Fleet Simplifications Target $50 Million Savings
American Airlines will further simplify its fleet by returning 19 non-standard 757-200s, previously part of the TWA fleet, to their lessors between January 2007 and March 2008. Returning the former TWA 757s at the end of the natural lease terms is a smart business decision that will save money, simplify operations, and improve efficiency as American continues to forge a different path to return to and sustain profitability.
This decision simplifies American's 757 fleet by eliminating a second cabin configuration lacking important customer amenities such as new seats, oversized overhead bins, in-flight entertainment, and powerports.
The decision to return these aircraft also reduces AA's lease costs by approximately $50 million per year and removes an aircraft with less competitive cabin amenities, therefore avoiding costly interior upgrades required to match remaining 757s. Schedule plans for 2007 are still being developed.
Despite a slight industry improvement recently, there are still underperforming parts of the network and American will continue to seek opportunities to further improve performance by reducing poor performing flying. To achieve sustained profitability, reinvest in and grow the airline, American must operate its assets - airplanes, people and facilities - with greater productivity.
How much money will the company save?
The decision to return the 19 leased aircraft is expected to save $50 million in lease costs per year and will avoid adding additional debt to the balance sheet.
There are additional benefits to be gained from simplifying the fleet and reducing operating complexity. This decision is another example of American's continuous efforts to return to sustained profitability, which will benefit employees, customers and investors.
Why does this make good business sense?
In addition to saving $50 million a year and reducing debt levels, returning these aircraft at the end of the lease terms provides a unique opportunity to continue fleet and operational simplification. The former TWA 757s have several differences compared to the other 124 757s in American's fleet, which create significant complexity and drive additional operating costs.
Different seating configuration which is disruptive with aircraft substitutions
Eight exit doors versus six exit doors requiring additional qualification training
Non-AA galleys, which have different parts and components (galley carts, oven racks, etc.) and drive unique catering provisioning
Smaller overhead bins which provide less storage space, often leading to gate-check of customer bags
Lack of in-seat power-ports which is not attractive to customers
The uniqueness of these aircraft results in additional maintenance complexity
These aircraft have Pratt & Whitney engines, versus Rolls Royce engines on the remaining 124 757s in our fleet. Pratt & Whitney engine maintenance is outsourced driving additional M&E and purchasing effort. These aircraft also require additional spare engines as compared to the rest of the 757 fleet.
The uniqueness of these aircraft ultimately requires a unique inventory of parts which are more difficult to source.
Will jobs be affected by this decision?
Because most of these airplanes will not be returned until later in 2007 and the 2007 operating plan is in development, it is not clear how this will affect employees.
What is the schedule for returning the aircraft?
Leases expire in 2007 and 2008. The first aircraft will be returned in January 2007 and the last in March 2008. Some maintenance work will be performed on the on the aircraft prior to the lease return.
How does this decision affect future capacity plans?
The process of building the 2007 capacity plan is just beginning. Routes flown in 2007 will depend on factors such as route profitability, state of the industry and the economy, and the ability to increase utilization as a result of simplification and other efficiency efforts. If the environment improves, American has 27 MD80s in temporary storage.
We've experienced more than 16 consecutive months of record load factors. Shouldn't we be adding flights rather than grounding or returning airplanes?
Increased load factor is good news. However, load factors alone do not tell the story. During those same 16 months, American has lost money. In 2005, our net loss for the year was $681 million, added to a first quarter 2006 loss of $92 million, for a total of $773 million - all during a time of record load factors.
By using assets more productively, AA is able to manage capacity and fly its desired schedule with fewer airplanes. Additionally, balancing capacity has allowed American to increase its unit revenue and is an important factor in improving financial results.
American recently announced the temporary storage of 27 MD80s and now is returning 19 757s. Are there more aircraft decisions on the way?
American constantly evaluates aircraft needs, which in part are dependent upon industry conditions. American added two 777 aircraft to our fleet in 2006, one delivered as recently as May.
To reinvest in and ultimately grow the airline, it is necessary to achieve sustained profitability. The Performance Leadership Initiative is our roadmap to achieving success under the Turnaround Plan. It is important that everyone is vigilant in seeking ways to reduce costs, improve productivity, and close gaps.
Why communicate this now?
The lessor has secured a customer and will likely announce this soon. It was important to share this information with employees first.
GREAT Idea, AA! Instead of recalling pilots, let's deal with crew shortages by parking more and more aircraft as more and more pilots retire. What a joke.
