodically by the Corporate Governance and Nominating Committee and are posted on our website at www.aa.com under the links “Investor Relations”—“Corporate Governance.”

Board Leadership and Structure

Pursuant to our Bylaws, the Board of Directors is responsible for filling the positions of Chairman and Chief Executive Officer, and the independent members of the Board of Directors elect the Lead Independent Director, with the persons they deem qualified, as well as for removing and replacing such persons as and when the Board of Directors may deem necessary or appropriate. The Board of Directors periodically reviews AAG’s leadership structure and may modify the structure as it deems appropriate, given the specific circumstances then facing the Company.

The Board of Directors is currently led by Mr. Parker, our Chairman and Chief Executive Officer, and Mr. Cahill, our Lead Independent Director. We believe that our current leadership structure strikes an appropriate balance between effective and efficient Company leadership and oversight by independent directors.

The Board of Directors believes that having Mr. Parker serve as both Chairman and Chief Executive Officer is the most effective leadership structure for the Company at this time. Mr. Parker has over 30 years of experience in the airline industry, over 15 years of experience as an airline Chairman and Chief Executive Officer, mergers and acquisitions experience and prior service as a director of other large public companies. This experience makes him uniquely well positioned to lead AAG’s business, operations and strategy.

The combination of the Chief Executive Officer and Chairman roles allows consistent communication and coordination throughout the Company, effective and efficient implementation of corporate strategy and is important in unifying our team members behind a single vision. The combination of the Chief Executive Officer and Chairman roles is balanced by our strong Lead Independent Director position, by the independence of all of our other directors, each of whom has significant experience in leadership roles at public companies and other large, complex organizations and by the four principal committees of the Board of Directors, each of which consists solely of independent directors.

Lead Independent Director Responsibilities

The Board of Directors recognizes the importance of strong independent Board leadership. All of our directors are independent under the standards provided in the Governance Guidelines and under applicable NASDAQ listing standards, except for Mr. Parker, our Chairman and Chief Executive Officer. Additionally, the independent directors of the Board elect periodically a Lead Independent Director when the Chairman is not independent. The Board believes that the Lead Independent Director provides the Company and the Board with the same independent leadership, oversight and benefits that would be provided by an independent Chairman. As a result of our stockholder engagement, in 2017 we amended our Bylaws to allow for the selection of the Lead independent Director by only the independent directors of the Board, and codified our existing practices regarding the authority and role of the Lead Independent Director to enhance transparency and ensure that the appropriate balance of authority, already characteristic of our governance practices, is memorialized in our governing documents.

The independent directors of the Board have elected Mr. Cahill to serve as the Board’s Lead Independent Director. Mr. Cahill has been a member and the Lead Independent Director of the Board of Directors since December 2013. He also serves as a member of our Audit Committee and Corporate Governance and Nominating Committee. Mr. Cahill’s extensive leadership and operations experience in executive leadership roles at global public companies, including as Vice Chairman of Kraft Heinz, Chairman and Chief Executive Officer of Kraft Foods Group and Chairman and Chief Executive Officer of Pepsi Bottling, his accounting and financial expertise and public company board and corporate governance experience, make him qualified to serve as Lead Independent Director of our Board of Directors.

 

 

 

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The Lead Independent Director’s duties include

the following significant responsibilities:

 Presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors

 

 Serves as liaison between the Chairman and the independent directors

 

 Ensures that the Board has proper input into the types and forms of information sent to the Board

 

 Establishes Board meeting agendas

 

 Ensures that the Board has proper input into meeting agendas and schedules to assure that there is sufficient time for discussion of all agenda items

 

 Has the authority to call meetings of the independent directors

 

 Consults and communicates directly with major stockholders, as requested by such stockholders

 

 Acts as a sounding board and advisor to the Chairman

 

 Guides the CEO succession planning process in conjunction with the Compensation Committee

Director Independence

The Governance Guidelines contain standards for determining director independence that meet or exceed the applicable rules of the SEC and listing standards of the NASDAQ Stock Market (“NASDAQ”). The Governance Guidelines define an “independent” director as one who:

 

    is not an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director;

 

    is not, and has not at any time during the past three years been, employed by the Company;

 

    has not accepted, and does not have any spouse, parent, child or sibling, whether by blood, marriage or adoption, any person residing in such individual’s home, or any relative supported financially (each, a “Family Member”) who has accepted, any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the determination of independence, other than (A) compensation for Board of Directors or committee service, (B) compensation paid to a Family Member who is an employee (other than an executive officer) of the Company, or (C) benefits under a tax-qualified retirement plan or non-discretionary compensation;

 

    is not a Family Member of an individual who is, or at any time during the past three years was, employed by the Company as an executive officer;

 

    is not, and does not have a Family Member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than (A) payments arising solely from investments in the Company’s securities and (B) payments under non-discretionary charitable contribution matching programs;

 

    is not, and does not have a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Company served on the compensation committee of such other entity;

 

    is not, and does not have a Family Member who is, a current partner of the Company’s outside auditor, and was not, and does not have a Family Member who was, a partner or employee of the Company’s outside auditor who worked on the Company’s audit at any time during any of the past three years; and

 

    satisfies any additional requirements for independence promulgated from time to time by NASDAQ.

The Governance Guidelines also provide that the Board of Directors will consider all other relevant facts and circumstances, including issues that may arise as a result of any director compensation (whether direct or indirect), any charitable contributions we make to organizations with which a director is affiliated and any consulting arrangement between the Company and a director. The Corporate Governance and Nominating Committee reports annually to the full Board of Directors on these matters.

Pursuant to the Governance Guidelines, the Corporate Governance and Nominating Committee and the Board of Directors undertake an annual review of director independence. Based on the Corporate Governance and Nominating

 

 

 

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Committee’s review in April 2018, the Board of Directors affirmatively determined that all of our directors are independent under the standards provided in the Governance Guidelines and under applicable NASDAQ listing standards, except for Mr. Parker, our Chairman and Chief Executive Officer, who is an employee.

The following types and categories of transactions, relationships and arrangements were considered by our Board of Directors in making its independence determinations. Excluded were ordinary course air transportation by corporations or other organizations where the director’s interest solely arises from such person’s position as a director or advisor to such other corporation or organization. All of the reviewed transactions and arrangements were entered into in the ordinary course of business and none of the business transactions, donations or grants involved an amount that exceeded the greater of 5% of the recipient entity’s revenues or $200,000.

 

    Each of Mses. Kronick and O’Leary and Messrs. Benjamin, Nesbitt and Schifter serves as a member on the board of directors or an advisory board of companies or entities that engage in ordinary course commercial transactions with AAG involving goods or services other than air transportation or to which AAG had made a donation or grant.

 

    Messrs. Albaugh, Benjamin and Schifter serve as senior advisors to Perella Weinberg Partners, Cyrus Capital Partners and TPG, respectively. These funds may have investments in us and/or companies with which we do business in the ordinary course. Messrs. Albaugh, Benjamin and Schifter are not partners in or executive officers of such companies, nor are they deemed to beneficially own the securities held by such companies.

The Board of Directors has concluded that these transactions and arrangements do not impair the directors’ exercise of independent judgment in carrying out their responsibilities as directors.

Board Tenure

We believe that fresh perspectives and new ideas are critical to a forward-looking and strategic Board. At the same time, given the extremely complex nature of our business, it is equally important to benefit from the valuable experience and institutional knowledge that longer-serving directors bring to the boardroom. In November 2015, we added two new directors to our Board, Ms. Kronick and Mr. Nesbitt. Our remaining directors joined our Board in December 2013 at the effective date of the merger with US Airways. The Board of Directors strongly believes that the current mix of directors provides the Company with an appropriate balance of knowledge, experience and capability, allowing us to leverage deep company experience and knowledge in addition to new viewpoints and innovative ideas among newer directors.

Board Diversity

Our Board of Directors believes that diversity is an important aspect of an effective board. The Corporate Governance and Nominating Committee seeks to recommend individuals to the Board of Directors with, among other things, a diversity of skills, experience, expertise and perspective appropriate for the business and operation of the Company. We recognize the benefits of racial and gender diversity in the boardroom, including better reflecting our diverse customer and employee base and the healthy debate that stems from different viewpoints that may result from diverse backgrounds. Accordingly, our Board of Directors is diverse in many ways, with differing geographic, business and racial backgrounds. Nearly 40% of our Board of Directors is diverse based on gender or ethnicity.

Board Self-Evaluation

Our Governance Guidelines and Corporate Governance and Nominating Committee charter provide that the Corporate Governance and Nominating Committee must conduct an annual assessment of the performance of the Board of Directors, including the committees, and provide the results to the full Board of Directors for discussion. The purpose of the review is to increase the effectiveness of the Board of Directors as a whole and of each of the committees. The assessment includes an evaluation of the Board of Directors and each committee’s contribution as a whole, of specific areas in which the Board of Directors, the applicable committee and/or management believe better contributions could be made and of the overall make-up and composition of the Board of Directors and its committees.

Board Meetings

The Board of Directors conducts its business through meetings of the full Board of Directors and committees of the Board of Directors. The Board of Directors regularly meets in executive session with only independent directors of the Board of Directors present. During 2017, the Board of Directors held six meetings, five of which were in-person meetings that included executive sessions comprised of only independent directors. In 2017, each incumbent director attended at least 75% of the aggregate number of meetings of the Board of Directors and of the committees on which he or she served.

 

 

 

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Committees

The Board of Directors currently has four standing, principal committees: the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Finance Committee. The primary responsibilities, membership and meeting information for the committees of our Board of Directors during 2017 are summarized below. A copy of the charter of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee is available on our website at www.aa.com under the links “Investor Relations”—“Corporate Governance.”

 

   

 Audit Committee

 

     

 

Members in 2017:

Matt Hart (Chair)

John Cahill

Mike Embler

Alberto Ibargüen

Marty Nesbitt

 

Meetings in 2017: 5

 

The Board of Directors has determined that each member is independent under SEC and NASDAQ rules and the Governance Guidelines. Each member is a “financial expert” under applicable SEC rules and has the financial management expertise required by NASDAQ listing standards.

  

 

Primary Responsibilities

  Oversee the Company’s internal accounting function; report to the Board of Directors with respect to other auditing and accounting matters

 

  Appoint or replace the independent auditor; oversee the work of the independent auditor for the purpose of preparing or issuing an audit report or related work, including determining the scope of annual audits and fees to be paid

 

  Oversee the Company’s risk management policies that relate to the financial control environment, financial reporting and disclosure controls

 

  Establish and maintain procedures for compliance with significant applicable legal, ethical and regulatory requirements that impact the Company’s financial statements and for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters

 

  Review and approve all significant conflicts of interest and related party transactions in accordance with Company policies

 

  Review cyber-security and other risks relevant to the Company’s computerized information system controls and security

 

  Pre-approve audit and permitted non-audit services provided by the independent auditor

 

 

 

 

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 Compensation Committee

 

     

 

Members in 2017:

Rich Kraemer (Chair)

Jim Albaugh

Jeff Benjamin

Alberto Ibargüen

Denise O’Leary

 

Meetings in 2017: 5

 

The Board of Directors has determined that each member is independent under NASDAQ rules and the Governance Guidelines, is a “non-employee director” as defined by Rule 16b-3 under the Exchange Act and qualifies as an “outside director” within the meaning of Section 162(m) of the Code.

  

 

Primary Responsibilities

  Review and approve the Company’s overall compensation strategy and policies, including performance goals for executive officers

 

  Review the relationship between the Company’s compensation strategy and risk management policies; oversee succession planning

 

  Evaluate the performance of the Company’s Chief Executive Officer and approve his compensation and other terms of employment

 

  Evaluate the performance of and determine the compensation and other terms of employment of the other executive officers and other members of senior management

 

  Administer the Company’s incentive and stock plans, including establishing guidelines, interpreting plan documents, selecting participants, approving grants and awards and making all other decisions regarding the operation of such plans

 

  Review the Company’s workforce diversity and inclusion

 

  Retain outside advisors; the Compensation Committee directly retained and oversees its independent compensation consultant, Willis Towers Watson

 

 

 

 Corporate Governance and Nominating Committee

 

 

Members in 2017:

Ray Robinson (Chair)

Jim Albaugh

John Cahill

Sue Kronick

Denise O’Leary

 

Meetings in 2017: 3

 

The Board of Directors has determined that each member is independent under NASDAQ rules and the Governance Guidelines.

