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American Airlines outlines plan to restore profitability and growth

2-Feb-2012 10:07 AM

American Airlines, a wholly-owned subsidiary of AMR Corporation, outlined (01-Feb-2012) a business plan to move the carrier out of bankruptcy. The plan targets an annual financial improvement of more than USD3 billion by 2017, including USD2 billion in cost savings and USD1 billion in revenue enhancements:

  • Restructuring – Non-Employee Cost Reductions:
    • American's plans build on initiatives already in place that reduced costs significantly over the past several years, including major changes to its route structure, network, capacity and fleet. Utilising the benefits of the restructuring process, American intends to realise additional savings over the next six years by restructuring debt and leases, grounding older aircraft, improving supplier contracts, and undertaking other initiatives;
  • Necessary Reduction of Employee Costs:
    • American plans to reduce total employee costs by 20%, or a total reduction of approximately 13,000 employees. These reductions would result in average annual employee-related savings of USD1.25 billion from 2012 through 2017. Included in the total employee impact is a reduction in 15% of management positions;
    • A portion of the carrier's aircraft maintenance work will also be outsourced, along with the closure of its Fort Worth Alliance Airport (AFW) maintenance base, and certain airport fleet service clerical work;
    • American will seek Bankruptcy Court approval to terminate its defined benefit pension plans. If the plans are terminated, American will contribute matching payments in a 401(k) plan. American also will seek to discontinue subsidising future retiree medical coverage for current employees, but will offer access to these plans if employees choose to pay for them;
    • In order to ensure that employee performance is rewarded and aligned with American's future success, the company envisions putting in place a profit sharing plan which, beginning with the first dollar of pre-tax income, would pay awards totalling 15% of all pre-tax income;
  • Revenue Improvements and Profit Sharing:

American Airlines: "These are painful decisions, but they are essential to American's future. We will emerge from our restructuring process as a leaner organisation with fewer people, but we will also preserve tens of thousands of jobs that would have been lost if we had not embarked on this path – and that's a goal worth fighting for. By reinvesting savings back into our business, we will support job growth, including growth at our suppliers and partners over the long run. Only a successful, profitable and growing American Airlines can provide stability and opportunity for our people,Tom Horton, chairman and CEO, AMR and American Airlines.