FORT WORTH (CN) – Two months after filing for Chapter 11, American Airlines parent AMR said Wednesday that it plans to fire 13,000 workers and terminate all four of its pension plans as part of a massive restructuring.
In a letterto employees, AMR CEO Tom Horton said change is “a necessity, not a choice,” and that the company must find $3 billion in annual savings.
“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,” Horton wrote. “Last week, these airlines announced their financial results, which highlighted, once again, a widening profit gap. Network carriers have benefited from investing their restructuring-driven profits in products and services that have helped drive revenue growth. And low cost airlines continue to benefit from the cost efficiency that has made them a force in our industry.”
AMR said in a statement that it will ask the Manhattan Bankruptcy Court for approval to terminate all four of its pension plans. If terminated, AMR said, it will contribute matching payments in a 401(k) plan. AMR said it will seek to stop subsidizing retiree medical coverage for current employees, but will offer access to these plans if employees pay for them.
“American’s pension plans are very expensive – we spend more on them than our competitors spend on their retirement plans. We simply do not see a way we can secure the company’s future without terminating our defined benefit plans,” the company said on its website.
The Pension Benefit Guaranty Corp. – i.e., U.S. taxpayers – will be responsible for paying benefits if the court allows termination of the pension plans. The Pension Benefit Guaranty Corp. (PGBC) said in a statement that American has yet to prove that the terminations are necessary.
PBGC Director Josh Gotbaum said: “Before American takes such a drastic action as killing the pension plans of 130,000 employees and retirees, it needs to show there is no better alternative. Thus far, they have declined to provide even the most basic information to decide that.”
Horton said the new business plan includes renewing and optimizing AA’s fleet by investing $2 billion per year in aircraft so that by 2017 it will be the youngest fleet in North America.
“This step is central to our transformation and means more profitable flying due to markedly improved fuel and maintenance costs, and higher revenue generation,” Horton said.
The plan includes increasing departures from its five domestic hubs – Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York – by 20 percent over the next 5 years, and increased international flights.
Horton said the company plans to save $2 billion by restructuring debt and leases, grounding older planes, improving supplier contracts and employee reductions. Another $1 billion will come from network scale, fleet optimization and product improvements.
“These are painful decisions, but they are essential to American’s future,” Horton said. “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.”
The Fort Worth-based company has been mired in red ink, reporting losses in 14 of the past 16 quarters, while many other domestic airlines have been reporting profits.
Horton saidin November that the company runs at a substantial cost disadvantage to its larger competitors, which have restructured their costs and debts through Chapter 11.
He said the disadvantage “has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.”
The carrier averages 3,300 flights daily, serving 50 countries and 260 airports.