American Airlines, subsidiary of
AMR Corporation
(
AAMRQ
)
plans toask the U.S. Bankruptcy Court in New York to reject the
current collective bargaining agreement to pursue the new labor
contract. Under Section 1113 of the federal bankruptcy code, the
carrier is allowed to seek rejection of existing collective
bargaining agreements after fulfilling certain criteria.
Last Thursday, union workers were informed about the carrier's
decision citing labor cost issues as the primary reason for
proposing rejection of the existing agreement.
In February, the company proposed a business plan involving $2
billion in cost savings and $1 billion in revenue. The new plan
also involves reduction of approximately 13,000 employees from its
existing pool of 80,100 workers. This would include removing of
approximately 400 pilots, 2,300 flight attendants, 4,600 mechanics,
1,400 management staff, and 4,200 other members of fleet services
and other Transport Workers Union employees.
As of December 31, 2011, labor cost represented approximately
28% of AMR Corporation's operating expense that is highest among
its peers. In order to achieve reduction in labor related expenses
the company believes changes in the existing contract are mandatory
to maintain profitability in a highly competitive aviation
industry. As a result, changes like job cuts along with
outsourcing of certain maintenance related jobs, discontinuation of
pension plans and certain medical facilities are some of the key
areas that significantly alleviate cost pressure for the
carrier.
American Airlines
is a highly unionized company like its peers
Southwest
Airlines
(
LUV
) and
United Continental Airlines
(
UAL
). Thus, union disputes, employee strikes or slowdowns, and other
labor related disruptions are likely to increase labor costs or
labor disputes, which in turn, would hurt the profitability of the
company.
Currently, we have a short term (1-3 months) Zacks #4 Rank
(Sell) on
AMR Corporation.
AMR CORP (
AAMRQ
): Free Stock Analysis Report
SOUTHWEST AIR (
LUV
): Free Stock Analysis Report
UNITED CONT HLD (
UAL
): Free Stock Analysis Report
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