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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For fiscal year ended
December 31, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number 1-8400.
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AMR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common stock, $1 par value per share New York Stock Exchange
8.10% Notes due 1998 New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 9, 1998, was approximately $12,615,837,217. As of March
9, 1998, 91,171,362 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 20,
1998.
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PART I
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ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
For financial reporting purposes, AMR's operations fall within three major
lines of business: the Airline Group, The SABRE Group and the Management
Services Group.
AIRLINE GROUP
The Airline Group consists primarily of American's Passenger and Cargo
divisions and AMR Eagle Holding Corporation, a separate subsidiary of AMR.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1997, American provided scheduled jet
service to more than 165 destinations throughout North America, the Caribbean,
Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. It provides a full range of freight and mail services to
shippers throughout the airline's system. In addition, through cooperative
agreements with other carriers, it has the ability to transport shipments to
virtually any country in the world.
AMR EAGLE HOLDING CORPORATION (AMR EAGLE) owns the four regional airlines which
operate as "American Eagle" -- Executive Airlines, Inc., Flagship Airlines,
Inc., Simmons Airlines, Inc. and Wings West Airlines, Inc. The American Eagle
carriers provide connecting service from six of American's high-traffic cities
to smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
In January 1998, AMR Eagle Holding Corporation announced plans to
merge the four regional airlines into a single carrier - "American Eagle
Airlines, Inc." The transaction will occur in phases beginning in May 1998 and
is expected to be complete by the end of 1998.
THE SABRE GROUP
The SABRE Group is a world leader in the electronic distribution of travel
through its proprietary travel reservation and information system, SABRE(R),
and is the largest electronic distributor of travel in North America. In
addition, The SABRE Group is a leading provider of information technology
solutions to the travel and transportation industry and fulfills substantially
all of the data processing, network and distributed systems needs of American
and AMR's other subsidiaries, Canadian Airlines International Limited and other
customers.
REORGANIZATION AMR formed The SABRE Group in 1993 to capitalize on the
synergies of combining its information technology businesses under common
management. Pursuant to a reorganization consummated on July 2, 1996 (the
Reorganization), The SABRE Group Holdings, Inc. (a holding company incorporated
on June 25, 1996 and a subsidiary of AMR) became the successor to the
businesses of The SABRE Group which were formerly operated as divisions or
subsidiaries of American or AMR. All references herein to "The SABRE Group"
include The SABRE Group Holdings, Inc. and its consolidated subsidiaries and,
for any period prior to the Reorganization, the businesses of AMR and American
constituting The SABRE Group. On October 17, 1996, The SABRE Group completed
an initial public offering of 23,230,000 shares of its Class A Common Stock
constituting approximately 17.8 percent of its economic interest. AMR retained
all of The SABRE Group's Class B common stock, representing approximately 82.2
percent of the economic interest and 97.9 percent of the combined voting power
of all classes of voting stock of The SABRE Group.
ELECTRONIC TRAVEL DISTRIBUTION SABRE and other global distribution systems
are the principal means of air travel distribution in the United States and a
growing means of air travel distribution internationally. Through SABRE, travel
agencies, corporate travel departments and individual consumers can access
information on - and book reservations with - airlines and other providers of
travel and travel-related products and services. As of December 31, 1997,
travel agencies with more than 30,000 locations in over 70 countries on six
continents subscribed to SABRE. SABRE subscribers are able to make
reservations with more than 400 airlines, more than
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50 car rental companies and more than 200 hotel companies covering
approximately 39,000 hotel properties worldwide.
During 1997, more airline bookings in North America were made through
SABRE than through any other global distribution system. The SABRE Group is
actively involved in marketing SABRE internationally either directly or through
joint venture or distributorship arrangements. The SABRE Group's global
marketing partners principally include foreign airlines that have strong
relationships with travel agents in such airlines' primary markets and entities
that operate smaller global distribution systems or other travel-related
network services. In 1997, approximately 67.3 percent of The SABRE Group's
revenue was generated by the electronic distribution of travel, primarily
through booking fees paid by associates.
In February 1998, The SABRE Group signed long-term agreements with
ABACUS International Holdings Ltd. which created a Singapore-based joint
venture company to manage travel distribution in the Asia-Pacific region. The
SABRE Group owns 35 percent of the joint venture company, called ABACUS
International Ltd., and provides it with transaction processing on the SABRE
computer reservations system.
INFORMATION TECHNOLOGY SOLUTIONS The SABRE Group is a leading provider of
solutions to the travel and transportation industry. The SABRE Group employs
its airline technology expertise to offer technology solutions to other
industries that face similar complex operations issues, including the airport,
railroad, logistics and hospitality industries. The solutions offered by The
SABRE Group include software development and product sales, transactions
processing and consulting, as well as comprehensive information technology
outsourcing, which bundles traditional data center, network and distributed
systems management with industry-specific software applications and custom
development. In addition, pursuant to information technology services
agreements, The SABRE Group provides substantially all of the data processing,
network and distributed systems needs of American and AMR's other subsidiaries,
Canadian Airlines International Limited and other customers. In 1997,
approximately 32.7 percent of The SABRE Group's revenue was generated by the
provision of information technology solutions.
In January 1998, The SABRE Group completed the execution of a 25 year,
multi-billion dollar technology agreement with US Airways, Inc. to provide
substantially all of US Airways' information technology services. The
agreement covers the management and operation of US Airways' systems and
information technology services, including the migration or conversion of US
Airways' legacy systems to The SABRE Group systems by mid-1999.
MANAGEMENT SERVICES GROUP
The Management Services Group consists of four direct or indirect subsidiaries
of AMR -- AMR Global Services Corporation, Americas Ground Services, Inc.
(AGS), AMR Investment Services, Inc. and Airline Management Services, Inc.
(AMS).
AMR GLOBAL SERVICES CORPORATION manages five operating units: AMR Services
(formerly known as AMR Airline Services), AMR Combs, AMR Global Logistics,
TeleService Resources (TSR) and the AMR Training Group. AMR Services provides
a full range of aviation services, including ramp, passenger and cargo handling
services, as well as aircraft and equipment maintenance, fueling, general sales
representation, flight dispatch and management services for more than 200
airlines and airport authorities at approximately 65 locations throughout North
America, Europe and Asia. AMR Combs, the executive aviation services division
of AMR Global Services, is a premier corporate aviation services network of 14
facilities in major business centers in the United States, Mexico and Asia.
AMR Global Logistics serves the logistics marketplace and specializes in
logistics management, contract warehousing, trucking and multi-modal freight
forwarding services. TSR provides comprehensive call center management
services including inbound and outbound telemarketing, as well as reservation
services for certain air carriers and a wide range of non-airline Fortune 500
clients. The AMR Training Group operates the American Airlines Training &
Conference Center and provides a wide variety of training services to American
and a number of other corporate clients.
AGS provides airline ground and cabin service handling at 10 locations in seven
countries in the Caribbean and Central and South America.
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AMR INVESTMENT SERVICES, INC. serves as an investment advisor to AMR and other
institutional investors. It also manages the American AAdvantage Funds, which
have both institutional shareholders -- including pension funds, financial
advisors, corporations and banks -- and individual shareholders. As of
December 31, 1997, AMR Investment Services was responsible for management of
approximately $18.4 billion in assets, including direct management of
approximately $6 billion in short-term investments.
AMS was formed in 1994 to manage the Company's service contracts with other
airlines such as the agreement to provide a variety of management, technical
and administrative services to Canadian Airlines International Limited which
the Company signed in 1994.
Additional information regarding business segments is included in Management's
Discussion and Analysis on pages 17 through 32 and in Note 16 to the
consolidated financial statements.
COMPETITION
AIR TRANSPORTATION Most major air carriers have developed hub-and-spoke
systems and schedule patterns in an effort to maximize the revenue potential of
their service. American operates four hubs: Dallas/Fort Worth, Chicago
O'Hare, Miami and San Juan, Puerto Rico. In 1995, American implemented
schedule reductions which ended the airline's hub operations at Raleigh/Durham
and Nashville. Delta Air Lines and United Airlines have hub operations at
Dallas/Fort Worth and Chicago O'Hare, respectively.
