American Airlines Calls for Cost Cuts

5th Feb 2003

FORT WORTH - Citing its unsustainable current losses and the long-term need to restructure its business, American Airlines today asked its labor leaders and employees for $1.8 billion in permanent, annual savings through a combination of changes in wages, benefits and work rules.

“We have together made significant changes in our operation, our product and our service to build a more efficient and innovative airline,” the company said in letters to union leaders and non-represented employee workgroups.

“But we need to do more. And we need to do it now. Our financial results make it abundantly clear that American’s future cannot be assured until ways are found to significantly lower our labor and other costs.”

In the letters, AMR Chairman and CEO Don Carty and President Gerard Arpey noted that, unlike other financially troubled airlines, the company turned to employees as a last resort, and only after pursuing an aggressive restructuring plan that identified $2 billion in annual, structural cost savings.

Company executives have said the airline needs an estimated $4 billion in permanent annual savings to compete effectively and return to profitability.


The company cited pricing actions by low-cost and bankrupt carriers among the factors putting “unrelenting pressure” on the company’s financial situation.

“Today, as a last resort, we are taking the difficult step of asking all of our employees to participate in American’s recovery by working with us to deliver $1.8 billion in permanent, steady-state savings. We hope to work collaboratively with you to restructure labor agreements to realize these permanent, annual savings and those needed to address our long-term financial health.” The company also said it would seek to obtain accommodations from a number of its other stakeholders, including aircraft lessors, lenders and suppliers.

In addition, the company announced the latest steps in its ongoing restructuring efforts, stating it plans to close two of its 10 domestic reservations offices - Norfolk, Va., and Las Vegas - impacting approximately 910 reservations representative positions.

According to the company’s proposal, the $1.8 billion in cost savings would be divided by work group as follows:

Pilots: ($660 million) // Flight attendants: ($340 million)  // TWU Represented employees: ($620 million) // Agents and representatives: ($80 million) // Management and support staff: ($100 million)
Each work group’s share was allocated in consideration of American’s strategic goals as well as a review of the competitive landscape and labor costs at other airlines. The company said it hopes to work collaboratively through a process of active engagement with union leaders and non-unionized employee groups to determine how each will deliver its share of the targeted savings through a combination of changes in wages, benefits, and work rules.

In the meeting, Carty and Arpey assured labor leaders that management would continue to do its share and emphasized that today’s proposed cuts come on top of a second year of across-the-board pay freezes for management and a 22 percent reduction in management and support staff positions, resulting in more than $200 million in savings to date.

“Unfortunately, we have little other choice,” Carty and Arpey wrote. “What we do have is an opportunity no longer available to our counterparts at United and US Airways: the chance to work together to find mutually acceptable solutions to our financial crisis in order to avoid the uncertainty of courts and creditors determining our fate.

“Given the magnitude of this request and the sacrifice we are asking of our employees, the importance and impact of your leadership during this pivotal time is critical to our success,” Carty and Arpey wrote to union leaders.

“This is a painful time, but we are confident that the men and women who have built their careers at American Airlines will recognize the gravity of the situation and work with us as we embark upon a difficult but necessary journey toward recovery,” Carty and Arpey concluded. “We are grateful for and inspired by the determination and dedication of the people of American and know that with their support, we will succeed.”




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