73
American Airlines will further simplify its fleet by returning 19 non-standard 757-200s, previously part of the TWA fleet, to their lessors between January 2007 and March 2008. Returning the former TWA 757s at the end of the natural lease terms is a smart business decision that will save money, simplify operations, and improve efficiency as American continues to forge a different path to return to and sustain profitability.
This decision simplifies American's 757 fleet by eliminating a second cabin configuration lacking important customer amenities such as new seats, oversized overhead bins, in-flight entertainment, and powerports.
The decision to return these aircraft also reduces AA's lease costs by approximately $50 million per year and removes an aircraft with less competitive cabin amenities, therefore avoiding costly interior upgrades required to match remaining 757s. Schedule plans for 2007 are still being developed.
Despite a slight industry improvement recently, there are still underperforming parts of the network and American will continue to seek opportunities to further improve performance by reducing poor performing flying. To achieve sustained profitability, reinvest in and grow the airline, American must operate its assets - airplanes, people and facilities - with greater productivity.
How much money will the company save?
The decision to return the 19 leased aircraft is expected to save $50 million in lease costs per year and will avoid adding additional debt to the balance sheet.
There are additional benefits to be gained from simplifying the fleet and reducing operating complexity. This decision is another example of American's continuous efforts to return to sustained profitability, which will benefit employees, customers and investors.
Why does this make good business sense?
In addition to saving $50 million a year and reducing debt levels, returning these aircraft at the end of the lease terms provides a unique opportunity to continue fleet and operational simplification. The former TWA 757s have several differences compared to the other 124 757s in American's fleet, which create significant complexity and drive additional operating costs.
Different seating configuration which is disruptive with aircraft substitutions
Eight exit doors versus six exit doors requiring additional qualification training
Non-AA galleys, which have different parts and components (galley carts, oven racks, etc.) and drive unique catering provisioning
Smaller overhead bins which provide less storage space, often leading to gate-check of customer bags
Lack of in-seat power-ports which is not attractive to customers
The uniqueness of these aircraft results in additional maintenance complexity
These aircraft have Pratt & Whitney engines, versus Rolls Royce engines on the remaining 124 757s in our fleet. Pratt & Whitney engine maintenance is outsourced driving additional M&E and purchasing effort. These aircraft also require additional spare engines as compared to the rest of the 757 fleet.
The uniqueness of these aircraft ultimately requires a unique inventory of parts which are more difficult to source.
Will jobs be affected by this decision?
Because most of these airplanes will not be returned until later in 2007 and the 2007 operating plan is in development, it is not clear how this will affect employees.
What is the schedule for returning the aircraft?
Leases expire in 2007 and 2008. The first aircraft will be returned in January 2007 and the last in March 2008. Some maintenance work will be performed on the on the aircraft prior to the lease return.
How does this decision affect future capacity plans?
The process of building the 2007 capacity plan is just beginning. Routes flown in 2007 will depend on factors such as route profitability, state of the industry and the economy, and the ability to increase utilization as a result of simplification and other efficiency efforts. If the environment improves, American has 27 MD80s in temporary storage.
We've experienced more than 16 consecutive months of record load factors. Shouldn't we be adding flights rather than grounding or returning airplanes?
Increased load factor is good news. However, load factors alone do not tell the story. During those same 16 months, American has lost money. In 2005, our net loss for the year was $681 million, added to a first quarter 2006 loss of $92 million, for a total of $773 million - all during a time of record load factors.
By using assets more productively, AA is able to manage capacity and fly its desired schedule with fewer airplanes. Additionally, balancing capacity has allowed American to increase its unit revenue and is an important factor in improving financial results.
American recently announced the temporary storage of 27 MD80s and now is returning 19 757s. Are there more aircraft decisions on the way?
American constantly evaluates aircraft needs, which in part are dependent upon industry conditions. American added two 777 aircraft to our fleet in 2006, one delivered as recently as May.
To reinvest in and ultimately grow the airline, it is necessary to achieve sustained profitability. The Performance Leadership Initiative is our roadmap to achieving success under the Turnaround Plan. It is important that everyone is vigilant in seeking ways to reduce costs, improve productivity, and close gaps.
Why communicate this now?
The lessor has secured a customer and will likely announce this soon. It was important to share this information with employees first.
GREAT Idea, AA! Instead of recalling pilots, let's deal with crew shortages by parking more and more aircraft as more and more pilots retire. What a joke.
73
TC
