AMR Corp.'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.
"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."
Labor savings will make up $1.25 billion of Fort Worth, Texas-based 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.
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 "in the next few weeks," 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."
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.
"Everything is on the table," said Jeff Kauffman, an analyst at Sterne Agee & Leach Inc. in New York. "This is American's chance to put the airline in a position where they cannot just survive but thrive longer-term."
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 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.
"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.