American freezes management wages; asks all employees to forgo 2003 increases

American Airlines today asked all employees to forgo pay increases next year as part of the company’s aggressive efforts to stem short-term financial losses. Company executives met today with union leaders representing pilots, flight attendants and ground personnel at AA headquarters to make the request. They also met with other employee groups to explain the need to forgo these pay increases.

In a letter to labor representatives and other employee groups, AA Chairman and CEO Don Carty and President and COO Gerard Arpey said management and support staff would forgo pay increases for the second consecutive year. They explained the need for other employee groups to forgo scheduled wage increases in 2003 to "buy enough time to find the additional $2 billion in permanent, annual structural changes needed to survive."

By forgoing all of the scheduled pay increases, the company will avoid an immediate annual cost increase of $130 million, which will keep American’s financial situation from worsening.

In recent weeks, Carty and Arpey have been meeting with employees in large and small groups around the country.

"American’s employees have an enormous stake in the financial stability of our company, and I have been heartened by their support and willingness to work with us to position American to survive and prosper," Carty said. "American Airlines employees understand the seriousness of our situation and the need to protect our future by working together."

Flight attendants, represented by the Association of Professional Flight Attendants, are currently scheduled to receive a three-percent wage increase on Jan. 1, 2003, plus applicable premium increases in July. Aircraft mechanics, fleet service clerks and other employees represented by the Transport Workers Union are scheduled for a three-percent pay increase, plus applicable premium increase for some classifications, on March 1. Airport and reservations agents, who are not union represented, are slated for an average 90-cent hourly wage increase in 2003.

The letters to the employee groups explained that the company’s long-term survival will require it to be leaner, more efficient and more productive – a business model contingent upon labor agreements that allow American to compete more effectively in the new aviation marketplace.

"While forgoing scheduled increases is a necessary and important short-term step in our march toward survival, it cannot be the only one," the letter stated. "The restructuring of our labor agreements is inevitable and fundamental to our long-term goal of remaining competitive and restoring profitability."

Immediately following the events of Sept. 11, 2001, American launched a top-to-bottom review of the company’s operations, and implemented a plan that will cut capital expenditures by several billion dollars by deferring aircraft purchases, facility improvements and information technology investments.

In addition, it has identified more than $2 billion a year in annual, structural cost savings all across the company. American’s goal is to achieve total annual cost-savings of $3 to $4 billion.

Throughout this process, American has taken a different approach to addressing its financial challenges from some of its competitors, which sought immediate concessions from employees, rather than working first to restructure their business, increase revenue and aggressively control costs.

"We felt it was essential to do things differently – to trim every cost we could find before turning to our employees for financial help, and we’ve made a concerted effort to do so," Carty said.

The U.S. airline industry is projected to lose a total $9 billion this year.