<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ALASKA AIR GROUP, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF ALASKA AIR GROUP, INC.]
P.O. Box 68947
Seattle, Washington 98168
April 1, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Alaska Air Group, Inc. at 2 p.m. on May 19, 1998, in the William M. Allen
Theater at the Museum of Flight, 9404 East Marginal Way South, Seattle,
Washington.
We encourage you to participate at this meeting, but whether or not you
plan to attend, please sign and return your proxy card as soon as possible.
Your opinion and your vote are important to us regardless of the number of
shares you own. Voting by proxy will not prevent you from voting in person if
you attend the meeting, but it will ensure that your vote is counted if you are
unable to attend.
We look forward to visiting with you at the meeting and addressing your
questions and comments.
Sincerely,
/s/ John F. Kelly
John F. Kelly
Chairman, President and
Chief Executive Officer
<PAGE>
[LOGO OF ALASKA AIR GROUP, INC.]
P.O. Box 68947
Seattle, Washington 98168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
To Stockholders:
The 1998 Annual Meeting of Stockholders of Alaska Air Group, Inc. will be
held in the William M. Allen Theater at the Museum of Flight, 9404 East Marginal
Way South, Seattle, Washington, at 2 p.m. on May 19, 1998, for the following
purposes:
1. To elect three directors for terms of three years each.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record on March 20, 1998, will be entitled to vote at
the meeting.
By Order of the Board of Directors,
/s/ Keith Loveless
Keith Loveless
Corporate Secretary and
Associate General Counsel
April 1, 1998
Seattle, Washington
- - --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting, please
sign and return the proxy in the enclosed envelope so your stock can be voted.
The envelope requires no postage if mailed in the United States.
- - --------------------------------------------------------------------------------
<PAGE>
[LOGO OF ALASKA AIR GROUP, INC.]
P.O. Box 68947
Seattle, Washington 98168
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Alaska Air Group, Inc. ("Air Group" or the
"Company") to be used at the 1998 Annual Meeting of Stockholders (the "Annual
Meeting"), at 2 p.m. on May 19, 1998, in the William M. Allen Theater at the
Museum of Flight, 9404 East Marginal Way South, Seattle, Washington. This proxy
statement is being mailed to stockholders on approximately April 1, 1998.
PROXIES
The shares represented by the enclosed proxy, when properly executed, will
be voted in accordance with directions given by the stockholder. Where the
stockholder has provided no instructions, the shares will be voted in favor of
the election of the three nominees for director and in support of management on
any other matters that properly come before the Annual Meeting. A stockholder
has the right to revoke, withdraw or change the proxy at any time before it is
voted by contacting the Corporate Secretary of the Company. Other than the
election of directors, the Company is not aware of any other matters to be
presented at the Annual Meeting.
VOTING SECURITIES
The Company's voting stock consists solely of common stock. On March 20,
1998, the record date for stockholders entitled to vote at the Annual Meeting,
the Company had outstanding 20,313,951 shares of $1.00 par value Common Stock
(the "Common Stock"). Each share of Common Stock is entitled to one vote on any
matter brought before the meeting.
A majority of the outstanding shares must be present in person or by proxy
to constitute a quorum for the transaction of business at the Annual Meeting. If
a quorum is present, the affirmative vote of a majority of the shares present
will be required to act on the election of directors. Abstentions or, in the
case of the election of directors, withheld votes will be included in the number
of shares present and will have the effect of voting against any matter before
the meeting. Shares not voted by brokers will not be included in the number of
shares present and therefore will have no effect on the voting.
On December 31, 1997, the Company's 40l(k) plans held in trust for
participants 1,147,537 shares, or 5.65% of the outstanding Common Stock
outstanding as of March 20, 1998, the record date. The Alaska Air Group 401(k)
trust includes Employee Stock Ownership Plan ("ESOP") features. Included in the
total shares held by the 401(k) plans on behalf of employees of Alaska Airlines,
Inc. ("Alaska Airlines") and Horizon Air Industries, Inc. ("Horizon Air") are
352,003 shares held by the ESOP ("ESOP Shares") and 795,534 non-ESOP shares. As
of December 31, 1997, 78,706 shares remain unallocated to participants'
accounts.
1
<PAGE>
The trustee will vote the allocated shares in accordance with confidential
instructions from each participant. If no instructions are received, the trustee
will vote such allocated shares as it determines to be in the best interest of
the participants. Unallocated ESOP shares are automatically voted by the trustee
on behalf of participants in the same manner as the participants instructed the
allocated shares to be voted.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
5% Owners. The following table shows the beneficial ownership of each person or
entity known by the Company to own more than 5% of the Company's Common Stock.
Ownership shown is based on publicly available information reported as of
February 15, 1998.