  

 

Primary Responsibilities

  Oversee all aspects of the Company’s corporate governance functions, including the procedures for compliance with significant applicable legal, ethical and regulatory requirements that impact corporate governance

 

  Conduct an annual review of director independence and the performance of the Board of Directors, including the committees

 

  Identify individuals qualified to become members of the Board of Directors and recommend director nominees

 

  Review and assess the Governance Guidelines, which among other things, sets forth the responsibilities and authority of our Lead Independent Director, and recommend any changes deemed appropriate to the Board

 

  Review and evaluate, with the Company’s management, the Company’s governance-related risks and risk management practices

 

  Oversee the Company’s political contributions and lobbying activities; periodically review reports on the Company’s corporate and Political Action Committee political contributions

 

  Oversee the Company’s environmental and social sustainability efforts

 

  Review the compensation of the non-employee members of the Board of Directors and making recommendations regarding changes to the full Board

 

 

 

 

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 Finance Committee

 

 

Members in 2017:

Rick Schifter (Chair)

Jeff Benjamin

Mike Embler

Sue Kronick

Marty Nesbitt

 

Meetings in 2017: 10

 

The Board of Directors has determined that each member is independent under NASDAQ rules and the Governance Guidelines.

 

  

 

Primary Responsibilities

  Oversee the Company’s financial affairs and capital spending

 

  Recommend to the Board financial policies and courses of action that will effectively accommodate the Company’s goals and operating strategies

 

  Supervise the Company’s dividend and share repurchase programs

 

  Review, approve and/or recommend to the Board of Directors our annual budget and financing plans and other matters related to the Company’s financial and strategic planning.

 

  Oversee the Company’s financial risk management practices

 

Compensation Committee Process for Executive Compensation.

The Compensation Committee charter gives the Compensation Committee the authority and responsibility to review and approve our overall compensation strategy and policies, including performance goals for executive officers. The Compensation Committee is responsible for reviewing and approving the compensation and other terms of employment of the Chief Executive Officer and for evaluating his performance. The Compensation Committee also evaluates, after receiving input from the Chief Executive Officer, the compensation and other terms of employment of the other executive officers. The Compensation Committee administers our incentive compensation, stock, bonus and other similar plans and programs; approves awards under those plans; reviews and, based upon the recommendation of the Chief Executive Officer, approves the adoption of, amendment to, or termination of executive compensation and benefit plans; and determines the general design and terms of, and may delegate authority to executive officers to administer, significant non-executive compensation and benefits plans. The Compensation Committee may delegate all or a portion of its authority to administer our compensation and benefits plans to a subcommittee, to another committee of the Board of Directors or to one or more executive officers, provided that any such delegation does not include the authority to make stock incentive grants to any executive officer. The Compensation Committee has delegated to an Equity Incentive Committee, consisting of the Chief Executive Officer, the authority to make equity grants to employees who are not executive officers within guidelines established by the Board of Directors or the Compensation Committee.

Each year, the Compensation Committee reviews the annual incentive program results from the prior year, establishes the performance goals for the current year, evaluates our executive officers’ individual performance and approves the Compensation Committee’s report for our proxy statement. The Compensation Committee has adopted an equity grant policy to standardize the timing, practices and procedures in granting equity awards. The policy provides that equity grants, other than new hire, promotion or special purpose grants, will be granted once per year at the second regularly scheduled meeting of the Compensation Committee, at a meeting of a subcommittee to which certain authority to grant equity awards has been delegated or at a special meeting held for this purpose as close in time to the regularly scheduled meeting as possible. Throughout the year, as needed or appropriate, the Compensation Committee considers merit increases in base salaries for executive officers and approves compensation for internal promotions and new hires of executive officers. The Compensation Committee also monitors and evaluates our benefit plans and agreements with executive officers and management employees throughout the year and recommends adjustments as needed.

The Compensation Committee generally receives information from the Chief Executive Officer, the Executive Vice President—People and Communications, the Senior Vice President—People and compensation consultants engaged by the Compensation Committee in connection with its determinations regarding executive compensation. The Compensation Committee has sole authority to retain and terminate any outside advisors, such as compensation consultants and legal counsel, and to determine executive compensation.

During 2017, Willis Towers Watson assisted the Compensation Committee in determining our executive compensation and reviewing and analyzing proposed compensation programs for our executive officers. The total annual expense for the executive compensation advising services provided to us by Willis Towers Watson during 2017 was approximately $183,772.

Also during 2017, specialized teams at Willis Towers Watson provided actuarial valuation and consulting services relating to retirement plans (including for Canada), health and welfare plans and workers compensation and contractual liability and risk services relating to aviation/property and casualty, for aggregate fees of approximately $7.0 million. The Willis

 

 

 

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Towers Watson personnel who performed actuarial valuation and consulting services for us operated separately and independently of the Willis Towers Watson personnel who performed executive compensation-related services for us. While the decision to engage Willis Towers Watson for such other services was made by management, the Compensation Committee assessed whether the services provided by Willis Towers Watson raised any conflicts of interest pursuant to applicable SEC and NASDAQ rules and concluded that no such conflicts of interest existed.

Board Role in Risk Oversight

The Board of Directors is responsible for the oversight of the Company’s ongoing assessment and management of material risks impacting our business. The Board of Directors oversees the Company’s enterprise-wide approach to risk management, which is designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance stockholder value. A fundamental part of risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate. Management is responsible for establishing our business strategy, identifying and assessing the related risks and establishing appropriate risk management practices. The Board of Directors, either directly or through one or more of its committees, reviews our business strategy and management’s assessment of the related risk and discusses with management the appropriate level of risk. The Board relies on each Board committee to oversee management of specific risks related to that committee’s function. The Corporate Governance and Nominating Committee periodically reviews the Company’s governance-related risk management practices, and with management’s assistance, the committee has developed and coordinated the Board’s current risk oversight program. The Board of Directors has not established a separate risk committee because the Board of Directors believes that the most significant risks we face are most properly directly overseen by the full Board of Directors or, in certain cases, the appropriate standing committee which consider the risks within their area of responsibility.

For example, our most significant strategic, financial and operations risks are frequently reviewed by the full Board of Directors. The Board of Directors oversees the management of the largest risks we face, including risks associated with safety, the day-to-day operation of the airline and the interruption of airline service, revenue production, our information technology systems, business risks related to cyber-security, and labor issues and costs.

The Audit Committee oversees our risk management policies that relate to the financial control environment, financial reporting and disclosure controls and our procedures for compliance with significant applicable legal, ethical and regulatory requirements that impact our financial statements. The Audit Committee meets regularly with our internal auditors, independent auditors, Chief Financial Officer, Executive Vice President—Corporate Affairs, Senior Vice President, General Counsel and Chief Compliance Officer, Vice President and Controller, Vice President and Deputy General Counsel, Corporate Secretary, Chief Information Officer, Chief Information Security Officer, and Chief Privacy Officer and external advisors. The Audit Committee receives regular risk and internal controls assessment reports from the independent auditors and internal auditors. The Audit Committee also establishes and maintains procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. The Audit Committee also reviews cyber-security and other risks relevant to the Company’s computerized information system controls and security.

The Compensation Committee oversees compensation risk management by participating in the creation of, and approving, compensation structures that create incentives that encourage an appropriate level of risk-taking behavior consistent with our business strategy, as is further described in the section entitled “Risk Assessment with Respect to Compensation Practices” below. The Compensation Committee also works with the Chief Executive Officer and Executive Vice President—People and Communications to oversee risks associated with the retention of our most senior executives.

The Finance Committee oversees financial risk by working with senior management to evaluate elements of credit risk, advising on financial strategy, capital structure and liquidity needs and reviewing our financial risk management policies and practices. Our Chief Executive Officer, President and Chief Financial Officer meet periodically with the Finance Committee to discuss and advise on elements of these risks.

Risk Assessment with Respect to Compensation Practices

Management and the Compensation Committee, with the support of the compensation consultant, have reviewed the compensation policies and practices for our employees as they relate to our risk management and, based upon these reviews, we believe that any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on us in the future.

 

 

 

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Our basis for this conclusion includes that our compensation programs, and especially our executive compensation programs, are designed to include the following features:

 

    Formulaic annual and long-term incentive plan awards with maximum pay-out caps or guidelines instead of discretionary pay-out decisions. The AAG Short-term Incentive Program’s individual modifier component is subject to the Compensation Committee’s discretion and can only be implemented by a resolution of the Compensation Committee or within limited bounds approved by the Compensation Committee.

 

    Equity incentive awards are subject to performance or time based vesting periods that are intended to incentivize long-term rather than short-term results.

 

    Our incentive compensation plans include a diverse and blended set of pre-established goals and metrics that focus on a variety of areas across the Company and may include financial, total shareholder return and/or the achievement of individual goals. In addition, the goals established in our executive compensation programs are not subject to adjustment without Compensation Committee approval.

 

    Our senior executives are all at-will employees and have modest severance and retirement benefits, which together act to minimize excessive risk-taking behaviors.

 

    Mr. Parker’s direct compensation is solely in the form of equity incentives. All of Mr. Parker’s equity incentives are subject to staggered service-vesting conditions that incentivize sustained long-term appreciation of our stock price and, in the case of more than half of the equity incentives, are also subject to performance-vesting conditions tied to financial and total shareholder return metrics that incentivize long-term, industry-leading financial and market-based performance.

 

    We maintain stock ownership guidelines and a clawback policy for executive officers that further reduce undue risk-taking incentives. Senior executives have actual stock ownership that is well in excess of the required minimum.

 

    Actual performance results for incentive programs for employees at the level of director and above are reviewed and verified by a variety of departments (including finance, human resources, operations and legal) and are also reviewed by our internal auditor. These results are reported to the Compensation Committee, the Audit Committee and the Board of Directors.

 

    Our Insider Trading Policy and authorization to trade process monitors employee transactions in Company stock, including transactions from recently separated employees.

 

    For director and above employees, all our performance-based compensation programs are based on overall corporate performance, rather than the performance of any business unit or group.

 

    The Company maintains separate bonus programs for two organizations that are based on each organization’s respective performance; however, the number of participants and the payments under these programs are small and capped and no executives participate in the programs.

 

    For a discussion of the principles underlying our compensation policies for our executive officers who are named in the “Executive Compensation—Summary Compensation Table,” see the section entitled “Compensation Discussion and Analysis” beginning on page 50.

Annual Meeting Attendance

Our Governance Guidelines provide that each of our directors is expected to attend our annual meeting of stockholders, except where unusual circumstances arise. Twelve of the 13 directors who were then serving in office attended our 2017 annual meeting of stockholders.

Director Continuing Education

Non-employee directors are encouraged to attend seminars, conferences and other director education programs periodically. We reimburse the directors for the costs associated with these seminars and conferences, including related travel expenses. Management also conducts a comprehensive orientation process for new directors. In addition, directors receive continuing education through educational sessions at meetings and mailings between meetings.

 

 

 

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Communications with the Board of Directors and Non-Management Directors

The Board of Directors has approved procedures to facilitate communications between the directors and employees, stockholders and other interested third parties. Pursuant to these procedures, a person who desires to contact the Board of Directors, a standing committee of the Board of Directors or a director may do so in writing to the following address:

American Airlines Group Inc.

The Board of Directors

P.O. Box 619616, MD 5675

Dallas/Fort Worth International Airport, Texas 75261

Our Vice President and Deputy General Counsel, or someone acting on his behalf, will review the communications with the directors, a standing committee of the Board of Directors or an officer, in each case depending on the facts and circumstances outlined in the communication. The Corporate Governance and Nominating Committee also reviews with senior management the nature of the communications and our responses to them. Any communication relating to a stockholder nominee for a position on the Board of Directors or a stockholder proposal for business to be considered at any annual meeting of stockholders or included in any proxy statement will be sent to the Chair of the Corporate Governance and Nominating Committee. As provided in our Governance Guidelines, our Lead Independent Director, Mr. Cahill, has been designated as the primary director representative for consultation and direct communication with our stockholders.

 

 

 

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SUSTAINABILITY

Sustaining our Business

Sustainability is at the core of our business strategy and our Board has reviewed and is committed to our efforts. We are creating a vibrant future for American, our customers, our team members, our shareholders, and the communities we serve by creating the best network, working with the best partners with the best networks around the world, delivering the right products, and making investments and managing risks to position us for long-term success and to maximize shareholder value over the long run. Since the merger, we have made significant commitments to the future by substantially completing our integration, making significant investments in our team and our product, reducing our environmental footprint, retiring and refinancing higher cost debt, and returning capital to our investors. To ensure we meet our long-term goals, we will be guided by these four strategic objectives:

 

    Create a World-Class Customer Experience: We are delivering value to customers, driving operational excellence and strengthening our network by growing where we have a competitive advantage.

 

    Make Culture a Competitive Advantage: We are creating an environment that cares for frontline team members, developing innovative, inspiring, and caring leaders, and equipping our team with the right tools and training to support our customers.

