Really Bad News

We recently received some really bad news in San Juan regarding American Airlines and American Eagle: AMR Corporation announced a huge reduction in flying in San Juan which will result in the loss of hundreds of jobs. When I started this journal, I intended to catalog my first year in the islands. That ambition may end early, as I have some dire decisions to make: AA891, my ride to work, has been canceled as of September 3rd. So now I have no way to get to work.

Here’s what the press is saying:

(Bloomberg) — American Airlines parent AMR Corp. will record costs of $1.27 billion to reduce the value of parked aircraft and pay severance to workers who lose their jobs as it cuts flights in response to record fuel costs.

AMR expects to eliminate about 8 percent of its total workforce, or 6,840 jobs, when it reduces capacity in the fourth quarter, the company told workers at American and American Eagle in a message today. The job cuts would be the most among those announced this year by U.S. carriers.

American, the world’s largest airline, and other U.S. carriers are cutting flights and jobs as a near doubling of fuel prices over the past year erodes profits. Before today, the biggest airlines had said they would cut 11,850 jobs and park 431 aircraft later this year.

“Everybody is going to be taking these charges to adjust the accounting,” Ray Neidl, an analyst with Calyon Securities in New York, said in an interview. “It’s going to be big.”

AMR will have a non-cash charge of about $1.2 billion in the second quarter to reduce the value of Boeing Co. MD-80s and Embraer 135 regional jets, the company said in a U.S. regulatory filing today. Employee-related costs will be $70 million.

Paring Flights

The Fort Worth, Texas-based airline plans to ground as many as 120 aircraft, end service to eight airports and reduce flights from its hubs to blunt the impact of fuel costs, which the Air Transport Association said may push U.S. carriers to record losses of $13 billion this year.

“Once you decide to ground planes, you either need to sell them or park them,” Daniel Kasper, managing director of airline consulting firm LECG Corp., said in an interview. “If you sell them, you’ll know for certain how little they’re worth. Demand for these planes isn’t robust.”

The non-cash expense related to the aircraft doesn’t affect liquidity “or our ability to pay our bills,” Chief Executive Officer Gerard Arpey told employees in an e-mail.

“The fact that some of our company’s key assets have declined significantly in value underscores, in stark terms, the seriousness of the challenge we — along the with rest of the airline industry — face as we navigate our way through an environment of skyrocketing fuel costs and a slowing economy,” Arpey said.

Capacity Reductions

U.S. capacity reductions will be 12 percent at American and 11 percent at Eagle, and will amount to about 8 percent of AMR’s global total, which includes international service. Eagle operates smaller aircraft to ferry passengers to American’s hub airports. The company will be “reducing our workforce by an amount consistent with our capacity reduction,” Arpey said.

American will eliminate as many as 900 flight attendant jobs, or about 4.7 percent, effective Aug. 31, the Association of Professional Flight Attendants said today. American previously said management and support staff would be cut by 8 percent, without providing a number.

The airline also said today it reached agreements with the attendants union and the Transport Workers Union for early retirement offers. Members of the unions must be 50 or older, have worked for American at least 15 years and not be on furlough to qualify. The airline also is offering leaves of absence and part-time work to help reduce involuntary layoffs.

Job cuts at the Transport Workers, which represents mechanics and six other work groups, haven’t been quantified.

Most airline labor agreements contain furlough provisions that guarantee employees a chance to return to jobs before new workers are hired. The recall rights last for five years. Furloughed workers can file for unemployment and are eligible for employee rates on medical insurance premiums.

The pilots union at American Eagle last week reached an agreement with AMR that may save at least 100 jobs. The plan includes leaves of absence, part-time work and the transfer of 10 aircraft back to Eagle from Trans States Airlines.

AMR fell 23 cents, or 4.7 percent, today to $4.62 in New York Stock Exchange composite trading. The stock has fallen 67 percent this year.

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~ by John on June 2, 2008.

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