Updated: American reveals their business plan.

Update: The Tulsa World has more details about the specific number of proposed staff reductions

Mechanics: 4,600 mechanics,
Fleet services: 4,200,
Flight attendants: 2,300,
Management: 1,400 management,
Pilots: 400.

And the Ft. Worth Star-Telegram’s Sky Talk blog is reporting that American will close their maintenance facility based at Ft. Worth’s Alllance Airport.

American Airlines has launched to a new website to outline their plan to restructure the organization.  This is the text from a letter that CEO Tom Horton sent to employees.  A copy was posted at www.restructuringamr.com.

From

Thomas W. Horton
Chairman and Chief Executive Officer
February 1, 2012

Dear American Team:

Several weeks into our restructuring process we continue to make progress on a comprehensive plan to restore American to industry leadership, profitability, and growth. From my travels around the system and talking with so many of our folks, I know the fierce commitment we all share to making American a winner again. Today, I want to share with you the framework for the next steps on our path to transform American – not just to compete, but to win.

Change – a necessity, not a choice
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. 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.
Now it is time for American to move forward on a decisive path. We are going to use the restructuring process to make the necessary changes to meet our challenges head on and capitalize fully on the solid foundation we’ve put in place.

Success – achievable goals, profits and growth
The key to our successful restructuring is a business plan with a clear objective. And that is to make American a world-class global airline – America’s flag carrier – that is competitive, profitable and growing. To do this, we must consistently deliver:

• A superior customer experience that earns loyalty and drives revenue
• A work environment that recognizes excellence and rewards success
• Attractive financial returns for our investors and stakeholders

With financial and operational flexibility and an improved cost and capital structure, we plan to:

• Renew and optimize our fleet by investing an average of about $2 billion per year in aircraft, so that by 2017 American’s mainline jet fleet will be the youngest in North America, with the versatility to match aircraft size to the markets we serve. This step is central to our transformation and means more profitable flying due to markedly improved fuel and maintenance costs, and higher revenue generation.

• Build the scale of our network and alliances by increasing departures across American’s five key markets – Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York – by 20 percent over the next five years, capitalizing on our loyal customer base and world-class alliance partners, and increasing international flying.

• Modernize our brand, products and services by investing several hundred million dollars per year in enhancements that will, once again, make American the premier airline of high-value customers.

Our business plan demonstrates that we can achieve and sustain our objectives. Ultimately, we plan to achieve a $3 billion annual improvement, including:

• Revenue improvements of $1 billion per year through network scale, fleet optimization, and product improvements.

• Cost savings of over $2 billion, from restructuring debt and leases, grounding older planes, improving supplier contracts and other initiatives, and necessary employee related changes.

Importantly, these financial improvements not only support our planned investments in our fleet, product and brand; they also enable us to further reduce our debt, becoming financially stronger so that American will be resilient and able to withstand future unforeseen events.

Success requires tough changes
The restructuring process allows us to spread the effects of cost savings as broadly and evenly as possible, but there is no avoiding the fact that the cost reductions will be deep. And there is no sugarcoating the effect on our people. Three principles will guide our approach:

• Commitment to success – We have thoroughly analyzed the competition and the industry and what we must achieve is crystal clear. Competing and winning requires a financial improvement of more than $3 billion, and that, in turn, requires significant savings in employee-related costs – of more than $1.25 billion per year.

• Fair and equitable – All workgroups will have total costs reduced by 20 percent, including management. While the savings from each work group will be achieved somewhat differently, each will experience the same percentage reduction.

• Performance is rewarded – At American, everyone should be recognized for their contributions, aligned with overall company performance, and sharing in American’s success. That is why we envision a Profit Sharing plan that, beginning with the first dollar of pre-tax income, would pay awards totaling 15 percent of all pre-tax income.

