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.
Horton said merger and acquisition speculation is normal. As for the PBGC, he said, "I'm a little dismayed by the full frontal attack here" because American sought, more than any of its peers, to retain its pension plans. "American has fought this battle longer and harder than anybody else has," he said, putting $3 billion into pension plans. As for American's unions, Horton said Wednesday afternoon that he had not yet seen the critical comments from labor leaders. American's plan, he said, is "the best thing for our company and I certainly think it's the best thing for our people." Besides cutting jobs, terminating defined benefit pension plans and changing work rules, American's plan ends retiree health coverage, reduces health care coverage, closes the Fort Worth Alliance Airport maintenance base and outsources some fleet service work. Laura Glading, president of the Association of Professional Flight Attendants, in a message to members said the proposal "is even more extreme and despicable than we had anticipated." She said she will oppose the plan in negotiations and in bankruptcy court. But it is the Transport Workers Union which would be hardest hit by American's restructuring, potentially losing about 8,800 of the 22,000 members it represents at the carrier, due primarily to the closure of the maintenance base and the outsourcing of fleet service jobs. In an interview, TWU President Jim Little said union economists and experts are analyzing the plan, which he said "is like a bowl of jello right now." The plan lacks specificity, especially when it comes to the future of American Eagle, and is far from certain to be approved by the union, the creditors committee (which includes three unions) and the court, he said, noting "There's no enthusiasm on our part. "Custer had a plan too," said Little, referring to the 1876 defeat of General George Custer at Little Big Horn. "We have given (American) a lot of relief already, not just in 2003 but also under mediation," when contract offers were put out for ratification and then withdrawn. Little recalled that in 2006 and 2007 the TWU worked closely with American in a widely praised effort to ensure that maintenance work was done in house, rather than outsourced. At the Tulsa maintenance base, which will be retained, "we made it viable and competitive and managed to save $500 million annually," he said. Under the plan, American foresees outsourcing some maintenance work. -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: Ted Reed >To follow the writer on Twitter, go to http://twitter.com/tedreednc. >To contact the writer of this article, click here: Ted Reed