AMR’s American Eagle Hires Bain to Review Labor Costs

Republican presidential candidate Mitt Romney continues to defend his past role at investment firm Bain Capital as a job creator rather than a job terminator despite his opponents’ allegations to the contrary.

So perhaps it’s a case of unfortunate timing that Bain’s consulting arm—where Romney also once worked—is advising a company that is looking to trim its labor costs as it reorganizes in bankruptcy.

AMR Corp.’s American Eagle regional airline subsidiary has hired Bain & Co. as its strategic consultant to assist it in “labor-cost assessment and negotiations,” court papers show. AMR, better known as the parent of American Airlines, turned to Chapter 11 last November with the goal of slashing labor costs that are significantly higher than its competitors. As the parent company, AMR employs about 88,000 people around the globe.

“American has stated in their papers that there will be layoffs,” Ray Neidl, Maxim Group’s senior aerospace and airlines analyst, told Bankruptcy Beat Tuesday. “Most of the shrinkage will be at the regional sector and low-margin leisure routes.”

For instance, The Wall Street Journal reported last month that American Eagle would return nearly two dozen aircraft and cancel several of its routes, a move “likely” resulting in layoffs of its workers at Dallas/Fort Worth International Airport. The airline has said it will furlough pilots and flight attendants as a result of these streamlined operations.

Bain, which previously worked with American Eagle between October 2010 and September 2011, would evaluate the costs of associated with the regional airline’s various worker groups, from managers to pilots and flight attendants.

“As part of this process, Bain will also help Eagle identify and structure potential labor solutions as part of the restructuring process,” American Eagle said. “Bain will provide analytic support, strategic advice, and advice on best practices during labor negotiations, and will otherwise work with both management and union stakeholders as needed.”

Bankruptcy provides an impetus for unions to meet employers at the negotiating table at a time when a company’s very survival may be on the line. When negotiations aren’t successful, bankruptcy allows companies to move to reject the collective-bargaining agreements governing union workers’ employment. Still, companies must be careful not to steamroll the employees they depend on for their survival.

“You need definitely huge cost reductions, but it’s a service business and you have to keep employee goodwill high while they’re making sacrifices,” Neidl said.

Bain’s retention would only cover American Eagle employees, as they belong to different unions and have different collective-bargaining agreements than American Airlines employees.

Bain’s employment, for which it’s entitled to $525,000 per month and reimbursement of its expenses, remains subject to the approval of the U.S. Bankruptcy Court in Manhattan at a hearing later this month.

An AMR spokesman emailed Bankruptcy Beat this statement Tuesday:

“This is a complex process and we recognize that a successful reorganization requires the assistance of a variety of professionals with specialized expertise. The costs of retaining these professionals are a usual and necessary part of the Chapter 11 process. We will be reviewing these costs carefully to ensure that they are monitored and managed appropriately.”

As of Nov. 1, American Eagle’s fleet consisted of about 300 aircraft—half the size of American’s fleet—that flew to more than 175 destinations in North America, Mexico and the Caribbean.