Cutting costs will be a key element in bankrupt American Airlines' turnaround outlined in AA's new business plan. The plan targets an annual financial improvement of more than $3 billion by 2017, including $2 billion in cost savings and $1 billion in revenue enhancements.
Tom Horton, chairman and chief executive officer, said, "American Airlines is moving forward decisively. The plan we are outlining today provides the framework for a new American Airlines, positioned to succeed in an intensely competitive industry that has been transformed by our competitors' recent restructuring."
Horton said the company intends to engage in appropriate negotiations with its economic stakeholders and union representatives and seek necessary Bankruptcy Court approvals.
American's plans build on initiatives already in place that reduced costs significantly over the past several years, including major changes to its route structure, network, capacity and fleet, AA said.
Utilizing the benefits of the restructuring process, American said it intends to realize additional savings over the next six years by restructuring debt and leases, grounding older planes, improving supplier contracts, and undertaking other initiatives.
A fundamental element of American's plan, Horton said, includes employee cost reductions across all work groups. American said it informed employees earlier that all groups, including management, must reduce their total costs by 20 percent. These reductions would result in average annual employee-related savings of $1.25 billion from 2012 through 2017.
American's business plan and proposals encompass a total reduction of approximately 13,000 employees, AA said. This includes 15 percent of management positions.
American also said it will also seek Bankruptcy Court approval to terminate its defined benefit pension plans. If the plans are terminated, American will contribute matching payments in a 401(k) plan. American also will seek to discontinue subsidizing future retiree medical coverage for current employees, but will offer access to these plans if employees choose to pay for them. American also proposes to implement common medical plans and contribution structures across all active employee groups.
"These are painful decisions," Horton said, "but they are essential to American's future. 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. By reinvesting savings back into our business, we will support job growth, including growth at our suppliers and partners over the long run. Only a successful, profitable and growing American Airlines can provide stability and opportunity for our people."
"We have an extraordinary opportunity to create a new world-class airline, with a leaner, customer-focused culture of accountability and high performance. The best way for us to achieve this – and ensure that we are in control of our own future – is to make the necessary changes, complete our restructuring quickly, and continue working hard to put American Airlines back in a position of industry leadership," Horton said.