 

    Ensure Long-Term Financial Strength: We will continue to capture the efficiencies created by the merger, delivering on American’s earnings potential, and creating value for our shareholders.

 

    Think Forward, Lead Forward: We are creating an action-oriented culture that moves quickly to bring products to market, embraces technological change, and quickly seizes upon new opportunities for our network and our product.

These strategic objectives, described in more detail beginning on page i and below, demonstrate that we are playing the long game – building an airline our customers, our team members, and our shareholders can count on for decades to come.

We are committed to delivering a world-class product by creating value for everyone who flies with us, driving operational excellence, and strengthening our network, including expanding where we have a competitive advantage. We are making unprecedented investments in improving our customers’ experience in the air and on the ground – including more, and more convenient, service to places our customers want to travel, a historic fleet renewal, innovative onboard products, and new airport facilities. Customers see the youngest and most fuel-efficient fleet in the industry, and also have more choice than ever through the introduction of Premium Economy and Basic Economy products, enhanced premium service, re-imagined airport lounges, and more consistency throughout our fleet. Our unified onboard experience is also being upgraded with faster satellite-based internet connectivity and power at every seat.

Our customers have access to many more destinations around the world through our global network and partnerships with foreign airlines, including our joint businesses with Japan Airlines, British Airways, Iberia and Finnair, and codesharing arrangements with LATAM, Qantas, Cathay Pacific and other carriers. And we will continue to expand our reach and service to our customers traveling internationally with our proposed joint businesses with LATAM and Qantas and our strategic partnership and codesharing arrangement with China Southern.

Caring for our Employees and Communities. We have the best team in the airline industry. Every day, we rely on terrific American team members around the world, and we know that our team members are key to our sustainability objectives. We are committed to continually improving our team’s capabilities, for today and for the future, and to developing a team that is more diverse, and to improving inclusion. We are focused on developing innovative, inspiring and caring leaders who will continue to help American make our corporate culture into a defining characteristic of our organization—as well as a competitive advantage. We will do this by creating an environment that cares for our frontline team members, our colleagues who are most responsible for taking care of our customers.

We are committed to delivering training that provides our team members with the skills they need to take care of our customers and comfortably work in a constantly changing environment, and making available the latest tools and technology that our team members need to do their jobs. For example, we recently provided our innovative Elevate the Everyday Experience training to 35,000 frontline team members, and launched training for leaders that emphasizes supporting team members who directly serve customers.

 

 

 

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We are committed to providing industry-leading compensation and benefits and supporting our team members and the communities where they live.

 

    We have kept team member pay competitive through initiatives such as a mid-contract salary increase for pilots and flight attendants and continued step increases, as well as a mid-contract pay increase for mechanics and fleet service workers. In early 2018 we also shared benefits of the recent Tax Cuts and Jobs Act through $1,000 payments to all non-officer team members. We also awarded each team member with two complimentary round-trip tickets across American’s global network to commemorate being named Air Transport World’s 2017 Airline of the Year.

 

    Our team members participated in more than 21,000 volunteer events in their communities, contributing more than 155,000 hours of volunteer time in the communities where they live and where we provide service. In addition, as part of the Company’s Flights for 50 awards program, our team members donated more than 20 million frequent flier miles to nonprofit organizations in their communities.

 

    Raising more than $3.2 million for veteran and military initiatives at the annual American Airlines Skyball event in Dallas-Fort Worth, our premier fundraising event to support the Airpower Foundation, a non-profit that supports all branches of our military, veterans and their families and contributing $788,000 to the Family Fund to provide emergency assistance to team members.

 

    Awarding more than $800,000 in scholarships through the American Airlines Education Foundation to nearly 300 children of team members—more money than ever before.

 

    Supporting the Cystic Fibrosis Foundation. This successful partnership has now raised over $35 million towards medical research for new treatment drugs developed to manage and eventually cure cystic fibrosis.

 

    Contributed more than $2 million to Stand Up 2 Cancer for ground breaking research through a unique marketing campaign highlighting more than 60 of our team members who are cancer survivors or undergoing treatment, in a powerful PSA with Bradley Cooper.

 

    Raising more than $2.4 million for the American Red Cross & UNICEF for disaster relief. In response to the disasters, 2,000 team members gathered in Dallas, Miami, Chicago and New York for a collaboration with American Red Cross, Feeding America, and Feed my Starving Children to pack 15,000 comfort kits, more than 100,000 pounds of food, and an additional 100,000 meals for those affected by the natural disasters.

Diversity and Inclusion. We are committed to improving our diversity and inclusion efforts to provide us with expanded sources of ideas and to better reflect our customer base and the communities we serve. Highlights of our ongoing practices and recognition in this area include:

 

    Maintaining a Diversity Advisory Council, composed of two representatives from each of our 20 Employee Business Resource Groups, which fosters interaction and engagement on a number of social and cultural issues.

 

    Receiving the 2016 “Top 25 Honors Award” by our Diversity Advisory Council for the ninth consecutive year.

 

    Receiving, for the 16th consecutive year, the highest possible ranking by the Human Rights Campaign in the 2017 Corporate Equality Index, a nationally recognized benchmark of America’s top workplaces for inclusion of LGBT team members.

 

    Receiving the top score of 100 on the 2017 Disability Equality Index® and being named a “2017 DEI Best Places to Work” For the second consecutive year.

 

    Promoting supplier inclusion through our Supplier Diversity Program, which proactively seeks out diverse suppliers, such as women-, minority- or LGBT-owned businesses, as well as small businesses that are owned by the disadvantaged, veterans, service-disabled veterans and those with HUBZone certification. In 2017, American increased its business with diverse and small businesses by 18% and was recognized for its Supplier Diversity Program by numerous organizations, including the American Institute of Diversity and Commerce, the National Business Inclusion Consortium, and the U.S. Hispanic Chamber of Commerce.

 

    American and Mr. Parker joined the CEO Action for Diversity & Inclusion, the largest CEO-driven business commitment to advancing diversity and inclusion within the workplace.

 

    In 2017, approximately 31% of our director and above team members were female and approximately 18% of our team members were diverse based on racial and ethnic backgrounds.

We are proud of the diversity and inclusion initiatives already in place at American, but we know we can do even better. We are eager to become global leaders in inclusion and diversity—and we are energized by the actions we plan to take as a result.

 

 

 

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The Environment. As a global airline, we believe it is our responsibility to manage the impact that our operations has on the environment. We have taken a number of actions that reduce our environmental footprint, such as:

 

    With our industry leading fleet renewal program, we continue to aggressively retire older aircraft and replace them with new, more fuel-efficient aircraft. By year-end 2017, we had introduced 496 new aircraft into the fleet since our merger, and retired 469 older aircraft, giving us the youngest fleet amongst the largest airlines. New aircraft entering American’s fleet, like the Boeing 737 MAX, improve per seat fuel efficiency by up to 40% and thus dramatically reduce emissions over similarly sized older aircraft that are retiring.

 

    For 2017, American achieved a 2.5% improvement in fuel efficiency and it is now 5.4% more efficient than it was in 2014. Over the last 3 years American emitted approximately 4.9 million metric tons of CO2 less than it would have if its fuel efficiency had remained at its 2014 level.

 

    Reducing fuel consumption and emissions through our Fuel Smart Program, which is a team member-led effort to safely reduce fuel consumption. Initiatives include reducing usage of the auxiliary power unit, optimizing planned aircraft arrival fuel, washing engine components for maximum efficiency and reducing aircraft weight by removing unnecessary items.

 

    Promoting the development and adoption of alternative jet fuel that can be sustainably produced and that has lower life-cycle carbon emissions than traditional jet fuel. American recently announced partnerships with Neste Oil, the leading producer of renewable fuel, and Agrisoma Biosciences, an innovative agricultural technology company, to explore production pathways and feedstocks that have the potential to lead to commercially viable sustainable alternative jet fuel.

 

    Replacing older, inefficient ground support equipment with new, low-emissions ground support equipment, including alternative-fuel and electric powered equipment. Over the past 3 years, American has added alternative-fuel and electric powered equipment at more than 60 of our domestic airport locations.

 

    Purchasing renewable energy to minimize our indirect emissions. One hundred percent of the electricity purchased at American’s headquarters campus and facilities at DFW Airport is now from renewable sources. At the end 2017, the Environmental Protection Agency announced American is ranked 43rd on its Fortune 500 list of the largest green power users.

 

    Supporting significant redevelopment projects to renovate older airport and other company facilities, and in turn improve their energy-efficiency. American works closely with our airport partners on multibillion-dollar capital programs that incorporate the latest energy enhancements.

 

    Seeking certification of our buildings to the U.S. Green Building Council Leadership in Energy and Environmental Design (“LEED”) standard, to the extent feasible. For example, our new headquarters under construction in Fort Worth, Texas, is designed to meet LEED Gold standard.

 

    Retrofitting hangar facilities with high-efficiency LED lights that use significantly less energy. At the start of 2018, re-lighting projects have been completed at two of seven hangar facilities.

 

    Recycling millions of aluminum cans and other plastic and paper items as part of our in-flight recycling program. American was the first airline to begin an in-flight recycling program in 1989. Revenue generated from the recycling program goes to the Wings Foundation, a nonprofit organization that assists American Airlines flight attendants in times of need.

We therefore take sustainability seriously. We have a team of high-level managers and subject-matter experts who meet on a regular basis to monitor global trends, determine our response to stakeholder inquiries and assess risks and opportunities around specific sustainability issues, and help prepare our annual Corporate Responsibility Report. This team will also review our policies and reports with, and make recommendations to our Chief Executive Officer and other senior leadership members and to the Corporate Governance and Nominating Committee, which oversees sustainability matters for the Board.

For further information on these and dozens of other social responsibility initiatives, please see our Corporate Responsibility Report, available on our website at www.aa.com.

 

 

 

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Codes of Ethics

Our employees, including our principal executive officer and principal financial and accounting officer, and our directors are governed by one of two codes of ethics of the Company (collectively, the “Codes of Ethics”). The Codes of Ethics require our employees and directors to conduct Company business in the highest legal and ethical manner. The Codes of Ethics meet the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K and the requirements of a code of business conduct and ethics under applicable NASDAQ listing standards. The full texts of the Codes of Ethics and further details regarding the scope of each of the Codes of Ethics are available on our website at www.aa.com under the links “Investor Relations”—“Corporate Governance.” We will also provide a copy of the Codes of Ethics to stockholders, free of charge, upon request to our Corporate Secretary. We intend to post amendments to or waivers from the Codes of Ethics as required by applicable SEC and NASDAQ rules at this location on our website.

Public Policy Advocacy and Political Contributions

Engagement in the political, legislative and regulatory process is important to the success of the Company. The Company has adopted Policies on Public Policy Advocacy and Political Contributions that set forth the ways by which the Company participates in the political, legislative and regulatory process. The Company does not make direct contributions to candidates for federal political office, and although the Company generally does not make direct contributions to candidates for state and local political office, we have not adopted a policy against such contributions. All political contributions comply with applicable laws, and we disclose our contributions publicly as required by law. The Company’s Policies on Public Policy Advocacy and Political Contributions also set forth the trade and industry associations that we participate in that support our public advocacy efforts. Employees may also voluntarily participate in the political process by joining the Company’s non-partisan political action committee, the American Airlines Political Action Committee (PAC), which is governed by comprehensive federal, state and local regulations that require the filing of monthly reports with the Federal Election Commission among other reporting and disclosure requirements. Compliance and oversight over the Company’s political engagements is provided by our Executive Vice President—Corporate Affairs and the Corporate Governance and Nominating Committee of the Board.

For further information, please see our Policies on Public Policy Advocacy and Political Contributions, available on our website at www.aa.com.

 

 

 

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DIRECTOR COMPENSATION

The table below provides information regarding compensation we paid to our non-employee directors in 2017. The compensation elements are described in the narrative following the table. Doug Parker, our Chairman and Chief Executive Officer, is not included in the table because he is an employee and receives no compensation for his service as Chairman or as a member of the Board of Directors.

