News of American Airlines’ and American Eagle’s parent company’s bankruptcy protection filing late last year splashed the front pages of newspapers across the nation. But the news hit closest to home for more than 24,000 employees based in North Texas and communities that rely on the airlines’ success.
Fort Worth-based AMR Corp. ranks among the top employers in the Dallas/Fort Worth area, and is the top taxpayer to Grapevine at more than $1.02 million annually.
“Their economic success over the long term is just critical—it just is,” Grapevine City Manager Bruno Rumbelow said. “It is not only important for Grapevine, but it is important for the region.”
American Airlines and American Eagle sat out bankruptcy in the past decade while their competition, parent companies of Northwest, Delta and United Airlines, filed for Chapter 11. AMR filed for Chapter 11 on Nov. 29 in U.S. Bankruptcy Court in New York as an effort to cut labor costs and restructure debt. Area leaders are rooting for American and hoping its parent company will emerge from bankruptcy, as its competitors have.
Southlake Mayor John Terrell, who is also vice president of commercial development at Dallas/Fort Worth International Airport, is optimistic about the airline’s future.
“I think that we are fairly confident that American Airlines is going to come out of bankruptcy stronger than they were before,” he said. “Because DFW Airport is their low-cost hub, we may actually see expansion of American Airlines’ people and workforce in this area, as opposed to some of their locations across the country.”
As a result of the filing, American Eagle is scheduled to return 21 of its ATR-72 turboprop aircrafts—15 of which serviced the Dallas/Fort Worth area—to the leasing company by the end of the month, AMR spokesman Tim Smith said. The aircraft will be replaced with Embraer regional jets.
The ATR-72s’ discountinuation led to route cancellations. American Eagle will end service between DFW Airport and Augusta, Ga., on Jan. 31, and service between Fayetteville, N.C. and DFW, a result of poor financial performance, Smith said.
In a separate move, American Airlines on Jan. 9 announced route cancellations and 150 job cuts outside of the DFW area as a result of winter schedule reductions, the loss of a U.S. Postal Service domestic mail contract and the closure of a St. Louis-based ground service equipment refurbishment shop.
It will end service between DFW Airport and Burbank, Calif., on Feb. 9, close the Burbank operation staffed by a third party and drop service between Chicago and New Delhi effective March 1.
Possible changes ahead
As AMR sorts out its reorganization, there may be a possibility of more aircraft returns, route changes and staff reductions in the months ahead.
“The degree or the amount of where they will be is unknown,” Smith said.
AMR has between 24,000 and 25,000 employees in North Texas, including pilots, flight attendants and management staff.
In early December 2011, American Eagle furloughed 20 junior pilots after completing their first week of training.
A furlough in the airline industry is a layoff with guaranteed right to employment based on seniority when the employer hires again, American Eagle Capt. Dave Ryter said.
While those pilots are out looking for work, employed pilots are worried about their future.
“There are pilots who are very junior, who are nervous that they may be placed on furlough as a result of this bankruptcy, and there are pilots who are very senior who are nervous about the long-term survivability of their company,” Ryter said. “So I think everybody is feeling some apprehension.”
Ryter is also vice chairman of American Eagle’s Air Line Pilots Association, International, a union representing 3,200 American Eagle pilots. Approximately 900 of the union’s pilots are based in North Texas, Ryter said. American Airlines pilots are represented by the Allied Pilots Association.
AMR employees are updated about the bankruptcy situation on the company’s intranet and restructuring website.
“We have pledged to our employees and everyone else as items come through bankruptcy court … and they are finalized on, we will immediately let anyone affected by any decisions or changes know,” Smith said.
Local impact to cities
Neighboring cities are bracing for the effects from the looming possibility of cutbacks.
As one of three cities the DFW Airport sits on, Grapevine is heavily dependent on tourism. Among Grapevine’s major employers are the Gaylord Texan Resort and Convention Center, DFW Airport and AMR Eagle Holding Corp.
Grapevine also receives hotel occupancy taxes collected from overnight guests at its 20 hotels. According to city data, Grapevine collected $10.7 million in such taxes during the fiscal year ending Aug. 30, 2010. The money collected is used specifically for tourism-related projects, such as festival marketing and building the new Convention and Visitors Bureau’s building on Main Street.
When hotel taxes dip, the city gets less revenue, and the effects trickle down to local businesses, said RaDonna Hessel, president and CEO of the Grapevine Chamber of Commerce, which represents nearly 800 businesses.
“When they slow down the flights, they slow down the number of hotel rooms that they’re using,” she said. “Their employees are of course concerned. They don’t spend as much money, so they don’t come out. They don’t shop.”
According to city data, Southlake collected $657,313 in hotel occupancy taxes from rooms at the Hilton Southlake Hotel in 2010. Southlake has used the money to promote the city through events such as Home for the Holidays and Stars & Stripes, its annual Fourth of July show.
At the DFW Airport, AMR accounts for 85 percent of passenger traffic, airport spokesman David Magaa said.
“We think we are going to provide a very good home for American Airlines in the future, and what that future will look like is up to the airline,” he said.
AMR occupies all of Terminals A and C, and most of Terminals B and D at DFW Airport, Magaa said. There may even be a possibility of slowdowns or changes to the airport’s planned $1.9 billion in terminal renovations currently underway because of American’s struggle, he said.
AMR will likely be somewhat smaller when it surfaces from bankruptcy about a year from now, Smith said. And it may not be alone. A common decision among airlines facing bankruptcy is to merge with other providers, and US Airways Group, Inc., Delta Air Lines, Inc. and TPG Capital are all said to be considering a deal with AMR. Smith would not comment on the possibility of a merger, but said he was optimistic about the future.
“Hopefully, we will emerge with a cost structure that will allow us to start growing again and at the same time be competitive with the other airlines,” he said.