American faces rough flight in cost-cutting union talks
By Scott Blake
American Airlines this week plans to resume cost-cutting negotiations with its labor unions, but the financially troubled carrier could have a bumpy ride.
Miami's dominant airline and one of South Florida's largest private employers, American is trying to improve its cash flow by $3 billion a year by 2017, including $2 billion in "cost savings" and $1 billion in "revenue enhancements," as part of its plan to emerge from Chapter 11 bankruptcy protection.
The savings mainly would come from a 20% cost reduction in each of American's employee groups, including management, saving about $1.25 billion a year.
The revenue gains would come from drawing more business and doing it more efficiently by adding new planes to its fleet to better "match aircraft size to the markets we serve," updating its customer services and products, and consolidating around five key markets, including Miami.
Nowhere in its plan has American said it will raise ticket prices or passenger fees to boost revenue, but a local representative of American's pilots union suggested perhaps it should be a consideration, saying the airline has failed to maximize revenue.
"American has a horrific revenue problem," said Capt. Ivan Rivera, an American pilot based in Miami. "The company is over $2 billion behind the competition in revenue," he said. "Even if you reduce the workforce, it still would not make up the difference."
American's cost-cutting steps include eliminating about 13,000 jobs. Last week the company started discussions with employee unions, but the reaction was swift and skeptical.
Two unions representing American's flight attendants, mechanics and ground workers were planning to gather Tuesday for a "Valentine's Day" protest at Dallas-Fort Worth International Airport in response to what they said are "outrageous terms" from American's management.
One union official, Transport Worker Union International President James Little, said to its members: "Evaluate everything and take nothing for granted from this company."
Mr. Rivera also was critical of management.
"Pilots have never been the problem," he told Miami Today.
Mr. Rivera noted American's plan calls for outsourcing a portion of its aircraft maintenance work. While he said he cannot speak for American's mechanics union, he added: "When you see those mechanics in American uniforms, you know they have been on the job for a while and they know what they are doing."
He called American's financial woes "a matter of culture," and blamed management for failing to operate the airline more efficiently. The pilots were opposed years ago to American creating regional carrier American Eagle, which Mr. Rivera said resulted in a needless "replication of corporate overhead."
"The pilots have always come to the table" with ideas, he added. "Whether management has taken that input or not is another story."
American and American Eagle handle nearly 70% of passenger traffic at Miami International Airport. The company employs about 9,000 people in South Florida.
Under its new plan, the company said the added cash flow will enable American to renew its fleet of planes, invest several hundred million dollars a year in product and service improvements for customers, and reduce its debt.
"Just as other airlines have done and will continue to do, we must invest restructuring-related cost savings in ongoing innovation and customer service improvements that drive revenue," Tom Horton, CEO and president of American parent company AMR Corp., said in a statement.
"The airlines that have failed to adapt to these changes are no longer in business," he added. "Change will be difficult, particularly as we will be ending this process with fewer people, but it is a necessity."
The company's labor reduction plan includes eliminating 1,400 management and support positions, and it plans to propose more changes for that group in the weeks ahead.
In addition, it includes about 400 pilot furloughs. Mr. Rivera, the local American pilot, noted the pilots accepted large job and salary cuts several years ago to help American avoid filing for bankruptcy protection at that time.
Also, the plan calls for eliminating 2,300 flight attendants and outsourcing a part of American's aircraft maintenance work.
Mr. Rivera said he understands that about 4,500 in-house mechanics and maintenance positions could be eliminated through outsourcing and cuts. American has not specified the impact on that portion of its workforce.
"These are painful decisions," Mr. Horton said, "but they are essential to American's future."
He added: "We will emerge from our restructuring process as a leaner organization 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."
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