 

  Name

 

    

Fees Earned

or Paid

in Cash

($)(a)

 

      

Stock

Awards

($)(b)

 

      

All Other

Compensation

($)(c)

 

      

Total

($)

 

 

Jim Albaugh

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

30,050

 

 

 

      

 

310,050

 

 

 

Jeff Benjamin

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

46,982

 

 

 

      

 

326,982

 

 

 

John Cahill

 

      

 

160,000

 

 

 

      

 

150,000

 

 

 

      

 

38,682

 

 

 

      

 

348,682

 

 

 

Mike Embler

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

31,476

 

 

 

      

 

311,476

 

 

 

Matt Hart

 

      

 

135,000

 

 

 

      

 

150,000

 

 

 

      

 

30,072

 

 

 

      

 

315,072

 

 

 

Alberto Ibargüen

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

3,708

 

 

 

      

 

283,708

 

 

 

Rich Kraemer

 

      

 

135,000

 

 

 

      

 

150,000

 

 

 

      

 

39,122

 

 

 

      

 

324,122

 

 

 

Sue Kronick

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

18,806

 

 

 

      

 

298,806

 

 

 

Marty Nesbitt

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

60,716

 

 

 

      

 

340,716

 

 

 

Denise O’Leary

 

      

 

130,000

 

 

 

      

 

150,000

 

 

 

      

 

12,362

 

 

 

      

 

292,362

 

 

 

Ray Robinson

 

      

 

135,000

 

 

 

      

 

150,000

 

 

 

      

 

17,364

 

 

 

      

 

302,364

 

 

 

Rick Schifter

 

      

 

135,000

 

 

 

      

 

150,000

 

 

 

      

 

35,408

 

 

 

      

 

320,408

 

 

 

 

(a) The amounts represent the aggregate dollar amount of all fees the directors earned or were paid in 2017 for service as a director, including annual retainer, committee, chair, meeting and lead independent director fees.

 

(b) The amounts represent the aggregate grant date fair value, as calculated in accordance with ASC Topic 718, of 3,037 RSUs granted to each director on June 14, 2017, which will vest fully on June 13, 2018, subject to the continued service of the director through the vesting date. As of December 31, 2017, each of our non-employee directors held 3,037 RSUs and no other outstanding equity awards.

 

(c) The amounts include (i) the value of flight privileges received in 2017, and (ii) tax reimbursements that we paid to our directors in 2018 for flight privileges provided to them in 2017. Amounts also include the portion of the premiums paid by us on behalf of Messrs. Hart, Kraemer and Schifter and Ms. O’Leary for a life insurance policy under the America West Directors’ Charitable Contribution Program, which is described more fully below in the section entitled “Legacy Director Compensation Programs.”

 

  Name

 

    

Flight

Privileges

($)

 

      

Tax

Gross-Up

on Flight

Privileges

($)

 

      

Insurance

Premiums

($)

 

 

Jim Albaugh

 

      

 

15,025

 

 

 

      

 

15,025

 

 

 

      

 

-

 

 

 

Jeff Benjamin

 

      

 

23,491

 

 

 

      

 

23,491

 

 

 

      

 

-

 

 

 

John Cahill

 

      

 

19,341

 

 

 

      

 

19,341

 

 

 

      

 

-

 

 

 

Mike Embler

 

      

 

15,738

 

 

 

      

 

15,738

 

 

 

      

 

-

 

 

 

Matt Hart

 

      

 

9,005

 

 

 

      

 

9,005

 

 

 

      

 

12,062

 

 

 

Alberto Ibargüen

 

      

 

1,854

 

 

 

      

 

1,854

 

 

 

      

 

-

 

 

 

Rich Kraemer

 

      

 

13,553

 

 

 

      

 

13,553

 

 

 

      

 

12,016

 

 

 

Sue Kronick

 

      

 

9,403

 

 

 

      

 

9,403

 

 

 

      

 

-

 

 

 

Marty Nesbitt

 

      

 

30,358

 

 

 

      

 

30,358

 

 

 

      

 

-

 

 

 

Denise O’Leary

 

      

 

4,198

 

 

 

      

 

4,198

 

 

 

      

 

3,966

 

 

 

Ray Robinson

 

      

 

8,682

 

 

 

      

 

8,682

 

 

 

      

 

-

 

 

 

Rick Schifter

 

      

 

11,696

 

 

 

      

 

11,696

 

 

 

      

 

12,016

 

 

 

 

 

 

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Director Compensation

The Corporate Governance and Nominating Committee periodically reviews the overall compensation of our directors in consultation with the Board of Directors and with the assistance of our management and, from time to time, the committee’s compensation consultant, Willis Towers Watson. The committee has authority to retain and terminate any outside advisors, such as compensation consultants and legal counsel, and to determine their compensation.

Annual Retainers and Grants of RSUs

For 2017, the compensation for our non-employee directors included the following cash-based annual retainers:

 

    an annual retainer of $100,000 for service on the Board of Directors;

 

    an annual retainer of $15,000 for service on each of the Audit, Compensation, Corporate Governance and Nominating, or Finance Committees;

 

    an annual retainer of $20,000 for service as the Chair of each of the Audit, Compensation, Corporate Governance and Nominating, or Finance Committees; and

 

    an additional annual retainer of $30,000 for service as our Lead Independent Director.

On the date of the 2017 annual meeting of stockholders, each continuing non-employee director received a number of RSUs equal to $150,000 divided by the closing price of our Common Stock on the date of the annual meeting. The RSUs will vest fully on the earlier of the first anniversary of the date of grant or the date of the next annual meeting of stockholders, subject to the continued service of the non-employee director through the vesting date.

In January 2018, Willis Towers Watson, independent compensation consultant to the Board, presented to the Board a comprehensive market analysis of the Company’s non-executive director compensation program prepared by the firm. Following this review, the Board approved increasing the annual retainer for the Chair of the Audit Committee by $5,000. No other changes to the director compensation program were made.

Other Compensation

As is customary in the airline industry, during the period of time they serve on the Board of Directors, non-employee directors are entitled to complimentary personal air travel for the non-employee director and his or her immediate family members on American and American Eagle, 12 round-trip or 24 one-way passes for complimentary air travel for the non-employee director’s family and friends each year, as well as American Airlines Admirals Club® membership, and AAdvantage® Executive Platinum and ConciergeKeySM program status. Non-employee directors will receive a tax gross-up for imputed taxable income related to these flight benefits. In addition, these travel benefits (except for the tax gross-up) will be provided (i) for a non-employee director’s lifetime if he or she has served for seven or more years or has otherwise vested in such benefits by virtue of the merger with US Airways or service with a predecessor airline or (ii) for five years if he or she has served for less than seven but more than two years. Non-employee directors will also be reimbursed for all reasonable out-of-pocket expenses incurred in connection with attendance at meetings upon submission of receipts.

Some of our current directors are eligible to continue participation under certain legacy programs related to service for predecessor companies, as described below.

Legacy Director Compensation Programs

Following the closing of the merger with US Airways, the America West Directors’ Charitable Contribution Program (the “Charitable Contribution Program”), a legacy director compensation program, continues to be in effect.

In 1994, America West established the Charitable Contribution Program under which all directors of America West were invited to participate. This program was discontinued for new directors following the merger between America West and US Airways in 2005. Under the Charitable Contribution Program, upon the death of a participant, America West (or its successor) is required to donate $1 million to one or more qualifying charitable organizations chosen by the participant. All participants serving as directors of America West at the time of the merger became vested in the Charitable Contribution Program, and the Charitable Contribution Program may not be terminated with respect to these individuals. The current directors who are participants in the Charitable Contribution Program are Messrs. Hart, Kraemer, Parker and Schifter and Ms. O’Leary. The charitable contributions will be substantially funded by life insurance proceeds from policies maintained by us on the lives of the participants. Under the terms of the Charitable Contribution Program, America West was allowed to place joint life insurance on two directors. The life insurance policies currently in place under the Charitable Contribution Program are structured as joint policies on the lives of two directors and the insurance benefits are payable at the death of

 

 

 

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the last survivor. Individual directors derive no direct financial benefit from the Charitable Contribution Program because all insurance proceeds are to be paid by us, and all tax deductions for the charitable contributions accrue solely to us.

Stock Ownership Guidelines

We adopted stock ownership guidelines for our non-employee directors in January 2014. Non-employee directors are required to hold a number of shares of stock equal to the lesser of either (i) five times the director’s annual cash retainer or (ii) 15,000 shares of our Common Stock. Ownership is determined based on the combined value of the following director holdings: (a) shares owned outright or by immediate family members residing in the same household or in a trust for the benefit of the director or an immediate family member; (b) Common Stock, stock units or other stock equivalents obtained through the exercise of SARs/stock options or vesting of equity awards; (c) unvested equity awards granted under any equity and deferral plans; and (d) other stock or stock equivalent awards determined by the Corporate Governance and Nominating Committee. Non-employee directors have five years from the later of: (i) the date the guidelines were adopted and (ii) the date the individual became a director to comply with the stock ownership guidelines. Under the stock ownership guidelines, until a non-employee director has reached the minimum ownership guideline, such director may not sell or otherwise dispose of the shares of Common Stock acquired upon the exercise, vesting or settlement of any equity awards except to the extent such sales do not cumulatively exceed 50% of such shares.

 

 

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Certain Relationships and Related Party Transactions

Since January 1, 2017, the Company has not participated in, nor is there currently planned, any transaction or series of similar transactions with any of the Company’s directors, nominees, executive officers, holders of more than 5% of Common Stock or any member of such person’s immediate family that is required to be reported under Regulation S-K Item 404(a) of the rules of the SEC.

We have entered into indemnity agreements with our executive officers and directors that provide, among other things, that we will indemnify each such officer or director, under the circumstances and to the extent provided for in the indemnity agreements, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings in which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of the Company.

Policies and Procedures For Review and Approval of Related Person Transactions

We believe that business decisions and actions taken by our officers, directors and employees should be based on the best interests of the Company, and must not be motivated by personal considerations or relationships. We attempt to analyze all transactions in which we participate and in which a related person may have a direct or indirect material interest, both due to the potential for a conflict of interest and to determine whether disclosure of the transaction is required under applicable SEC rules and regulations. Related persons include any of our directors or executive officers, certain of our stockholders and immediate family members of any of the above persons. The Audit Committee is responsible for reviewing and approving all significant conflicts of interest and related party transactions in accordance with our Company policies.

A conflict of interest occurs when an individual’s private interest interferes, or appears to interfere, in any way with the interests of the Company. Our Codes of Ethics requires our employees, including our principal executive officer, principal financial and accounting officer and our directors who may have a potential or apparent conflict of interest to fully disclose all the relevant facts to either the Chair of the Audit Committee or the Chief Compliance Officer, as applicable. Once the Chair of the Audit Committee or the Chief Compliance Officer receives notice of a conflict of interest, they will report the relevant facts to our internal auditors. The internal auditors will then consult with the Audit Committee and a determination will be made as to whether the activity is permissible. The full texts of our Codes of Ethics are available on our website at www.aa.com under the links “Investor Relations”—“Corporate Governance.”

 

 

 

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee has reviewed and discussed with our management our audited consolidated financial statements for the fiscal year ended December 31, 2017 (the “Audited Financial Statements”).

The Audit Committee has discussed with KPMG, our independent registered public accounting firm, the matters required to be discussed with the Audit Committee under Public Company Accounting Oversight Board Auditing Standard No. 1301.

The Audit Committee has received the written disclosures and the letter from KPMG regarding its independence as required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, has discussed with KPMG its independence and has considered the compatibility of the non-audit services provided by KPMG with respect to maintenance of that independence.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, that the Audited Financial Statements be included in our Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the SEC.

Respectfully submitted,

Audit Committee

Matt Hart (Chair)

John Cahill

Mike Embler

Alberto Ibargüen

Marty Nesbitt

 

This report of the Audit Committee is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules or the liabilities of Section 18 of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

Overview

This section discusses the principles underlying our compensation policies for our “named executive officers,” who for 2017 are:

 

    W. Douglas Parker, our Chairman and Chief Executive Officer;

 

    Robert D. Isom, our President;

 

    Stephen L. Johnson, our Executive Vice President—Corporate Affairs;

 

    Derek J. Kerr, our Executive Vice President and Chief Financial Officer; and

 

    Maya Leibman, our Executive Vice President and Chief Information Officer.

As described more fully below, our compensation strategy is designed to provide a total compensation package that will not only attract and retain high-caliber executive officers and employees, but one that will also align employee contributions with our corporate objectives and stockholders’ interests.

Executive Summary

2017 was a great year for American Airlines thanks to the work of our over 120,000 full-time equivalent team members. We are focused on four long-term strategic objectives to guide our thinking and decisions and keep the entire team focused on managing American for the long-term. They are: Create a World-Class Customer Experience, Make Culture a Competitive Advantage, Ensure Long-Term Financial Strength and Think Forward, Lead Forward.

Create a World-Class Customer Experience. We are delivering value to all customers, especially premium customers, as well as driving operational excellence and strengthening our network by growing where we have a competitive advantage. During 2017:

 

    We recorded our best on-time departure and arrival performance since 2003, and our best baggage handling performance since DOT began reporting in 1994.