The AMR Eagle carriers increase the number of markets the Airline
Group serves by providing connections to American at American's hubs and
certain other major airports. The AMR Eagle carriers serve smaller markets
through Dallas/Fort Worth, Chicago, Miami, San Juan, Los Angeles and New York's
John F. Kennedy International Airport. American's competitors also own or
have marketing agreements with regional carriers which provide similar services
at their major hubs.
In addition to its extensive domestic service, American provides
international service to the Caribbean, Canada, Latin America, Europe and the
Pacific. American's operating revenues from foreign operations were
approximately $5.1 billion in 1997 and $4.7 billion in 1996 and 1995.
Additional information about the Company's foreign operations is included in
Note 15 to the consolidated financial statements.
Service over almost all of American's routes is highly competitive.
Currently, any carrier deemed fit by the U.S. Department of Transportation
(DOT) is free to operate scheduled passenger service between any two points
within the U.S. and its possessions. On most of its non-stop routes, American
competes with at least one, and usually more than one, major domestic airline
including: America West Airlines, Continental Airlines, Delta Air Lines,
Northwest Airlines, Southwest Airlines, Trans World Airlines, United Airlines,
and US Airways. Competition is even greater between cities that require a
connection, where as many as eight airlines may compete via their respective
hubs. American also competes with national, regional, all-cargo, and charter
carriers and, particularly on shorter segments, ground transportation.
On all of its routes, pricing decisions are affected by competition
from other airlines, some of which have cost structures significantly lower
than American's and can therefore operate profitably at lower fare levels. As
of December 31, 1997, approximately 47 percent of American's bookings were
impacted by competition from lower-cost carriers. American and its principal
competitors use inventory management systems that permit them to vary the
number of discount seats offered on each flight in an effort to maximize
revenues, yet still be price competitive with lower-cost carriers.
Competition in many international markets is subject to extensive
government regulation. In these markets, American competes with foreign
investor-owned carriers, state-owned airlines and U.S. carriers that have been
granted authority to provide scheduled passenger and cargo service between the
U.S. and various overseas locations. American's operating authority in these
markets is subject to aviation agreements between the U.S. and the respective
countries, and in some cases, fares and schedules require the approval of the
DOT and the relevant foreign governments. Because international air
transportation is governed by bilateral or other agreements between the U.S.
and the foreign country or countries involved, changes in U.S. or foreign
government aviation policy could result in the alteration or termination of
such agreements, diminish the value of
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such route authorities, or otherwise adversely affect American's international
operations. Bilateral agreements between the U.S. and various foreign
countries served by American are subject to frequent renegotiation.
The major U.S. carriers have some advantage over foreign competitors
in their ability to generate traffic from their extensive domestic route
systems. In many cases, however, U.S. carriers are limited in their rights to
carry passengers beyond designated gateway cities in foreign countries. Some
of American's foreign competitors are owned and subsidized by foreign
governments. To improve their access to each others' markets, various U.S. and
foreign carriers -- including American -- have established marketing
relationships with other carriers. American currently has code-sharing
programs with Aero California, Aspen Mountain Air, British Midland, Business
Express, Canadian Airlines International Limited, China Airlines, Gulf Air,
Hawaiian Airlines, LOT Polish Airlines, Qantas Airways, Singapore Airlines,
South African Airways and the TAM Group. In addition, American plans to
implement code-share alliances with other international carriers, including Air
Liberte, Asiana Airlines, China Eastern Airlines, Iberia, Lan Chile, Philippine
Airlines and the TACA Group, pending regulatory approval. The Company has also
agreed to acquire a minority equity interest, pending regulatory approval by
the Department of Justice, in the Argentine holding company Interinvest, S.A.
which owns a controlling interest in the Argentine carriers Aerolineas
Argentinas and Austral Lineas Aereas. In the coming years, the Company expects
to develop these code-sharing programs further and to evaluate new alliances
with other international carriers.
In February 1998, the Company announced its plans to finalize an
alliance between American and Japan Airlines (JAL). Subject to regulatory
approval of the U.S. Department of Transportation and Japan's Ministry of
Transport, the two carriers will introduce extensive code sharing across each
other's networks. The two carriers already have in place full reciprocity
between their frequent flyer programs and an extensive cooperation agreement in
air cargo. In addition, The SABRE Group has a computerized reservation system
joint venture with JAL.
Furthermore, in June 1996, the Company announced its plans to create a
worldwide alliance between American and British Airways Plc. Subject to
regulatory approval, which is still pending, the two carriers will introduce
extensive code sharing across each other's networks. Additionally, the
carriers will combine their passenger and cargo activities between the United
States and Europe and will share the resulting profits on these services.
During 1997, a frequent flyer program was introduced between the two carriers.
The Airline Group believes that it has several advantages relative to
its competition. Its fleet is efficient and quiet and is one of the youngest
fleets in the U.S. airline industry. It has a comprehensive domestic and
international route structure, anchored by efficient hubs, which permit it to
take full advantage of whatever traffic growth occurs. The Company believes
American's AAdvantage frequent flyer program, which is the largest program in
the industry, and its superior service also give it a competitive advantage.
ELECTRONIC TRAVEL DISTRIBUTION The SABRE Group competes in electronic travel
distribution primarily against other large and well-established global
distribution systems. SABRE's principal competitors in marketing to travel
agents include Amadeus/System One, Galileo/Apollo and Worldspan. Each of these
competitors offers many products and services substantially similar to those of
The SABRE Group.
Although certain barriers exist for any new provider of electronic
commerce -- barriers such as the need for significant capital investment to
acquire or develop the hardware, software and network facilities necessary to
operate a global distribution system -- The SABRE Group is faced with the
potential of new competitors, particularly as new channels for travel
distribution develop.
The global market to attract and retain agency subscribers is
intensely competitive. Factors affecting competitive success of global
distribution systems include depth and breadth of information, ease of use,
reliability, service and incentives to travel agents and range of products
available to travel providers, travel agents and consumers.
Although distribution through travel agents continues to be the
primary method of travel distribution, new channels of direct distribution to
businesses, consumers and airlines through computer on-line services, the
Internet and private networks, are developing rapidly. The deployment and
adoption of these tools is currently quite low. That pace of adoption,
however, is expected to accelerate. The SABRE Group believes that it has
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positioned its SABRE BTS(TM), Travelocity(sm) and easySABRE(R) products to
effectively compete in these emerging distribution channels.
INFORMATION TECHNOLOGY SOLUTIONS The SABRE Group competes both against
solutions companies and full-service providers of technology outsourcing, some
of which have considerably greater financial resources than The SABRE Group,
and against smaller companies that offer a limited range of products. Among
The SABRE Group's full-service competitors are Electronic Data Systems, IBM
Global Services, Unisys, Andersen Consulting and Lufthansa Systems. Some of
these competitors have formed strategic alliances with large companies in the
travel industry, and The SABRE Group's access to these potential customers is
thus limited. The SABRE Group believes that its competitive position in the
travel industry is enhanced by its experience in developing systems for
American and other airlines, and by its ability to offer not only software
applications but also systems development, integration and maintenance and
transactions processing services.
MANAGEMENT SERVICES GROUP The Management Services Group competes in a broad
variety of service industries against numerous other companies. Many of these
companies are small, privately owned businesses; however, some are larger,
publicly held companies. The basis for competition in each industry in which
the Management Services Group companies participate is both price and service
quality.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers under the Federal Aviation Act of 1958,
as amended. The DOT maintains jurisdiction over international route
authorities and certain consumer protection matters, such as advertising,
denied boarding compensation, baggage liability and computer reservations
systems.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. In addition, the FAA has
implemented a number of requirements that American is incorporating into its
maintenance program. These matters relate to, among other things, inspection
and maintenance of aging aircraft, corrosion control and the installation of
upgraded digital flight data recorders, enhanced ground proximity warning
systems and cargo compartment smoke detection and fire suppression systems.
Based on its current implementation schedule, American expects to be in
compliance with the applicable requirements within the required time periods.
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory functions with respect to
disputes between airlines and labor unions relating to union representation and
relating to collective bargaining agreements. To the extent American continues
to increase its alliances with international carriers, American may be subject
to certain regulations of foreign agencies.
