[P]To My Colleagues in M&E:[FONT size=2] [A href=http://me.aa.com/DanHuffman.gif][/A][/P][/FONT]
[P]2003 will surely be an interesting year. I remain optimistic although I know that we have some hurdles ahead of us. In this communication, I will discuss some of the top issues executive management is watching as we begin the year.[/P][b]
[P]More Cost Controls[/P][/b]
[P]Next week, we will announce fourth quarter earnings, and again we will report substantial losses. It is unrealistic to expect profits in ''03. We have announced many cost savings initiatives, but we still will need everyone''s help as we seek to find ways to restructure and return to profitability. [/P][b]
[P]Revenue Generating Initiatives[/P][/b]
[P]American rang in the new year with a system-wide fare sale offering discounts of up to 40 percent. You might ask, how can we afford to drop prices when we aren''t making money, especially when prices already are so low? Well, the simple answer is we can''t afford not to. Winter months typically are slow travel periods and we must provide some incentives to stimulate business. If we do not, at the very least, maintain a sufficient level of traffic during the next few months, the alternative is to further reduce the schedule and suffer the consequences associated with a smaller schedule. With a fare sale, we may even get a few new customers to try American. I''ve said before, we have an excellent product, and not one of our competitors can offer the value we can with our exclusive features such as AAdvantage Miles on the largest network in the world and More Room Throughout Coach. When travelers understand the difference, and the price is right, they prefer to fly American. This sale and other initiatives throughout the year are expected to bring in new revenues.[/P][b]
[P]Possibility of War[/P][/b]
[P]As of this writing, the situation in the Middle East is still uncertain. Don Carty and the rest of the airline industry executives have been actively involved in discussions with the Bush Administration, and we are confident the government understands the risk to the country''s aviation infrastructure in the event of a war. As with any situation of this magnitude, we are keeping a close eye on things and are developing appropriate contingency plans. [/P][b]
[P]M&E[/P][/b]
[P]We also will face hurdles that especially impact M&E during the upcoming year. Up to now, we have not been adversely impacted by the company''s financial situation to the same degree as many other departments. While other departments’ workloads were decreasing, M&E was actually facing an increase in total workload for several reasons.[/P]
[P]First, we faced an unusually high workload due to FAA required Airworthiness Directives (ADs) to be accomplished on our planes. Two examples are replacement of all Mylar insulation on the entire MD80 fleet and ****pit door modifications to meet new security requirements. Secondly, we were in the process of standardizing the TWA aircraft to AA configuration. The third major workload driver is fleet maturity. Our new 777’s and 737’s are reaching the age to require main base visits.[/P]
[P]The manpower plan for 2002 originally required M&E to hire more than1300 mechanics to complete all the work that was planned. As we saw the company’s financial position deteriorate, we worked with Fleet Planning and Scheduling to revise the plan. As you have read in other correspondence, the company has taken several actions. We have:[/P]
[P][FONT face=Symbol]·[/FONT] reduced aircraft standardization and modifications to the absolute minimum[/P]
[P][FONT face=Symbol]·[/FONT] accelerated grounding of the F100 fleet[/P]
[P][FONT face=Symbol]·[/FONT] temporarily grounded 42 MD80 and 767 aircraft[/P]
[P][FONT face=Symbol]·[/FONT] postponed renovation of the MCI overhaul base[/P]
[P]We have been able to move modification work around the system to retain jobs in several field locations, even though the flying was reduced. However, with the continued fleet reductions, flight schedule reductions and FAA AD mod lines coming to an end, we, in M&E, are now facing additional reductions. You have seen that we recently reduced the work force in LAX. Regrettably, I must tell you there are more reductions coming. The first and second quarter plans show surplus manpower both in the field and the bases.[/P]
[P]We will continue to do everything possible to move work to minimize layoffs and disruption to people’s lives, but reductions are inevitable. As we evaluate the impact of the changes I just described, we will share that information with you and the TWU so we can plan together to work through these uncertain times.[/P]
[P]As much as I would like to be more positive in these letters, I think it is more important that I be open and frank as I attempt to keep you informed. Though I can''t bring good news right now, I can say that each one of us has a role to play in digging us out of this hole. Our efforts to keep our planes operating and on time during the holidays contributed to all-time company records of arrival performance and completion factors. These are key factors to keeping and winning new customers. When you say, what can I do, just remember three things: 1) make customers happy by producing safe, dependable planes on time 2) reduce costs by saving material and 3) come to work and give a fair day''s work for a fair day''s pay. Thanks for all you do. I will update you again within a few weeks.[/P]
[P]Sincerely,[/P]
