AMR Financial Chief: Labor Costs Must Fall

The new chief financial officer of American Airlines' parent says the nation's biggest carrier must cut labor costs and reduce debt before it can consider updating its jet fleet.

Thomas W. Horton said Wednesday that labor costs could be reduced partly through better productivity. He avoided endorsing new layoffs or wage cuts, the mere suggestion of which would anger the airline's labor unions.

AMR Corp. has lost $8.12 billion in the last five years, and its debt has swelled to $20 billion. It paid down $1.1 billion in debt last year.

"Our debt is too high, and we need to keep working on that," Horton said.

Horton said American Airlines must return to profitability before it can invest in its fleet, such as replacing gas-guzzling MD-80s on many domestic routes - the estimated cost is $10 billion - or adding newer wide-body planes on international routes.

Horton added that the company won't chase unprofitable growth.

"We are focused on making this company as profitable and as successful as it can be, and I don't think that's about market share," he said.

In Horton, AMR hired a familiar face. He was CFO from 2000 until 2002, when he left for the same job at AT&T, only to be stranded when AT&T was bought by the former SBC Communications Inc.

AMR needed a CFO after James Beer joined software company Symantec Corp. Horton was fishing in the Bahamas when Chief Executive Gerard Arpey called him to offer his old job, plus the additional duties of overseeing planning at Fort Worth-based AMR.

Horton will get a base salary of $600,000 - more than Arpey's salary last year of $518,837 - plus a bonus of $650,000.

Arpey said Horton's experience at AT&T gave him experience at plotting strategy, a skill that AMR could use.

Horton said Arpey gave him a short list of tasks.

"They were all the kinds of stuff you would expect to be on my to-do list," Horton said, "except No. 6, which said `AMR unprofitable. Please fix.'"

"It's going to be tough," said Ray Neidl, an airline analyst at Calyon Securities. "He's got to keep good labor relations, but they've got to cut more in the labor area."

AMR's unions were split badly by wage and benefit concessions that workers narrowly approved in 2003. Since then, management has tried to build relations with union officials.

Horton declined interview requests after being named to the job last week. On Wednesday, he met with reporters in a conference room near Arpey's office.

By stressing the need to reduce debt and keep cutting costs, Horton sounded very much like Beer, the man he replaced. Horton said the company's financial condition is looking up except for the high cost of fuel - the fuel bill in 2005 was $1.7 billion higher than the year before. On the plus side, planes are flying fuller, and other costs are down on a per-passenger basis.

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