Several items of legislation have been introduced in the Congress that
would, if enacted; (i) authorize the withdrawal of slots from major carriers --
including American -- at key airports for redistribution to new entrants and
smaller carriers and/or (ii) provide financial assistance, in the form of
guarantees and/or subsidized loans, to smaller carriers for aircraft purchases.
In addition, the Departments of Justice and Transportation are investigating
competition at major hub airports. The outcomes of the proposed legislation
and the investigations are unknown. However, to the extent that (i) slots are
taken from American at key airports, (ii) restrictions are imposed upon
American's ability to respond to a competitor, or (iii) competitors have a
financial advantage in the purchase of aircraft because of federal assistance,
American's business may be adversely impacted.
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. The DOT maintains authority over international
fares, rates and charges. International fares and rates are also subject to
the jurisdiction of the governments of the foreign countries which American
serves. While air carriers are required to file and adhere to international
fare and rate tariffs, many international markets are characterized by
substantial commissions, overrides, and discounts to travel agents, brokers and
wholesalers.
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Fare discounting by competitors has historically had a negative effect
on the Airline Group's financial results because the Airline Group is generally
required to match competitors' fares to maintain passenger traffic. During
recent years, a number of new low-cost airlines have entered the domestic
market and several major airlines have begun to implement efforts to lower
their cost structures. Further fare reductions, domestic and international,
may occur in the future. If fare reductions are not offset by increases in
passenger traffic or changes in the mix of traffic that improves yields, the
Airline Group's operating results will be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington National, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed
from the high density airport classification. The rule adopted hourly take-off
and landing slot allocations for each of these airports. Currently, the FAA
permits the purchasing, selling, leasing and trading of these slots by airlines
and others, subject to certain restrictions. Most foreign airports, including
London Heathrow, a major European destination for American, also have slot
allocations. Most foreign authorities do not permit the purchasing, selling or
leasing of slots.
The Airline Group currently has sufficient slot authorizations to
operate its existing flights and has generally been able to obtain slots to
expand its operations and change its schedules. However, there is no assurance
that American will be able to obtain slots for these purposes in the future
because, among other factors, slot allocations are subject to changes in
government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact
on the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the
Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act,
the Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company has maintained compliance with such requirements without any material
adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories
or "stages." The ANCA requires the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers are required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 50 percent by
December 31, 1996; 75 percent by December 31, 1998; and 100 percent by December
31, 1999. Alternatively, a carrier may satisfy the regulations by operating a
fleet that is at least 65 percent, 75 percent, and 100 percent Stage III by the
dates set forth in the preceding sentence, respectively. At December 31, 1997,
approximately 88 percent of American's active fleet was Stage III, the quietest
and most fuel efficient rating category.
The ANCA recognizes the rights of airport operators with noise
problems to implement local noise abatement programs so long as they do not
interfere unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of night-time curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory
notice and review process for local restrictions on Stage II aircraft first
proposed after October 1990. While American has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, American's
operations could be adversely affected if locally-imposed regulations become
more restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American's alleged waste disposal volumes are minor
compared to the other PRPs. American has also been identified as a PRP at the
Beede Waste Oil Superfund Site in New
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Hampshire. American has responded to a 104(e) Request for Information
regarding interaction with several companies related to this Site.
American, along with most other tenants at the San Francisco
International Airport, has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues.
Future costs of the remediation effort may be borne by carriers operating at
the Airport, including American, through increased landing fees and/or other
charges since certain of the PRPs are no longer in business. The future
increase in landing fees and/or other charges may be material but cannot be
reasonably estimated due to various factors, including the unknown extent of
the remedial actions that may be required, the proportion of the cost that will
ultimately be recovered from the responsible parties, and uncertainties
regarding the environmental agencies that will ultimately supervise the
remedial activities and the nature of that supervision.
American and AMR Eagle, along with other tenants at the Luis Munoz
Marin International Airport in San Juan, Puerto Rico have been named as PRPs
for environmental claims at the airport.
AMR Combs Memphis, an AMR Services subsidiary, has been named a PRP at
an EPA Superfund Site in West Memphis, Arkansas. AMR Combs Memphis' alleged
involvement in the site is minor relative to the other PRPs.
Flagship Airlines, Inc., an AMR Eagle subsidiary, has been notified of
its potential liability under New York law at an inactive hazardous waste site
in Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to
have a material impact on its financial position or liquidity.
GLOBAL DISTRIBUTION SYSTEMS Regulations promulgated by the DOT govern the
relationship of SABRE with airlines and travel agencies. Specifically, these
regulations govern the relationships of global distribution systems doing
business in the United States which are offered by an airline or an airline
affiliate (Airline-Affiliated Systems) with airlines doing business in the
United States that own five percent or more of a global distribution system and
with travel agencies. The current form of these regulations was adopted in
1992 and will expire on March 31, 1999.
One of the principal requirements of the U.S. Regulations is that
displays of airline services by global distribution systems such as SABRE must
be nondiscriminatory. This means that the global distribution system may not
use carrier identity in ordering the display of services or in building
connecting flights. Travel agencies, however, may utilize software to override
the neutral displays of an Airline-Affiliated System. Airline-Affiliated
Systems are required to charge the same fees to all air carriers for the same
level of service, to update information for all air carriers with the same
degree of care and timeliness and to provide, on request, detailed bills. Any
product features offered to one or more air carriers must be offered to all
other air carriers on nondiscriminatory terms.
The SABRE Group also has operations subject to regulations in
Australia, Canada and the European Union. The overall approach of the
regulations for global distribution systems in each of these three
jurisdictions is similar to that of the United States. In each of these
jurisdictions, rules require nondiscriminatory displays of airline services and
nondiscriminatory booking fees, and forbid airlines affiliated with global
distribution systems such as SABRE from linking travel agency commissions to
the use of a particular system. Further, these rules to varying extents forbid
airlines affiliated with global distribution systems from discriminating
against competing systems with respect to the data that they furnish.
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LABOR
The airline business is labor intensive. Approximately 80 percent of AMR's
employees work in the Airline Group. Wages, salaries and benefits represented
approximately 38 percent of AMR's consolidated operating expenses for the year
ended December 31, 1997.
The majority of American's employees are represented by labor unions
and covered by collective bargaining agreements. American's relations with
such labor organizations are governed by the Railway Labor Act. Under this
act, the collective bargaining agreements among American and these
organizations do not expire but instead become amendable as of a stated date.
If either party wishes to modify the terms of any such agreement, it must
notify the other party before the contract becomes amendable. After receipt of
such notice, the parties must meet for direct negotiations, and if no agreement
is reached, either party may request the National Mediation Board (NMB) to
appoint a federal mediator. If no agreement is reached in mediation, the NMB
may determine, at any time, that an impasse exists, and if an impasse is
declared, the NMB proffers binding arbitration to the parties. Either party
may decline to submit to arbitration. If arbitration is rejected, a 30-day
"cooling-off" period commences, following which the labor organization may
strike and the airline may resort to "self-help," including the imposition of
its proposed amendments and the hiring of replacement workers.
In 1995, American reached agreements with the members of the
Association of Professional Flight Attendants (APFA) and the Transport Workers
Union (TWU) on their labor contracts. American's collective bargaining
agreements with the APFA and the TWU become amendable on November 1, 1998 and
March 1, 2001, respectively.
American's collective bargaining agreement with the Allied Pilots
Association (APA) became amendable on August 31, 1994. On September 2, 1996,
American and the APA reached a tentative agreement on a new labor contract.
The tentative agreement was approved by the APA Board of Directors and sent out
for membership ratification, but subsequently rejected by the APA membership.
On January 10, 1997, the NMB proffered binding arbitration to the APA and
American. American agreed to arbitration but because the APA did not also
agree, the proffer was rejected and on January 15, 1997, the APA and American
were notified (i) that the NMB was terminating its services and (ii) that
beginning February 15, 1997, either party could resort to self-help remedies,
including a strike by the members of the APA. On February 15, 1997, the APA
did initiate a strike against American but immediately thereafter President
Clinton intervened and appointed a Presidential Emergency Board (PEB), pursuant
to his authority under the Railway Labor Act. The effect of President
Clinton's actions was to stop the strike and begin a process during which the
PEB reviewed the positions advocated by both parties. On March 17, 1997,
American and the APA reached a second tentative agreement on a new contract.
