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AMR woes

damnflyboy

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Just, damn.

Feb. 1 (Bloomberg) -- AMR Corp.’s American Airlines is preparing to offer union employees contracts today that probably will eliminate more than 10 percent of jobs and freeze pensions as the third-largest U.S. carrier pares spending in bankruptcy.

As many as 15,000 jobs may be cut, said William Swelbar, an aviation research engineer at the Massachusetts Institute of Technology. Vicki Bryan, a bond analyst at Gimme Credit LLC in New York, said 10,000 jobs “is not unreasonable.” The airline will have to cut as much as $2 billion to gain competitive labor costs, more than the $800 million AMR estimated, she said.

“The surprise is going to be big and it’s going to be bloody and it’s going to be nasty,” Bryan said in an interview.

AMR is using its Nov. 29 Chapter 11 filing to chip away at what the company calls an $800 million-a-year disadvantage in labor spending to competitors that relied on court protection to shed costs and boost productivity in the past decade. AMR wouldn’t discuss contract proposals before meeting with the unions later today. If AMR can’t get unions to go along, the airline can ask a judge to impose new terms.

“It’s clear we have to be a more nimble, flexible and efficient airline in order to compete successfully and be consistently profitable,” said Bruce Hicks, an AMR spokesman. “Before discussing publicly any of our proposed changes, we will first meet with the leaders of the unions.”

‘Dismay and Outrage’

Chief Executive Officer Tom Horton and his top lieutenants will meet with union leaders in a group today near AMR’s headquarters in Fort Worth, Texas, before giving each a contract offer that will be the basis for expedited talks. Horton has told employees twice since Nov. 29 that the reorganized company will exit bankruptcy with fewer workers.

“I expect this initial proposal to include drastic cuts across the board,” Laura Glading, president of the Association of Professional Flight Attendants, said in a statement yesterday. “I expect dismay and outrage from our membership as details of the proposal are made public.”

Under bankruptcy law, the company must provide the unions financial information to evaluate its proposals, followed by good-faith negotiations to reach an agreement before seeking help from the courts.

“Everything is on the table,” said Jeff Kauffman, an analyst at Sterne Agee & Leach Inc. in New York who estimates that work such as servicing jets at airports may go to vendors. “This is American’s chance to put the airline in a position where they cannot just survive but thrive longer-term.”

Non-Negotiable

American said it has 73,802 full- and part-time employees, 81 percent who are represented by a union, while 61 percent of the 14,237 workers at regional carrier American Eagle are organized.

In addition to job cuts, American probably will want employees to work more hours and pay more for healthcare, while compensation stays the same or increases slightly, Swelbar said.

Swelbar said he expects most of the job cuts to involve aircraft maintenance or airport ground operations that will be moved to outside vendors. The estimate is based on what other airlines did in bankruptcy. About 1,500 flight-attendant jobs may be eliminated, he said.

“My guess is the job cuts are largely not negotiable,” he said. “This is an airline that’s been operating with a lot more head count than other airlines would have needed to do the same amount of flying.”

Maintenance Operations

American has two large maintenance bases -- Tulsa, Oklahoma, with 6,800 employees, and Fort Worth, with 1,700. The Texas base also includes an engine overhaul joint venture with Rolls-Royce Holdings Plc.

“We’re hoping for a fair shake in this process,” said Tom Hoban, spokesman for the Allied Pilots Association. “I don’t think they’re going to waste any time on the resumption of negotiations. It’s going to be fast and furious.”

Talks between American and its pilots extended over six years, and ended with the union declining to send the carrier’s last offer to its members for a vote. The airline had been in negotiations with the flight attendants since June 2008 and with the Transport Workers Union since November 2007.

The TWU, which represents mechanics, baggage handlers and other airport ground workers, scheduled a news conference today on “proposed job cuts at American Airlines and American Eagle.” The union declined to say what it expects AMR to propose.

Pension Plans

While some jobs will be lost to outsourcing, most of AMR’s headcount reduction will be attrition, said Hunter Keay, a Wolfe Trahan & Co. analyst in New York. He said he also expects American to push for increased productivity and to freeze its defined-benefit pension plans.

“It’s a pretty easy case to make that the plans need to be frozen,” he said.

The Pension Benefit Guaranty Corp., the federal agency that insures such benefits, has pressured AMR to maintain its four underfunded plans. The agency placed $92 million in liens on AMR property since Jan. 19 after the company paid $6.5 million of a $100 million pension liability.

The pensions cover about 130,000 active employees and retirees, the PBGC said. The company has a pension liability of about $18.5 billion and $8.3 billion in pension.
 

Sherpa

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H82FLY
That's good advice for all of us.
 
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