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October 03, 2001
American Airlines Backs Down on Severance
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American, the nation's largest airline, initially invoked an emergency clause in union contracts that allowed it to waive the normal notice period and severance pay in times of national emergency.
But publicity over that move brought pressure from Congress, which just approved a special $15 billion bailout for the airline industry.
The pressure apparently led to the abrupt reversal, the St. Petersburg Times reports.
In announcing the change, American cited receipt of the first installment of the company's $900-million share of the federal aid package.
"This is something we have wanted to do but were not sure we would be able to provide given our changing circumstances and the devastating impact of the terrorist attacks on our industry and our company," the company said.
Just a day earlier, company spokeswoman Karen Watson had described the elimination of severance payments as crucial to the survival of American Airlines.
"Even with the federal aid and the job reductions, the financial situation is such that airlines are in a perilous position," Watson said, defending American's initial decision. "The problem is the magnitude of the issue is so large."
Analysts estimate the airline industry will lose $18-billion as a result of the terrorist attacks, and carriers have been quick to cut their schedules and work forces in response.
Despite their financial problems, no airlines were willing to follow American's initial "no-severance" position, according to the Times.
While most carriers refused to discuss their benefit packages until they measured the response to American's move, Continental reaffirmed its commitment to paying severance to 12,000 workers slated for furlough.
Northwest Airlines reportedly considered following American's lead but backed down under union pressure. The Minneapolis-based carrier, which is also cutting 10,000 positions, said it would pay severance to the 5,500 union workers affected, though less than what is outlined in contract language.
Meanwhile, several industry executives have agreed to forgo their salaries and benefits for the rest of the year. Among them: Continental's chief executive Gordon Bethune and president Larry Kellner, who together earned more than $9-million in compensation last year; and Leo Mullin, chairman and chief executive of Delta Air Lines, whose base salary is $795,000.
Also agreeing to forgo the remainder of his $772,500 annual salary is Donald Carty, chairman and chief executive of American Airlines. And UAL Corp., the parent company of United Airlines, said it has indefinitely suspended dividend payments as well as compensation for chief executive James Goodwin and board members for the balance of the year.
To view the St. Petersburg Times article, click here.