<TABLE>
<CAPTION>
AMOUNT & NATURE OF PERCENT OF
NAME & ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- - ---------------------------------- -------------------- ----------
<S> <C> <C>
FMR Corp. .............................. 1,655,411 (1) 8.15%
82 Devonshire Street
Boston, Massachusetts 02109
Barclays Global Fund Advisors........... 1,366,373 (2) 6.73%
45 Fremont Street
San Francisco, California 94105
The Equitable Companies Incorporated.... 1,337,930 (3) 6.59%
1290 Avenue of the Americas
New York, New York 10104
Alaska Airlines & Horizon Air........... 1,147,537 5.65%
Industries 40l(k) Plans
c/o BNY Western Trust Company, Trustee
Two Union Square, Suite 520
601 Union Street
Seattle, Washington 98101
</TABLE>
(1) Includes the following shares beneficially owned by two wholly owned
subsidiaries of FMR Corp.: Fidelity Management & Research Company1,005,711
and Fidelity Management Trust Company649,700. FMR Corp. has sole voting
power for 645,900 shares and sole dispositive power for 1,655,411 shares.
(2) Barclays Global Fund Advisors has sole voting power for 1,138,473 shares
and sole dispositive power for 1,366,373 shares.
(3) Includes the following shares beneficially owned by two wholly owned
subsidiaries of The Equitable Companies Incorporated: Alliance Capital
Management L.P.-1,190,200 and Donaldson, Lufkin & Jenrette Securities
Corporation-147,730. Alliance Capital Management L.P. has sole voting
power for 385,000 shares and sole dispositive power for 1,190,200 shares.
Donaldson, Lufkin & Jenrette Securities Corporation has sole voting power
for 147,405 shares and sole dispositive power for 147,405 shares.
2
<PAGE>
Management. The following table shows the beneficial ownership of Company
Common Stock by all directors, director nominees, executive officers named in
the Summary Compensation Table, and all directors, nominees and executive
officers as a group as of March 20, 1998, except for 40l(k) plan shares, which
are as of December 31, 1997. As a group, the directors, nominees and executive
officers owned .45% of the outstanding stock on March 20. None of these
individuals owns more than 1% of the outstanding Common Stock. Unless otherwise
noted, they have sole voting and dispositive power over such shares.
<TABLE>
<CAPTION>
NO. OF COMMON SHARES PERCENT OF
NAME OF INDIVIDUAL BENEFICIALLY OWNED CLASS OWNED
- - ------------------ -------------------- -----------
<S> <C> <C>
William S. Ayer...................... 19,722 (1)
George D. Bagley..................... 4,119 (1)
Ronald F. Cosgrave................... 8,180
Mary Jane Fate....................... 295 (2)
John R. Fowler....................... 3,683 (1)
John F. Kelly........................ 3,997 (1)
Bruce R. Kennedy..................... 13,465 (3)
R. Marc Langland..................... 1,380
Harry G. Lehr........................ 2,272 (1)
Byron I. Mallott..................... 616 (3)
Robert L. Parker, Jr................. 717
John V. Rindlaub..................... 1,505
Richard A. Wien...................... 1,722
All directors, nominees and.......... 90,450 (1)(3) .45%
executive officers as a group
(24 individuals)
</TABLE>
(1) Includes shares held in trust under the Company's 40l(k) plans. Also
includes the following options, which are exercisable within 60 days:
NAME OF INDIVIDUAL STOCK OPTIONS
------------------------------ -------------
William S. Ayer 17,975
George D. Bagley 2,125
John R. Fowler 2,375
All directors, nominees and 28,950
executive officers as a group
(24 individuals)
(2) Does not include 1,546 shares registered in the name of her husband. Mrs.
Fate disclaims beneficial ownership of those shares.
(3) Shares dispositive and investment power with spouse over the following
shares: Mr. Kennedy - 13,465; Mr. Mallott - 616; and all directors,
nominees and executive officers as a group - 18,992.
3
<PAGE>
ELECTION OF DIRECTORS
Three directors are standing for election at the Annual Meeting. The Board
of Directors is divided into three classes serving staggered three-year terms.
The persons named in the proxy intend to vote for the election of the three
nominees named below. Each nominee has consented to serve as a director. If any
nominee is unable to serve for any reason, the proxies or their substitutes will
vote the shares represented by each proxy for such substitute nominees as the
Executive Committee of the Board of Directors shall approve.
NOMINEES FOR DIRECTOR (TERM EXPIRING 1998)
RONALD F. COSGRAVE (66) - Mr. Cosgrave has been a director since 1971, except
the period from 1981 to 1983, and serves on the Executive Committee. He was
Chairman of Alaska Northwest Properties Inc. from 1979 to 1997, when he became
Executive Manager of ANP, LLC. Mr. Cosgrave is a retired Chairman and Chief
Executive Officer of Alaska Airlines. He is also Chairman Emeritus and a
director of Alaska Airlines.
R. MARC LANGLAND (56) - Mr. Langland has been a director since 1991. He serves
on the Compensation Committee and is Chairman of the Audit Committee. He has
been President of Northrim Bank, Anchorage, Alaska, since November 1990 and
President of Norcap, Ltd. (investments) since May 1989. He was Chairman and
Chief Executive Officer of Key Bank of Alaska from 1987 to 1988 and President
from 1985 to 1987. He served on the Board of Trustees of the Alaska Permanent
Fund Corporation from February 1987 to January 1991 and was Chairman from June
1990 to January 1991. He is also a director of Alaska Airlines, Northrim Bank,
Usibelli Coal Mine, and Totem Resources Corporation.
