’ five-year network growth plan disproportionately favors international services at the same time as maintenance for the carrier’s long-haul fleet is outsourced.
The company’s Chapter 11 reorganization, parts of which were unveiled Feb. 1, anticipates a 20% increase in departures from the company’s five “cornerstone” markets—Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York.
Chief Executive Tom Horton, during an evening teleconference with media, clarified that this growth will be made possible by removing scope and code share limitations. This will allow the airline to “better match the size of aircraft to the markets we serve” and “fully utilize our alliances” that although “in their infancy” are already helping the carrier win corporate accounts, says Horton.
Broadening these code share relationships will have a “significant revenue impact” for American’s parent company AMR Corp., notes Horton, adding that international growth will be “disproportionate” to domestic mainline and regional increases to facilitate improved links with the likes of Oneworld partnersand .
AMR will also invest “hundreds of millions of dollars” each year to upgrade its product to “make American the high value carrier” in North America, says Horton. All these changes combined will generate $1 billion annually in new revenues, he says.
But growth is only part of AMR’s restructuring equation, and some $2 billion in cost savings is being requested from labor. About $800 million of this comes from the termination of the company’s four defined benefit pension plans, but staff cuts will still be required.
AMR’s mechanics and fleet service workers, represented by the Transport Workers Union, will be the hardest hit by the proposed payroll reduction. These groups will see a combined loss of around 8,600 positions, about 65% of the total job losses considered under AMR’s reorganization plan. With these cuts also comes the closure of AMR’s Fort Worth Alliance widebody maintenance facility as well as a reduction of 2,100 staff at its Kansas MRO base.
While AMR acknowledges that these jobs will be outsourced—a move that will reduce the company’s maintenance costs—few other details have so far been disclosed. TWU President James Little in a telephone interview with AviationWeek confirmed that while AMR has listed its demands in a term sheet, the request did not contain specific details on how they will be achieved.
More will be disclosed during meetings scheduled with management on Feb. 2 and 3, although even then it could take weeks for the unions to digest the information. The National Mediation Board has told TWU it is ready to assist in what essentially is a new round of contract negotiations.
Initial union reaction centers on one key aspect of AMR’s proposal: that the value placed on the concessions is too low. Little acknowledges that investment bankers hired to advise the union told him “these numbers don’t jibe.” The Allied Pilots Association’s Communications Committee Chairman Tom Hoban tells AviationWeek that the data undervalues the deal by at least “a factor of two,” and that while more investigation is needed the concessions appear to ignore savings from reduced medical coverage and significant reductions in pension payments that arise from passing the terminated pension obligations to the U.S. Government’s Pension Benefit Guaranty Corp.
Statements from the flight attendants union, which will be affected by 2,300 job cuts, are far stronger. “The company’s proposal is even more extreme and despicable than we had anticipated, however, just as I expected and not surprisingly, the justification from management simply isn’t there,” says Association of Professional Flight Attendants President Laura Glading in a message to members.
“They failed to justify the $800 million cost disadvantage figure they pulled out of the air and claimed to have for the past three years,” says Glading. “Now they’ve more than tripled that amount. It’s outrageous and I’m not going to accept it. We have the facts on our side, and if necessary I will reiterate them to the creditors’ committee and the court. Management has given us absolutely no credit for the concessions we made and continue to make and now they want another bailout. Frankly, they’re not entitled to it. I am committed to fighting them on every misleading or inaccurate statement they made today. Our aggressive negotiation strategy will remain unchanged, and we will pursue an early-out option to take care of any reduction.”
AMR’s leadership, however, believes it is acting in good faith, noting in the press conference that the proposal has been “vetted” by numerous advisors and investment bankers and that a more detailed explanation will be forthcoming as the airline sits down with its unions.