The tentative agreement was ratified by the APA membership on May 5, 1997. The
new contract becomes amendable August 31, 2001. Among other provisions, the
agreement granted pilots options to buy 5.75 million shares of AMR stock at
$83.375, $10 less than the average fair market value of the stock on the date
of grant, May 5, 1997. The options became immediately exercisable on the date
the new contract was ratified.
The Air Line Pilots Association (ALPA), which represents AMR Eagle
pilots, reached agreement with AMR Eagle effective September 1, 1997, to have
all of the pilots of the four Eagle carriers covered by a single collective
bargaining agreement. This agreement lasts until October 31, 2013. The
parties have the right to seek limited changes in 2000, 2004, 2008 and 2012.
If the parties are unable to agree on the limited changes, they also agreed
that the issues would be resolved by interest arbitration, without the exercise
of self-help (such as a strike). The Association of Flight Attendants (AFA),
which represents the flight attendants of the four Eagle carriers, reached
agreement with AMR Eagle effective March 2, 1998, to have all flight attendants
of the four AMR Eagle carriers covered by a single contract. The agreement
becomes amendable on March 2, 2002. The other union employees at the AMR Eagle
carriers are covered by separate agreements with the Transport Workers' Union
(TWU); certain of those agreements are currently in negotiation.
As of December 31, 1997, The SABRE Group had approximately 8,500 full-
time employees. The SABRE Group considers its current employee relations to be
good. None of The SABRE Group employees based in the United States are
represented by a labor union.
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FUEL
The Airline Group's operations are significantly affected by the availability
and price of jet fuel. American's fuel costs and consumption for the years
1993 through 1997 were:
Average Price
Per Gallon, Percent
Gallons Average Price Excluding of AMR's
Consumed Total Cost Per Gallon Fuel Tax Operating
Year (in millions) (in millions) (in cents) (in cents) Expenses
- ------------ ------------- ------------- ------------- ------------- ----------
1993 2,939 1,818 61.8 59.1 12.0
1994 2,741 1,556 56.7 54.2 10.3
1995 2,749 1,565 56.9 53.8 9.8
1996 2,734 1,866 68.2 63.3 11.7
1997 2,773 1,860 67.1 62.1 11.2
Based upon American's 1997 fuel consumption, a one cent rise in the
average annual price-per-gallon of jet fuel would increase American's monthly
fuel costs by approximately $2.3 million, not considering the offsetting effect
of American's fuel cost hedging program.
The impact of fuel price changes on the Company's competitors is
dependent upon various factors, including hedging strategies. However, lower
fuel prices may be offset by increased fare competition and lower revenues for
all air carriers. Conversely, there can be no assurance that American will be
able to pass fuel cost increases on to its customers by increasing fares in the
future.
While American does not anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability of jet fuel.
If there were major reductions in the availability of jet fuel, American's
business would be adversely affected.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits and related
services to the other companies participating in the program. American
reserves the right to change the AAdvantage program rules, regulations, travel
awards and special offers at any time without notice. American may initiate
changes impacting, for example, participant affiliations, rules for earning
mileage credit, mileage levels and awards, blackout dates and limited seating
for travel awards, and the features of special offers. American reserves the
right to end the AAdvantage program with six months notice.
Mileage credits can be redeemed for free, discounted or upgraded
travel on American, American Eagle or participating airlines, or for other
travel industry awards. Once a member accrues sufficient mileage for an award,
the member may request an award certificate from American. Award certificates
may be redeemed up to one year after issuance. Most travel awards are subject
to blackout dates and capacity controlled seating. All miles earned after July
1989 must be redeemed within three years or they expire.
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American accounts for its frequent flyer obligation on an accrual
basis using the incremental cost method. American's frequent flyer liability
is accrued each time a member accumulates sufficient mileage in his or her
account to claim the lowest level of free travel award (25,000 miles) and such
award is expected to be used for free travel. American includes fuel, food,
and reservations/ticketing costs, but not a contribution to overhead or profit,
in the calculation of incremental cost. The cost for fuel is estimated based
on total fuel consumption tracked by various categories of markets, with an
amount allocated to each passenger. Food costs are tracked by market category,
with an amount allocated to each passenger. Reservation/ticketing costs are
based on the total number of passengers, including those traveling on free
awards, divided into American's total expense for these costs. American defers
the portion of revenues received from companies participating in the AAdvantage
program related to the sale of mileage credits and recognizes such revenues
over a period approximating the period during which the mileage credits are
used.
At December 31, 1997 and 1996, American estimated that approximately
5.6 million and 5.3 million free travel awards, respectively, were eligible for
redemption. At December 31, 1997 and 1996, American estimated that
approximately 4.8 million and 4.5 million free travel awards, respectively,
were expected to be redeemed for free travel. In making this estimate,
American has excluded mileage in inactive accounts, mileage related to accounts
that has not yet reached the lowest level of free travel award, and mileage in
active accounts that has reached the lowest level of free travel award but
which is not expected to ever be redeemed for free travel. The liability for
the program mileage that has reached the lowest level of free travel award and
is expected to be redeemed for free travel and deferred revenues for mileage
credits sold to others participating in the program was $628 million and $469
million, representing 11.2 percent and 8.4 percent of AMR's total current
liabilities at December 31, 1997 and 1996, respectively.
The number of free travel awards used for travel on American during
the years ended December 31, 1997, 1996 and 1995, was approximately 2.2 million
each year, representing 8.6 percent of total revenue passenger miles at
December 31, 1997 and 8.4 percent at December 31, 1996 and 1995. American
believes displacement of revenue passengers is minimal given American's load
factors, its ability to manage frequent flyer seat inventory, and the
relatively low ratio of free award usage to revenue passenger miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Airline Group's results of operations for
any interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic
conditions. In addition, fare initiatives, fluctuations in fuel prices, labor
actions and other factors could impact this seasonal pattern. Unaudited
quarterly financial data for the two-year period ended December 31, 1997, is
included in Note 17 to the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is
dependent upon a single customer or very few customers. Consequently, the loss
of the Company's largest few customers would not have a materially adverse
effect upon AMR.
INSURANCE American carries insurance for public liability, passenger
liability, property damage and all-risk coverage for damage to its aircraft, in
amounts which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
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ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by AMR's subsidiaries at December 31, 1997,
included:
Weighted-
Average
Equipment Type Current Seating Capital Operating Age
Capacity Owned Leased Leased Total (Years)
- ----------------------------------- ------------------ -------------- ---------- ------------- --------- ---------
JET AIRCRAFT
Airbus A300-600R 192/266/267 10 - 25 35 8
Boeing 727-200 150 65 14 - 79 21
Boeing 757-200 188 50 9 31 90 6
Boeing 767-200 172 8 - - 8 15
Boeing 767-200 Extended Range 165 9 13 - 22 12
Boeing 767-300 Extended Range 207 16 15 10 41 7
Fokker 100 97 66 5 4 75 5
McDonnell Douglas DC-10-10 237/290/297 13 - - 13 20
McDonnell Douglas DC-10-30 271/282 4 1 - 5 23
McDonnell Douglas MD-11 238/255 13 - - 13 5
McDonnell Douglas MD-80 139 119 25 116 260 10
------ ------ ------ ------ ------
Total 373 82 186 641 10
====== ====== ====== ====== ======
REGIONAL AIRCRAFT
ATR 42 46 28 2 16 46 8
Super ATR 64/66 35 - 3 38 4
Saab 340B 34 29 61 - 90 6
Saab 340B Plus 34 - - 25 25 2
------ ------ ------ ------ ------
Total 92 63 44 199 5
====== ====== ====== ====== ======
For information concerning the estimated useful lives and residual
values for owned aircraft, lease terms for leased aircraft, and amortization
relating to aircraft under capital leases, see Notes 1 and 4 to the
consolidated financial statements.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
addition, in March 1998, the Company exercised its option to sell its
remaining seven MD-11 aircraft to FedEx. Six aircraft had been delivered as of
December 31, 1997. The remaining 13 aircraft will be delivered between 1998
and 2003.