JOHN V. RINDLAUB (53) - Mr. Rindlaub was appointed a director in November 1996
and serves on the Audit Committee. He is currently Chairman of Seafirst Bank, a
post he has held since 1993, and Group Executive Vice President of Bank of
America NT and SA, responsible for the Northwest. In addition, he is
responsible for Bank of America's retail technology on a global basis. Prior to
his position at Seafirst, Mr. Rindlaub served as Group Executive Vice
President/Asia Division for Bank of America and as a managing director for
Banker Trust Company New York, Investment Banking Group. He is also a director
of Horizon Air and of the Federal Reserve Bank of San Francisco.
CONTINUING DIRECTORS (TERM EXPIRING 2000)
MARY JANE FATE (64) - Mrs. Fate has been a director since 1979 and serves on the
Compensation Committee. She has served as General Manager of a family business
in Fairbanks, Alaska, since 1989. She was President and Executive Director of
Baan o yeel kon Corporation (an Alaska Native village corporation) from 1981 to
1989. She is a director of Alaska Airlines and Baan o yeel kon Corporation, and
a member of the University of Alaska Board of Regents.
4
<PAGE>
JOHN F. KELLY (53) - Mr. Kelly has been a director since 1989 and serves on the
Executive Committee. He was elected Chairman, President and Chief Executive
Officer of Air Group and Chairman and Chief Executive Officer of Alaska Airlines
in February 1995. He also served as President of Alaska Airlines from 1995 to
1997, Chief Operating Officer from November 1994 to February 1995 and as Vice
President/Marketing from 1981 to June 1987. He has served Horizon Air as its
Chairman since February 1991, except the period from November 1994 to February
1995, and was President and Chief Executive Officer from June 1987 to November
1994. He also serves on the board of the Air Transport Association and is a
director of Washington Water Power, a public utility based in Spokane,
Washington.
BRUCE R. KENNEDY (59) - Mr. Kennedy has been a director since 1972 and has
served as Chairman of the Executive Committee since 1985, except for the period
from November 1994 to February 1995. He is Chairman Emeritus of Air Group and
served as Air Group's Chairman, Chief Executive Officer and President from 1985
to 1991. He was also Chairman of Alaska Airlines from 1979 to 1991, Chief
Executive Officer from 1979 to 1990 and President from 1978 to 1990. He also
serves on the board of directors of Horizon Air and of the ARIS Corporation, a
Seattle-based company providing information technology services.
CONTINUING DIRECTORS (TERM EXPIRING 1999)
BYRON I. MALLOTT (54) - Mr. Mallott has been a director since 1982 and serves on
the Audit Committee. He served as Mayor of the City and Borough of Juneau,
Alaska, from October 1994 to February 1995, when he was appointed Executive
Director (chief executive officer) of the Alaska Permanent Fund Corporation (a
trust managing proceeds from the state of Alaska's oil revenues). In December
1994, he completed a two-year appointment as Executive in Residence at the
University of Alaska Southeast. He was a director of Sealaska Corporation,
Juneau, Alaska, from 1972 to 1988; Chairman from 1976 to 1983; and Chief
Executive Officer from 1982 to 1992. He owns Mallott Enterprises (personal
investments) and is a director of Horizon Air.
ROBERT L. PARKER, JR. (49) - Mr. Parker has been a director since 1975. He
serves on the Executive Committee and is Chairman of the Compensation Committee.
He has been President and Chief Executive Officer of Parker Drilling Company
(oil and gas drilling contractor), Tulsa, Oklahoma, since December 1991. He was
President and Chief Operating Officer of Parker Drilling Company from 1977 to
1991 and has been a director since 1977. Mr. Parker is also a director of
Alaska Airlines.
RICHARD A. WIEN (62) - Mr. Wien has been a director since 1982 and serves on the
Compensation and Audit Committees. He played an active role in the management
of Wien Airlines until 1969, when he was elected President of Merric, Inc., an
Alaska helicopter contract and charter service company. After Merric merged
with Era Aviation in 1973, Mr. Wien served as Era's Executive Vice President
until 1981. He has been Chairman and Chief Executive Officer of Florcraft, Inc.
(retail flooring), Fairbanks and Anchorage, Alaska, since 1986. He is also a
director of Horizon Air, National Bank of Alaska and Usibelli Coal Mine.
5
<PAGE>
DIRECTOR REMUNERATION
Each outside director of Air Group receives an annual retainer of $20,000,
with a minimum of 25% of the retainer paid in Alaska Air Group Common Stock
issued under the Company's Nonemployee Director Stock Plan. The Board approved
the plan in 1997 when it adopted director stock ownership guidelines for its
members. Outside directors of Alaska Airlines or Horizon Air receive an annual
retainer of $1,000. An annual retainer of $2,000 is also paid to each Committee
chair. In addition, a meeting fee of $1,200 is paid for each Board or Committee
meeting in which an outside director participates in person. If participation is
via telephone, the fee is $750. When more than one meeting of a Board and/or
Committee is held on the same day, only one meeting fee is paid. Employees of
the Company who serve as directors receive only reimbursement of expenses
incurred in attending meetings. Directors, their spouses and their dependent
children are eligible for complimentary travel privileges on Alaska Airlines and
Horizon Air.
THE BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors has established the following committees, which meet
outside of regular Board meetings to assist the Board in discharging its
responsibilities.