 

    We expanded the airline’s global footprint by launching Los Angeles-to-Beijing service, and announced service from Philadelphia to Prague, Czech Republic, and Budapest, Hungary; Dallas-Fort Worth to Reykjavik-Keflavik, Iceland; and Chicago-O’Hare to Venice, Italy, which will start this summer.

 

    We operate the youngest fleet among our peers and invested $4.1 billion in new aircraft, including our first Boeing 737 MAX. By the end of 2018 we expect to induct a total of 20 new MAX aircraft, which are replacing older, less fuel efficient aircraft.

 

    We introduced new streaming-capable satellite-based internet access on narrowbody aircraft, starting with the 737 MAX and expanding soon to most of our domestic mainline fleet.

 

    We introduced Basic Economy to compete with ultra low-cost carriers. This product is now offered nationwide and to leisure markets in Mexico and most of the Caribbean.

 

    We expanded Premium Economy, which offers a wider seat, more legroom, an amenity kit, and enhanced meal choices on international flights. As of March 14, 69 widebody aircraft offer this product. We expect to offer Premium Economy on most of our widebody fleet by mid-2019.

 

    We launched new products to meet customer demand, including the expansion of American’s best-in-class lounges by opening Flagship First Dining, a new exclusive experience for customers in Flagship First on international and A321T transcontinental flights. American now offers Flagship First Dining in Miami, Los Angeles, and New York- JFK. American is the only U.S. airline that offers international first class.

Make Culture a Competitive Advantage. American is creating an environment that cares for frontline team members, developing innovative, inspiring, and caring leaders, and equipping our team with the tools to support our customers.

 

    We awarded each team member with two complimentary round-trip tickets across American’s global network to commemorate being named Air Transport World’s 2017 Airline of the Year.

 

    After hurricanes hit the Caribbean and Florida, American Airlines team members worked together to help the people of San Juan, Puerto Rico and other affected parts of the region. American and our team members delivered more than 2.5 million pounds of relief supplies, raised almost $2 million for the American Red Cross and contributed $788,000 to the Family Fund to provide emergency assistance to team members.

 

 

 

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    We invested more than $300 million in facilities and equipment including renovations to team member spaces, mobile devices for pilots and flight attendants, and the One Campus One Team initiative at our global support center in Fort Worth.

 

    We kept team member pay competitive through initiatives such as a mid-contract salary increase for pilots and flight attendants and continued step increases, as well as a mid-contract pay increase for mechanics and fleet service workers. In early 2018 we also shared benefits of the recent Tax Cuts and Jobs Act through $1,000 payments to all non-officer team members.

 

    We introduced best-in-industry maternity and adoption benefits.

 

    We conducted our first team member engagement survey in over a decade, and we will continue to act on the results so that American continues to improve as a workplace.

 

    We provided customer service skills training to 35,000 team members through Elevate the Everyday Experience training.

 

    We rolled out our Leadership Model during 2017, which defines the attributes and expectations for leaders at American. In 2017, 4,000 leaders participated in leadership training designed to help them support our frontline team members. Higher level leaders underwent additional training to further listening and coaching skills during 2017, and this same training will roll out more broadly in 2018. We also began development of implicit bias training for leaders and our frontline team during 2017. All of this training supports our imperative to make culture a competitive advantage for American Airlines by building leaders who support the frontline team.

Ensure Long-Term Financial Strength. To ensure our long-term competitiveness in the global aviation industry, we are focused on capturing the efficiencies created by the merger, delivering on American’s earnings potential, and creating value for stockholders. In the four full years since the merger closed, the company’s cumulative pre-tax earnings were $15.2 billion, or $19.4 billion excluding net special items.

 

    We reported a 2017 pre-tax profit of $3.1 billion, or $3.8 billion excluding net special items.

 

    We returned $1.7 billion to shareholders in 2017, including the repurchase of 33.9 million shares and dividend payments of $198 million.

 

    Since mid-2014 we have returned $11.4 billion to shareholders, reducing our share count by 37 percent to 475.5 million shares at the end of 2017.

See Annex A for a reconciliation of pre-tax profit excluding net special items, a non-GAAP measure.

Think Forward, Lead Forward. We are committed to re-establishing ourselves as an industry leader by creating an action-oriented culture that moves quickly to bring products to market, embraces technological change and quickly seizes upon new opportunities for our network and our product. During 2017:

 

    We acquired 2.7% of the outstanding shares of China Southern Airlines, the largest airline in China.

 

    We extended our trans-Atlantic Joint Business Agreement with our airline partners.

 

    We committed more than $1.6 billion to improve LAX Terminals 4 and 5, setting the stage for American to receive additional gates, strengthen our Pacific gateway and be the pre-eminent airline for Los Angeles.

 

    We have agreed on a new lease that will redevelop ORD over the next 10 to 15 years, giving us further room to grow our ORD operation. We built a five-gate expansion at ORD Terminal 3, which is due to open in April 2018, giving American a new advantage at this key competitive hub.

Our Commitment to Fair Pay and Pay for Performance

Our CEO and other executive officers have demonstrated their commitment to fair pay and pay for performance by initiating the following exceptional actions with respect to their compensation.

 

    Beginning in 2015, at Mr. Parker’s request, we provide 100% of his direct compensation in the form of equity incentives in lieu of base salary and annual cash incentive compensation. That has helped to advance our commitment to paying for performance and aligning Mr. Parker’s interests with that of our stockholders. More than half of these equity incentives will be earned not earlier than the third anniversary of the grant date based on our relative pre-tax income margin and total stockholder return (TSR) performance.

 

    At his request, Mr. Parker’s target direct compensation has been historically set at below the average for his peers at Delta and United.

 

 

 

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    Also at his request, in April 2016, our Compensation Committee agreed to eliminate his employment agreement and our obligations under the agreement such that Mr. Parker is no longer contractually entitled to receive a set level of compensation and benefits and is no longer protected by the change in control and severance provisions of that employment agreement. However, notwithstanding the elimination of Mr. Parker’s employment agreement, he has agreed to remain obligated with respect to the employment agreement covenants that required post termination confidentiality and non-solicitation of employees.

 

    In 2017, at their request, all of the executive officers who were party to change in control and severance benefit agreements voluntarily terminated their agreements. As a result, none of our executive officers is now contractually entitled to any cash severance or continued health benefits upon any termination, nor are we contractually obligated to provide a gross-up to cover any excise taxes incurred by any named executive officer under Section 4999 of the Internal Revenue Code.

Competitive Compensation; Emphasis on Pay for Performance

For 2017, Mr. Parker’s total target direct compensation, which was provided solely in the form of long-term equity incentives, was set 3% higher than his 2016 total target direct compensation consistent with the budgeted increase for the broader support staff and management population. This resulted in total target direct compensation that was below the average total direct compensation of his peers at Delta and United (using the most recent publicly available data as of June 2017).

The target direct compensation provided to our other named executive officers is competitive with that of the other large network airlines. For 2017, our other named executive officers received a 2.8% merit-based increase to their total target direct compensation over 2016 levels consistent with the budgeted increase for the broader support staff and management team population, other than Mr. Isom, who received a 6.3% increase in connection with his promotion to President in 2016. In addition, between 85% and 90% of their 2017 total target compensation was comprised of variable pay. As a result, the compensation ultimately realized by our other named executive officers will be significantly determined by our financial performance and the performance of our stock, and is therefore closely aligned with the interests of our stockholders.

Pay mix. The pie charts below show the target mix of each element of the 2017 total compensation package for (i) our Chief Executive Officer and (ii) our other named executive officers, showing our strong emphasis on variable pay, which can only be earned based on the key performance objectives discussed in the section below.

 

 

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Key Performance Objectives

We design our annual and long-term incentives to include performance metrics that focus on profitability, operating efficiency and investor returns.

For our 2017 annual cash incentive program, we retained the overall structure and performance metrics under our 2016 annual cash incentive program. As in 2016, our 2017 annual cash incentive program was based on pre-established adjusted pre-tax income targets. We believe that pre-tax income is an effective way to capture cost management and revenue performance. Under the program, the short-term incentive target payment was payable if we earned $5.0 billion in pre-tax profit in 2017, which the Committee believed would be a challenging goal, and no incentive would be earned if pre-tax profit was below $3.0 billion. The Committee is committed to setting rigorous goals under the short-term incentive program and set these levels following consideration of budgeted performance, taking into account fuel price environment and other broad market factors, as well as plan design considerations. In 2017, we achieved an adjusted pre-tax income of approximately $4.2 billion, which corresponded to achievement at 79.1% of the target level under the 2017 cash incentive program. Based on the funding level, each participating executive officer received a bonus at 79.1% of target.

 

 

 

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For 2017, we introduced relative TSR as a new metric under the performance-vesting component of our long-term incentive program. Our 2017 long-term incentive program for our named executive officers incorporates both performance- and time-vesting RSU components, with the performance-vesting component weighted at least 50% by value to further align management and stockholder interests. Because they are delivered in shares of our Company’s stock, the value of RSUs that comprise our executives’ equity incentives is directly aligned with stockholder returns. Moreover, the performance-vesting component of the RSUs will be earned not earlier than the third anniversary of the grant date based on our relative three-year pre-tax income margin as compared to that of a pre-defined group of airlines. Our three-year TSR relative to that of the same pre-defined group of airlines will be used to adjust upward or downward by up to 25%, any shares earned based on our relative pre-tax income margin performance. Relative pre-tax income margin maintains a focus on profitability and operating efficiency, and we believe it is an effective measure of relative financial performance in our industry. We believe that adjusting performance achievement positively or negatively based on relative TSR demonstrates our commitment to generating returns for our stockholders and further aligns management interests with stockholder interests.

Under the performance-vesting component of the RSUs, the number of shares earned will vary between 50% and 200% of the target number of performance-vesting RSUs originally awarded, depending on our relative performance on both pre-tax income margin and three-year TSR, and no shares will be earned if threshold performance on the pre-tax income margin measure is not achieved. In addition, if the Company’s absolute TSR over the measurement period is negative, no upward adjustment will be made to the payout based on this modifier, and the maximum number of shares that may be earned will be capped at 160%.

Effective Compensation Governance

We are committed to good compensation governance and have adopted compensation policies and practices in furtherance of our commitment, including the following:

 

What We Do             What We Do NOT Do

   Stock Ownership Guidelines that further align our executive officers’ long-term interests with those of our stockholders.

 

   Independent Compensation Consultant that is directly engaged by the Compensation Committee to advise on executive and director compensation matters.

 

   Annual Compensation Risk Assessment to identify any elements of our compensation program design or oversight processes that carry elevated levels of adverse risk to the Company.

 

   Equity Award Grant Policy that establishes objective, standardized criteria for the timing of equity awards granted to our team members.

 

   Tally Sheet Review. We conduct a comprehensive overview of all compensation, including an overview of total compensation targets and potential payouts.

 

   Clawback Policy for all cash and equity incentive compensation paid to our executive officers.

 

   At-Will Employment. Our executive officers are all at-will employees and none of our executive officers has an employment agreement.

     

×   No Severance or Change in Control Agreements. None of our executive officers has a severance or change in control agreement.

 

×   No Excessive Perquisites. Perquisites and other personal benefits are not a significant portion of any executive officer’s compensation. We do not provide company cars, personal club memberships, home security protection, private jet travel for personal use or protection on home sale loss in a relocation.

 

×   No Guaranteed Bonuses. Our executive officers’ bonuses are performance-based and 100% at risk.

 

×   No Payouts of Dividends accrued on unvested awards unless and until the award’s vesting conditions are satisfied.

 

×   No Active Executive Retirement Plans. We do not maintain any active executive-only or supplemental retirement plans.

 

×   No Hedging or Pledging. We prohibit our executive officers from engaging in hedging transactions or using our stock as collateral for loans.

 

×   No Excise Tax Gross-Ups. We do not provide any executive officer with any tax gross-ups to cover excise taxes in connection with a change in control.

2017 Compensation Objectives and Programs

The philosophy underlying our overall executive compensation program is to provide an attractive, flexible and market-based total compensation program that is both tied to our performance and aligned with the interests of our stockholders. We intend for our compensation programs to motivate the management team to maximize stockholder value over time without creating unnecessary or excessive risk-taking that would have an adverse effect on stockholder value and potentially detract from our ability to reach long term sustainable levels of income and profitability.

 

 

 

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We believe the current structure of our executive compensation program has been effective at retention of key talent and rewarding the achievement of corporate and individual goals. As we move away from merger integration and toward meeting our performance objectives, our programs are structured to emphasize pay for performance with a focus on sustainable profitability and investor returns.