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Lease expirations for leased aircraft operated by AMR's
subsidiaries and included in the preceding table as of December 31, 1997,
were:
2003
and
Equipment Type 1998 1999 2000 2001 2002 Thereafter
- ------------------------------ ------ ------ ------ ------ ------ ----------
JET AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 - 2 4 8 - -
Boeing 757-200 - - 2 2 2 34
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range - - 8 - 1 16
Fokker 100 - - - 2 3 4
McDonnell Douglas DC-10-30 - - - 1 - -
McDonnell Douglas MD-80 - - 3 9 14 115
------ ------ ------ ------ ------ ------
- 2 17 22 20 207
====== ====== ====== ====== ====== ======
REGIONAL AIRCRAFT
ATR 42 - 3 4 - - 3
Saab 340B - - - - - 61
------ ------ ------ ------ ------ ------
- 3 4 - - 64
====== ====== ====== ====== ====== ======
The table excludes leases for 25 Saab 340B Plus aircraft, eight ATR 42
aircraft, and three Super ATR aircraft which can be canceled with twelve months
or less notice with certain restrictions.
Substantially all of the Airline Group's aircraft leases include an
option to purchase the aircraft or to extend the lease term, or both, with the
purchase price or renewal rental to be based essentially on the market value of
the aircraft at the end of the term of the lease or at a predetermined fixed
amount.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property,
most of its airport and terminal facilities; certain corporate office,
maintenance and training facilities in Fort Worth, Texas; its principal
overhaul and maintenance base at Tulsa International Airport, Tulsa, Oklahoma;
its regional reservation offices; and local ticket and administration offices
throughout the system. American has entered into agreements with the Tulsa
Municipal Airport Trust; the Alliance Airport Authority, Fort Worth, Texas; and
the Dallas/Fort Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New
York, and Los Angeles airport authorities to provide funds for constructing,
improving and modifying facilities and acquiring equipment which are or will be
leased to American. American also utilizes public airports for its flight
operations under lease or use arrangements with the municipalities or
governmental agencies owning or controlling them and leases certain other
ground equipment for use at its facilities.
The Company's data center is located in an underground facility in
Tulsa, Oklahoma (the Data Center). The land on which the Data Center is
located is leased from the Tulsa Airport Improvements Trust. SABRE and the
Company's data processing services are dependent on the central computer
operations and information processing facility located in the Data Center.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
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ITEM 3. LEGAL PROCEEDINGS
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25 percent
penalty upon cancellation. On December 30, 1985, a class action lawsuit was
filed in Circuit Court, Cook County, Illinois entitled Johnson vs. American
Airlines, Inc. The Johnson plaintiffs allege that the 10 percent federal
excise transportation tax should have been excluded from the "fare" upon which
the 25 percent penalty was assessed. Summary judgment was granted in favor of
American but subsequently reversed and vacated by the Illinois Appellate Court.
In August 1997, the Court denied the plaintiffs' motion for class
certification. American is vigorously defending the lawsuit.
In connection with its frequent flyer program, American was sued in
two cases (Wolens et al v. American Airlines, Inc. and Tucker v. American
Airlines, Inc.) seeking class action certification that were consolidated and
are currently pending in the Circuit Court of Cook County, Illinois. The
litigation arises from certain changes made to American's AAdvantage frequent
flyer program in May 1988 which limited the number of seats available to
participants traveling on certain awards and established blackout dates during
which no AAdvantage seats would be available for certain awards. In the
consolidated action, the plaintiffs allege that these changes breached
American's contract with AAdvantage members, seek money damages for the alleged
breach and attorney's fees and seek to represent all persons who joined the
AAdvantage program before May 1988 and accrued mileage credits before the seat
limitations were introduced. The complaint originally asserted several state
law claims, however only the plaintiffs' breach of contract claim remains after
the U. S. Supreme Court ruled that federal law preempted the other claims.
Although the case has been pending for numerous years, it still is in its
preliminary stages. The court has not ruled as to whether the case should be
certified as a class action. American is vigorously defending the lawsuit.
Gutterman et al. v. American Airlines, Inc. is also pending in the
Circuit Court of Cook County, Illinois, arising from an announced increase in
AAdvantage mileage credits required for free travel. In December 1993,
American announced that the number of miles required to claim a certain travel
award under American's AAdvantage frequent flyer program would be increased
effective February 1, 1995, giving rise to the Gutterman litigation filed on
that same date. The Gutterman plaintiffs claim that the announced increase in
award mileage level violated the terms and conditions of the agreement between
American and AAdvantage members. The plaintiffs seek class certification of
this action, although the court has yet to rule on the issue. To date, only
limited discovery has been undertaken. American is vigorously defending the
lawsuit.
On October 22, 1997, federal agents executed a search warrant at
American's Miami facilities. American has learned that a federal grand jury is
investigating whether American handled hazardous materials and processed
courier shipments, cargo and excess baggage in accordance with applicable laws
and regulations. In connection with this investigation, American has been
served with a subpoena calling for the production of documents relating to the
handling of courier shipments, cargo, excess baggage and hazardous materials.
American has produced documents responsive to the subpoena and intends to
cooperate fully with the government's investigation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of its fiscal year ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of AMR as of December 31, 1997, were:
Robert L. Crandall Mr. Crandall was elected Chairman and Chief
Executive Officer of AMR and American in March
1985. He has been President of AMR since its
formation in 1982 and served as President of
American from 1980 to March 1995. Age 62.
Donald J. Carty Mr. Carty was elected President of American in
March 1995 and Executive Vice President of AMR in
October 1989. Except for two years service as
President of Canadian Pacific Air between March
1985 and March 1987, he has been with the Company
in various finance and planning positions since
1978. Age 51.
Gerard J. Arpey Mr. Arpey was elected Chief Financial Officer in
March 1995 and Senior Vice President in April 1992.
Prior to that, he served as Vice President of
American since October 1989. Age 39.
Anne H. McNamara Mrs. McNamara was elected Senior Vice President
and General Counsel in June 1988. She had served
as Vice President - Personnel Resources of
American from January 1988 through May 1988. She
was elected Corporate Secretary of AMR in 1982 and
American in 1979 and held those positions through
1987. Age 50.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in
January 1988. He joined American as an attorney
in June 1984. Age 43.
There are no family relationships among the executive officers of the
Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
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PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock
at March 9, 1998, was 14,138.
The range of closing market prices for AMR's common stock on the New
York Stock Exchange was:
1997 1996
----------------------------- -----------------------
High Low High Low
---------- -------- -------- --------
QUARTER ENDED
March 31 $ 88 1/8 $ 78 3/4 $ 92 3/4 $ 68 5/8
June 30 102 81 96 3/4 86 1/2
September 30 116 1/4 92 5/8 91 1/8 76 3/4
December 31 131 13/16 110 1/2 93 79 3/8
No cash dividends on common stock were declared for any period during
1997 or 1996. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Total operating revenues $18,570 $17,753 $16,910 $16,137 $15,816
Operating income 1,926 1,839 1,015 1,006 690
Earnings (loss) before
extraordinary loss 985 1,105 191 228 (96)
Net earnings (loss) 985 1,016 162 228 (110)
Earnings (loss) per common
share before extraordinary
loss and effect of preferred
stock exchange:(1/2)
Basic 11.05 12.83 2.51 2.27 (2.05)
Diluted 10.78 12.15 2.49 2.27 (2.05)
Net earnings (loss) per
common share:
Basic 11.05 11.80 2.13 4.51 (2.24)
Diluted 10.78 11.19 2.11 4.51 (2.24)
Total assets 20,915 20,497 19,556 19,486 19,326
Long-term debt, less current
maturities 2,260 2,752 4,983 5,603 5,431
Obligations under capital
leases, less current
obligations 1,629 1,790 2,069 2,275 2,123
Obligation for postretirement
benefits 1,579 1,530 1,439 1,254 1,090
(1) The earnings per share computation for the twelve months ended
December 31, 1994 includes a $171 million non-cash increase in
additional paid-in-capital resulting from the exchange of outstanding
convertible preferred stock into subordinated convertible debt.
(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share".
No dividends were declared on common shares during any of the periods
above.