AUDIT COMMITTEE. The Audit Committee consists of R. Marc Langland
(Chairman), Byron I. Mallott, John V. Rindlaub, and Richard A. Wien. The Audit
Committee is responsible for: (1) reviewing the annual report of the independent
auditors; (2) evaluating the external and internal financial audit functions;
(3) making recommendations to the Board of Directors with respect to the
appointment of independent auditors and other auditing matters; and (4)
evaluating the Company's compliance with environmental regulations. The Audit
Committee held two meetings during 1997.
COMPENSATION COMMITTEE. The Compensation Committee consists of Robert L.
Parker, Jr. (Chairman), Mary Jane Fate, R. Marc Langland, and Richard A. Wien.
The functions of the Compensation Committee are to: (1) set the salary of the
Chairman and Chief Executive Officer; (2) approve salaries of executive officers
of Alaska Airlines and Horizon Air; (3) make recommendations to the Board of
Directors with respect to other executive compensation issues, including
modification or adoption of executive compensation plans; (4) grant stock
options; and (5) serve as administrator for the Company's stock option and other
long-term incentive plans. The Compensation Committee held five meetings during
1997.
EXECUTIVE COMMITTEE. The Executive Committee consists of Bruce R. Kennedy
(Chairman), Ronald F. Cosgrave, John F. Kelly, and Robert L. Parker, Jr. The
Executive Committee serves as the nominating committee to select director
nominees. The Executive Committee does not consider director nominations from
stockholders; however, procedures and minimum notice provisions for stockholders
to nominate directors are outlined in the Company's bylaws. The Executive
Committee also makes recommendations to the Board on committee membership and
chairs. The Executive Committee held three meetings during 1997.
6
<PAGE>
There were four Air Group Board of Directors meetings in 1997. All
directors attended at least 75% of the meetings of the Board and committees on
which they serve.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a current or former employee of
the Company or any of its affiliates or has any interlocking relationship with
any other corporation that requires specific disclosure under this heading.
OTHER MATTERS
In 1997 ANP, LLC, a limited liability corporation in which Mr. Ronald F.
Cosgrave is an executive officer and in which Mr. Cosgrave and Mr. Bruce R.
Kennedy were greater than 10% shareholders, repurchased an equity interest from
Alaska Airlines. Payment for the equity interest was made in the form of
property valued at $271,602 plus $281,164 cash.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation of the Company's chief executive
officer and the four other most highly paid executive officers (the "named
executive officers") for each of the last three fiscal years ended December 31.
(Bonus figures are reported in the year earned.)
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------------
AWARDS PAYOUTS
---------------------------- ----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL
COMPEN- STOCK OPTIONS/ LTIP OTHER
NAME AND SALARY BONUS SATION(1) AWARD(S)(2) SARS(3) PAYOUTS(2) COMPENSATION(4)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- - ---------------------- ---- --------- -------- ----------- ------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Kelly 1997 434,615 391,154 - 0 38,900 0 10,510
Chairman & CEO 1996 376,923 339,231 - 0 206,300(5) 0 10,473
(Alaska) 1995 317,154 47,678 - 0 37,800 0 10,170
William S. Ayer 1997 224,804 138,056 - 0 17,600 0 6,012
President (Alaska) 1996 170,746 102,448 - 0 10,800 0 29,939
1995 133,002 72,025 - 0 15,500 0 17,061
George D. Bagley 1997 217,269 152,088 - 0 10,600 0 11,132
President & CEO 1996 207,308 145,115 - 0 16,400 0 11,132
(Horizon) 1995 170,813 18,133 - 0 20,800 0 6,984
Harry G. Lehr 1997 236,077 141,646 - 0 9,100 0 11,663
Senior Vice 1996 231,231 138,738 - 0 14,600 0 10,990
President/ 1995 222,577 22,944 - 0 25,700 0 10,350
Finance (Alaska)
John R. Fowler 1997 213,769 128,262 - 0 8,300 0 8,425
Senior Vice 1996 186,231 111,738 - 0 11,800 0 6,694
President/ 1995 178,654 18,416 - 0 20,600 0 6,483
Technical Operations
(Alaska)
</TABLE>
(1) The value of personal benefits and a corresponding tax gross-up did not
exceed $50,000 or 10% of salary plus bonus for any of the above-named
executives during the past three years.
(2) Through 1997, the Company granted no restricted stock awards and no long-
term incentive awards.
(3) Tandem stock appreciation rights ("SARs") generally attach to up to 50% of
options granted prior to 1996. SARs are not paid in cash, but can only be
exercised to receive a credit toward the exercise price of options. SARs
are not included with the options granted after 1995.
(4) Represents Company-paid contributions to individual 40l(k) plan accounts
and imputed income for the value (as determined by the Internal Revenue
Service ("IRS")) of a term life insurance benefit provided by the Company.
In 1997, 401(k) contributions were: $4,750 each for Messrs. Kelly, Ayer,
Lehr, and Fowler; and $9,500 for Mr. Bagley. Imputed income for term life
insurance during 1997 was: Mr. Kelly - $5,760; Mr. Ayer - $1,262; Mr.
Bagley - $1,632; Mr. Lehr - $6,913; and Mr. Fowler - $3,675.
(5) Includes a special grant of 150,000 options awarded to Mr. Kelly in 1996.
