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October 12, 2012

An interview with AMR CEO Horton, Part I (the loose seats problem)

Sitting in the Admirals Club in Terminal D at Dallas/Fort Worth Airport, AMR chief executive Tom Horton talked to Star-Telegram editorial director Mike Norman and myself about the carrier's restructuring, the recent operational problems and how things are going with its pilots union contract talks.

Since the interview lasted for an hour, I have broken up the transcript into several parts that will appear on Sky Talk.

Here is the first part where Horton talked about the progress of the bankrupt carrier's restructuring and its recent problems with loose seats on 48 of its Boeing 757 fleet.

Horton: Well, I think it’s a good time to just catch up on the state of the company. There has obviously been a lot in the news. Not all of it great. The restructuring itself though is progressing very well and we’ve now, you know we’re almost 10 ½ months into this and we have completed really the vast majority of the financial restructuring. So that work is mostly done. The revenue performance has been topping the industry for the past many months. I think six months we’ve been at the very top of the industry which is quite unusual in an airline bankruptcy. Typically after a company goes into restructuring, it underperforms the industry. This has been quite the opposite. As a consequence the company is now profitable again. We made money in the second quarter. You’ll see our results for the third quarter next Wednesday. You’ve seen our revenue performance, you know that we’re managing our costs by the restructuring. So um, you know profitability which is encouraging in the second quarter when we only had a tiny fraction of our restructuring savings and numbers. We cut in half the margin gap to the rest of the industry in a year’s time. So that was pretty big deal for us. You know if we were public and opined on by the Wall Street analysts, I think that would have gotten more notice. But that was a pretty big deal. We did that largely through improving revenue versus the industry and you know some modest cost improvements. But obviously much more to come. And you know up until the last few weeks where we’ve had the operational disruptions, you know the company’s dependability and customer service performance had been the very best in many years. So I’m encouraged by that. I think the people of American have really been doing a good job in the face of just enormous distractions and challenges. I think that’s a demonstration of what the new American can be. Obviously we’ve had a disruption here and we’ll work through it. But I think the thought I want to leave you with there with Mike, is take a look at the big picture over the past many months and I think it’s a picture of a restructuring that’s progressing very rapidly and with good results.

ST: You mention the past few weeks not been your best when it comes to operations.

Horton: Not our finest hour.

ST: I want to talk about the operational issues but in two parts since there is the pilot issue and the seat issue. Let’s start with the seats. What happened there? We’re hearing about soda and coffee spills but these seats were serviced by TIMCO as well as by your own mechanics. With third-party maintenance firm, TIMCO, working on the seats that came loose in the Boeing 757s last week, does that change your plan to outsource more of American's maintenance?

Horton: No. Absolutely not. TIMCO provides overhaul services for all the big airlines and as you know most of our big competitors have much if not the majority of their overhaul work performed by specialty companies that specialize in this sort of thing and TIMCO is one of them. So that's quite normal and those companies have the same sort of FAA oversight as do our own operations. So the facts. We discovered loose seats on two of our 757 airplanes. We have 111 75s. Our operations team went immediately into action and determined that we had 48 of those 111 75s had this type of seat assembly which was subject to the loose fastener and so we went and inspected every one of those 48 airplanes. Our team came up with a secondary locking mechanism in concert with the FAA and put that into place. Because American will not compromise safety and we made the decision to just go through the entire fleet of the 48 and make that fix which meant that we had to pull some airplanes out of service and make the fix. We did it. They were all back in service as of last Saturday and no further issues. But it was a disruption that we didn't need obviously on the back of the ongoing disruption. But it’s fixed.

ST: But why is it only at your carrier? Typically when there is a safety issue the FAA will come out and say we want everybody to go back in and check planes. We haven’t seen any of that from the FAA and when I talk to the FAA they don’t say much beyond their initial statement that they are conducting an investigation.

Horton: Look, there are issues that affect the entire industry. There are issues that affect an individual airline because of the way something is configured. In fact, this didn’t even affect all of our airplanes. This was 48 of our airplanes that had not yet gone through the reconfiguration of the interior. You know some of our 757s have completely new interiors. These were the 48 that had not gone through that and as a consequence the seat configuration was unique to those airplanes and unique to American.

ST: But they had been recently worked on, correct?

Horton: Those airplanes have been recently worked on, yes. But I don’t know that there has been any determination that that’s why they were loose, Andrea, I don’t know that’s the case. They were determined to be loose and our first mission was to go out and find a fix and fix them and that’s what we did.

ST: How many connections actually failed?

Horton: I don’t know.

ST: Is it one in-flight incident?

Horton: It was two airplanes and as soon as we uncovered it we got on it.

ST: And the two airplanes, what was the similarity?

Horton: The seats were discovered to be loose….Our first priority is to fix it and that’s what we did.

ST: Is this going to change your oversight of the third-party maintenance firms that work on American aircraft?

Horton: I think we have a…I think our folks are comfortable that we have the ability to perform audits on our third party providers. That’s customary in the industry. We have that ability too, and the FAA is, you know, has full oversight authority over these providers as well. Like I said, this is not unique to American. The only thing unique to American is we have not been historically involving these companies in our maintenance program.

-Andrea Ahles

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Comments

mark torres

That's all you got in a conversation that lasted an hour??

Alex in TX

Horton really needed to do this interview. AA has taken a major battering recently in the press for the seat and delay issues. Some non-negative press must be a Godsend.

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