Information on the comparability of results is included in
Management's Discussion and Analysis and the notes to the consolidated
financial statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMR was incorporated in October 1982. AMR's principal subsidiary, American
Airlines, Inc., was founded in 1934. For financial reporting purposes, AMR's
operations fall within three major lines of business: the Airline Group, The
SABRE Group and the Management Services Group.
AIRLINE GROUP
The Airline Group consists primarily of American's Passenger and Cargo
divisions and AMR Eagle Holding Corporation, a separate subsidiary of AMR.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1997, American provided scheduled jet
service to more than 165 destinations throughout North America, the Caribbean,
Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. It provides a full range of freight and mail services to
shippers throughout the airline's system. In addition, through cooperative
agreements with other carriers, it has the ability to transport shipments to
virtually any country in the world.
AMR EAGLE HOLDING CORPORATION (AMR EAGLE) owns the four regional airlines which
operate as "American Eagle" -- Executive Airlines, Inc., Flagship Airlines,
Inc., Simmons Airlines, Inc. and Wings West Airlines, Inc. The American Eagle
carriers provide connecting service from six of American's high-traffic cities
to smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
In January 1998, AMR Eagle Holding Corporation announced plans to
merge the four regional airlines into a single carrier - "American Eagle
Airlines, Inc." The transaction will occur in phases beginning in May 1998 and
is expected to be complete by the end of 1998.
THE SABRE GROUP
The SABRE Group is a world leader in the electronic distribution of travel
through its proprietary travel reservation and information system, SABRE(R),
and is the largest electronic distributor of travel in North America. In
addition, The SABRE Group is a leading provider of information technology
solutions to the travel and transportation industry and fulfills substantially
all of the data processing, network and distributed systems needs of American
and AMR's other subsidiaries, Canadian Airlines International Limited and other
customers.
ELECTRONIC TRAVEL DISTRIBUTION SABRE and other global distribution systems
are the principal means of air travel distribution in the United States and a
growing means of air travel distribution internationally. Through SABRE, travel
agencies, corporate travel departments and individual consumers can access
information on - and book reservations with - airlines and other providers of
travel and travel-related products and services. As of December 31, 1997,
travel agencies with more than 30,000 locations in over 70 countries on six
continents subscribed to SABRE. SABRE subscribers are able to make
reservations with more than 400 airlines, more than 50 car rental companies and
more than 200 hotel companies covering approximately 39,000 hotel properties
worldwide.
During 1997, more airline bookings in North America were made through
SABRE than through any other global distribution system. The SABRE Group is
actively involved in marketing SABRE internationally either directly or through
joint venture or distributorship arrangements. The SABRE Group's global
marketing partners principally include foreign airlines that have strong
relationships with travel agents in such airlines' primary markets and entities
that operate smaller global distribution systems or other travel-related
network services. In 1997, approximately 67.3 percent of The SABRE Group's
revenue was generated by the electronic distribution of travel, primarily
through booking fees paid by associates.
In February 1998, The SABRE Group signed long-term agreements with
ABACUS International Holdings Ltd. which created a Singapore-based joint
venture company to manage travel distribution in the Asia-Pacific
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region. The SABRE Group owns 35 percent of the joint venture company, called
ABACUS International Ltd., and provides it with transaction processing on the
SABRE computer reservations system.
INFORMATION TECHNOLOGY SOLUTIONS The SABRE Group is a leading provider of
solutions to the travel and transportation industry. The SABRE Group employs
its airline technology expertise to offer technology solutions to other
industries that face similar complex operations issues, including the airport,
railroad, logistics and hospitality industries. The solutions offered by The
SABRE Group include software development and product sales, transactions
processing and consulting, as well as comprehensive information technology
outsourcing, which bundles traditional data center, network and distributed
systems management with industry-specific software applications and custom
development. In addition, pursuant to information technology services
agreements, The SABRE Group provides substantially all of the data processing,
network and distributed systems needs of American and AMR's other subsidiaries,
Canadian Airlines International Limited and other customers. In 1997,
approximately 32.7 percent of The SABRE Group's revenue was generated by the
provision of information technology solutions.
In January 1998, The SABRE Group completed the execution of a 25 year,
multi-billion dollar technology agreement with US Airways, Inc. to provide
substantially all of US Airways' information technology services. The
agreement covers the management and operation of US Airways' systems and
information technology services, including the migration or conversion of US
Airways' legacy systems to The SABRE Group systems by mid-1999.
MANAGEMENT SERVICES GROUP
The Management Services Group consists of four direct or indirect subsidiaries
of AMR -- AMR Global Services Corporation, Americas Ground Services, Inc.
(AGS), AMR Investment Services, Inc. and Airline Management Services, Inc.
(AMS).
AMR GLOBAL SERVICES CORPORATION manages five operating units: AMR Services
(formerly known as AMR Airline Services), AMR Combs, AMR Global Logistics,
TeleService Resources (TSR) and the AMR Training Group. AMR Services provides
a full range of aviation services, including ramp, passenger and cargo handling
services, as well as aircraft and equipment maintenance, fueling, general sales
representation, flight dispatch and management services for more than 200
airlines and airport authorities at approximately 65 locations throughout North
America, Europe and Asia. AMR Combs, the executive aviation services division
of AMR Global Services, is a premier corporate aviation services network of 14
facilities in major business centers in the United States, Mexico and Asia.
AMR Global Logistics serves the logistics marketplace and specializes in
logistics management, contract warehousing, trucking and multi-modal freight
forwarding services. TSR provides comprehensive call center management
services including inbound and outbound telemarketing, as well as reservation
services for certain air carriers and a wide range of non-airline Fortune 500
clients. The AMR Training Group operates the American Airlines Training &
Conference Center and provides a wide variety of training services to American
and a number of other corporate clients.
AGS provides airline ground and cabin service handling at 10 locations in seven
countries in the Caribbean and Central and South America.
AMR INVESTMENT SERVICES, INC. serves as an investment advisor to AMR and other
institutional investors. It also manages the American AAdvantage Funds, which
have both institutional shareholders -- including pension funds, financial
advisors, corporations and banks -- and individual shareholders. As of
December 31, 1997, AMR Investment Services was responsible for management of
approximately $18.4 billion in assets, including direct management of
approximately $6 billion in short-term investments.
AMS was formed in 1994 to manage the Company's service contracts with other
airlines such as the agreement to provide a variety of management, technical
and administrative services to Canadian Airlines International Limited which
the Company signed in 1994.
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RESULTS OF OPERATIONS
SUMMARY AMR's net earnings in 1997 were $985 million, or $11.05 per common
share ($10.78 diluted). The Company's results were adversely affected by a
brief strike and the strike threat from members of the Allied Pilots
Association (APA) during the first quarter of 1997, which negatively impacted
the Company's net earnings by an estimated $70 million, and the reinstatement
of the airline transportation tax in March of 1997.
AMR's net earnings in 1996 were $1.0 billion, or $11.80 per common
share ($11.19 diluted). In the fourth quarter of 1996, the Company recorded a
$497 million gain related to the initial public offering of The SABRE Group and
a $251 million charge ($230 million after tax) associated with the Company's
relationship with Canadian Airlines International Limited (Canadian). AMR also
recorded a $26 million charge ($16 million after tax) in the fourth quarter of
1996 to write down the value of aircraft interiors the Company planned to
refurbish. To reduce interest expense, the Company repurchased and/or retired
prior to scheduled maturity approximately $1.1 billion in face value of long-
term debt and capital lease obligations. These long-term debt and capital
lease transactions resulted in an extraordinary loss of $136 million ($89
million after tax) in 1996. Excluding these special items, totaling $162
million after tax, net earnings were $854 million.
BUSINESS SEGMENTS The SABRE Group has significant transactions with American
and the Airline Group. In the second quarter of 1996, American and The SABRE
Group completed the negotiation of a new technology services agreement pursuant
to which The SABRE Group performs data processing and solutions services for
American. This agreement reflected the downward trend in market prices for
data processing services. Additionally, the two companies completed
negotiations on new agreements covering the provision of air travel and certain
marketing services by American to The SABRE Group. The parties agreed to apply
the financial terms of these agreements as of January 1, 1996, which is
reflected in the reporting segments' financial highlights noted below.