8
<PAGE>
EQUITY PLAN INFORMATION
The stock options granted under the 1988 Stock Option Plan and the 1996 and
1997 Long-Term Incentive Equity Plans have exercise prices equal to the fair
market value of Air Group Common Stock on the date of grant. The Compensation
Committee is authorized to establish the terms of each grant. The stock options
are not transferable. They are exercisable for cash, through a stock-for-stock
exchange, through the use of SAR credits where they exist, or a combination of
the three. The outstanding options have ten-year terms and generally become
exercisable in 25% increments over a period of four years, beginning on the
first anniversary of the grant. Unless extended by the Compensation Committee,
retiring employees may exercise vested options for six months after their
retirement, and unvested options are canceled upon retirement. Unexercised
options of employees who leave the Company for reasons other than retirement are
canceled at the time their employment ends. The accelerated vesting provisions
of all options are described under "Change-in-Control Arrangements" on pages 15
and 16. The 1996 and 1997 Long-Term Incentive Equity Plans provide for equity-
based awards in addition to stock options.
The following table shows grants of stock options to the named executive
officers during 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS/SARS VALUE AT ASSUMED ANNUAL
UNDERLYING GRANTED TO RATES OF STOCK PRICE
OPTIONS/SARS EMPLOYEES IN EXERCISE OR APPRECIATION FOR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION OPTION TERM(1)
NAME (#) (%) ($/SH) DATE 5% ($) 10% ($)
- - ---- ------------ ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 38,900 15.8 35.25 12/19/2007 862,356 2,185,380
William S. Ayer 17,600 7.2 35.25 12/19/2007 390,166 988,758
George D. Bagley 10,600 4.3 35.25 12/19/2007 234,986 595,502
Harry G. Lehr 9,100 3.7 35.25 12/19/2007 201,734 511,233
John R. Fowler 8,300 3.4 35.25 12/19/2007 183,999 466,289
</TABLE>
(1) The assumed rates of appreciation in the above table were suggested as
examples by the Securities and Exchange Commission and are not intended to
predict actual appreciation of Air Group Common Stock prices.
9
<PAGE>
The following table shows unexercised options held by each named executive
officer at year end 1997. There is no assurance that the indicated values of any
unexercised options will actually be realized.
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND FISCAL YEAR END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired Value at Fiscal Year End at Fiscal Year End(2)
on Exercise Realized(1) (#) ($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly................. 39,525 421,669 30,525 214,725 492,328 3,013,250
William S. Ayer............... 8,000 99,350 17,550 34,550 434,750 405,575
George D. Bagley.............. 39,975 496,797 3,075 35,050 71,109 329,619
Harry G. Lehr................. 23,875 275,809 3,475 34,650 80,359 558,769
John R. Fowler................ 17,425 169,475 12,250 29,325 258,919 462,713
</TABLE>
(1) Market price of underlying securities at exercise date minus the exercise
price.
(2) Defined as the market price of Common Stock at year end minus the exercise
price.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION POLICY
The Company's policy is to pay competitive compensation. The objectives of
the Company's executive compensation policies are: to attract and retain highly
qualified executives; to motivate officers to provide excellent leadership and
achieve Company goals; to link the interests of executives and stockholders by
tying a large portion of total compensation to Company profitability and stock
value; and to reward outstanding performance. Executive compensation includes
competitive base salary, a cash incentive plan tied to annual financial
performance, and equity-based awards.
Section 162(m) of the Internal Revenue Code eliminates the Company's
ability to deduct certain compensation over $1 million paid to the named
executive officers unless such compensation is based on performance objectives
meeting certain criteria or is otherwise excluded from the limitation. The
Company intends to qualify a sufficient amount of compensation to its executive
officers so that Section 162(m) of the Code will not materially affect the
Company in an adverse way. Compensation from the exercise of options granted to
date under the Company's stock option and equity plans qualifies for the
deduction.
BASE SALARY
1997 base salaries for other executive officers were approved by the
Compensation Committee. They were based on subjective analysis of: competitive
market rates; the market demand for each executive officer's skills; the
executive's influence on long-term Company strategies and success; the
relationships among executive positions; and individual leadership performance.
10
<PAGE>
To ensure that its overall compensation is appropriate, the Company
periodically reviews executive compensation for Dow Jones Airlines Group
companies, other air carriers, similarly sized Pacific Northwest companies and
from broad-based national compensation surveys, and retains the services of
outside compensation specialists. The Company does not attempt to set executive
compensation at specific target ranges of any particular survey. In 1997,
executive officers (other than the CEO) received increases averaging 5.6%.
MANAGEMENT INCENTIVE PLAN
Air Group's Management Incentive Plan ("MIP") places at risk a significant
portion of each executive's potential cash compensation, linking it to annual
profitability. Thirty-nine employees, including officers and key employees of
the Company, Alaska Airlines and Horizon Air, currently participate in the plan.
For awards to be paid, the Company must achieve or exceed profit goals
established annually by the Compensation Committee. MIP goals are based on
return-on-equity levels as determined by the Compensation Committee each year.
Awards increase proportionately based on the degree to which goals are met. They
can range from zero to 45% of executive officers' base salaries if the target is
met, up to a maximum of double the target award if profits reach or exceed the
maximum goal. Award levels vary by position and can be adjusted for individual
performance.
