NEW YORK (CNNfn) - AMR Corp., owner of both American Airlines and Trans World Airlines, announced deep staff reductions as it cut 20,000 employees Wednesday, while rival United Airlines also plans to lay off 20,000 persons.|
AMR said the reduction is due to the 20 percent cut in its schedule for the foreseeable future in the wake of last week's terrorist attacks. Two American Airline jets were hijacked and crashed into the World Trade Center and the Pentagon, resulting in a shutdown of the total U.S. air transportation system for two days and a sharp drop in new ticket purchases by the public.
AMR (AMR: unchanged at $20.00, Research, Estimates) said the cuts apply to American, TWA, and feeder airline unit American Eagle. The company had a total of 138,350 employees, meaning the cut represents a 14 percent reduction in staff.
"I have declared a state of emergency at American Airlines," said Donald Carty, CEO of AMR in a letter to employees. "This declaration is an official recognition that – hard as it may be to accept – our company's very survival depends on dramatic change to our operations, our schedule, and worst of all our staffing levels."
In addition to U.S. carriers, British Airways (BAY), Europe's largest airline, signaled its intention of cut staff and capacity on its North Atlantic routes.
United Airline, a unit of UAL Corp. (UAL: down $0.23 to $18.76, Research, Estimates), said its reductions will affect all work groups and will begin as soon as possible. The news comes as United has cut its flight schedule by 20 percent to about 1,900 daily flights.
"While we continue to focus our attention on assisting the families of our passengers and employees who were victims of last Tuesday's attack, we must also focus on saving our company," said United Airlines Chairman and CEO James Goodwin. "We simply have no choice but to step up to the realities of this extraordinarily critical time and take drastic measures to preserve our viability and operations."
AMR also made an Securities and Exchange Commission filing Wednesday that said unless Congress limits the company's liability in last Tuesday's attacks to the passengers on the planes rather than the destruction caused on the ground, its liability could exceed its resources. A limit on liability is one element of the $17.5 billion bailout package being sought in Congress by the airline industry.
AMR's staff cuts, which were widely expected, were announced immediately after the market close. Shares of AMR closed Wednesday trading unchanged at $20. Airline stocks plunged in value Monday when trading resumed for the first time after the attack, then posted a slight rebound Tuesday, then were mostly slightly lower Wednesday.
AMR had already warned of wider than expected losses four days before the terrorist attack, citing the sharp decline in business travel. As a whole, the industry was on target for about $3 billion in losses this year before the attack, and it lost an estimated additional $1.4 billion last week alone due to the attack.
Before the attack, the airline industry had been basically free of layoffs despite the mounting losses. But Wednesday's announcements, the latest in a string of airline staff cut announcements, pushed the total of announced or reported cuts in the last five days to 90,000.
The number is likely to cross the 100,000 threshold in the coming days, airline executives told Congress in testimony about the proposed bailout package. They said the layoffs will not be averted even if the industry gets the help it is seeking.
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The 90,000 layoff figure does not include several major airlines, including No. 3 Delta Air Lines (DAL: up $0.73 to $23.66, Research, Estimates) and No. 4 Northwest Airlines (NWAC: down $0.84 to $12.07, Research, Estimates). Both have said they will cut their schedule of flights by 20 percent, but that they are still weighing staffing levels. They have 135,000 employees between them, so a 20 percent cut in staff would result in an additional 27,000 job cuts. And Leo Mullin, CEO of Delta, told a congressional hearing Wednesday the airlines have no choice but to cut staff in line with reduction in capacity.
The 90,000 cuts to date also do not include cuts of 20,000-to-30,000 employees by the end of next year announced by aircraft maker Boeing Co. (BA: down $0.53 to $32.61, Research, Estimates) Wednesday, saying it was seeing a sharp drop in orders for new commercial aircraft.