The following sections provide a discussion of AMR's results by
reporting segment. The gain on the sale of stock by a subsidiary of $497
million in 1996 and minority interest expense of $36 million and $2 million in
1997 and 1996, respectively, have not been allocated to a reporting segment.
Additional segment information is included in Note 16 to the consolidated
financial statements.
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21
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(dollars in millions)
Year Ended December 31,
-----------------------------------------
1997 1996 1995
--------- --------- ---------
REVENUES
Passenger - American Airlines, Inc. $ 14,310 $ 13,645 $ 13,134
- AMR Eagle 1,017 1,047 976
Cargo 687 682 677
Other 889 837 714
--------- --------- ---------
16,903 16,211 15,501
OPERATING EXPENSES
Wages, salaries and benefits 5,480 5,191 5,082
Aircraft fuel 1,923 1,936 1,623
Commissions to agents 1,278 1,252 1,293
Depreciation and amortization 1,038 1,018 1,070
Maintenance materials and repairs 861 686 632
Other operating expenses 4,754 4,686 4,704
Restructuring costs -- -- 533
--------- --------- ---------
Total operating expenses 15,334 14,769 14,937
--------- --------- ---------
OPERATING INCOME 1,569 1,442 564
OTHER EXPENSE (266) (428) (650)
--------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $ 1,303 $ 1,014 $ (86)
========= ========= =========
Average number of equivalent employees 90,600 88,900 89,400
OPERATING STATISTICS
AMERICAN AIRLINES JET OPERATIONS
Revenue passenger miles (millions) 107,026 104,710 102,918
Available seat miles (millions) 153,917 152,886 155,337
Cargo ton miles (millions) 2,032 2,028 2,046
Passenger load factor 69.5% 68.5% 66.3%
Breakeven load factor excluding special charges 61.0% 60.2% 59.6%
Passenger revenue yield per passenger mile (cents) 13.37 13.03 12.76
Passenger revenue per available seat mile (cents) 9.30 8.92 8.46
Cargo revenue yield per ton mile (cents) 33.78 33.14 32.64
Operating expenses excluding special charges
per available seat mile (cents) 9.27 8.91 8.57
Operating aircraft at year-end 641 642 635
AMR EAGLE
Revenue passenger miles (millions) 2,553 2,590 2,492
Available seat miles (millions) 4,218 4,431 4,488
Passenger load factor 60.5% 58.5% 55.5%
Operating aircraft at year-end 199 205 261
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22
REVENUES
1997 COMPARED TO 1996 Airline Group revenues of $16.9 billion in 1997 were up
$692 million, or 4.3 percent, versus 1996. American's passenger revenues
increased 4.9 percent, or $665 million. The increase in passenger revenues
resulted from a 2.6 percent increase in passenger yield (the average amount one
passenger pays to fly one mile) from 13.03 to 13.37 cents and a 2.2 percent
increase in passenger traffic. For the year, domestic yields increased 1.8
percent, Latin American yields increased 4.5 percent, European yields increased
3.8 percent and Pacific yields increased 1.0 percent. In 1997, American
derived 69 percent of its passenger revenues from domestic operations and 31
percent from international operations.
American's domestic traffic increased 2.0 percent to 74.3 billion
revenue passenger miles (RPMs), while domestic capacity, as measured by
available seat miles (ASMs), increased 0.8 percent. International traffic grew
2.6 percent to 32.7 billion RPMs on a capacity increase of 0.4 percent. The
increase in international traffic was led by a 7.2 percent increase in Latin
America on capacity growth of 5.5 percent. This increase was partially offset
by a 1.7 percent decrease in the Pacific on a capacity decline of 2.9 percent
and a 1.5 percent decrease in Europe on a capacity decline of 5.3 percent,
primarily due to the cancellation of several routes during 1997.
The Airline Group benefited from several external factors in 1997.
First, a healthy U.S. economy produced strong demand for air travel. Second,
industry capacity grew at a more modest rate than demand, which led to higher
industry load factors and a healthy pricing environment. However, these
benefits were adversely impacted by a brief strike and the strike threat by
members of the APA during the first quarter of 1997, which negatively impacted
the Company's net earnings by an estimated $70 million.
1996 COMPARED TO 1995 Airline Group revenues of $16.2 billion in 1996 were up
$710 million, or 4.6 percent, versus 1995. American's passenger revenues
increased 3.9 percent, or $511 million. The increase in passenger revenues
resulted primarily from a 2.1 percent increase in passenger yield from 12.76 to
13.03 cents and a 1.7 percent increase in passenger traffic. For the year,
domestic yields increased 2.6 percent, Latin American yields increased 0.2
percent and European yields increased 3.1 percent, while Pacific yields
decreased 10.5 percent. The decline in Pacific yields was primarily due to the
foreign exchange impact of the weaker yen. In 1996, American derived 69.6
percent of its passenger revenues from domestic operations and 30.4 percent from
international operations.
American's domestic traffic increased 2.3 percent to 72.9 billion
RPMs, while domestic capacity, as measured by ASMs, decreased 1.7 percent.
International traffic grew 0.4 percent to 31.8 billion RPMs on a capacity
decline of 1.2 percent. The increase in international traffic was led by a 5.0
percent increase in Latin America on capacity growth of 3.9 percent, offset by
a 3.9 percent decrease in Europe on a capacity decline of 6.4 percent.
The Airline Group benefited from a number of external factors in 1996.
First, a healthy U.S. economy produced strong demand for air travel. Second,
industry capacity grew at a more modest rate, which led to higher industry load
factors and a healthy pricing environment. And third, U.S. carriers benefited
from an eight-month lapse in the application of the 10 percent excise tax on
airline tickets.
The AMR Eagle carriers' passenger revenues increased by 7.3 percent or
$71 million. Traffic on the AMR Eagle carriers increased 3.9 percent to 2.6
billion RPMs, while capacity decreased 1.3 percent. Passenger yield increased
3.2 percent, in part due to the significant changes made to AMR Eagle's fleet
and route network to increase efficiency. These changes included closing its
Nashville hub and 33 other stations, and grounding 54 aircraft, primarily 19-
seat Jetstream aircraft. In the first quarter of 1995, AMR Eagle redeployed
its fleet of ATR aircraft in response to the FAA's temporary restrictions on
the operation of ATR aircraft in known or forecast icing conditions. The fleet
disruption adversely impacted AMR Eagle's results in the first and second
quarters of 1995.
Other revenues increased 17.2 percent, or $123 million, primarily as a
result of an increase in aircraft maintenance work and airport ground services
performed by American for other airlines and increased employee travel service
charges. The remaining portion of the increase was attributable to the growth
in passenger traffic.
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OPERATING EXPENSES
1997 COMPARED TO 1996 Airline Group operating expenses of $15.3 billion in
1997 were up $565 million, or 3.8 percent, versus 1996. American's Jet
Operations cost per ASM increased 4.0 percent to 9.27 cents.
Wages, salaries and benefits increased $289 million, or 5.6 percent,
due primarily to an increase in the average number of equivalent employees,
contractual wage rate and seniority increases that are built into the Company's
labor contracts, including a three percent rate increase granted to pilots
effective August 31, 1997, and an increase in the provision for profit sharing.
Fuel expense decreased $13 million, or 0.7 percent, due to a 1.6
percent decrease in American's average price per gallon, including taxes,
partially offset by a 1.4 percent increase in American's fuel consumption.
Commissions to agents increased 2.1 percent, or $26 million, due
primarily to increased passenger revenues. This increase was offset by changes
in the Company's travel agency commission payment structure implemented in
September 1997 which lowered the base commission paid to travel agents from 10
percent to eight percent on all tickets purchased in the U.S. and Canada for
both domestic and international travel.
Maintenance materials and repairs expense increased 25.5 percent, or
$175 million, due to an increase in airframe and engine maintenance check
volumes at American's maintenance bases as a result of the maturing of its
fleet.
Other operating expenses increased $68 million, or 1.5 percent, due
primarily to an increase in outsourced services, additional airport security
requirements, and higher costs, such as credit card fees, resulting from higher
passenger revenues. Other operating expenses in 1996 included a $26 million
charge to write down the value of aircraft interiors.
