Execs: American Airlines needs cuts to survive
Feb. 03-- American Airlines' proposed cuts in bankruptcy restructuring of 13,000 workers, pensions, older aircraft and some aircraft maintenance are necessary for the company's long-term survival and return to leadership in the airline industry, company executives said Thursday.
"We lost over $10 billion in the last decade -- and we are virtually the only airline that is still losing money," said Kevin Cox, American's vice president of state and community affairs. "We made a very difficult decision, a necessary decision, to file bankruptcy."
Cox, who spoke with the Tulsa World editorial board, said the filing of American parent AMR Corp.'s Chapter 11 bankruptcy reorganization petition on Nov. 29 was needed because the Fort Worth carrier could not sustain its cost structure.
"Virtually every airline we compete against restructured (in bankruptcy after 9/11) with all sorts of costs they have wrung out of the company," Cox said. "Virtually everybody we competed against changed the playing field about how to run an airline."
Although he praised the company's 80,000 employees for their loyalty, love and pride in the company, Cox said the $1.6 billion in wage and benefit cuts agreed to by mechanics, pilots and flight attendants in 2003 were not enough to help AMR avoid bankruptcy.
"The (2003) contracts we negotiated were only buying us more time," Cox said. "Two to three years ago, we were hopeful the rest of the airline industry would cost converge" as new union contracts were negotiated and competitors' other costs rose, he said.
"It didn't happen. We're now in bankruptcy," Cox said.
AMR, however, has built the foundation for a resurgence.
The airline is focusing 98 percent of its seating capacity in five key business markets: New York, Miami, Chicago, Dallas/Fort Worth and Los Angeles.
It is strategically positioned around the world with its Oneworld airline alliance. It has joint business agreements with Japan Airlines across the Pacific and with British Airways and Iberia across the Atlantic.
The company has ordered 556 new aircraft from Boeing and Airbus -- Boeing 737s, 777s and 787s, Airbus A320s, which the manufacturers financed -- that will transform American's fleet from one of the industry's oldest, at an average age of 14.9 years, to its youngest, with an average age of 9.3 years.
American also is investing in new on-board amenities, such as in-flight Wi-Fi, entertainment on demand, new seats and Samsung Galaxy Tablets.
Along with changes in pilot work rules that will allow the company to size aircraft to the markets they serve, AMR's business plan envisions the investments will drive an additional $1 billion a year in revenue at the company by 2017, Cox said.
But the company also needs to pare $2 billion a year in costs, including $1.25 billion in employee benefits, $750 million a year in restructured debt and leases, retirement of older planes and other efficiencies, Cox said.
The employee cuts will include layoffs of 13,000 people, including 2,100 mechanics and related work groups at the Tulsa Maintenance & Engineering Center and 1,200 at its Alliance Airport maintenance base, which the company proposes to close. In Tulsa, American employs 5,600 mechanics and 7,000 people overall, American executives said this week.
Cox indicated that the total number of jobs eliminated in Tulsa could be higher than 2,100, as an unspecified number of airport workers, managers and supply people also will be cut.
In order to emerge successfully from bankruptcy, American will need 20 percent cost savings from each work group of mechanics, pilots and flight attendants, company officials said.
The company hopes to accomplish the cuts by mutual agreement with its unions, which began negotiations on restructured six-year contracts on Thursday, Cox said.
"We're going to do everything we can to try to get these (contracts) by mutual agreement," Cox said. "Our goal is to get this negotiated and negotiated quickly. It's not in our company's benefit to languish through this process.
"It's our goal to get in and out (of bankruptcy) within the year. We believe we have done it right, we want to do it right -- and quickly."
In its bankruptcy filing, AMR listed assets of $22.87 billion and liabilities of $30.08 billion.
More investment needed in facilities, Chamber CEO says
On Wednesday, Tulsa Metro Chamber President and CEO Mike Neal said the taxpayer support of the maintenance facility helped keep it on the board during American's restructuring, but he also indicated more investment will probably be needed.
"Had the city of Tulsa and Tulsa County and the voters of our community not made the investments they've made in the American facilities over the last 20 or so years, American would not be here today," Neal said, adding, "American will certainly not be here in the future if we do not continue to upgrade our facilities."
"These are city-owned facilities," Neal said. "It's the city's obligation to continue to upgrade the facilities and continue to support them in continuing to meet the future needs of their company as things change. As their fleets change, as the aircraft they fly change, as things ... change within the industry."
Tulsa and the state have invested heavily in American:
--In 2007, then-Gov. Brad Henry approved appropriating $10 million from the state's Opportunity Fund, which contains surplus state money that is used to create jobs, for new facilities for American and Spirit AeroSystems.
--Mayor Kathy Taylor paired $5.7 million of the state funds with $4.3 million in local funds to build American the 81,400-square-foot widebody Hangar 80 at Tulsa International Airport. The remainder of the state money, $4.3 million, was used to rehabilitate an aircraft building for Spirit.
--In addition, in 2003 taxpayers approved $22.3 million in Vision 2025 funds. The Vision 2025 money was used by the company to purchase tooling and test equipment, including a $2 million avionics testing device.
But the investments and $1.62 billion a year in wage and benefit concessions agreed to by American's unionized mechanics, pilots and flight attendants in 2003 to help AMR avoid a bankruptcy filing have not been enough, company and industry officials said.
"We've got to continue to look for ways to make investments in those facilities to, No. 1, support maintaining American here and then, hopefully, to support the company's future growth," Neal said.
- D.R. STEWART and RANDY KREHBIEL, World Staff Writers
D.R. Stewart 918-581-8451
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