American Airlines will hold its annual shareholders meeting on June 10th. A couple of weeks ago I walked through key details from the meeting proxy materials and from the airline’s annual SEC 10-K.
One of the proposals, which I didn’t mention earlier, is to change how board voting is done. I didn’t walk through it because these proposals rarely pass, but it’s interesting to see an accountability effort rising to the level of a shareholder vote at the annual meeting. The National Legal and Policy Center makes the case for it.
- American generated nearly $55 billion in operating revenue, but net income was down 87% to just $111 million – while Delta and United earned billions. Things look even worse when you consider $6.2 billion in cash payments from its cobrand credit card, which translates to roughly $3 billion in profit. They’re hobbled by $35 billion in debt.
- Cost pressure, especially labor, wiped out profits. Salaries, wages, and benefits rose $1.5 billion (9.6%). CEO Robet Isom received pay equal to 12.5% of the airline’s net income. His comp fell only 11% despite the significant drop in performance. He’s get $41 million if American were acquired and he was fired. Meanwhile, another proposal at the meeting is to limit officer liability.
- $100 invested in the stock at year-end 2020 was worth $97 at year-end 2025, versus $182 for the S&P 500.
The airline’s governance and compensation appears to protect leadership from the consequences of poor performance, lackluster returns, heavy debt and underinvestment in product. And this is a board that’s never held management accountable for repeated failure over the past decade.
At the shareholders meeting, Proposal 7 is an advisory proposal asking American’s board to adopt cumulative voting for director elections.
- instead of voting one share once for each board seat, a shareholder would
- get votes equal to shares owned × number of directors being elected
- allowing shareholders to concentrate their votes on a single independent candidate, making it more likely that a non-management approved director might get elected.
The American Airlines board unanimously recommends AGAINST Proposal 7. They argue that the company already has annual elections and this holds the board accountable, and cumulative voting risks directors being elected to represent narrow interests rather than all shareholders.
This is actually the point, it makes it possible for one or a minority of directors to represent narrow interests – and proponents would argue that ‘narrow interest’ is an interest that is “other than management.”
The proposal requires approval by a majority of shares represented at the meeting, with absentions counting as a no (althogh broker non-votes have no effect). And it’s advisory only – it would require board action plus a follow-up charter amendment vote.
It is likely to fail. Just as this board doesn’t hold management accountable, institutional shareholders rarely hold boards accountable.
- Blackrock has been an activist fund manager in the past (largely for ESG types of governance issues) but in general they represent individual shareholders who own the shares because they want to, not because they’re trying to change the company, or they own the shares simply as part of an overall basket or index.
- Disney had a similar proposal this year that received less than 3% of votes.
- Last year, American Airlines directors received 97-99% support in their elections at the annual meeting. These shareholders aren’t trying to rock the boat.
Another approach might be a targeted campaign against a single director – that probably wouldn’t scuttle their re-election but that could be easily understandable and focus attention, especially if it were a member of the compensation committee.
After all, the airline made just $111 million last year, while top officers and the board were paid $50 million. And the CEO’s pay barely went down, even as the airline’s financial performance plunged over 85%.
If most shareholders, workers, and consumers are all in-alignment that new management is necessary… that must say something.
Or not. I mean, these new Flagship Suites are kinda cool. And, unlike SkyPesos, AA points are still worth something sometimes. Eh.
Robert Isom was never the right pick to succeed Parker.
@Coffee Please — Would you have preferred Scott Kirby? It seems he’s still sore about things…
It strikes me as so odd that shareholders would be so unmotivated to have the company they own a piece of be run by capable people rather than inept but generally well-meaning nitwits.
The way corporate boards are structured is a scam. Multiple board members are on multiple boards. It’s an inside game. The system was designed to enrich each other without regard to the companies they supposedly represent.
To paraphrase Richard Branson when he was asked how to become a millionaire, “Start out a billionaire and buy an airline”.
@Terry —Someone else credited Buffet (Warren, not Jimmy) with that on here recently… though, a cheeseburger in paradise does sound nice, too…
Boards are supposed to be the watchdog over the C suite. They’re now in bed with each other. A CEO should never have the Chairman position. AA Management has failed and took too long to change course believing that being a glorified and much bigger Spirit Airlines was a viable strategy.
Good analysis
Curious to see how this plays out.
@1990 — ‘My shares still count if they went through the washing machine, right?’
@L737 — “Blank? BLANK?! You’re not looking at the big picture!”
