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AMR's In-House Maintenance Commitment Set to Decline

Stocks in this article: AAMRQ.PK DAL LCC LUV

DALLAS ( TheStreet) -- No matter how the AMR (AAMRQ.PK) bankruptcy turns out, it is nearly certain to diminish the scope of a widely praised effort by the carrier and its workers to keep aircraft maintenance in-house and in the United States.

At one time, the cooperative effort by the airline and the Transport Workers Union to reduce cost by boosting efficiencies was a showpiece and an indication that American, after veering away from bankruptcy in 2003, had staked out a different path than competitors who were becoming more and more likely to reduce costs by outsourcing the maintenance work they had traditionally done themselves.

Now the amount of outsourced maintenance at AMR seems destined to increase no matter whether US Airways (LCC) succeeds in a takeover bid or AMR management retains control.

The relative safety advantages of in-house maintenance over outsourced maintenance, and of domestic work over foreign work, are frequently debated. It is clear, however, that the long-established model of in-house maintenance has been key to ensuring that U.S. commercial airline travel has become probably the safest form of transportation in the history of the world.

At American, the effort to keep work in-house largely reflects the influence of former CEO Gerard Arpey, who retired in November as the carrier sought bankruptcy protection. Arpey firmly held convictions that bankruptcy is immoral and that airline employees should maintain airplanes.

"Gerard always sounded like he was trying to do the best things for employees," said Gary Peterson, president of Local 565 of the Transport Workers Union. "We agreed to a lot of joint process initiatives. But it sometimes appeared that a lot of senior executives weren't on board with his plan. They talked about the working-together concept, but a year or so down the road, they fell back into the old ways."

According to the most recent statistics from the U.S. Bureau of Transportation Statistics, American and partner American Eagle outsource less than any other carriers. In the first nine months of 2011, American outsourced 23% of its $1.8 billion worth of maintenance, while American Eagle outsourced 24% of $235 million in maintenance. Industry average was 45%.

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