American Airlines will cut 2,500 pilot jobs
FORT WORTH, Texas (AP) – About 2,500 American Airlines’ pilots will lose their jobs over the next year as part of the union’s $660 million in annual concessions to save the company from bankruptcy, union officials said Tuesday. As part of the agreement reached with the airline Monday, pilots’ salaries will be slashed 23 percent in the first year, beginning May 1, and 17 percent each subsequent year of the 6-year pact, said John E. Darrah, president of the Allied Pilots Association. The job cuts represent 21 percent of American’s 12,000 active pilots; some of the cuts will come through retirements. The pilots have 14 days to ratify the new contract.
“I don’t think anybody’s thrilled with the significant pay cuts and furloughs … but the alternative clearly would be even worse,” said union spokesman Gregg Overman.
The agreement gives pilots profit sharing of up to 15 percent annually and stock options. Pilots will retain medical disability but will see some health care changes.
The pilots’ concessions were part of $1.8 billion in tentative cuts management secured from key labor unions Monday, taking a huge step toward averting bankruptcy. The Association of Professional Flight Attendants tentatively agreed to $350 million in concessions and the Transport Workers Union accepted $620 million in givebacks.
The tentative accords still must be voted upon by union members. The ratification process was to begin Tuesday and last two weeks, union officials said.
American chairman Donald J. Carty praised union leaders, saying their actions “have enabled us to avoid an immediate filing with the bankruptcy court.”
The news lifted shares of American sharply for the second time in two days. AMR shares rose 43 percent, or 90 cents, to $3 Tuesday afternoon on the New York Stock Exchange as investors considered a bankruptcy filing much less likely now. But the carrier is not guaranteed a smooth ride, since the industry is still battling its worst downturn ever, precipitated by fears of terrorism, an ailing economy and now the war in Iraq.
“If the war lasts for many months or if there’s another act of terrorism, then even these cost savings could prove insufficient,” said Philip Baggaley, Standard & Poor’s airline analyst.
Even if employees ratify the agreements, he said it will still be critical for AMR Corp., the airline’s parent company, to secure additional financing from lenders as well as concessions from suppliers and lessors. AMR has lost nearly $5.3 billion in the past two years and has faced increasing competition from low-fare carriers, which can afford to offer cheaper ticket prices because their labor costs are lower.
American says it faces competition from low-fare carriers on about 80 percent of its routes. That has kept fares down, reducing potential revenue.
Other major airlines also are pushing employees to accept wage and benefit cuts as the industry racks up huge losses, and analysts said the momentum at United and American could spread. The lesson learned, several analysts said, is that restructuring can be done outside of bankruptcy court.
After the war in Iraq began, carriers laid of thousands of employees, cut certain flights from their schedules and reduced the frequency of others. But analysts say – even with new labor contracts – that major carriers still need to make further cuts to their capacity, a move that would likely help them raise ticket prices.
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