[P]Dan Huffman,[/P]
[P]Senior Vice President, M&E[/P]
[P]2003 will surely be an interesting year. I remain optimistic although I know that we have some hurdles ahead of us. In this communication, I will discuss some of the top issues executive management is watching as we begin the year.[/P][b]
[P]More Cost Controls[/P][/b]
[P]Next week, we will announce fourth quarter earnings, and again we will report substantial losses. It is unrealistic to expect profits in ''03. We have announced many cost savings initiatives, but we still will need everyone''s help as we seek to find ways to restructure and return to profitability. [/P][b]
[P]Revenue Generating Initiatives[/P][/b]
[P]American rang in the new year with a system-wide fare sale offering discounts of up to 40 percent. You might ask, how can we afford to drop prices when we aren''t making money, especially when prices already are so low? Well, the simple answer is we can''t afford not to. Winter months typically are slow travel periods and we must provide some incentives to stimulate business. If we do not, at the very least, maintain a sufficient level of traffic during the next few months, the alternative is to further reduce the schedule and suffer the consequences associated with a smaller schedule. With a fare sale, we may even get a few new customers to try American. I''ve said before, we have an excellent product, and not one of our competitors can offer the value we can with our exclusive features such as AAdvantage Miles on the largest network in the world and More Room Throughout Coach. When travelers understand the difference, and the price is right, they prefer to fly American. This sale and other initiatives throughout the year are expected to bring in new revenues.[/P][b]
[P]Possibility of War[/P][/b]
[P]As of this writing, the situation in the Middle East is still uncertain. Don Carty and the rest of the airline industry executives have been actively involved in discussions with the Bush Administration, and we are confident the government understands the risk to the country''s aviation infrastructure in the event of a war. As with any situation of this magnitude, we are keeping a close eye on things and are developing appropriate contingency plans. [/P][b]
[P]M&E[/P][/b]
[P]We also will face hurdles that especially impact M&E during the upcoming year. Up to now, we have not been adversely impacted by the company''s financial situation to the same degree as many other departments. While other departments’ workloads were decreasing, M&E was actually facing an increase in total workload for several reasons.[/P]
[P]First, we faced an unusually high workload due to FAA required Airworthiness Directives (ADs) to be accomplished on our planes. Two examples are replacement of all Mylar insulation on the entire MD80 fleet and ****pit door modifications to meet new security requirements. Secondly, we were in the process of standardizing the TWA aircraft to AA configuration. The third major workload driver is fleet maturity. Our new 777’s and 737’s are reaching the age to require main base visits.[/P]
[P]The manpower plan for 2002 originally required M&E to hire more than1300 mechanics to complete all the work that was planned. As we saw the company’s financial position deteriorate, we worked with Fleet Planning and Scheduling to revise the plan. As you have read in other correspondence, the company has taken several actions. We have:[/P]
[P][FONT face=Symbol]·[/FONT] reduced aircraft standardization and modifications to the absolute minimum[/P]
[P][FONT face=Symbol]·[/FONT] accelerated grounding of the F100 fleet[/P]
[P][FONT face=Symbol]·[/FONT] temporarily grounded 42 MD80 and 767 aircraft[/P]
[P][FONT face=Symbol]·[/FONT] postponed renovation of the MCI overhaul base[/P]
[P]We have been able to move modification work around the system to retain jobs in several field locations, even though the flying was reduced. However, with the continued fleet reductions, flight schedule reductions and FAA AD mod lines coming to an end, we, in M&E, are now facing additional reductions. You have seen that we recently reduced the work force in LAX. Regrettably, I must tell you there are more reductions coming. The first and second quarter plans show surplus manpower both in the field and the bases.[/P]
[P]We will continue to do everything possible to move work to minimize layoffs and disruption to people’s lives, but reductions are inevitable. As we evaluate the impact of the changes I just described, we will share that information with you and the TWU so we can plan together to work through these uncertain times.[/P]
[P]As much as I would like to be more positive in these letters, I think it is more important that I be open and frank as I attempt to keep you informed. Though I can''t bring good news right now, I can say that each one of us has a role to play in digging us out of this hole. Our efforts to keep our planes operating and on time during the holidays contributed to all-time company records of arrival performance and completion factors. These are key factors to keeping and winning new customers. When you say, what can I do, just remember three things: 1) make customers happy by producing safe, dependable planes on time 2) reduce costs by saving material and 3) come to work and give a fair day''s work for a fair day''s pay. Thanks for all you do. I will update you again within a few weeks.[/P]
[P]Sincerely,[/P]
[P]Dan Huffman,[/P]
[P]Senior Vice President, M&E[/P]