To continue to attract and retain high-caliber executive officers, the Compensation Committee set total 2017 compensation levels for our named executive officers following review of compensation levels paid at companies with a comparable global presence, complexity, operations, revenue and market capitalization to us, including Delta and United. The Committee determined to set total target direct compensation at 2.8% higher than 2016 levels for our named executive officers, consistent with our budgeted increase for the broader support staff and management population, other than for Mr. Isom, who received a 6.3% increase to his target direct compensation in connection with his promotion to President in 2016.

Stockholder Approval of 2017 Executive Compensation

At our 2017 annual meeting of stockholders, our stockholders voted, in a non-binding advisory vote, to approve the compensation of our named executive officers (with an approval representing over 97% of the shares represented in person or by proxy at the meeting and entitled to vote). Our Compensation Committee reviewed the result of the stockholders’ advisory vote on executive compensation and, in light of the approval by a substantial majority of stockholders, did not implement changes to the executive compensation programs as a result of the vote.

Determination of Executive Compensation

Role of the Compensation Committee and Management in Compensation Decisions

The Compensation Committee administers the compensation program for all officers, including the named executive officers. The Compensation Committee is comprised of five independent directors, each of whom is a “non-employee director” under Rule 16b-3 of the Exchange Act and an “outside director” for purposes of Section 162(m) of the Code. The Compensation Committee’s overarching goal is to create executive compensation programs that align management and stockholder interests over the long-term and that allow us to recruit and retain a highly capable management team. The Compensation Committee considers management input on executive compensation programs but relies on its outside consultant, Willis Towers Watson, for perspective and leading practice guidance. Willis Towers Watson also provides leading practice data for the airline industry and Fortune 500 companies generally.

Some of the elements we consider when designing compensation policies include attrition, diversity, and executive development needs. Management also will from time to time bring matters to the attention of the Compensation Committee that might require alterations to compensation policies, especially when they have identified specific circumstances that require additional executive talent or unique executive skills that we may not currently have in place. Our Chief Executive Officer also provides input and recommendations based on his direct knowledge of the other named executive officers’ individual performance and contributions given the scope of their responsibilities.

Use of Compensation Consultants

The Compensation Committee retained Willis Towers Watson as its independent compensation consultant beginning in 2014. The Compensation Committee has sole authority with regard to the decision to retain Willis Towers Watson and, while Willis Towers Watson interacts with management from time to time in order to best coordinate with and deliver services to the Compensation Committee, it reports directly to the Compensation Committee with respect to its executive compensation consulting advice. Management also engaged Willis Towers Watson in 2017 to perform other services for the Company that are not part of the executive compensation services provided to the Compensation Committee or the director compensation services provided to the Corporate Governance and Nominating Committee. For a description of these services and fee information, see the section entitled “Information About the Board of Directors and Corporate Governance—Committees” beginning on page 35. The Compensation Committee has assessed whether the services provided by Willis Towers Watson or any other relationships raised any conflicts of interest pursuant to SEC and NASDAQ rules, and has concluded that no such conflicts of interest exist.

Use of Market Data and Tally Sheets

In order to ensure a competitive design for our executive compensation program, our Compensation Committee, with advice and analysis from Willis Towers Watson, reviews our program against those of our largest competitors, Delta and United. In addition, in 2017, we validated the total target direct compensation of our top executives against Willis Towers Watson’s database of similarly sized companies.

 

 

 

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For 2017, our annual review of executive compensation also included tally sheets for our executive officers. Each tally provides an overview of total compensation targets as well as estimated upcoming short- and long-term incentive payments. The Compensation Committee used these forward-looking compensation summary sheets to provide a comprehensive picture of each executive officers’ estimated future compensation.

Executive Compensation Mix with an Emphasis on Performance-Based Pay

As described above, our executive compensation structure includes both fixed and performance-based pay. Specifically, our executive compensation structure consists of three core components which align management and stockholder interests:

 

    a base salary paid in cash;

 

    an annual incentive program paid in cash based on achievement of annual profitability targets; and

 

    a long-term equity incentive program in the form of restricted stock units (RSUs) that incorporate both performance- and time-vesting components.

The overarching goal is to align executive and stockholder interests, so the executive compensation programs emphasize pay for performance (such that compensation is paid only if we meet pre-determined performance targets) and equity-based compensation tied to our stock performance. For 2017, our named executive officers’ fixed compensation was in the 0-15% range, reflecting a heavy weighting on variable or performance-based compensation vesting over multiple time periods, with Mr. Parker’s direct compensation provided 100% in the form of long-term equity incentives.

Base Salary

Base salaries provide a secure, consistent amount of fixed pay that compensates executives for their scope of responsibility, competence and performance.

As discussed above, Mr. Parker’s direct compensation for 2017 was provided 100% in the form of long-term equity incentives and he was not eligible for any base salary.

In 2017, our other named executive officers were eligible for a 2.5% salary increase over 2016 levels, consistent with merit increases in the total direct compensation for the general management employee population. Mr. Isom’s 2017 base salary reflected a 2.5% increase over his 2016 base salary of $700,000, which was approved in October 2016 in connection with his promotion to President. The 2017 base salary levels for Messrs. Kerr, Johnson and Ms. Leibman were set at $622,233, and the base salary level for Mr. Isom was set at $717,500, effective April 2017. In setting base salaries, the Compensation Committee also reviewed these levels against Willis Towers Watson’s database of similar-sized companies with greater than $20 billion in total revenues and corporate roles regressed to $40 billion in total revenues and considered that they generally fell in the 25th to 30th percentile, though it did not specifically benchmark to this range.

While we aim to establish competitive compensation, our greater focus is on establishing a culture where creating long-term value for our stockholders is always at the forefront of our leadership team’s decision-making. We believe that our reduced emphasis on fixed compensation, achieved through below-median base salaries combined with higher levels of target variable cash incentives and equity compensation, allows us to retain our management team and recruit from other network airlines and general industry while also emphasizing our pay-for-performance philosophy.

Annual Cash Incentive Program

The second core component of our overall compensation program is a short-term cash incentive program. Following the merger with US Airways, we implemented an annual cash incentive program based on pre-established adjusted pre-tax income targets. We believe that pre-tax income is an effective way to capture cost management and revenue performance. Annual incentives also serve as a retention tool as employees generally must remain employed through the payment date in order to receive payment of any potential annual incentive program awards.

For 2017, the named executive officers (other than Mr. Parker, who received his compensation entirely in the form of long-term equity incentives, as discussed above) participated in the American Airlines Group Inc. 2017 Short-term Incentive Program (the “2017 STIP”). Payouts under the 2017 STIP were tied to the achievement of pre-established adjusted pre-tax income goals (excluding special items, profit sharing and annual incentive programs and related payroll taxes and 401(k) company contributions). The Committee is committed to setting rigorous goals under the STIP. For 2017, the Committee maintained the target pre-tax income level at $5.0 billion. The Committee believed this target would be a

 

 

 

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challenging goal for 2017, as it was significantly above the budgeted pre-tax income excluding special item projections for 2017, taking into account a variety of factors, including higher forecasted fuel prices in 2017 than 2016. The Committee also determined to lower the threshold level from $3.5 billion under our 2016 STIP to $3.0 billion for 2017 in order to make the funding formula more symmetric around target, while maintaining a reasonable minimum payout target. As we have disclosed to our investors, we believe that American should be able to produce target pre-tax income of around $5 billion, and that is where the Committee has set the target under the incentive plan. However, we are a cyclical business, and in extremely challenging years, we are likely to generate around $3 billion in profit and in exceptional years, we should produce around $7 billion in profit. In consideration of these factors, the Committee set the following threshold, target, and maximum performance levels for the financial metrics, as well as the corresponding annual incentive funding levels:

 

     

2017 Adjusted Pre-tax

Income ($)(in billions)

  

Funding Level

(% of Target)

<Threshold

 

      

 

<3.0

 

 

      

 

0

 

%

 

Threshold

 

      

 

3.0

 

 

      

 

50

 

%

 

Target

 

      

 

5.0

 

 

      

 

100

 

%

 

Maximum

 

      

 

7.0

 

 

      

 

200

 

%

 

Any performance falling between threshold, target and maximum levels would result in an adjustment of funding level based on straight-line interpolation. The 2017 target bonus opportunities for the participating named executive officers were set at the same levels as in 2017 as shown in the table below, with Mr. Isom’s target bonus opportunity reflecting the same target bonus opportunity approved in October 2016 in connection with his promotion to President.

 

  Named Executive Officer

 

  

2017 Target Payout Level

as a Percentage of Base Salary

 

Robert Isom

 

      

 

175

 

%

 

Derek Kerr

 

      

 

125

 

%

 

Maya Leibman

 

      

 

125

 

%

 

Stephen Johnson

 

      

 

125

 

%

 

Historically, under our short-term incentive program, the Compensation Committee could, in its discretion, increase the amount of an award based on individual performance by up to 50% or decrease it to zero, provided that the aggregate effect of the individual performance modifier for all participants, however, could not result in an increase to the aggregate program incentive amount. In addition, in no event could an individual payout exceed 200% of the applicable target opportunity. For 2017, payouts for our named executive officers were determined solely based on the achievement of the corporate performance objectives, without regard to individual performance.

In 2017, we achieved an adjusted pre-tax income of approximately $4.2 billion, which corresponded to achievement at 79.1% of the target level under the 2017 STIP. The following table shows the 2017 target goal, actual performance and funding level for the 2017 STIP.

 

  Performance Goal

 

  

2017 Target

Performance Goal

($)(in billions)

 

  

Actual

Performance

($)(in billions)

 

  

Funding

Level

(% of target)

 

2017 Adjusted Pre-tax Income(a)

 

      

 

5.0

 

 

      

 

4.2

 

 

      

 

79.1

 

%

 

 

  (a) Represents income before income taxes for the year ended December 31, 2017, excluding special items (as detailed in the Current Report on Form 8-K filed by AAG on January 25, 2018) and profit sharing and annual incentive programs and related payroll taxes and 401(k) company contributions.  

Based on the funding level as described above, each named executive officer other than Mr. Parker received a bonus at 79.1% of target under the 2017 STIP. The dollar amounts of the bonuses paid to our named executive officers under the 2017 STIP are set forth in the “Summary Compensation Table” on page 65.

The 2018 Short-term Incentive Program is substantially similar to the design used in 2017.

Long-Term Incentive Programs

The third core component of our overall compensation program is a long-term equity incentive program that focuses our executives on our performance over time and further links the interests of recipients and stockholders. Stock-based

 

 

 

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awards, coupled with performance- and time-vesting requirements, provide an appropriate incentive to our executives to remain with the Company and meet the long-term goal of maximizing stockholder value. Consistent with our emphasis on pay for performance and our commitment to long-term value creation for our stockholders, our named executive officers’ total target direct compensation is weighted heavily toward long-term equity awards, with Mr. Parker’s total target direct compensation comprised 100% of long-term equity awards.

The Compensation Committee determines the number of shares to be granted to an executive officer based upon the executive’s level of responsibility and job classification level and the results of compensation market analyses.

For 2017, our long-term incentive program included both performance- and time-vesting components, each weighted 50% by value (other than with respect to Mr. Parker), with the performance-vesting component incorporating TSR as a new metric introduced for 2017. Mr. Parker’s annual grant was weighted approximately 54% performance-vesting and 46% time-vesting by value, reflecting the relative proportions from 2015 when he began to be compensated solely in equity awards. At that time, the value of his base salary was added to his time-vesting award and his target STI value was added to his performance-vesting award, resulting in a split of 54% performance-vesting awards and 46% time-vesting awards.

Two-thirds of the time-vesting RSUs vest in April 2018 and the remaining one-third vest in April 2019, subject to each executive’s continued employment with the Company. As under our 2016 long-term incentive program, the performance-vesting RSUs vest based on the Company’s achievement of pre-tax income margin, excluding special charges, over a three-year performance period, but for 2017, we introduced a TSR modifier pursuant to which the number of shares vesting will be increased or decreased by up to 25% based on the Company’s relative TSR ranking. The maximum number of shares that may be issued in respect of each performance-vesting RSU, taking into account the Company’s relative TSR ranking, remains at 200%, as under our prior program. Pre-tax income margin is measured over the three-year period from January 1, 2017 to December 31, 2019, relative to the weighted average pre-tax income margin of a peer group comprised of Delta, United, Southwest, JetBlue, Alaska and Spirit. TSR is measured based on the 20-day average stock price prior to April 25, 2017 and the 20-day average stock price ending on April 25, 2020, calculated assuming reinvestment of dividends, and is ranked relative to the same peer group of airlines. Based on these performance metrics, the number of shares of our Common Stock issuable in respect of each performance-vesting RSU upon vesting may range from 0 to 200% as follows:

 

Pre-Tax Income Margin
Performance Relative to Peer Group

 

  

Payout (as a
% of Target)

 

  

TSR Modifier

 

  

Number of Shares to be Issued per
Performance Vested RSU

 

150% or higher

 

   160%

 

   1 or 2 ranking = 125%

 

  

200%

 

100%

 

   100%

 

   3, 4 or 5 ranking = 100%

 

  

100%

 

50%

 

   66 2/3%

 

   6 or 7 ranking = 75%

 

  

50%

 

Less than 50%

 

   0%

 

       

0%

 

In the event that the Company’s pre-tax income margin was negative for the performance period, pre-tax income achievement would be capped at 100%, and in the event the Company’s TSR was negative for the performance period, the TSR modifier would be capped at 100%.

