AMR Will Fire 13,000 as Part of Plan to Lower Costs by $2 Billion a Year

AMR Corp. (AMR)’s American Airlines said it will eliminate 13,000 jobs under a plan to cut annual operating costs by $2 billion and boost revenue by $1 billion as the company restructures in bankruptcy.

All work groups, including management, will see a 20 percent reduction in costs and the company plans to terminate its four pension plans, Chief Executive Officer Tom Horton told labor leaders in a meeting today. The job cuts would be about 18 percent of American’s 73,800 employees.

Horton’s message offered the first indication of what a restructured American might look like. The third-biggest U.S. carrier struggled through four straight annual losses and was battered by industry mergers that pitted it against larger competitors before filing for bankruptcy protection on Nov. 29. The $3 billion in improvements will be reached by 2017.

“There is no avoiding the fact that the cost reductions will be deep,” Horton said. “And there is no sugarcoating the effect on our people.”

Being acquired, closing airport hubs or breaking up the company aren’t in the best interest of Fort Worth, Texas-based American, its workers or stakeholders, he said. US Airways Group Inc. has said it’s studying options involving AMR. Delta Air Lines Inc. has hired advisers to evaluate the company, people familiar with the matter have said.

Labor savings will make up $1.25 billion of American’s target for spending reductions, Horton said. Proposed contract changes were given to union leaders by the airline in a series of afternoon meetings.

Maintenance Changes

The airline will cut management positions by 15 percent, close its maintenance base in Fort Worth and move some aircraft maintenance and airport ramp jobs to outside vendors, Jeff Brundage, senior vice president for human resources, told workers. American hopes to reach agreements with its unions “as quickly as possible,” he said.

American’s job cuts include 4,600 mechanics and maintenance workers, 4,200 baggage handlers and other airport ramp employees, 2,300 flight attendants, 400 pilots and 1,400 management and support staff, the company said. The carrier hasn’t yet decided on reductions for customer-service and reservations agents.

“Nobody thought it was going to be a bed of roses,” said Robert Mann, a former American executive who is president of aviation consultant R.W. Mann & Co. in Port Washington, New York. “It’s all going to come down to what the details are for each group. The devil is in the details.”

‘Off the Charts’

Under bankruptcy law, AMR must provide the unions with financial information to evaluate its proposals, followed by good-faith negotiations to reach an agreement. If negotiations fail, AMR can ask the bankruptcy court to impose new terms.

“I’m completely outraged,” Laura Glading, president of the Association of Professional Flight Attendants, said in an interview. “This is the most overreaching, off-the-charts proposal I could have ever dreamed.”

The Transport Workers Union, whose members would see the deepest job cuts, also was shocked by the depth of the concessions, said Jim Little, the labor group’s international president. American’s plan would eliminate the jobs of 9,000 of the 26,000 workers represented by the TWU, he said.

“We’re going to fight this,” Little said.

Retiree Medical Benefits

American also plans to end contributions to medical benefits for future retirees. Benefits for current retirees haven’t yet been addressed. A profit-sharing plan would be created, setting aside 15 percent of pretax income for eligible employees.

The carrier intends to boost revenue by increasing departures at its hub airports by 20 percent during the next five years, better matching aircraft size to specific routes and improving its products. Specifics weren’t immediately provided.

American is seeking to cut $370 million a year from pilot costs, $230 million from flight attendants, $250 million from airport ground workers and $210 million from maintenance and $165 million from management and support staff.

American Eagle, AMR’s regional carrier, won’t make contract proposals to its unions “for a few weeks,” Dan Garton, the unit’s CEO, said in an e-mail to employees today. Eagle, with 14,237 employees, provides more than 90 percent of the passenger feed to American’s hubs.

The Pension Benefit Guaranty Corp., the federal agency that insures those retirement programs, has pressured AMR to maintain its underfunded plans. The agency placed $92 million in liens on AMR property since Jan. 19 after the company paid $6.5 million of a $100 million pension liability.

‘Drastic Action’

“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,” Josh Gotbaum, the agency’s director, said in an e-mail today. “Thus far, they have declined to provide even the most basic information to decide that.”

The pensions cover about 130,000 active AMR employees and retirees, the PBGC said. The company has a pension liability of about $18.5 billion and $8.3 billion in pension assets.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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