American Air to set new savings target-CFO

WASHINGTON (Reuters) - American Airlines is on track to reach a $700 million savings target this year and plans to set an ambitious savings goal for 2007, the carrier’s chief financial officer said on Wednesday.

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The world's largest airline, a unit of AMR Corp. AMR.N, likely will announce its 2007 savings target in January when it reports its fourth-quarter earnings, Tom Horton said at the Reuters Aerospace and Defense Summit in Washington, D.C.

Future savings may come from replacing the carrier’s fuel-guzzling Boeing MD-80 airplanes, a task that could begin next year, he said.

American has been trimming costs this year to keep pace with the restructuring of some of its rivals in bankruptcy court. Key elements of the savings plan include running a leaner operation that makes better use of resources, especially expensive jet fuel.

“Our objective is to offset ongoing cost-inflation pressures,” Horton said.

A top priority for next year will be to begin phasing out the MD-80s. With more than 300 of the narrow-bodied twin-engined jets, MD-80s comprise the backbone of American’s fleet. Horton declined to say when American would order new planes.

“We’re not on a timetable,” he said. “Common sense would tell you it’s high on our priority list for 2007.”

Earlier this year, American grounded 27 MD-80s and returned 19 of its Boeing 757s to the lessors. The fleet reduction saves the airline about $50 million a year, he said.

Horton said the need to conserve fuel is extreme. A $21 decline in the average price per barrel of oil amounts to a $1.5 billion year-over-year decrease in American’s fuel bill, he said.

Horton echoed a popular view that the fragmented airline industry needs some form of consolidation. But he declined to say whether American has any ambitions to take part in industry consolidation.

He withheld his opinion on the recent $8.6 billion bid by US Airways Group LCC.N for Delta Air Lines DALRQ.PK.

“Mergers in the airline business are really complicated business,” he said.

Shares of AMR closed down 13 cents, or 0.4 percent, at $33.14 on the New York Stock Exchange on Wednesday.