I take full ownership of our business plan. It is very important, too, that we are all sure that the proposed changes are appropriate for each part of the company. In developing this plan I asked each business leader – Jim Ream, John Hale, and their colleagues in Operations, Tom Del Valle and his team in Airports, Craig Kreeger and Lauri Curtis in Customer Experience, and others – to take responsibility for the specific changes necessary to make American competitive and successful in each of their respective areas. I know you are concerned about how all of this will affect you. I have also asked each of these leaders to actively and directly communicate those changes to you. You will hear more detail later today as we share it with our union workgroups, and we will have more information for our non-union groups in weeks to come as we address feedback from them.

While we are now firmly on a path to a successful growing future, we must acknowledge the near-term pain these changes will require. That’s especially true because we will end this journey with many 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. As I’ve said before, our objective is to create the best outcome for the greatest possible number of people.

Renewal – risks and challenges
We have an extraordinary opportunity to create a new world-class airline, but we are also at great risk during this time. You have likely read or heard reports that there are those who wish to shrink our airline, close hubs or acquire our company or assets – all for the benefit of their own stakeholders. Still others may favor a breakup of American. I do not believe any of these outcomes are in the best interests of American, our people, or our stakeholders. But as I have said since the start of this process, there will be many parties with input into the outcome of our restructuring. The best way for us to assure that we are in control of our own future is to make the necessary changes, complete our restructuring quickly, and continue working hard to position American as a world-class competitor.

Another risk comes from within. Divisive and destructive rhetoric of the past has not served American or its people well, and indeed has only served to strengthen our competitors. Believe me, our competitors see an opportunity to take advantage of any internal uncertainty or instability. This is a moment when such discord can have profound consequences. It is time to turn the page and open a new chapter for American.

The world has changed around us and this is our moment to adapt or lose the opportunity forever. Our industry is now defined by the changes our competitors made in restructuring to secure their futures, and the landscape is littered with those airlines that failed to change. Only a successful, profitable, and growing American can provide a secure future and opportunity for our people.

We are moving fast and it will take all our dedication, focus, and energy to get this done – and I will give it all of mine. I thank you again for standing tall and doing a fine job for our customers during this especially challenging time. That winning attitude is why I believe we have what it takes to put American back on top.

Sincerely,
Tom Horton

Comments

  1. The pilots are a no brainer, they are cutting down their fleet, they won’t hold on to old pilots, same for the FAs. Mechanics and fleet services seems high, but I guess they will be outsourcing more of their needs.

    I think they are very optimistic is they are planning on $1b in extra revenue and $2b in less costs. How will they get more revenue while cutting routes? Any the allegedly lost nearly $1b in December alone, so those cost savings aren’t too much.

    • @ NY Banker – I’m no expert on the airline business, and I hate to wade into the whole labor vs. management issue, but I’m not holding out much hope that the FA union is ready change tactics.

      After AMR announced a $904 million loss for December ($713 million related to writing down the value of their 757 fleet) and then put forward their restructuring proposal, this is what APFA president Laura Glading had to say:

      “The company’s proposal is even more extreme and despicable than we had anticipated, however, just as I expected and not surprisingly, the justification from management simply isn’t there”.

      @ Michael W – That’s a good question. I know that they think they’ll need fewer pilots and FAs due to changes in work rules and by requiring pilots to fly two more days per month, but my guess is that ORD will be a lot smaller hub a year from now.

      @ Steve – Delta 2012 has great service. But if you perform a Google search of the time period during which Delta was going through the process you’ll see that many passengers felt the same way about Delta’s customer service (of course, performing a Google search for airlines and customer service complaints is like fishing with dynamite:-). There’s some historical evidence that customer service improves when an airline is in Chapter 11.

      SInce American filed, I’ve probably been on 10 flights. And I’ve noticed that pilots, flight attendants, agents, and nearly everyone at American seems to be going out of their way to give really great service.

      I may end up being wrong, but for now, I’m still hopeful. Check back with me in a year. I may owe a drink at a Sky Club.

      @ Kris Ziel – With the way that fuel prices fluctuate, I’d feel a lot better about the plan if it was based on current revenues and not some projected increase in earnings.

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