AMR's Unique Plan: Grow, Don't Shrink
DALLAS (TheStreet) -- AMR (AAMRQ.PK) CEO Tom Horton faces a host of obstacles as he seeks to restructure bankrupt American, from angry employees to an angry federal pension board to competitors seeking to merge with American or at least acquire its assets.
Horton on Wednesday unveiled a plan of reorganization that not only cuts 13,000 jobs and reduces costs by 20% but also foresees American expanding by 20% by 2017, essentially creating a powerful argument to put before creditors and employees, some of whom eventually could benefit from a bigger airline.
Among the seven big network carriers that existed a decade ago, American is the last to seek to restructure in bankruptcy court. While all seven sought to reduce costs, primarily labor costs, the bankruptcies differed in various ways. Delta (DAL) transformed itself into a leading international carrier, while US Airways (LCC) prepared for a merger. But none of the carriers went into bankruptcy court focused on expansion.
"This in my view is a different kind of restructuring," Horton said Wednesday on a conference call with reporters. "It's not about shrinkage. It's about renewal and growth."Horton said the planned growth would be "disproportionately international." The airline could be bigger, he said, because American has ordered hundreds of new jets, which would mean lower costs for fuel and maintenance, and will seek revised, less restrictive pilot work rules, which would enable "the versatility to match our aircraft size to the markets we serve in a way we could not do in the past." American will also benefit, he said, from immunized joint ventures with domestic and foreign partners across the Atlantic and the Pacific. The carrier has been expecting $500 million in new annual income from those partnerships, approved in 2010, combined with its new strategy to focus on five "cornerstone" hubs: Dallas, Chicago, Miami, New York and Los Angeles. "Those things are very much in their infancy," Horton said. "There's a lot of gold to be mined here." As for the opponents, Horton said he is not worried about the Pension Benefit Guaranty Corp., which has strongly opposed American's plan to terminate its pension plans, or about competitors, whom he did not name, who are studying potential bids for American. These include Delta and US Airways.
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