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Facing bankruptcy, AMR decides layoffs, and other restructuring would seve better than going under... The court of public opinion awaits

FEBRUARY 2, 2012

AMR Seeks to Cut 15% of Jobs

By SUSAN CAREY And JACK NICAS

American Airlines parent AMR Corp. Wednesday said it will seek to cut 13,000 jobs and terminate pensions in pursuit of $2 billion in annual costs savings, tipping its hand for the first time in what could be a long and painful bankruptcy proceeding.

The company said it wants to reduce labor costs by $1.25 billion a year, or 20%. That includes cutting its work force of 88,000 by nearly 15%, imposing new productivity measures and outsourcing some work. The company also aims to terminate its four underfunded pension plans, a move that would represent the largest pension default in U.S. history.

"The world has changed around us and this is our moment to adapt or lose the opportunity forever," AMR Chief Executive Tom Horton said in a letter to employees.

The parent of American Airlines will seek to cut 13,000 jobs and save $2 billion through bankruptcy protection, Jack Nicas reports on the News Hub. Photo: Getty Images.
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Mr. Horton, who with senior executives Wednesday laid out the plans to leaders of American Airlines' three big labor unions, also said "we will end this journey with many fewer people. But we will also preserve tens of thousands of jobs that would have been lost if we had not embarked on this path."

Rivals are circling AMR in its bankruptcy, mulling takeovers or asset purchases. They include Delta Air Lines Inc., US Airways Group Inc. and private-equity firm TPG Capital. Mr. Horton warned employees that "we are at great risk during this time" as others seek to acquire the company or its assets or break up the airline and that "the best way for us to assure that we are in control of our own future is to make the necessary changes (and) complete our restructuring quickly."

AMR's plan faces a number of hurdles, including convincing U.S. Bankruptcy Court Judge Sean Lane that the carrier won't be able to successfully reorganize without these savings. The desired labor cuts will first be subject to negotiations between the company and its unions. If the unions balk, AMR could petition the judge to let it modify the contracts and impose the changes it seeks.