American Eagle Still Asks for $75 Million in Employee Cuts.

SPECIAL EAGLEWIRE FOR MARCH 21, 2012
Published Especially for the Employees of American Eagle

* * * * PLEASE POST ON ALL BULLETIN BOARDS * * * *

March 21, 2012

Eagle and Executive Employees,

We have been working closely with American as it defines its future regional feed requirements and the role Eagle will play in American’s fleet and network transformation. While not all decisions have been finalized, we now have a better idea of the regional flying that American is planning for in the coming years and have developed a restructuring plan to ensure Eagle is ready to compete for that business.

Today we are meeting with the leadership of our three unions to share our restructuring plan and begin the Section 1113 negotiation process to lower Eagle’s costs and ensure a successful emergence from Chapter 11.

American’s restructuring plan calls for substantial transformation of the mainline and regional fleets – retiring older, inefficient aircraft and replacing them with more fuel-efficient aircraft, in a variety of sizes that can be more appropriately matched to individual market demand. A key element of American’s current negotiations with its unions is to lessen the contractual restrictions on regional flying – including limitations on the use of larger regional jets to support their efforts to “re-gauge” the fleet.

American also envisions 20% more flying at their five key domestic markets, which will boost the need for regional feed over time. As we all know, American has expressed the desire to diversify this feed among several regional carriers. While Eagle will certainly seek to compete for American’s business, we fully expect that other competitors will be awarded some of this future flying. So it is absolutely imperative that Eagle reduce its costs in order to compete aggressively and retain as much of American’s regional business as possible.

To ensure Eagle is an integral part of American’s fleet renewal plans going forward, we have identified the changes that need to be made in order to bring Eagle’s costs in line with our competitors. For several years we have benchmarked our costs against other regional airlines and shared those results with our employees and labor leaders. We have updated and refined that analysis, which compares each work group at Eagle to its counterpart at other carriers in order to identify the “cost gap” that needs to be eliminated. As a result of this work, we have determined that Eagle must achieve $75 million in annual employee labor cost savings in order to ensure we are truly competitive and able to secure our financial future.

We are committed to ensuring that all of Eagle’s workgroups will share fairly and equitably in this restructuring effort. Some changes under consideration are common to all work groups. Other changes vary by work group – all based on how the wages, benefits and work rules of that individual group compare to their peers at our competitors.

There is no denying that these changes will be difficult. But achieving competitive costs is absolutely necessary in order for us to justify American’s investment in new aircraft for Eagle to operate on its behalf. If we miss this opportunity to demonstrate that Eagle has fully competitive costs, it would provide American and AMR another reason to select other regional carriers to assume this responsibility and provide the feed we might otherwise provide.

Just as all of us at Eagle will share in the changes, we will also share in the rewards. Following a successful restructuring of our costs, Eagle plans to introduce a new profit sharing plan that ensures all employees will share in our success, when we meet our profit margin targets. Additionally, it is designed to pay out greater percentages of that profit, as higher profit margins are achieved.

As you know, the planned divestiture of American Eagle remains on hold during the restructuring process. Prior to filing for Chapter 11, AMR and Eagle had determined that a divestiture of Eagle would be in the best interest of the companies, employees and future shareholders. The changes we are asking for are part of the overall initiatives designed to restructure Eagle as a financially strong company that is well-positioned to take advantage of any opportunity that presents itself during or after our emergence from bankruptcy.

More detailed information about the changes proposed for our represented employees will be posted on the Restructuring page of Jetnet later today, following our meetings with each of our unions. We are anxious to begin negotiating with our represented labor groups immediately, in order to reach consensual agreements as quickly as possible. We are still evaluating the changes that will be necessary for our non-represented employees in order to achieve their cost reduction targets and expect to have more information to share in the coming weeks.

This is a defining moment in the history of American Eagle. Working through the bankruptcy process will be difficult, but I know that together we will rise to the challenge and take the necessary steps to transform our company – creating a stronger, more efficient and financially viable future for all of us.

Thank you for all you do – for our customers and each other.

Dan Garton

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