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October 12, 2012

An interview with AMR CEO Horton, Part IV (Eagle's future, US Airways and restructuring progress)

Part IV of our conversation with AMR chief executive Tom Horton focused on the future of regional carrier American Eagle and the progress the carrier has made so far in its restructuring process.

We also asked about US Airways and as you can see, Horton declined to comment on any merger possibility.

ST: Are we going to see more regional flying agreements with carriers like the ones you announced with SkyWest and Express Jet and in what markets do you think you will be taking flying away from American Eagle?

Horton: Well, don’t know what markets yet. That will be determined over time but as we have said for a long time part of our strategy here is to diversify our feed and have more providers, not just American Eagle but other providers as well, which is consistent with the way the other big airlines in the U.S. operate. We have been unique in that the vast majority, almost all of our regional flying, has been with Eagle who is wholly owned by American , by AMR, and that's unique. So we're going to do that diversification and as you know we've talked over the years abut the merits of separating Eagle. In fact we were on that path before we took this other journey and I think once we come out the other side of the restructuring we'll go back and have a hard look at whether it makes sense to separate Eagle.

ST: So is a spin-off during bankruptcy off the table?

Horton: I think it would be too much complexity right now inside of the restructuring. We have bigger fish to fry.

ST: So when you look at your ASMs, you have been capped in the past in terms of how much regional flying American could have, what percentage of your total ASMs do you want to see flown by regional carriers?

Horton: What we’ve said all along is we’re simply looking to make our company competitive and to be able to match the size of the airplane to the market much as our other big competitors have done with the flexibility that they have captured and so that’s what this is about. That’s what the new contract will accommodate. I don’t know what the number is off the top of my head. It’s just be competitive.

ST: The planes that you have contracted to use with SkyWest are still the smaller regional aircraft that analysts say are not as cost-competitive as the larger regional jets.

Horton: It depends on the market but what you’ll see is that we’ll move into the larger ones as well. That flexibility was contained in the tentative agreement we made with the APA which was market standard approximately and that’s something we will need to have and will have going forward.

ST: Are you going to return any of the ERJs that you have, or are you going to keep all 216?

Horton: I don’t know if we’ve been public on that. Let me put it to you like this. We have been in, as part of the financial restructuring, we’ve been in active discussions with BNDES and Brazil over the, how many of those Embraer airplanes we’ll fly and at what rate because as you know bankruptcy is a big mark to market and it’s a big negotiation. So we’ve completed that negotiation and it creates much better economics for our company. It also gives us better flexibility on how many and how long to operate which airplane.

ST: This hasn’t been published in the court docket yet, has it?

Horton: No, not yet. The details of it are not yet public. But it will be.

ST: Will you be able to submit a restructuring plan to the bankruptcy court by the end of your exclusivity period on December 28?

Horton: Oh yeah. Yeah. I think we can do it. Now, we may. I wouldn’t rule out the possibility that we seek an extension. But there is no reason why we can’t have a plan filed by the end of the year.

ST: What is the status of the talks with US Airways?

Horton: Can’t talk about it.

ST: Are you even talking to them?

Horton: Can’t talk about it.

ST: You won’t even confirm if you’re meeting with them?

Horton: We have an NDA signed with them as you know and that accommodates the exchange of confidential information but beyond that it’s not something I can comment on.

ST: When you say you can have a restructuring plan submitted to the court by December 28, is that a stand-alone plan?

Horton: That remains to be seen.

ST: You said you completed most of the financial restructuring. Are there operational restructuring issues that you are planning to do, aside from focusing your assets at your five hubs?

Horton: That’s a good question, Mike. Let me put a little more color on that as I probably skipped over that too fast. When I say that we’ve completed most of the financial restructuring what I’m talking about is debt, aircraft leases, facilities, fleet optimization, grounding older airplanes, rationalizing the regional fleet in the BNDES negotiation and Bombardier as well, all of the supplier renegotiations. So we go through all of our supplier contracts and we hit the reset on those as well. And those are the things I’m talking about when I say we are largely complete. The savings we have achieved from those things have exceeded what was built in the original plan. And that’s all public figures on what we originally anticipated to save.

ST: So what is it now?

Horton: It’s better.

ST: By how much?

Horton: Not ready to disclose that. All I will tell you is it’s better. And it’s been a huge effort, an enormous effort. I think it has progressed at a very rapid clip after the bankruptcies before it. And I think the results have been very good. So that’s the part that I’m talking about that is largely complete and I would add to that of course, labor is the other big piece of this. We have ratified agreements with 8 out of 9 of the specific workgroups that have a contract. So you’ve got I think 6 or 7 TWU groups and flight attendants, so I guess 7 TWU groups and flight attendants 1, so 8 out of 9, the pilots obviously need to be done. We completed tentative agreements or ratified agreements with all the Eagle workgroups. We just got the pilots ratified this week. So that’s all big progress. We’ve done the restructuring of the management organization which I think you know about that resulted in 1,500 fewer positions and the leanest management team in the industry measured by ASMs, or basically if anything else you’d like to look at per head. And we’ve put in place the changes, or we’re putting in place the changes that are for all of the non-union workgroups. So that’s a lot. That’s a lot of things that have been done or are now in the middle of implementation. So really the pilot contract is the most important final hurdle and I think upon reaching that agreement or not, we’ll be prepared to put together the plan of reorganization.

-Andrea Ahles

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