Feb 2, 2012 8:52 AM by Sharlee Barriere
The parent of American Airlines wants to eliminate about 13,000 jobs - 15 percent of its workforce - as the nation's third-biggest airline remakes itself under bankruptcy protection.
The company proposes to end its traditional pension plans, a move strongly opposed by the airline's unions and the U.S. pension-insurance agency, and to stop paying for retiree health benefits.
AMR Corp. said Wednesday that it must cut labor costs by 20 percent. It will soon begin negotiations with its three major unions, but the president of the flight attendants' union quickly rejected the company's ideas as unacceptably harsh.
CEO Thomas W. Horton said Wednesday that the company hopes to return to profitability by cutting spending by more than $2 billion per year and raising revenue by $1 billion per year.
AMR lost $884 million in the first nine months of 2011, and $904 million for December alone. It has lost more than $11 billion since 2001.
"We are going to use the restructuring process to make the necessary changes to meet our challenges head-on and capitalize fully on the solid foundation we've put in place," Horton said in a letter to employees.
AMR's 88,000 employees have braced for bad news for weeks. AMR, American and short-haul affiliate American Eagle filed for bankruptcy protection in November. Horton said in December that the company would emerge from bankruptcy with fewer workers.
Laura Glading, president of the Association of Professional Flight Attendants, said the proposal was more drastic than she expected. She claimed that the annual reduction in employee costs, which AMR put at $1.25 billion, would be closer to $2.8 billion.
"This is an absolute outrage," Glading said. "There's nothing in here that's remotely acceptable."
Transport Workers Association President James Little declared, "We're going to fight this." His union represents American's mechanics and bag handlers, who would be hit hardest - 40 percent would be laid off.
The job cuts would include 4,600 maintenance workers, 4,200 baggage handlers, 2,300 flight attendants, 1,400 management and support employees and 400 pilots.
If American and its three unions can't agree on changes, the company could ask a bankruptcy judge in New York to throw out existing labor contracts and impose the company's conditions on workers. Federal law requires the company to first make a good-faith effort to negotiate agreements with its workers.
Besides fewer workers and reduced benefits, company officials said that other cost-cutting moves would include restructuring debt and aircraft leases and grounding older planes. A maintenance-overhaul facility in Fort Worth, Texas, would close and some maintenance would be outsourced, a move that American has long resisted. Aircraft-cleaning and fueling work would also be outsourced, and pilots and flight attendants could work more hours.
Ray Neidl, an analyst with Maxim Group LLC, said for American to win support for its plan, it would have to offer employees a goal - a carrot - and not just a stick. He said an AMR proposal for a new profit-sharing plan might help.
"It's hard to see a carrot right now," he said, "but you have to convince them that this is part of a plan to return to profits and secure jobs."
The company also wants union approval to drop its traditional pension plans, which cover 130,000 employees and retirees. It would replace them with 401(k)-type plans under which the company contributes to workers' retirement accounts.
The pension plans were once standard in the airline industry. AMR's are underfunded by billions of dollars and the company said on a new website Wednesday that it could no longer afford them. This week, the U.S. Pension Benefit Guaranty Corp. slapped liens on $91 million in AMR property after the company paid only $6.5 million of a required $100 million contribution to the plans.
PBGC Director Joshua Gotbaum said that 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." He said the company had failed to provide even basic financial details.
American said the cost of traditional pensions and retiree health benefits saddled AMR with higher labor costs than its rivals. Through the first nine months of 2011, labor was 29 percent of operating costs at AMR compared with 22 percent at United and 20 percent at Delta.
Horton said AMR also plans to go ahead with orders to buy hundreds of new aircraft to replace older gas-guzzlers. That would cut fuel use - high fuel costs have been a major drag on American and other airlines. The bankruptcy judge hasn't approved those new orders, but he has allowed the company to take delivery of some new jets.
American plans to increase flights in New York, Los Angeles, Chicago, Dallas and Miami by 20 percent over the next five years to raise revenue, Horton said.
AMR, which barely avoided bankruptcy in 2003, is the latest of several large U.S. airlines to go through Chapter 11 in an effort to reduce costs and debt. United, Delta and US Airways did so in the past decade, and Continental - now part of United - in the 1990s.