@George Romey — You’re not wrong (about many Boards and C suite being ‘in bed’ with each other.) And yet… you still shill for corporations all the time on here… hmm…
Employees per Aircraft
Delta 104
United 106
American 135
Management isn’t the whole problem, excessive employee count due to being over unionized is what is really killing them. Hard to compete when you gave to pay salary and benefits to 25% more people.
Robert Isom is the scum of the USA airline industry.
100% lacking in ability, leadership or honesty.
Doug Parker is #2.
“CEO Robet Isom received pay equal to 12.5% of the airline’s net income… After all, the airline made just $111 million last year, while top officers and the board were paid $50 million. And the CEO’s pay barely went down, even as the airline’s financial performance plunged over 85%.”
How are these people paid so handsomely for such awful results? Isom is a miserable failure as a CEO and should be embarrassed. But who wouldn’t stay on making millions and millions no matter how badly he screws things up? He could run AA out of existence and he will have made his millions…. There’s a special place full of fire and brimstone reserved for him and his cronies.
“American generated nearly $55 billion in operating revenue, but net income was down 87% to just $111 million – while Delta and *American* earned billions.”
I think you meant to say Delta and UNITED earned billions. You might want to correct that.
“Would you have preferred Scott Kirby? It seems he’s still sore about things…”.
Sore? No, he’s MOTIVATED, and may have been the real brains behind the Parker-Kirby dynamic duo. The fact that he audaciously has floated the possibility of an acquisition/ merger with AA by United – and UAL is indeed making serious $$$ while remaking itself – just underscores his possible brilliance. We may all be surprised…
“
Did AI write this article? Spelling mistakes everywhere.
@james – AI doesn’t make typos, does it?
United’s flight attendants just ratified their contract. In addition to boarding pay, F/As will get sit pay, for longer wait times between flights.
The bigger component is the pay increase. In the fourth year of the agreement, the pay for the most senior F/As will be $100 per hour.
This will put a dent in United’s profits going forward.
It’s the fact that only 20% of Delta’s mainline employees are unionized, the largest group being the pilots, that gives Delta an advantage over United and American.
Airlines are critically important to our economy. That said, they are money pits. Shareholders should be happy with any profits.
I owned a flying business. First thing I learned is the best way to end up up with a billion dollars in aviation is to start with two billion.
@inspector
If you’re going to use the stat, you’d need to include regional aircraft operated by the AA wholly owned regionals since you’re using an employee number that includes them
When almost half of your revenue goes to pay the C suite and board, you have a problem. I don’t think the union is responsible for over paying underperforming executives that make dumb decisions to devalue what was once America’s premier airline.
I can help make the necessary changes to help the company become profitable and competitive. All the Board of Directors has to do is reach out to me and we can can discuss the details.
The board has not held the company accountable.
My experience with boards (though different industry) is they are relatively useless as they generally don’t have the experience or knowledge to really hold the board accountable). Management shouldn’t be on a board but again they don’t really have the ability (for very large organizations) to know enough to really question. Boards in many cases are really useless.
The one thing that should tell you everything. The airline considers their employees more important than their paying customers. The pilots consider themselves more important than their paying customers. They claim to value their customers but their actions speak louder than words.
I had a paid first class ticket on a cancelled flight. On the reroute there were no first class tickets available so I was put on the upgrade list… behind the pilots. As a paying customer I should have been above everyone else.
Again, they say the right things but their actions mean more.
@Chuck—Chuck writes, “This will put a dent in United’s profits going forward.” I agree. That means Scott Kirby, United’s Chief Executive Officer, might have to tighten his diamond-studded belt and reduce his 2025 total annual compensation from $32.5 million to a miserly $31.5 million. Maybe he will have to downgrade his private jet to only four espresso machines and switch from caviar to—gasp—lobster. Next thing you know, he’ll be flying commercial in first class like a mere mortal, forced to wait a full thirty seconds for a drink refill.
AA is constricted by nearly $38B in debt with high interest. This was to buy new planes.
The real problem here is that the debt needs to be paid down, but those new planes need to be fitted so that passengers actually want to fly on them.
Labor is not the problem in terms of cost. There is a major staffing problem where some outstations are overstaffed but unorganized while others are understaffed, overworked and unorganized. This is why you might sit on the plane waiting for a gate at GSO for 40 minutes.
Airline leadership excel at pissing off customers and they have very little footing to be constantly providing crap service when they need to get more money in the coffers to pay off debt obligations.
@Rob – $12 billion funded share buybacks under Parker
Board oversight is an oxymoron.