Payments made for 1995 were based on profits that exceeded the threshold
but fell short of the full target. Payments made to the named executives for
1996 and 1997 were based on profits that exceeded the maximum goal. (See Summary
Compensation Table on page 8.)
For the executives in the Summary Compensation Table, the percentages of
total potential cash compensation linked to performance under the MIP in 1997
were: Mr. Kelly -- 47%; Mr. Ayer -- 38%; Mr. Bagley -- 41%; Mr. Lehr -- 38%; and
Mr. Fowler -- 38%.
EQUITY-BASED AWARDS
Although the 1996 and 1997 Long-Term Incentive Equity Plans provide for
equity-based awards in addition to stock options, stock options and restricted
stock awards are the only equity-based compensation presently in use by the
Company. They provide an incentive to maximize stock values, linking the long-
term interests of executives with those of stockholders. Because the awards vest
over several years, they encourage executives to remain with the Company. The
Committee grants options at market price, so recipients benefit only if the
price of the stock appreciates and stockholders also benefit.
The Committee does not base grants on ownership targets or on the number of
options an individual has outstanding, because it believes doing so would
discourage officers from retaining options or shares. Individual grants are
determined according to base salary and position. The options granted to each of
the named executive officers in 1997 are shown in the Summary Compensation Table
and the Option Grant Table on pages 8 and 9.
11
<PAGE>
CEO COMPENSATION
BASE SALARY
In setting the CEO's base salary, the Committee reviews competitive
information similar to that used for other Company executives and periodically
retains the services of an outside consultant. The Committee does not target a
specific range of competitive pay, but applies the information as it deems
appropriate. By reviewing survey data periodically, the Committee believes it
will remain mindful of compensation levels that would be required to recruit
from outside the Company.
The Board of Directors conducts an annual evaluation of the CEO's
performance based on the Company's financial performance, the CEO's relationship
with the Board, communication to the Board and other Company constituencies,
investor relations, overall leadership, and strategic and succession planning.
Following are examples of the kinds of accomplishments the Board considered
in measuring performance during 1997. The Company posted record net income of
$72.4 million for the year, far surpassing its previous record of $42.9 million.
Air Group's pretax income margin of 7.1% was its best since 1989, and Alaska
Airlines matched its all-time record of 8.8%. The debt-to-equity ratio
(excluding capital leases) improved from 60:40 in 1996 to 46:54 at year end
1997. Combined with continuing improvements in yield, these factors resulted in
a 72% improvement in earnings per share to $3.53 (diluted) and an 85% increase
in stock price to $38.75 at December 31, 1997.
MANAGEMENT INCENTIVE PLAN
The MIP award is the portion of the CEO's compensation that most directly
relates to the Company's financial performance. It can range from zero if the
threshold is not met, to 45% of base salary if the profit target is met, up to a
maximum of 90% if profits reach or exceed the maximum goal. The profit
measurements on which Mr. Kelly's 1997 MIP award was based were identical to
those detailed on page 11 for all participants in the MIP. Mr. Kelly's 1997 MIP
payment was $391,154.
STOCK OPTIONS
In 1997, Mr. Kelly was granted a total of 38,900 stock options under the
Company's equity plans, based on the criteria outlined earlier for option grants
to executive officers in general. The Committee feels having a significant
amount of compensation tied to stock performance further aligns the CEO's
interests with those of the Company's stockholders.
By: ALASKA AIR GROUP COMPENSATION COMMITTEE
Robert L. Parker, Jr., Chairman
Mary Jane Fate, Committee Member
R. Marc Langland, Committee Member
Richard A. Wien, Committee Member
12
<PAGE>
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN(1)
AMONG ALASKA AIR GROUP, THE S&P 500 INDEX
AND THE DOW JONES AIRLINES GROUP
(FISCAL YEAR ENDED DECEMBER 31)
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
ALASKA AIR S&P DOW JONES
DATE GROUP 500 INDEX AIRLINES(2)
---- ---------- --------- -----------
<S> <C> <C> <C>
1992 $100.00 $100.00 $100.00
1993 $ 85.61 $110.08 $121.29
1994 $ 90.91 $111.53 $ 84.87
1995 $ 98.48 $153.44 $128.36
1996 $127.27 $188.68 $147.95
1997 $234.85 $251.63 $234.74
</TABLE>
(1) Assumes $100 invested on December 31, 1992, in Air Group Common Stock, the
S&P 500 Index and the Dow Jones Airlines Group with all dividends
reinvested.
(2) The companies included in the Dow Jones Airlines Group are: Alaska Air
Group, AMR, Delta Air Lines, Northwest Airlines, Southwest Airlines, UAL
and US Airways.
The stock price performance shown in the graph is historical and not
necessarily indicative of future performance.
13
<PAGE>
SALARIED RETIREMENT PLAN
The Company maintains a tax-qualified, defined benefit retirement plan for
all salaried Alaska Airlines employees who have completed one year of service.
