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May 23, 2012 Adam R. Kokas SVP, GC, CHRO and Secretary Spencer Schwartz Senior Vice President and CFO |
2 Dear Stockholders, The proxy advisory firm ISS has recently recommended to its clients that they vote against our proposal to approve, on an advisory basis, the compensation of our named executive officers. As we explain, we strongly disagree with ISS’s recommendation and urge you to vote in favor of the advisory proposal to approve the compensation of our executives. Sincerely, Frederick McCorkle, Chairman Eugene I. Davis Carol B. Hallett |
3 OUR MANAGEMENT IS FOCUSED ON CONTINUING TO BUILD A STRONGER COMPANY THAT DELIVERS INTRINSIC VALUE FOR OUR STOCKHOLDERS October 2009 – announced plans to commence passenger charter service for SonAir September 2011 – reached agreement to provide CMI service for DHL December 2011 – delivery completed for first three 747-8F aircraft placed with British Airways January 2012 – arranged Ex-Im guaranteed financing for remaining 6 B747- 8F aircraft July 2010 – commenced Dreamlifter service for Boeing May 2011 – U.S. Military passenger service commenced September 2011 – industry-leading labor agreement with pilots is finalized January 2012 – received military approval for 767- 300 airlift service October 2008 – express network ACMI service began September 2006 – announced major order for Boeing’s new 747-8 Freighter February 2011 – secured financing for first three 747-8F aircraft September 2011 – placed two 747-8F aircraft with Panalpina March 2012 – began 767 CMI service for DHL |
4 WE HAD MANY MAJOR ACHIEVEMENTS IN 2011 In Fiscal 2011, we: Achieved pre-tax income of $157 million, the second highest such amount in our history Received our first three 747-8F aircraft Placed five 747-8F aircraft in long-term ACMI contracts Secured attractive financing for all of our 747-8F aircraft delivered or on order Developed and implemented a 767 passenger platform Completed an industry leading labor contract Developed and implemented a comprehensive military passenger service Delivered numerous customer service quality metrics at or close to maximum levels Received IATA Operational Safety Audit re-certificate for cargo and passenger operations without any negative findings |
5 These numerous accomplishments were achieved despite the following headwinds: • Sluggish Global Economic Conditions • No “Peak” Season • Delivery Delays for our New 747-8Fs • 787 Dreamliner Production Rates at Boeing that Affected our Ramp-Up of CMI Service for Boeing • Pre-Operating Costs Incurred for New Initiatives Contributing to Revenue/Earnings Growth in 2012 and Beyond HEADWINDS IN 2011 |
6 We believe that ISS’s new policy of basing its say on pay recommendation on an analysis of CEO pay compared to 1 and 3 year TSR fails on at least two levels: (i) it fails to acknowledge the contributions of all of our executive officers to the long-term prospects of the company and (ii) it rewards short-term performance rather than the long-term achievements required by our capital-intensive business. The chart appearing below on the left is based on our 2011 Summary Compensation Table and shows the percentage of our total compensation (as reflected in such table) that consisted of fixed compensation and variable or performance-based compensation (long-term performance units are assumed to be earned at the target level for purposes of our Summary Compensation Table). The chart appearing below on the right is based on the same information, except the percentages valuing long-term performance units granted in 2011 are assumed to be earned at the maximum level. For purposes of these charts, we have taken the percentages applicable to our five NEOs. A significant portion of our compensation is performance based. WE PAY FOR PERFORMANCE 44.6% 55.4% Fixed compensation Variable compensation 35.7% 64.3% Fixed compensation Variable compensation |
7 $50 $70 $90 $110 $130 $150 $170 $190 $210 2009 2010 2011 Threshold Target Maximum Targets reward superior performance; financial targets used to determine annual cash bonus have been adjusted upward each year. ANNUAL INCENTIVE PLAN TARGET SETTING |
8 AAWW VERSUS INDUSTRY INDEX - 2011 AAWW Amex Airline Index |
9 AAWW 2012 STOCK UPDATE – YEAR TO DATE AAWW Amex Airline Index S&P 500 Dow Jones Transport Average Russell 2000 |
10 Our executive compensation practices, approved by almost 85% of our stockholders in 2011, have NOT changed since last year In 2011, ISS recommended that stockholders vote FOR our Say on Pay advisory vote. • Recommendation was on the basis of our compensation best practices and excellent pay for performance results. • ISS changed its methodology in December 2011 – our compensation practices remain unchanged. • We manage our business for the long-term and for future growth. • While share price performance declined in 2011, AAWW’s financial performance for the year was solid and filled with numerous financial and operational achievements, despite a challenging macro-economic and freight environment. • Our guidance for 2012 reflected a 24% increase in EPS over 2011 adjusted EPS. ISS’s NEW METHODOLOGY IS INCONSISTENT WITH PAST RECOMMENDATIONS A reconciliation of adjusted EPS to the corresponding GAAP financial measure is contained on pages 42-43 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on February 15, 2012. |
11 ISS’s METHODOLOGY ISSUES There are three numbers in the Summary Compensation Table that ISS uses in its CEO compensation methodology: salary, 2011 bonus, and 2011 LTI awards. • AAWW salary is unchanged between 2011 and 2010 and that portion of overall compensation is modest • AAWW 2011 bonus was earned based on our major financial and operating accomplishments • With respect to LTI award, this is a "future" looking number, dependent on how well AAWW stock performs, as well as for our PSUs how AAWW performs compared to our performance share unit peers. ISS then takes these numbers for our CEO and compares them to the CEO pay at ISS’s peer group and also compares the peer companies’ Total Shareholder Return to AAWW's Total Shareholder Return. If the ISS peer group has challenges, then the ISS analysis has challenges. Not only does the peer group composition have challenges but some of the CEO pay data (from the controlled companies within the ISS peer group) is not comparable. See next slide for further discussion. |