Linear interpolation will be used to determine the payouts for performance attained between 50% and 100% and between 100% and 150% of the peer group weighted average pre-tax income margin.

For our named executive officers, the Compensation Committee determined to award target grant values with a 3% increase over 2016 target grant values, consistent with the budgeted increase in total direct compensation applicable to the broader support staff and management team population, with the exception of Mr. Isom, who received a 7.9% increase to his 2016 grant value in connection with his promotion to President in 2016. For Mr. Parker, this resulted in annual target compensation set at $11,330,000, which was below the average of his peers at Delta and United (using the most recent public available data as of June 2017). The number of shares subject to each RSU award was determined by dividing the target grant value by our closing stock price on the date of grant.

Please see the Grants of Plan-Based Awards table below for a description of the grants awarded to our named executive officers during 2017. For the performance-vesting component of the RSU grants, the values included in the Summary Compensation Table and the Grants of Plan-Based Awards Table reflect the accounting grant date fair value of the grants. In accordance with accounting rules, a Monte Carlo simulation is used to capture the impact of the TSR metric. The Monte Carlo simulation takes into account several factors, including the volatility of our stock price and the correlation between our stock price performance and the stock price performance of our peer group. Because the grant date fair

 

 

 

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value of the award could fluctuate based on these various factors, the Compensation Committee approved setting the number of shares subject to each award by reference to the closing stock price on the date of grant, rather than the grant date fair value. As a result, the grant date fair values reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table are approximately 5% to 6% higher than the target grant values approved by the Compensation Committee. Furthermore, these values do not reflect amounts actually realizable by our named executive officers, which will depend on our relative pre-tax income margin and total shareholder return performance over three years.

The Compensation Committee has adopted an equity grant policy to standardize the timing, practices and procedures in granting equity awards. The policy provides that equity awards, other than new hire, promotion or special purpose grants, will be granted once per year at the second regularly scheduled meeting of the Compensation Committee or at an Equity Incentive Committee meeting (with respect to awards to non-executive employees) or at a special meeting held for this purpose as close in time to the regularly scheduled meeting as possible.

2015 Equity Awards

Our named executive officers’ 2015 annual equity grants were comprised of both time-vesting and performance-vesting RSUs. The performance-vesting RSUs vested based on the Company’s achievement of a pre-tax income margin for the three years ending December 31, 2017 relative to the pre-tax income margin over the same period for a pre-defined group of airlines. Based on our achievement of 85.9% relative to this peer group, which was certified by the Compensation Committee on April 10, 2018, 0.859 shares of common stock were eligible to vest in respect of each RSU. These RSUs vested on April 15, 2018, and in the case of Mr. Parker, April 20, 2018.

Change in Control and Severance Benefits

Change in control and severance benefits are a customary component of executive compensation, which are generally used to reinforce and encourage executives’ continued attention and dedication to their assigned duties without the distraction arising from the possibility of a change in control. While we have historically provided change in control severance benefits pursuant to employment agreements or change in control severance agreements with our named executive officers for these reasons, as discussed more fully below, as of April 2017, none of our executive officers is a party to any individual employment or severance agreement providing change in control or severance benefits. Information on the estimated payments and benefits that our named executive officers would have been eligible to receive in the event of a termination or change in control as of December 31, 2017 pursuant to our equity plans, 2017 STIP and other arrangements, are set forth in “Potential Payments Upon Termination or Change in Control” beginning on page 71.

Mr. Parker

As required by the terms of the merger agreement with US Airways, we assumed the employment agreement Mr. Parker had entered into with US Airways prior to 2010, which provided for severance payments upon qualifying terminations, including certain terminations following a change in control, and termination other than for misconduct or a resignation for good reason. In April 2016, at Mr. Parker’s request, our Compensation Committee agreed to eliminate Mr. Parker’s employment agreement, and Mr. Parker is no longer contractually entitled to the change in control and severance protections provided by the employment agreement.

In connection with the replacement of Mr. Parker’s cash compensation with equity compensation starting on May 1, 2015, the Compensation Committee determined that in light of the fact the equity awards granted to Mr. Parker in lieu of his cash compensation are subject to extended vesting periods, in the event of Mr. Parker’s termination of employment for any reason other than misconduct, certain of Mr. Parker’s equity incentives will vest to the extent necessary to keep Mr. Parker whole for the value of the base salary or annual target cash incentive Mr. Parker otherwise would have received through his termination date. If Mr. Parker’s employment had been terminated as of December 31, 2017, the value of the accelerated portion of his 2017 RSU award would have been $4,262,000.

Former US Airways Executive Officers

We also assumed the executive change in control and severance benefits agreements of Messrs. Kerr, Isom and Johnson, and Ms. Eberwein, each of whom served at US Airways prior to the merger with US Airways. Each of these agreements was entered into with US Airways prior to 2010 and provided for severance payments upon qualifying terminations. In April 2017, at their request, all of our executive officers who were party to change in control and severance benefits agreements, including each of Messrs. Kerr, Isom and Johnson, and Ms. Eberwein, voluntarily terminated their agreements. As a result of the voluntary forfeiture of these agreements, our executive officers are no longer contractually entitled to any cash severance or continued healthcare benefits upon any termination, nor are we contractually obligated to provide a gross-up to cover any excise taxes incurred by them under Section 4999 of the Code.

 

 

 

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Equity Incentive Plans

In addition to the change in control and severance benefits described above, pursuant to the grant agreements under the Company’s 2013 Incentive Award Plan (the “AAG 2013 IAP”), the US Airways Group, Inc. 2011 Incentive Award Plan (the “2011 Plan”) and the US Airways Group, Inc. 2008 Equity Incentive Plan (the “2008 Plan”), our employees are entitled to full acceleration of their SARs and RSUs in the event of a termination due to death or disability or a change in control, as well as full acceleration of SARs upon retirement. SARs granted under the 2011 Plan, the 2008 Plan and the US Airways Group, Inc. 2005 Equity Incentive Plan (the “2005 Plan”) are also subject to extended exercise periods in the event of certain terminations as described in the section entitled “Executive Compensation—Potential Payments upon Termination or Change in Control” beginning on page 71.

Other Benefits and Perquisites

We maintain broad-based employee benefit plans in which all employees, including the named executive officers, participate, such as group life and health insurance plans and a 401(k) plan. These benefits are provided as part of the basic conditions of employment that we offer to other U.S.-based team members.

Enhanced Benefits

We continue to provide certain enhanced benefits to our named executive officers. These benefits provide convenience and support services that allow our executives to more fully focus attention on carrying out their responsibilities to our stockholders. These benefits are common in the airline industry and consequently are necessary for us to be competitive in recruiting and retaining talented executives. The incremental cost to us of providing these benefits is not material.

Following standard airline industry practice, we provide certain flight privileges to our employees. Free flights on our airline are available to all employees, and “positive space” flight privileges are provided to the named executive officers. We believe that providing such flight privileges for the named executive officers is consistent with airline industry practice and that competitive flight privileges are needed for the recruitment and retention of the most senior employees. By providing positive space flight privileges to our executives, we are able to offer a unique and highly-valued benefit at a low cost. This benefit also encourages executives to travel on the airline frequently, and while doing so, meet and listen to employees, solicit feedback from employees and customers, audit aircraft and facility appearance and quality, and monitor operational performance throughout the domestic and international route system. In addition, as in prior years, we cover the income tax liabilities of our named executive officers related to those flight privileges, which is consistent with industry practice.

The positive space flight privileges provided to the named executive officers include unlimited reserved travel in any class of service for the executive and his or her immediate family, including eligible dependent children, for personal purposes. The executive officer and his or her immediate family, including eligible dependent children, also have access to our Admirals Club® travel lounges at various airports. The executives are also eligible for 12 free round-trip passes or 24 free one-way passes each year for reserved travel for non-eligible family members and friends, and we cover the income tax liability related to these flight privileges. The named executive officers are required to pay any international fees and taxes, if applicable.

We also offer our named executive officers perquisites in the form of financial advisory services and executive physicals. We will reimburse up to $4,500 annually for their personal tax planning, estate planning and retirement planning services from a certified financial planner, certified public accountant, or attorney. We will pay the full cost of their annual physicals and additional diagnostic tests recommended by the provider.

Mr. Parker is a participant in the Charitable Contribution Program, under which US Airways paid annual premiums on a joint life insurance policy. Under the program established by America West in 1994, a $1 million death benefit will be donated to one or more qualifying charitable organizations chosen by Mr. Parker. For a more detailed description of the charitable contribution program, see the narrative above under the Director Compensation table. Two of our named executive officers with grandfathered benefits receive enhanced life insurance benefits and cash payments to cover their income tax liabilities associated with taxable life insurance benefits.

For additional information on any individual benefits provided to the named executive officers on an individual basis, see the section entitled “Executive Compensation—Summary Compensation Table” beginning on page 65.

AMR Legacy Retirement Programs

As a former AMR executive, Ms. Leibman participates in certain retirement plans we assumed from AMR in connection with the merger, including the Retirement Benefit Plan of American Airlines, Inc. for Agent, Management, Specialist,

 

 

 

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Support Personnel and Officers (the “AMR Retirement Benefit Plan”) and the Supplemental Executive Retirement Program for Officers of American Airlines, Inc. (the “AMR Non-Qualified Plan”). All benefits under the AMR Retirement Benefit Plan were frozen for all employees as of October 31, 2012. Effective upon the freeze of benefit accruals under the AMR Retirement Benefit Plan, AMR began making matching contributions under the American Airlines, Inc. 401(k) Plan (the “AA 401(k) Plan”) to eligible employees, including Ms. Leibman, up to 5.5% of eligible earnings. Like the AMR Retirement Benefit Plan, as of October 31, 2012, the defined benefits portion of the AMR Non-Qualified Plan was frozen.

For further details regarding AMR’s legacy retirement plans, see the sections entitled “Executive Compensation—Pension Benefits” beginning on page 69 and “Executive Compensation—Non-Qualified Deferred Compensation” beginning on page 70 and the accompanying narrative discussion and footnotes that follow those tables.

Continuing Focus on Leading Practices

Stock Ownership Guidelines

We have implemented stock ownership guidelines for our executive officers. Executives are required to hold a number of shares of stock equal to the lesser of either (i) a fixed number of shares or (ii) a number of shares with a total value equal to a designated multiple of their base salary, as provided in the table below. Ownership is determined based on the combined value of the following executive holdings: (a) shares owned outright or by immediate family members residing in the same household or in a trust for the benefit of the executive or an immediate family member; (b) Common Stock, stock units or other stock equivalents obtained through the exercise of SARs/stock options or vesting of equity awards; (c) unvested equity awards granted under any equity and deferral plans; and (d) other stock or stock equivalent awards determined by the Corporate Governance and Nominating Committee. Executives have five years from the later of the effective time of the merger with US Airways or the time of hire to comply with the ownership guidelines. Under the guidelines, until an executive has reached the minimum ownership guideline, such executive may not sell or otherwise dispose of shares of Common Stock acquired upon the exercise, vesting or settlement of any equity awards granted by us except to the extent such sales do not cumulatively exceed 50% of such shares. Each of our executive officers currently owns shares that substantially exceed the minimum ownership guidelines.

Stock Ownership Guidelines

 

  Position/Levels

 

    

Multiple of

Base Salary

 

      

Fixed

Shares

 

 

Chief Executive Officer

 

     $

 

4,305,000

 

(a) 

 

      

 

116,667

 

 

 

President

 

      

 

3x

 

 

 

      

 

54,167

 

 

 

Chief Operating Officer

 

      

 

3x

 

 

 

      

 

50,000

 

 

 

Executive Vice President

 

      

 

3x

 

 

 

      

 

47,917

 

 

 

 

  (a) With respect to Mr. Parker, the multiple of base salary was set at a dollar level equal to six times his base salary in effect immediately prior to May 1, 2015, because effective as of such time, Mr. Parker no longer received any base salary.  