Benefits payable under the Alaska Airlines Salaried Retirement Plan ("Salaried
Retirement Plan") are based on years of credited service and final average
earnings. The annual retirement benefit at age 62 (normal retirement age under
the Salaried Retirement Plan) is equal to 2% of the employee's final average
earnings times years of credited service. Annual benefits are computed on a
straight life annuity basis at normal retirement age. Benefits under the
Salaried Retirement Plan are not subject to offset for Social Security benefits.
The following table shows estimated Salaried Retirement Plan annual
benefits during 1997 at various combinations of final average earnings and years
of credited service. These estimates represent the straight life annuity
benefit for an individual who retires at normal retirement age.
<TABLE>
<CAPTION>
FINAL AVERAGE EARNINGS(1)(2) ANNUAL BENEFITS BASED ON YEARS OF CREDIT SERVICE(2)
- - ---------------------------- -----------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
$175,000 52,500 70,000 87,500 105,000 122,500
$225,000 67,500 90,000 112,500 135,000 157,500
$300,000 90,000 120,000 150,000 180,000 210,000
$350,000 105,000 140,000 175,000 210,000 245,000
$400,000 120,000 160,000 200,000 240,000 280,000
$450,000 135,000 180,000 225,000 270,000 315,000
</TABLE>
(1) Final average earnings for the named executives for the five-year period
ended December 31, 1997 are: Mr. Kelly - $304,073; Mr. Ayer - $196,814; Mr.
Bagley - $187,261; Mr. Lehr - $199,677; and Mr. Fowler - $182,038.
(2) IRS regulations limit the annual benefits that may be paid from a tax-
qualified retirement plan. The current limit is $130,000. In addition,
IRS regulations limit the covered compensation on which annual retirement
benefits are based to $160,000 in 1998. To the extent that the amounts
shown in the table above exceed that IRS limitation, the excess is paid
from the Officers Supplementary Retirement Plan.
14
<PAGE>
All of the participants' base salaries, excluding bonuses, are covered
under the Salaried Retirement Plan. The officers shown in the Summary
Compensation Table have the following years of credited service and covered
compensation as of December 31, 1997:
<TABLE>
<CAPTION>
NAMED EXECUTIVE YEARS OF CREDITED SERVICE COVERED COMPENSATION(1)
- - --------------- ------------------------- -----------------------
<S> <C> <C>
John F. Kelly 20.3(2) $434,615
William S. Ayer 2.3 $222,881
George D. Bagley(3) 4.1(2) $217,269
Harry G. Lehr 10.1 $236,077
John R. Fowler 5.2 $213,769
</TABLE>
(1) Amounts in excess of IRS limitations will be paid from the Officers
Supplementary Retirement Plan.
(2) Reflects combined service at Alaska Airlines and Horizon Air since
becoming eligible for the Salaried Retirement Plan.
(3) When Mr. Bagley transferred from Alaska Airlines to Horizon Air in October
1995, he was 100% vested under the Salaried Retirement Plan. Horizon Air
does not have a similar plan, but will supplement his benefits to ensure
that his retirement benefit will be equivalent to what he would have
received had he continued with Alaska Airlines.
OFFICERS SUPPLEMENTARY RETIREMENT PLAN
In addition to the benefits described above, under the Officers
Supplementary Retirement Plan ("Supplementary Plan"), elected officers of Air
Group and Alaska Airlines and Horizon Air's Chief Executive Officer can receive
retirement benefits, provided they have met service requirements. The
Supplementary Plan is a nonqualified, unfunded, noncontributory defined benefit
plan. Normal retirement benefits are payable once the officer reaches age 60 and
has ten years of service as an elected officer. Annual benefits are calculated
on a straight life annuity basis. Under the version of the Supplementary Plan
applicable to officers elected prior to August 8, 1995, benefits can be up to
50% of a participant's final average earnings, offset by Social Security
benefits. Under the version of the Supplementary Plan applicable to officers
elected on or after August 8, 1995, benefits can range from 50% to 75% of a
participant's final average earnings, offset by benefits from Company-sponsored
qualified retirement plans and by Social Security benefits. Benefits under all
versions of the Supplementary Plan are subject to vesting schedules that are
dependent on the officer's length of service. Although we are unable to project
estimated benefits at this time, final average earnings for the named executives
under the Supplementary Plan at December 31, 1997 were: Mr. Kelly - $304,073;
Mr. Ayer - $196,814; Mr. Bagley - $187,261; Mr. Lehr - $199,677; and Mr.
Fowler - $182,038.
CHANGE-IN-CONTROL ARRANGEMENTS
The Boards of Directors of Air Group and Alaska Airlines have adopted
resolutions providing severance pay to all executive officers and certain other
key employees in the event they are terminated within 24 months after a change
in control of the Company. The formula provides for payments equaling from 12 to
24 months' salary, depending on length of service and the time elapsed between a
takeover and termination. Because of these and other variables to be determined
at the time of distribution, the value of this benefit cannot be determined at
this time.
15
<PAGE>
Some Company benefit plans provide for accelerated vesting in the case of a
change in control. Under the Supplementary Plan applicable to officers elected
prior to August 8, 1995, after a change in control, benefits become vested at
the rate of 10% per year of a participant's service as an elected officer. Under
the Supplementary Plan applicable to officers elected on or after August 8,
1995, benefits become fully vested upon a change in control. The benefit after a
change in control is equal to 10% of final average earnings for each year of
service as an elected officer up to and including the fifth year. For officers
having five or more years of service as an elected officer, the benefit amount
ranges from 50% to 75% of final average earnings, depending on length of
service. Under all versions, the benefit remains subject to applicable offsets.
