Sunday, August 21, 2011

American: Large Order Ensures Job Security

By Darren Shannon
Aviation Week, a division of The McGraw-Hill Companies

American Airlines’ senior management believes last month’s order for at least 460 Airbus and Boeing narrowbodies not only affirms the airline’s commitment to sustained profitability, but also the job security of its employees.

The narrowbody order (Aviation Daily, July 21) is part of a wider fleet revival plan that simplifies the domestic fleet from four types to two families of aircraft, adds Boeing 777-300ERs in 2012 and 2013, and introduces at least 42 (and as many as 100) 787s from 2014. American’s parent company is also divesting its interest in regional affiliate American Eagle Airlines to allow the mainline carrier greater flexibility in contracting feeder services across its network.

American’s restructuring initiative, dubbed Flight 2020, also focuses the carrier’s efforts on five cornerstone markets—Chicago, Dallas, Los Angeles, Miami and New York—while integrating its long-haul operations with partners such as Japan Airlines and Europe’s International Aviation Group.

“We are protecting jobs and salaries,” explains Senior VP of Human Relations Jeff Brundage during a series of interviews with American executives. “This plan makes us a competitive, profitable airline.”

A key facet of American’s narrowbody order is an innate flexibility that allows it to adapt to shifts in demand. Not only do the first 230 aircraft arrive between 2013 and 2017 on lease, they also give the airline various integration options, be it a one-for-one swap out with the MD-80s primarily targeted in the first wave of retirements, a one-for-two replacement ratio or even a simple addition to the fleet.

Those initial deliveries also are on 10-year leases, which give American the choice of culling aircraft or extending their revenue service depending on demand. And as each of the leased aircraft come straight from the manufacturing line, American is provided with a “maintenance honeymoon” for the first several years of operation with no commitment to retain them into old age.

As an added bonus, notes one executive, this lease deal could also rotate out a large number of aircraft from American’s fleet in the mid 2020s just as Airbus and Boeing unveil clean-sheet narrowbodies, giving it an even greater advantage over competitors than the re-engined component of its recent order.

Airbus’s A320NEOs (new engine option) and a re-engined 737 that should be formally unveiled in the coming months form the second part of American’s narrowbody order, again giving it fleet flexibility.

The airline is keen to note, though, that its narrowbody order is not an expansion plan, and that the core intent is to quickly revive its aging single aisle fleet into the most fuel efficient in the U.S. “Reducing unit costs is important to us,” says Managing Director of Corporate Planning Vasu Raja.

This goal requires a large number of annual deliveries, and American is preparing to take up to 55 aircraft in some years. But as Raja notes, American has experienced such rates before, notably in the 1980s and 90s when the MD-80s and 757s (along with the retired fleet of Airbus A300-600s) now scheduled for replacement were introduced to the airline’s fleet.

There are still some elements to American’s fleet upgrade that need to be finalized, including union backing. Under current terms, American’s pilots are not authorized to operate the Airbus narrowbodies (and some of the 737s) nor the 777-300ERs and 787s as their current contract does not stipulate pay rates for these aircraft.

Pilot pay rates is one of the reasons the 787 deal from 2008 (Aviation Daily, Oct. 16, 2008) remains a memorandum of understanding, as the aircraft has the weight characteristics of one type currently provided for in the pilots contract but the range of another. By contrast, the Airbus and Boeing narrowbodies contained in the recent order and the 777-300ERs are similar to aircraft already contained in the contract, which executives say allows the carrier to place firm orders for these fleets.

American’s pilot and maintenance unions are currently in negotiations with the carrier, and expectations that a solution will be reached are high. For one, says management, the fleet plan shows the company’s commitment to remain in the top tier of world carriers, and in turn a commitment to its employees that the airline has a vision for the future. “There is a journey ahead of us, but it is not a road that is so twisted that we can’t get there,” says Brundage.

Copyright © 2011 Aviation Week, a division of The McGraw-Hill Companies.

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