Job Cuts, Capacity Increase Mark AA's Reorganization Plan - Business Travel News

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Job Cuts, Capacity Increase Mark AA's Reorganization Plan

February 01, 2012 - 07:30 PM ET

By Jay Boehmer

American Airlines parent AMR Corp. on Wednesday outlined key objectives for its Chapter 11 reorganization, including plans to cut employment by 13,000, increase departures in key markets, "modernize" its brand and continue the fleet-renewal efforts it announced last year.

All told, American by 2017 seeks to achieve $3 billion in "annual improvement," CEO Tom Horton told employees in a memo Wednesday. While $1 billion of that would come from additional revenues "through network scale, fleet optimization and product improvements," the carrier expects to achieve the remainder by attacking costs.

Chief among those, American plans to cut "employee-related costs" by "more than $1.25 billion per year," according to Horton.

Senior vice president of human resources Jeff Brundage told employees in a separate memo Wednesday that AMR management this afternoon "met with each of the unions and shared proposed changes to our current agreements to achieve the necessary cost reductions. Every workgroup—including management—must reduce its total costs by 20 percent in order to achieve this goal."

Of the 13,000 cuts planned, 9,000 are Transport Workers Union members, according to TWU International president James Little, who during a press conference Wednesday said, "We're going to fight this. We're going to fight it on behalf of the employees that we represent." He called AMR management "disingenuous," alleging the company filed for bankruptcy as a way to renegotiate with labor groups.

To achieve other employee-related cost savings, AMR is requesting bankruptcy court approval to "terminate our defined-benefit pension plans" and replace them with a 401K plan, and also "discontinue company-subsidized retiree medical coverage for current employees."

Horton in the memo characterized the changes as necessary to American's survival and competitiveness. "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," according to Horton. "Last week, these airlines announced their financial results, which highlighted, once again, a widening profit gap."

AMR in a monthly operating report filed with the bankruptcy court this week reported a $904 million net loss for December, which included about $118 million in reorganization expenses.

AA, meanwhile, is holding firm to its plans to purchase 460 narrow-body aircraft from Airbus and Boeing, though the carrier in its monthly operating report noted that "the bankruptcy court has not yet approved American's assumption of those contracts under the bankruptcy code."

Still, Horton in the memo told employees "that by 2017 American's mainline jet fleet will be the youngest in North America, with the versatility to match aircraft size to the markets we serve. This step is central to our transformation and means more profitable flying due to markedly improved fuel and maintenance costs and higher revenue generation."

While several analysts viewed AA's bankruptcy as a means to shed capacity, Horton shared plans to increase capacity by 20 percent during the next five years at its five "cornerstone" markets of Chicago, Dallas, Los Angeles, Miami and New York, thereby "capitalizing on our loyal customer base and world-class alliance partners, and increasing international flying."

Meanwhile, Horton hinted at upcoming investments in products and services to "modernize" the American brand and "once again make American the premier airline of high-value customers."

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