The Supplementary Plan provides that, after a change in control, benefits
will not be forfeited if an individual is terminated (other than for dishonesty
or criminal acts) or is later employed by a competitor. The value of this
provision to the named executives cannot be determined at this time as the
amount depends on a number of variables to be determined at the time of any
change in control.
Upon a change in control of the Company, outstanding options under the
Company's 1988 Stock Option Plan, and 1996 and 1997 Long-Term Incentive Equity
Plans become fully exercisable unless the Board of Directors determines
otherwise. As of December 31, 1997, the value of accelerated vesting of options
owned by each of the named executives would have been: Mr. Kelly - $3,013,250;
Mr. Ayer - $405,575; Mr. Bagley - $329,619; Mr. Lehr - $558,769; and Mr.
Fowler - $462,713.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers to send reports of their ownership of
Company Common Stock and of changes in such ownership to the Securities and
Exchange Commission (the "SEC") and the New York Stock Exchange. The Company has
adopted procedures to assist its directors and officers in complying with this
requirement, including assisting them in preparing forms for filing. SEC
regulations also require the Company to identify in this proxy statement any
person subject to this requirement who failed to file any such report on a
timely basis. On August 26, 1996, the Compensation Committee granted stock
options to a broad range of key employees, including executive officers. The
grants were inadvertently omitted from the Form 5 reports filed in February
1997, and were filed immediately upon discovery of the omission. The officers
for whom a late report was filed include: Clifford T. Argue, William S. Ayer,
John R. Fowler, Harry G. Lehr, Dennis J. Hamel, Steven G. Hamilton, John F.
Kelly, Robin L. Krueger, Keith Loveless, William L. MacKay, Robert M. Reeder,
Michel A. Swanigan, Bradley D. Tilden, and Edward W. White. Except for the
foregoing, to the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during 1997 all persons subject to the Section 16(a)
reporting requirement filed the required reports on a timely basis.
16
<PAGE>
AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to examine the financial statements of Air Group and its subsidiaries
for the fiscal year ending December 31, 1998. Arthur Andersen LLP examined the
financial statements of Air Group and its subsidiaries for the year ended
December 31, 1997. It is anticipated that representatives of Arthur Andersen
LLP will be present at the Annual Meeting to answer questions by stockholders
and will have the opportunity to make a statement if they desire to do so.
SOLICITATION
The cost of soliciting proxies, including the cost of reimbursing brokers
for forwarding proxy material to their principals, will be paid for by the
Company. The Company has engaged Corporate Investor Communications, Inc. ("CIC")
to assist in the solicitation of proxies for the meeting. The Company will pay
CIC approximately $3,500 in fees for its services and will reimburse it for
reasonable out-of-pocket expenses. Proxies may be solicited by mail, personal
interview, telephone or fax. Proxies may also be solicited by directors,
officers, employees and other agents of the Company, who will receive no
additional compensation therefor except for reimbursement of expenses.
Proxy material may also be distributed through brokers and banks to the
beneficial owners of the Company's Common Stock, and the Company may reimburse
such parties for their reasonable fees and out-of-pocket expenses for such
services.
If you find it inconvenient to attend the meeting in person, your stock
will be represented and voted if you will sign, date and mail the enclosed proxy
card in the envelope provided for that purpose.
STOCKHOLDER PROPOSALS
Under the rules of the Securities and Exchange Commission, for a
stockholder proposal to be included in the proxy statement for the 1999 Annual
Meeting of Stockholders, it must be received by the Company at its corporate
headquarters, P.O. Box 68947, Seattle, Washington 98168, by December 2, 1998.
The Company's bylaws outline procedures, including minimum notice requirements,
for bringing matters before the stockholders.
17
<PAGE>
OTHER MATTERS
The 1997 Annual Report of the Company was mailed to stockholders together
with this proxy statement. The Company will furnish without charge a copy of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
including financial statements and schedules to any stockholder who makes
written request to the Finance Department at Alaska Air Group, Inc., P.O. Box
68947, Seattle, Washington 98168.
Keith Loveless
Corporate Secretary and Associate General Counsel
April 1, 1998
Seattle, Washington
18
<PAGE>
Alaska Air Group, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
Annual Stockholders Meeting, May 19, 1998
The undersigned stockholder hereby appoints John F. Kelly and Keith Loveless
Proxies of the undersigned (with full power of substitution) and hereby
authorizes them to represent and to vote at the above annual meeting all the
shares of common stock of Alaska Air Group, Inc. that the undersigned would be
entitled to vote if personally present. The Board of Directors recommends a
vote FOR Proposal 1.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
Please mark votes as in this example.
This Proxy when executed will be voted in the manner directed herein. If no
direction is made this proxy will be voted FOR Proposal 1.
1. Election of Directors
Nominees: Ronald F. Cosgrave, R. Marc Langland and John V. Rindlaub
FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
For, except vote withheld from the following nominee(s)
________________________________________
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Signature(s):____________________________ Date ____________
Signature(s):____________________________ Date ____________
