AMR Corp, the parent of bankrupt American Airlines, wants to slash 13,000 jobs and terminate employee pension plans as part of a cost-cutting strategy the carrier says is necessary to compete with rivals.
The cuts detailed by executives on Wednesday in meetings with union leaders and letters to employees would be part of overall efforts to reduce operating expenses by more $2 billion annually. Savings from layoffs and other employee-related cuts would comprise more than half of the savings.
As you know, our major competitors have used the restructuring process to overhaul their companies and become more competitive in every aspect of their business, AMR Chief Executive Tom Horton said in a letter to employees.
All work groups will have total costs reduced by 20 percent, including management, Horton said. While the savings from each work group will be achieved somewhat differently, each will experience the same percentage reduction.
After the meeting, the company released a breakdown of the expected job cuts, which will hit ground workers hard.
American said it expects to trim about 4,600 mechanics and related jobs, about 4,200 fleet service workers, about 2,300 flight attendants, about 1,400 management and support staff and about 400 pilots.
RESTRUCTURING BUT STAYING INDEPENDENT
AMR says it suffers from higher labor costs than its peers and filed for Chapter 11 protection from creditors in November.
Horton said in a letter to employees that the carrier was aiming for $2 billion in total annual cost reductions, including $1.25 billion in employee-related expenses. American also plans to restructure debt and leases as well as ground older planes.
American also wants to generate $1 billion per year in new revenue through changes in its route network, fleet utilization and product improvements.
American has 73,802 full and part-time employees and its regional carrier American Eagle has 14,237 full- and part-time employees.
In a separate letter to employees, Jeff Brundage, senior vice president for personnel, said AMR would seek bankruptcy court approval to terminate traditional pension plans covering 130,000 workers and retirees. Those plans would be replaced with 401(k) plans with a company match, the airline said.
American has a $10 billion shortfall in its employee pension accounts, according to U.S. pension insurers with the Pension Benefit Guaranty Corp.
The PBGC said it would seek to prevent pension plan terminations at American, steps that rivals United Airlines and US Airways took during their court restructurings.
Before American takes such a drastic action as killing the pension plans of 130,000 employees and retirees, it needs to show there is no better alternative. Thus far, they have declined to provide even the most basic information to decide that, PBGC Director Josh Gotbaum said in a statement.
American Airlines and its regional carrier American Eagle have heavily unionized work forces. AMR's proposed cost cuts are a starting point for negotiations with its various bargaining units. AMR's rivals, such as Delta and United Airlines, have achieved similar labor cost reductions in Chapter 11.
In the meeting that was closed to the public, Horton also said the airline intends to emerge as an independent company, according to one of the sources who attended the meeting with the unions.
AMR is a potential merger target for rival carriers. US Airways Group has said it is assessing a bid. Delta Air Lines also is considering a bid, sources have told Reuters.
REVENUE IMPROVEMENTS NEEDED
William Swelbar, a research engineer with MIT's International Center for Air Transportation, said the job cuts are part of what American needs to do to reorganize effectively.
The other part that American needs to address is its ability to generate revenue. There is no question that the company is at a distinct labor cost disadvantage relative to the industry, Swelbar said.
In addition to the labor cost reductions, AMR also plans to invest about $2 billion per year in aircraft with the goal of making American's fleet the youngest in North American by 2017.
Horton said the carrier intends to increase departures across its five key markets - Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York - by 20 percent over the next five years.
The company also plans to invest several hundred million dollars per year in enhancements to its brand, products and services.
AMR's cost proposals require approval from the New York bankruptcy court.
(Reporting By Kyle Peterson; additional reporting by John Crawley and Karen Jacobs; Editing by Mark Porter, Maureen Bavdek, Dave Zimmerman and Richard Chang)