American Airlines parent AMR Corp. (AMR) said it must cut annual spending by $75 million at regional carrier American Eagle while paring as many as 600 jobs as the company restructures in bankruptcy.
About half of the cost reductions will come from lowering pay and reducing overtime, with the balance achieved through changing unproductive work rules, scheduling restrictions and retirement-account contributions, Eagle Chief Executive Officer Dan Garton said today on a media conference call.
The Eagle plan builds on American’s quest for $1.25 billion in annual labor-cost reductions and 13,000 job cuts. Changes being sought in the larger airline’s pilot contract will shape the amount of flying done by Eagle, which was due to be spun off before AMR’s Nov. 29 bankruptcy filing.
“It is imperative that Eagle reduce its costs to compete aggressively against other regional airlines” and have comparable rates, Garton said. He said Fort Worth, Texas-based AMR wants other carriers to bid for flying now done by Eagle.
Most workforce cuts will come via attrition to minimize furloughs, Garton said. The $75 million in cost savings represents about 13 percent of Eagle’s labor spending, he said. Eagle has 13,500 employees and the number of positions eliminated will be about 500 to 600, said Bruce Hicks, an AMR spokesman.
Eagle also needs to retire older and less-efficient aircraft and expand the use of larger regional jets to ferry passengers to and from hub airports, AMR said today in a regulatory filing, without detailing the fleet changes or giving specifics on compensation reductions.
Adding regional jets with 70 or more seats at Eagle may be an opportunity for Bombardier Inc. (BBD/B), because the regional unit’s fleet now consists chiefly of smaller Embraer SA (EMBR3) planes, according to Fadi Chamoun, a BMO Capital Markets analyst in Toronto. Eagle has 47 Bombardier 70-seaters, the most the carrier can fly under its current labor contract.
Embraer models with 35 to 50 seats “are uneconomical to operate at current fuel prices and will likely be retired under current Chapter 11 restructuring in favor of a move towards larger RJs,” Chamoun said in a note to clients. He recommends buying shares of Montreal-based Bombardier.
‘Devil in Details’
Management at Eagle met first with unions as a group to go over the broad-cost reduction plan, and planned more sessions today with individual unions to share additional information.
“The devil is always in the details, and that’s what we don’t have yet,” said Jim Little, president of the Eagle chapter of the Transport Workers Union, which represents mechanics and baggage handlers. “We weren’t alarmed by anything we heard this morning. We kind of expected some of these things. Now we’ll see what exactly the specificity is and how deep” the cuts are.
Proposed contract cuts are “outrageous” and “overreaching,” the Association for Flight Attendants, which represents 1,800 Eagle employees, said today in a statement. The union didn’t share specifics on what Eagle management proposed.
Eagle’s chapter of the Air Line Pilots Association will analyze the management plan in the coming weeks and then begin negotiations to reach a deal “that is workable from both sides of the table,” the union said today in a statement.
Eagle generated $2.5 billion in revenue last year, or about 10 percent of AMR’s total.
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