AMR Corp, the bankrupt parent of American Airlines, expects to slash about 13,000 jobs as part of a cost-cutting strategy the carrier says is necessary to compete with rivals.
The job cuts detailed by executives in a meeting with labor groups Wednesday would be part of an overall effort to reduce operating expenses by more than $2 billion annually.
“As you know, our major competitors have used the restructuring process to overhaul their companies and become more competitive in every aspect of their business,” AMR’s Chief Executive Tom Horton said in a letter to employees.
“All work groups will have total costs reduced by 20 percent, including management,” Horton said. “While the savings from each work group will be achieved somewhat differently, each will experience the same percentage reduction.”
After the meeting, the company released a breakdown of the expected job cuts, which will hit ground workers hard.
American said it expects to trim about 4,600 mechanics and related jobs, about 4,200 fleet service workers, about 2,300 flight attendants, about 1,400 management and support staff and about 400 pilots.
AMR says it suffers from higher labor costs than its peers and filed for Chapter 11 protection from creditors in November.
Horton said in a letter to employees that the carrier was aiming for $2 billion in total annual cost reductions, including $1.25 billion in employee-related expenses. American also plans on restructuring debt and leases and grounding older planes.
American also wants to generate $1 billion per year in new revenue through changes in its route network, fleet utilization and product improvements.
Horton did not touch on the possibility of slashing employee pension plans, which the U.S. government expects the company to try to do during bankruptcy.
American Airlines has 73,802 full- and part-time employees, and its regional carrier American Eagle has 14,237 full- and part-time employees.
American Airlines and its regional carrier American Eagle have heavily unionized work forces. AMR’s proposed cost cuts are a starting point for negotiations with its various bargaining units. AMR’s rivals, such as Delta and United Airlines, have achieved similar labor cost reductions in Chapter 11.
In the meeting that was closed to the public, Horton also said the airline intends to emerge as an independent company, according to one of the sources who attended the meeting with the unions.
AMR is a potential merger target for rival carriers. US Airways Group has said it is assessing a bid. Delta Air Lines also is considering a bid, sources have told Reuters.
William Swelbar, a research engineer with MIT’s International Center for Air Transportation, said the job cuts are part of what American needs to do to reorganize effectively.
“The other part that American needs to address is its ability to generate revenue. There is no question that the company is at a distinct labor cost disadvantage relative to the industry,” Swelbar said.
In addition to the labor cost reductions, AMR also plans to invest about $2 billion per year in aircraft with the goal of making American’s fleet the youngest in North American by 2017.
Horton said the carrier intends to increase departures across its five key markets - Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York – by 20 percent over the next five years.
The company also plans to invest several hundred million dollars per year in enhancements to its brand, products and services.
AMR’s cost proposals require approval from the New York bankruptcy court.