American Airlines Communicates Bankruptcy to Employees

AMR Corporation, American Airlines' parent company, has filed for Chapter 11 bankruptcy protection. In a press release, the company assured investors and passengers that "American Airlines and American Eagle are operating normal flight schedules today, and their reservations, customer service, AAdvantage program, Admirals Clubs and all other operations are conducting business as usual." The company also sent an email to AAdvantage club members about their miles.

As part of the change, Gerard Arpey, chairman and chief executive officer of AMR Corporation and American Airlines, announced his retirement. He will be succeeded by Thomas W. Horton, who will continue to also serve as president.

In a memo, Tom Horton tried to reassure employees:

I realize this news might be difficult to absorb; change is never easy. We will do our very best to keep you informed, understanding that there will be many questions we are not able to answer right away. I can certainly tell you that we expect to continue to provide employee wages, healthcare coverage, vacation, and other benefits, without interruption.

A New York Times article (and other sources) indicates that a major impetus for the bankruptcy filing is the airline's high labor costs:

One of AMR's chief goals in bankruptcy will be to lower its labor costs.

The company had been in contract talks with its unions until the negotiations stalled earlier this month when the pilots' union refused to send a proposal to its members for a vote. Because federal bankruptcy rules allow companies to reject contracts, AMR may take a harder negotiating stance with its unions.

"Achieving the competitive cost structure we need remains a key imperative in this process," Mr. Horton said, "and as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels."

Of course, the company memo to employees makes no mention of these difficulties. 

Discussion Starters:

• Read the entire memo from Tom Horton. If you were part of American Airlines' management team, how do you think you might react? If you were part of the unionized staff, how might you react?
• What can American Airlines do to keep employees continuously informed? What internal communication strategies and tools will be important for the company to use at this time and going forward?