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Star-Telegram.com

American Airlines workforce will be 'getting leaner,' CEO says

Posted Wednesday, Jan. 25, 2012

By Andrea Ahles

aahles@star-telegram.com

American Airlines' workforce may soon be getting smaller.

In a letter sent to employees Tuesday, CEO Tom Horton said that the Fort Worth-based airline will remove a layer from its management structure.

"Since we will be refining the organization and getting leaner, we will obviously end the process with fewer people," Horton said in the letter, although he offered few details on what changes have been or will be made.

Some analysts interpreted the letter as a signal that layoffs are on the way.

"That was an early warning about something big coming down in the next few weeks," said airline industry consultant Mike Boyd. "If they do away with managing directors and make everyone senior manager, that won't do anything. But if they do away with the positions and the people, which I wouldn't wish for anyone, that will help with American's cost problems."

There have been several management changes since American Airlines' parent company, AMR Corp., entered bankruptcy in November, starting with the resignation of then-CEO Gerard Arpey. Bob Reding, executive vice president of operations, and Mark Burdette, vice president of employee relations, both retired at the end of last year. Chief Information Officer Monte Ford also resigned.

In the letter, Horton wrote that the company needs to have "the right team" in "a management structure that fosters accountability and high performance." One goal, he wrote, will be to "eliminate unnecessary levels of bureaucracy."

Vicki Bryan, an analyst with Gimme Credit, said the letter reflects a changed attitude among AMR's top executives.

"While many of AMR's employees may have little sympathy for big shots losing their jobs and/or fancy titles, the most important message we took from Mr. Horton's long letter today was an acknowledgement from the company that management also was responsible for its failure -- a mea culpa that is long overdue," Bryan wrote in an investor note Tuesday. "AMR's communications to its employees the past two days seem to indicate that management wants to finally make fixing its problems a team effort."

Horton has told employees that he expects the airline to have a smaller workforce after restructuring in bankruptcy. American is one of the region's largest employers, with about 25,000 North Texas employees.

In the bankruptcy process, labor contracts can be altered under Section 1113 of the bankruptcy code. American has not filed any motions with the bankruptcy court asking to modify its agreements with pilots, flight attendants, and mechanics and ground workers. But it is expected to use bankruptcy to lower its labor costs, including pension obligations. The three unions hold seats on the creditors' committee, which will play an important role in restructuring.

Separately, the U.S. bankruptcy trustee in AMR's case filed an objection to the company's motions to hire various consulting firms such as McKinsey & Co. and Bain & Co. The filing said AMR seeks to retain 14 professionals, including seven financial advisers or consultant-type firms.

"The Debtors are seeking to retain multiple professionals when the tasks for which they are being employed can be done by fewer firms," the trustee's filing said. "The burden of the necessity of a professional's retention rests with the Debtors, and in this case, such burden has not been met."

AMR's request to hire the firms is scheduled to be heard Friday.

Meanwhile, rumors that American may be a merger target continue to swirl even though AMR management has an exclusive period of 180 days to submit its restructuring plan to the bankruptcy court.

The Wall Street Journal reported Tuesday that the Fort Worth private equity firm TPG Capital is talking to International Consolidated Airlines Group, which owns British Airways and Iberia Airlines, to gauge whether British Airways would be interested in joining a possible bid for American. British Airways and Iberia are in American's Oneworld alliance.

TPG has a history of investing in distressed airlines but often does so with other carriers. In 2009, TPG offered to partner with American to make a $1.1 billion investment in Japan Airlines, also a Oneworld member, when the Asian carrier was struggling financially.

Andrea Ahles, 817-390-7631

Twitter: @Sky_Talk

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