Clawback Policy

We have adopted a clawback policy that applies to all executive officers and covers all compensation under the cash incentive programs and all equity awards. The policy applies in the event our financial statements are restated as a result of material non-compliance with financial reporting rules and provides the Board of Directors with broad discretion as to what actions may be taken based on circumstances leading to the restatement, including recovery of incentive-based compensation received by an executive officer during the three-year period preceding the restatement in excess of what the executive officer would have been paid under the restatement. The Compensation Committee is monitoring regulatory developments with respect to compensation recoupment policies and will recommend to the Board of Directors any changes to the current policy that are necessary or appropriate in light of guidance issued by the SEC.

Prohibition on Hedging and Pledging

Our insider trading policy prohibits our executive officers and directors from hedging the economic risk of security ownership. In addition, our executive officers and directors are prohibited from pledging Company securities to secure margin or other loans.

Section 280G/Section 4999 Policy

We do not provide any tax gross-ups to cover excise taxes under Section 4999 in connection with a change in control.

 

 

 

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Tax Considerations

Section 162(m) of the Code disallows a tax deduction to public companies for compensation in excess of $1 million paid to “covered employees.” Prior to the Tax Cuts and Jobs Act of 2017, covered employees included the Chief Executive Officer and the next three most highly compensated executive officers serving at the end of the fiscal year (other than the Chief Financial Officer), and performance-based compensation arrangements could qualify for an exemption from the deduction limit if they satisfy various requirements under Section 162(m) of the Code. As part of the Tax Cuts and Jobs Act of 2017, the ability to rely on this “qualified performance-based compensation” exception was eliminated, and the definition of covered employees was expanded to generally include all named executive officers. Although we maintain compensation plans that were intended to permit the award of deductible compensation as qualified performance-based compensation under Section 162(m) prior to the Tax Cuts and Jobs Act of 2017, subject to the Act’s transition relief rules, we may no longer take a deduction for any compensation paid to our covered employees in excess of $1 million.

 

 

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2017.

Respectfully submitted,

Compensation Committee

Rich Kraemer (Chair)

Jim Albaugh

Jeff Benjamin

Alberto Ibargüen

Denise O’Leary

 

This report of the Compensation Committee is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules or the liabilities of Section 18 of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act or the Exchange Act.

 

 

 

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EXECUTIVE OFFICERS

The following table lists AAG’s executive officers as of April     , 2018, including their ages and principal occupations.

 

  Name      Age        Title

 

W. Douglas Parker

 

    

 

 

 

 

56

 

 

 

 

    

 

Chairman and Chief Executive Officer

 

 

Robert D. Isom, Jr.

 

    

 

 

 

 

54

 

 

 

 

    

 

President

 

 

Elise R. Eberwein

 

    

 

 

 

 

52

 

 

 

 

    

 

Executive Vice President—People and Communications

 

 

Stephen L. Johnson

 

    

 

 

 

 

61

 

 

 

 

    

 

Executive Vice President—Corporate Affairs

 

 

Derek J. Kerr

 

    

 

 

 

 

53

 

 

 

 

    

 

Executive Vice President and Chief Financial Officer

 

 

Maya Leibman

 

    

 

 

 

 

52

 

 

 

 

    

 

Executive Vice President and Chief Information Officer

 

Below is certain information as of April     , 2018, regarding our executive officers other than Doug Parker. For similar information regarding Mr. Parker as of April     , 2018, see the section entitled “Proposal 1: Election of Directors” beginning on page 5.

 

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 Robert Isom

 

Robert Isom is President for AAG and American, a position he has held since August 2016. He also serves on the board of directors of American, a position he has held since August 2016. From 2013 to 2016, Mr. Isom served as Executive Vice President and Chief Operating Officer for AAG and American, after holding those same positions at US Airways from 2007 to 2013. Prior to joining US Airways, Mr. Isom served as Chief Restructuring Officer for GMAC, LLC. Before that, he was Senior Vice President, Ground Operations and Airport Customer Service, for Northwest Airlines. Mr. Isom also served as Vice President, International, and Vice President, Finance, for Northwest Airlines. Between 1995 and 2000, he was with America West and held executive roles in revenue management, operations and finance. Mr. Isom started his career at The Procter & Gamble Company.

 

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 Elise Eberwein

 

Elise Eberwein is Executive Vice President—People and Communications for AAG and American, positions she has held since December 2013. Previously, Ms. Eberwein served as Executive Vice President—People, Communications and Public Affairs for US Airways, her role since 2009. Ms. Eberwein has nearly 30 years of industry experience and joined America West in 2003 as Vice President, Corporate Communications, from Denver-based Frontier Airlines. She began her career as a flight attendant for TWA and held a variety of positions at TWA in operations, marketing and communications.

 

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 Steve Johnson

 

Stephen Johnson is Executive Vice President—Corporate Affairs for AAG and American, positions he has held since December 2013. He also serves on the board of directors of American, a position he has held since December 2013 and on the board of directors of WIZZ Air Holdings PLC, a European airline company that trades on the London Stock Exchange. Previously, Mr. Johnson served as Executive Vice President—Corporate and Government Affairs for US Airways, his role since 2009. From 2003 to 2009, Mr. Johnson was a partner at Indigo Partners LLC, a private equity firm specializing in acquisitions and strategic investments in the airline, air finance and aerospace industries. Between 1995 and 2003, Mr. Johnson held a variety of positions with America West prior to its merger with US Airways, including Executive Vice President—Corporate. Prior to joining America West, Mr. Johnson served as Senior Vice President and General Counsel at GPA Group plc. He was also an attorney at Seattle-based law firm Bogle & Gates, where he specialized in corporate and aircraft finance and taxation.

 

 

 

 

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 Derek Kerr

 

Derek J. Kerr is Executive Vice President and Chief Financial Officer for AAG and American, positions he has held since December 2013. Previously, Mr. Kerr served as Executive Vice President and Chief Financial Officer for US Airways, a role that he began in 2009. Prior to that, he was Senior Vice President and Chief Financial Officer of America West, a role he began in 2002. He joined America West in 1996 as senior director, planning, and was promoted to Vice President, Financial Planning and Analysis, in 1998. In 2002, Mr. Kerr was promoted to Senior Vice President, Finance, adding responsibility for purchasing and fuel administration. Prior to joining America West, Mr. Kerr served in various financial planning and analysis positions with Northwest Airlines. Previously, Mr. Kerr was a flight test coordinator/control engineer with Northrop Corporation’s B-2 Division.

 

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 Maya Leibman

 

Maya Leibman is Executive Vice President and Chief Information Officer for AAG and American, positions she has held since November 2015. Previously, she served as Senior Vice President and Chief Information Officer from January 2012 to November 2015. Prior to her role as Chief Information Officer, Ms. Leibman was President of the AAdvantage loyalty program from 2010 to 2012. From 2001 to 2010, Ms. Leibman held several positions in the Information Technology department, culminating in the position of Vice President, Business Operations Systems from 2006 to 2010. Ms. Leibman joined American in 1994 in the Revenue Management department.

 

 

 

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table provides compensation earned by our named executive officers in the years ended December 31, 2017, 2016 and 2015.

 

  Name and Principal

  Position

  Year    

Salary

($)

   

Bonus

($)

   

Stock

Awards

($)(b)

   

Non-Equity

Incentive Plan

Compensation

($)(c)

   

Change in

Pension Value

and Non-

Qualified

Deferred

Compensation

Earnings

($)(d)

   

All Other

Compensation

($)(e)

   

Total

($)

 

Doug Parker(a)

    2017       -       -       11,974,000       -       -       201,486       12,175,486  

Chairman and Chief

    2016       -       -       11,000,000       -       -       140,763       11,140,763  

Executive Officer

    2015       231,538       -       10,330,000       387,450       -       469,559       11,418,547  

Derek Kerr

    2017       616,396       -       2,792,000       615,264       -       84,806       4,108,466  

Executive Vice

    2016       600,936       -       2,575,000       948,525       -       66,521       4,190,982  

President and Chief

    2015       584,178       -       2,920,000       1,350,317       -       366,448       5,220,943  

Financial Officer

               

Robert Isom

    2017       710,769       -       5,263,000       993,235       -       126,877       7,093,881  

President

    2016       641,306       -       4,635,000       1,176,667       -       99,141       6,552,114  
    2015       609,577       -       3,500,000       1,409,027       -       650,014       6,168,618  

Maya Leibman

    2017       616,396       -       2,792,000       615,264       41,220       93,933       4,158,813  

Executive Vice

    2016       600,936         2,575,000       948,525       31,652       95,814       4,251,927  

President and Chief

               

Information Officer

               

Steve Johnson

    2017       616,396       -       2,792,000       615,264       -       122,536       4,146,196  

Executive Vice

    2016       600,936       -       2,575,000       948,525       -       96,025       4,220,486  

President Corporate

    2015       584,178       -       2,920,000       1,350,317       -       236,537       5,091,032  

Affairs

                                                               

 

(a) On April 20, 2015, the Compensation Committee adjusted the compensation program from Mr. Parker to provide 100% of his direct compensation in the form of equity incentives. Effective as of May 1, 2015, the Company no longer paid Mr. Parker a cash base salary, and he ceased participation in the Company’s annual cash incentive program. Mr. Parker’s April 2017 equity grant was set at a level intended to, among other things, capture the value of his forgone base salary, target cash incentive opportunity under the 2017 Short-term Incentive Program and the value of his 401(k) match.

 

(b) Amounts in this column represent the aggregate grant date fair value, as calculated in accordance with ASC Topic 718, of RSUs granted by the Company during each of the fiscal years ending December 31, 2017, 2016 and 2015, respectively, to the named executive officers. The grant date fair value, as calculated in accordance with ASC Topic 718, of time-based RSUs is equal to the number of shares underlying the RSUs, multiplied by the closing price of our Common Stock on the date of grant. With respect to the performance-based RSUs with a TSR modifier market condition, as described in the Compensation Discussion and Analysis—Long-Term Incentive Programs on page 56, granted during fiscal year 2017, the grant date fair value is equal to the number of shares underlying the probable outcome of the relative pre-tax income margin performance condition, multiplied by the fair value per share determined using a Monte Carlo simulation model in accordance with applicable accounting rules . Note that as a result of the requirement to use a Monte Carlo valuation due to the TSR modifier market condition, the grant date fair values of the RSUs granted during 2017 as shown in this column are higher than target grant values approved by the Compensation Committee, which were based on our closing stock price on the date of grant. The aggregate maximum fair value of the 2017 performance-based RSUs assuming the highest level of achievement of the performance condition is as follows: Mr. Parker $10,819,000, Mr. Kerr $2,345,000, Mr. Isom $4,421,000, Ms. Leibman $2,345,000 and Mr. Johnson $2,345,000.

 

(c) For 2017, amounts represent payments under the AAG 2017 Short-term Incentive Program. For additional information on these payouts, see the section entitled “Compensation Discussion and Analysis—Annual Cash Incentive Program” beginning on page 55.

 

(d) Amount represents the change in the actuarial present value of the accumulated benefit under the AMR Retirement Benefit Plan and the AMR Non-Qualified Plan from January 1, 2017 to December 31, 2017. Both of these plans were frozen as of October 2012. For additional information on these plans, see the sections entitled “Compensation Discussion and Analysis—AMR Legacy Retirement Programs” beginning on page 59 and “Pension Benefits” on page 69.

 

 

 

 

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(e) The following table provides the amounts of other compensation, including perquisites, paid to, or on behalf of, named executive officers during 2017 included in the “All Other Compensation” column. Perquisites and other personal benefits are valued on the basis of the aggregate incremental cost to the Company.

 

     

Doug

Parker ($)

     Derek
Kerr ($)
     Robert
Isom ($)
     Maya
Leibman ($)
    

Steve

Johnson ($)

 

 

Dividends(a)

 

  

 

 

 

 

141,962

 

 

 

 

  

 

 

 

 

50,700

 

 

 

 

  

 

 

 

 

60,841

 

 

 

 

  

 

 

 

 

40,560

 

 

 

 

  

 

 

 

 

50,700

 

 

 

 

 

Flight Privileges(b)

 

  

 

 

 

 

26,107

 

 

 

 

  

 

 

 

 

8,612

 

 

 

 

  

 

 

 

 

24,729

 

 

 

 

  

 

 

 

 

19,442

 

 

 

 

  

 

 

 

 

29,992

 

 

 

 

 

Life Insurance Premiums(c)

 

  

 

 

 

 

9,210

 

 

 

 

  

 

 

 

 

1,700

 

 

 

 

  

 

 

 

 

-

 

 

 

 

  

 

 

 

 

-