Merger would calm American Airlines

Tom Horton could be forgiven if he had the air of a harassed economy class passenger. Horton, chief executive of AMR, American Airlines’ parent, has spent his entire time as chief executive negotiating with courts, creditors and staff over how to reduce the debt and cost burdens on the company, which sought bankruptcy protection last November, on the day he was moved into the job. Yet, visiting London last week, Horton had far more the air of a confident business class passenger, sailing through the airport on the way to a well-appointed lounge. It would have been easy, as he boasted of his company’s “much improved” financial performance and industry-leading revenue growth, to forget that many of the company’s management decisions currently have to be cleared with a bankruptcy court judge.He portrayed the company’s entry into Chapter 11 as a positive decision, made to bring American into line with competitors that several years ago shed the outsize baggage of their over-generous pension terms and excessive staffing levels. Horton recalled how he explained to his staff on the day of the announcement their two objectives for the coming year. “The first is to run a first-rate airline, and the second is to execute a successful restructuring,” he said. “We’re going to do it right and we’re going to do it once.” The “first-rate airline” objective, he said, had been achieved, with measures such as on-time arrival, accuracy of baggage handling and passenger satisfaction higher than they had been “for years”. The company had also achieved “most” of the $800 million saving in annual non-labour costs that it had been seeking through renegotiating debt, aircraft leasing and other similar costs, he said. “I think we’re moving down that track very quickly - much more quickly than those who have gone before us,” Horton said. American’s restructuring - which follows a decade of similar processes at other legacy airlines - was only the latest stage in an industry-wide restructuring that, he said, had made the industry “nicely profitable”. “I think the US airline industry has a ways to go to be more profitable,” he said. “ It should be more profitable, but I think the trajectory is good.” Yet the $800 million (Dh2.9 billion) in non-labour cost savings represent less than half the $2 billion annual cost savings that Horton wants to achieve - and it remains significantly less profitable than United and Delta, its two larger competitors. The remaining $1.2 billion is due to come from cutting both jobs and staff costs. Horton stressed that it was ultimately in employees’ interests for American to recover, even if about 10,000 of them are likely to lose their jobs. “The company must do what it takes to become successful, and that’s what is in the interest of our people, to have a successful, profitable, growing company,” he said. The gravity of the continuing challenges, however, was underlined shortly after the interview last week when, although mechanics voted to accept management’s proposals for new contracts, pilots rejected them. Flight attendants vote this week. American now awaits a ruling from Sean Lane, the judge handling its bankruptcy case, on whether he will impose new labour contracts despite the union vote. Even amid the continuing uncertainty, however, Horton pointed out that American had already halved the initial gap in profit margin between itself and United and Delta. “As we proceed through the rest of this year and into next, as the non-labour savings & become manifested in the results, and the new labour contracts take effect & I think our profit margins will meet or exceed our large competitors,” he said. He acknowledged that the company certainly had “a long way to go” but insisted that if, as seems likely, American merges with a rival either shortly before or after leaving bankruptcy, it would make the decision as a calm, in-control company, rather than a desperate one needing a favour. “We’ve got a line of sight on the cost structure post-reorganisation,” he said. “In my view that paints a picture of a very successful, profitable, productive airline. The question then is, could a combination make us even stronger? I think that’s a legitimate question.” from:gulfnews