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American plans to cut 6,840 jobs

AIRLINES

July 03, 2008|Peter Pae | Times Staff Writer

American Airlines, the largest carrier in the world and the busiest at Los Angeles International Airport, said Wednesday that it expected to slash nearly 7,000 workers, or about 8% of its workforce, as it grounds planes and flights to cope with rising fuel costs.

The cuts, expected by the end of the year, are the largest among the major airlines and come as fuel costs, now reaching nearly half of total expenses, are threatening the financial viability of even the largest airlines.

In a filing with the Securities and Exchange Commission, American's parent company, AMR Corp. of Fort Worth, Texas, also said that it would write off nearly $1.2 billion on its books to reflect the reduced value of its older, fuel-guzzling aircraft that the airline plans to stop flying.

Grounding the planes would significantly reduce the value of the mostly MD-80 and RJ-135 aircraft, according to Wednesday's filing.

The cutting of 6,840 workers would be in line with American's plans to shed about 8% of its flights by year's end and would entail the airline's taking a $70-million charge against second-quarter earnings for expenses related to the workforce reductions, the carrier said in a memo to employees. The airline has a worldwide workforce of about 85,500.

"While we are still working through the specific impact to employee work groups, both voluntary and involuntary employee reductions commensurate with the overall system capacity reductions are expected companywide as we reduce the size of the airline," Jeff Brundage, the airline's head of human resources, said in the employee memo.

Rising oil prices have hit airlines particularly hard, but the industry has had difficulty raising fares to keep up with escalating fuel expenses that have climbed by about 70% since last year. Airfares are up an average of about 20%, and as a result, airlines have been cutting back flights and adding fees for services that in the past were included in a fare. Last month, for instance, American instituted a $15 fee for the first piece of checked baggage.

If oil prices were to stay at current levels -- they have hovered at about $140 a barrel this week -- U.S. carriers could post record losses of more than $13 billion this year, more than the fallout from the Sept. 11, 2001, terrorist attacks, according to the Air Transport Assn.

In all, major airlines have announced the grounding of nearly 500 planes and the cutting of nearly 20,000 jobs since May. In addition to American, UAL Corp. has said its United Airlines would eliminate 1,100 jobs, while Continental Airlines Inc. said this week it might cut as many as 3,000 workers from its payroll.

"Everybody is going to be taking these charges to adjust the accounting," said Ray Neidl, an analyst with Calyon Securities. "It's going to be big."

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peter.pae@latimes.com

Bloomberg News was used in compiling this report.

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