12 New ISS-selected peer group is inappropriate – includes a number of companies that have significantly different business models and ownership structures • Of the fourteen ISS peer group companies, five of the peers are in totally different industries, four have much lower revenues than AAWW and four are controlled entities with different compensation structures. • The CEOs of the controlled peers have below market pay (presumably due to their significant ownership stakes), which adversely affects an objective analysis of the compensation paid to AAWW’s CEO. • ISS’s methodical, “black box” approach prevents it from making analyses and adjustments to peer group selection. • See the attached Appendix for more detailed information regarding the shortcomings of the various companies comprising the ISS peer group. ISS’s NEW PEER GROUP IS INAPPROPRIATE FOR AAWW |
13 AAWW MAINTAINS A TOP OF CLASS MANAGEMENT TEAM IN A COMPETIVITE MARKETPLACE Our executives’ skills are valuable to us and they are highly transferrable and desirable to our competitors, as well as to companies in other industries. We have designed our compensation policy so that we maintain our current executive team and remain an attractive employer as we invest in our future growth, continue to execute our strategic transformation and endure challenging economic environments. KEY COMPONENTS OF OUR COMPENSATION POLICY INCLUDE: Benchmarking our executives’ compensation at competitive levels • We target base salary, performance-based annual incentive cash compensation and performance-based and time-based equity compensation between the 50 and 75 percentiles of our compensation peers for our CEO and at the 75 percentile for our other senior executives. This is nationwide data even though AAWW executives are based in one of the highest cost locations in the country. • Peer groups are scaled to provide broad view of compensation in the markets in which we compete for executive talent. • This recognizes that supply chain and leadership talents are transferrable beyond the airline or transportation industries. Reward strong individual performance by aligning incentive-based compensation to individuals’ annual performance objectives • We incentivize managements’ long-term investment in the company by rewarding only what they can control, and decline to reward risky behavior targeted at artificially inflating stockholder return at the expense of our future growth. Annual incentive program performance targets include personal metrics as well as financial targets. • We reward management for operational achievements that they can control. th th th |
14 GLASS LEWIS HAS GIVEN AAWW A POSITIVE RECOMMENDATION ON SAY ON PAY • In contrast to ISS, Glass Lewis, a major advisory service, has given AAWW a positive Say on Pay recommendation. • Glass Lewis noted that AAWW maintains a well-designed executive program and has provided exemplary disclosure with respect to its compensation practices and incentive plans. • While executive compensation and corporate performance (share price) may not be perfectly aligned in 2011, Glass Lewis indicated that AAWW utilizes objective incentive plans which it believes are well structured to align pay with performance going forward. |
15 AAWW MAINTAINS COMPENSATION BEST PRACTICES We offer no excise tax gross ups or modified gross ups. We believe these gross ups are antithetical to fair compensation practices. Payments in event of change of control do not exceed 3x for all executives. We believe change of control payments at this level protect our executives, yet are not prohibitive to a potential strategic partner. No share recycling. We respect our stockholders’ vote and in February 2012, amended our LTIP to reflect our policy of not reusing shares forfeited for tax withholding or cancelled awards. Minimum stock ownership requirements are in place for officers and directors, and we provide robust disclosure on such compliance. We believe our directors and officers act in our stockholders’ best interests when they themselves are stockholders. There is 100% compliance with the stock ownership requirements. |
16 New ISS-selected peer group is inappropriate – includes a number of companies that have significantly different business models and ownership structures, including: • • Arkansas Best - CEO has short tenure in this role; market cap is less than half of AAWW; significantly lower net income. • Dollar Thrifty Automotive Group - U.S. car rental company. • Genesee & Wyoming - The Fuller family controls approximately 32% of the voting shares; an international rail company; a significantly higher market cap. • Hub Group – 59% ownership controlled by the Yeager family; primarily a domestic logistic services and trucking brokerage company. • Knight Transportation, Inc. – 45% controlled by the Knight family and two additional investors; U.S. trucking company with a significantly smaller revenue base. • Old Dominion Freight Line, Inc. - CEO has short tenure in this role; U.S. trucking company. • Quality Distribution, Inc. - Apollo Funds control 32% of the common stock; significantly less revenue and lower market cap. • Saia, Inc. - Less revenue and significantly lower market cap. • Werner Enterprises, Inc. – 38% controlled by the Werner family; U.S. trucking company. APPENDIX - ADDITIONAL DETAIL ON SOME OF ISS PEER GROUP Allegiant Travel Company - CEO has a 21% ownership interest, 3 Funds own an additional 25%; is a U.S. regional passenger leisure airline, with a significantly lower revenue base. |