American Airlines CEO tells CNN “It’s business as usual at American Airlines”
“It was a very difficult decision but we think the right decision at the right time to get our company competitive and make it successful again” American Airlines’ CEO Tom Horton speaks to CNN’s Richard Quest in the wake of the company filing for Chapter 11 bankruptcy protection.
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RICHARD QUEST, CNN INTERNATIONAL ANCHOR: By any definition, going into Chapter 11 in such a fashion is a dramatic way and a dramatic and very serious measure. So, let’s start with your explaining why American and AMR American felt it was necessary to take this dramatic move.
THOMAS HORTON, CEO, AMERICAN AIRLINES: Well, it is a – it was a very difficult decision but we think the right decision at the right time to get our company competitive and make it successful again. As you probably know, Richard, over the past decade, a very difficult decade in the airline industry, virtually all of our big competitors in the U.S. took this step. And as a consequence, they lowered their cost and improved their capital structure in a way that simply made them much more competitive.
And you know, the folks at American have worked very hard and honorably to avoid that path over the last decade. But it became clear to us that that gap was just too wide now. It had become untenable and it was time for us to address it, turn the page and begin to put our company on the path to a much more successful future.
QUEST: You see, on October the fourth, AMR put out a statement saying it was not your goal or preference to go into Chapter 11. So I’m wondering what changed or what finally tipped the decision that you took. What was the tipping point?
HORTON: Yes, it never has been our goal or preference, of course. And our actions over the last decade would clearly indicate that. But I think we concluded that the gap between our cost structure and the rest of the industry had become too wide and really just not something we could sustain any further. And at the same time, you know, great economic turmoil in the global economy and high and volatile oil prices. So, all of that taken together created an atmosphere where our board felt that the best decision was to pursue a full restructuring of the company to make us more competitive and successful for the long term.
QUEST: Your employees watching this worldwide will – and particularly, of course, in the United States, will want to know the implications. If we take the United, the Delta, the other examples, there have been givebacks, pensions have been cut back, longer hours for less money. So, can you sketch out what you envisage happening for your employees?
HORTON: Well, I think the most important thing is that day one, the Chapter 11 filing itself won’t cause any changes to wages or benefits. Of course our objective here is to make the company more cost competitive, so down the road there may well be changes. But there’s a process wherein we will sit down with our union leaders and with our nonorganized work groups and work through the best way to reach the best outcome for the greatest number of people.
So, that’s what we’re going to do, and we’re going to do it under the supervision of the courts.
QUEST: And fliers watching and passengers who are buying tickets – now, you and I have talked about this before and I have been around the aviation industry long enough to know from the passengers’ point of view, it matters not a jot. Your planes will still be flying, and you’ll still probably be serving champagne in first class. But can you reassure passengers that this is not going to have any effect?
HORTON: Well, that’s quite right. It’s business as usual at American Airlines, and all of the people of American Airlines will continue to dedicate themselves to providing great customer service for our customers. That is our mission. Our schedule will continue. Our flights will continue to operate. It is very much business as usual. And in fact, it is our view that in the long run, as we make our company more competitive and successful, we’ll even have further opportunities to invest in our product for our customers.
QUEST: What do you believe is the cost-base advantage that you now have to try and close through this process?
HORTON: Yes, what we have said publicly our labor costs alone are something on the order of $800 million dollars higher than our big competitors on average. But it’s not all about labor costs, of course, because as the other airlines have gone through restructuring, they have addressed their capital structure, their debt, their facilities. There are many other things. The fleet – many other things to be considered and addressed in this process and reoptimized. And that’s what we’re going to go do. And we’re going to do it in a way that makes the company much more successful.
QUEST: Just a couple of final questions because I know that you have been negotiating across the range of your – of your creditors and your unions and – oh, I beg your pardon. Your background has just changed. You can’t see it. The background that we have behind you – hang on, it’s back again. Lovely.
I know you’ve been negotiating and trying to get these costs down. But isn’t it an admission either of failure or of the difficulty that only such a blow-it-all-up-and-start-again approach can work in aviation in these difficult times?
HORTON: Well, clearly it was our preference to do this in a consensual fashion. Unfortunately, we were not successful in that regard, Richard. And you know, we see great opportunity for this company going forward. We have great hubs in the most important markets. We have the best alliance partners around the world. And as you and I have discussed in the past, we also have this enormous order book (ph) of new state-of-the-art airplanes. We have, we think, the best order book in the industry.
So, it was really time for us to go out and capitalize on that and get the company in a position to where it can grow and prosper again. And it was the conclusion of the board that this was really the best way to go about doing that.
QUEST: Do you envisage reopening the deals for those aircraft from Boeing and Airbus? And do you envisage any of your bank creditors having to take hair cuts (ph) or a hit on bonds or debt?
HORTON: Well, after the new airplanes, that’s very much the foundation for our future, so we would intend to fully embrace the new airplane deal, including the financing that came along with that. So, that’s very much part of our future. As to the debt and the capital structure, we’ll work through that under the supervision of the courts. But clearly our objective there is to reoptimize the capital structure and make the company sustainable and successful.
QUEST: And finally, Mr. Horton, how long – how long’s a piece of string – but how long do you expect American to be in Chapter 11? If you had to give me some guidance today?
HORTON: Well, if you look at the last couple of big airline Chapter 11s, they were on the order of 15,16 months or so. Our objective would be to move more quickly than that, but as you know, the process takes on its own pace. So, it’s probably too early to call.
QUEST: Mr. Horton, many thanks indeed for joining us. I appreciate it on a difficult day for you and for the airline. Thank you, sir.
HORTON: Thank you, Richard.
QUEST: I appreciate it, sir. Thank you very much.
HORTON: Thank you.