American Airlines, a part of bankrupt AMR Corp. (AAMRQ.PK), said Wednesday it will cut 13,000 jobs in a bid to return to profitability.
CEO Tom Horton's cost pruning plan targets an annual financial improvement of over $3 billion by 2017, including $2 billion in cost savings and $1 billion in revenue enhancements.
Horton believes an improved cash flow will help the company reduce debts, rejuvenate its fleet, and lift it out of the restructuring process.
While revenue improvements are expected through network scale, fleet optimization, and product improvements, cost savings are to come from restructuring debt and leases, grounding older planes, and employee-related charges. American Airlines said the job cuts will result in average annual employee-related savings of $1.25 billion through 2017.
The company is to engage union representatives and stakeholders, and seek Bankruptcy Court approvals to implement these plans, Horton added. American Airlines also will seek Bankruptcy Court approval to terminate its defined benefit pension plans.
In late November 2011, Fort Worth, Texas-based AMR and some of its U.S. subsidiaries including American Airlines and American Eagle, filed for bankruptcy, citing mainly cost disadvantages. That news dragged down its share prices by more than half.
The company listed assets of about $24.72 billion and liabilities of $29.55 billion in Chapter 11 papers filed in the U.S. Bankruptcy Court for the Southern District of New York.
AMR Corp. subsequently won approval from the court to continue normal business operations at its subsidiaries throughout the reorganization process.
Despite the 9/11 attacks and the recession, AMR was one of the few airlines that managed to avert bankruptcy, but had to grapple with losses while its rivals turned around to profit having addressed cost problems that includes hefty pension charges.
Interestingly, rivals such as United Air Lines and Delta Air Lines Inc. (DAL) had used bankruptcy as a way to cut expenses. Later on, Delta acquired Northwest Airlines in 2008, and United Air Lines and Continental Airlines merged in October 2010 creating the world's largest airline United Continental Holdings Inc. (UAL).
Meanwhile, AMR is forecast to report its fourth straight year of losses in 2011, after losing $2.12 billion in 2008, $1.47 billion in 2009, and $471 million in 2010. In mid-October, AMR slipped to a loss for the third quarter due to a 41 percent surge in fuel costs and currency rate impacts.
Media reports recently said Delta Air Lines Inc. (DAL) has set its eyes on AMR Corp. as a possible acquisition target.
AAMRQ.PK, is trading at $0.59, down $0.091 or 13.32%, on a volume of about 35 million shares.
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