1996 COMPARED TO 1995 Airline Group operating expenses in 1995 included
restructuring costs of $533 million, related to the cost of future pension and
other postretirement benefits for voluntary early retirement programs offered
in conjunction with renegotiated labor contracts covering members of the TWU
and the APFA, as well as provisions for the write-down of certain DC-10
aircraft and the planned retirement of certain turboprop aircraft, and other
restructuring activities. Excluding the restructuring costs, the Airline
Group's operating expenses increased 2.5 percent, or $365 million. American's
capacity decreased 1.6 percent to 152.9 billion ASMs. As a result, American's
Jet Operations cost per ASM, excluding restructuring costs in 1995 and the
write-down of aircraft interiors in 1996, increased 4.0 percent to 8.91 cents.
Despite a 0.6 percent decrease in the average number of equivalent
employees, wages, salaries and benefits expense rose 2.1 percent, or $109
million. The increase was due primarily to contractual wage rate and seniority
increases that are built into the Company's labor contracts and an increase in
the provision for profit sharing.
Fuel expense increased 19.3 percent, or $313 million, due to a 19.9
percent increase in American's average price per gallon, including the 4.3
cents per gallon domestic fuel tax imposed on the airline industry since
October 1995.
Commissions to agents decreased 3.2 percent, or $41 million, due
principally to a reduction in average rates paid to agents attributable
primarily to the change in commission structure implemented in February 1995,
partially offset by commissions on increased passenger revenues.
Maintenance materials and repairs expense increased 8.5 percent, or
$54 million, primarily due to five additional aircraft check lines added at
American's maintenance bases in 1996 as a result of the maturing of its fleet.
Other operating expenses, consisting of aircraft rentals, other
rentals and landing fees, food service costs and miscellaneous operating
expenses, decreased 0.4 percent, or $18 million. Aircraft rentals decreased
8.2 percent, or $55 million, primarily as a result of American's decision to
prepay the cancelable operating leases it had on 12 of its Boeing 767-300
aircraft during June and July 1996. Following the prepayments, these aircraft
have been accounted for as capital leases and the related costs included in
amortization expense. Miscellaneous
22
24
operating expenses (including outsourced services, data processing services,
booking fees, credit card fees, crew travel expenses, advertising and
communications costs) increased by 1.3 percent, or $33 million, including a $26
million charge in 1996 to write down the value of aircraft interiors American
planned to refurbish.
OTHER EXPENSE
Other expense consists of interest income and expense, interest capitalized and
miscellaneous - net.
1997 COMPARED TO 1996 Interest expense, net of amounts capitalized, decreased
20.7 percent, or $105 million, due primarily to scheduled debt repayments and
the repurchase and/or retirement prior to scheduled maturity of approximately
$469 million and $1.1 billion of long-term debt in 1997 and 1996, respectively,
and a reduction of $850 million of American's long-term debt owed to AMR as a
part of the reorganization of The SABRE Group. Also, in 1996, the Company's
convertible debentures were converted into AMR common stock, resulting in an
$834 million decrease in long-term debt. Interest income increased
approximately 29.1 percent, or $30 million, due primarily to higher investment
balances. Miscellaneous - net for 1996 included a $21 million provision for a
cash payment representing American's share of a multi-carrier travel agency
class action litigation settlement.
1996 COMPARED TO 1995 Interest expense, net of amounts capitalized, decreased
25.2 percent, or $171 million, due primarily to scheduled debt repayments and
the repurchase and/or retirement prior to scheduled maturity of approximately
$1.1 billion in long-term debt in 1996 and a reduction of $850 million of
American's long-term debt owed to AMR as a part of the reorganization of The
SABRE Group. Also, the Company's convertible debentures were converted into
common stock of AMR in May 1996, resulting in an $834 million decrease in long-
term debt and a $43 million reduction in interest expense from 1995 to 1996.
Interest income increased $29 million, or 39.2 percent, due primarily to higher
investment balances. Miscellaneous - net for 1996 included a $21 million
provision for a cash payment representing American's share of a multi-carrier
travel agency class action litigation settlement. Miscellaneous - net for 1995
included a $41 million charge related to the loss of an aircraft operated by
American.
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25
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(dollars in millions)
Year Ended December 31,
--------------------------------
1997 1996 1995
------- ------- -------
REVENUES $ 1,784 $ 1,622 $ 1,529
OPERATING EXPENSES 1,476 1,295 1,149
------- ------- -------
OPERATING INCOME 308 327 380
OTHER INCOME (EXPENSE) 16 (21) (10)
------- ------- -------
EARNINGS BEFORE INCOME TAXES $ 324 $ 306 $ 370
======= ======= =======
Average number of equivalent employees 8,500 7,900 7,300
REVENUES
1997 COMPARED TO 1996 Revenues for The SABRE Group increased 10.0 percent, or
$162 million. Electronic travel distribution revenues increased approximately
$99 million, or 8.9 percent, primarily due to growth in booking fees. The
growth in booking fees was due to an increase in booking volumes primarily
attributable to international expansion in Europe and Latin America and an
overall increase in the price per booking charged to associates. Revenues from
information technology solutions increased approximately $63 million, or 12.1
percent. Revenues from unaffiliated customers increased approximately $39
million due to an increase in software development, consulting and software
license fee revenues. Revenues from other AMR units increased $24 million due
to an increase in software development revenue and data processing volumes
offset by a decrease in data network revenue from the sale, in July 1996, of
data network equipment to a third party which began direct billing certain
items to American.
1996 COMPARED TO 1995 Revenues for The SABRE Group increased 6.1 percent, or
$93 million. Electronic travel distribution revenues increased approximately
$95 million, or 9.4 percent, primarily due to growth in booking fees from
associates. This growth was driven by an increase in booking volumes partially
attributable to international expansion in Europe and Latin America, an overall
increase in the price per booking charged to associates and a migration of
associates to higher participation levels within SABRE. Revenues from
information technology solutions decreased approximately $2 million. Revenues
from unaffiliated customers increased approximately $27 million, offset by a
decrease in revenues from such services provided to other AMR units of $29
million primarily due to application of the financial terms of the technology
services agreement signed with American in 1996.
OPERATING EXPENSES
1997 COMPARED TO 1996 Operating expenses increased 14.0 percent, or $181
million, due primarily to increases in salaries, benefits and employee related
costs and subscriber incentive expenses. Salaries, benefits and employee
related costs increased due to an increase in the average number of equivalent
employees necessary to support The SABRE Group's revenue growth and wage and
salary increases for existing employees. Subscriber incentive expenses
increased in order to maintain and expand The SABRE Group's travel agency
subscriber base.
1996 COMPARED TO 1995 Operating expenses increased 12.7 percent, or $146
million, due primarily to increases in salaries and benefits and subscriber
incentive expenses. Salaries and benefits increased due to an increase of
approximately eight percent in the average number of equivalent employees
necessary to support The SABRE Group's revenue growth and wage and salary
increases for existing employees. Subscriber incentive expenses increased in
order to maintain and grow The SABRE Group's customer base. Additionally, the
new agreements with American covering air travel and certain marketing services
and other changes resulting from the Reorganization increased operating
expenses in 1996.
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26
OTHER INCOME (EXPENSE)
1997 COMPARED TO 1996 Other income (expense) increased $37 million due to an
increase in interest income of $17 million due to higher investment balances,
an increase in other income of $14 million primarily due to increased income
from joint ventures, and a decrease in interest expense of approximately $6
million primarily due to a lower principal balance outstanding on the
subordinated debenture payable to AMR and lower interest rates.
1996 COMPARED TO 1995 Other income (expense) decreased $11 million due
primarily to interest expense incurred on the $850 million subordinated
debenture payable to AMR issued in conjunction with the Reorganization,
partially offset by increased interest income.
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27
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(dollars in millions)
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- -------- --------
REVENUES $ 610 $ 620 $ 572
OPERATING EXPENSES 561 550 501
-------- -------- --------
OPERATING INCOME 49 70 71
OTHER INCOME (EXPENSE)
Canadian Airlines charges -- (251) --
Miscellaneous - net 6 (1) (2)
-------- -------- --------
6 (252) (2)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES $ 55 $ (182) $ 69
======== ======== ========
Average number of equivalent employees 14,800 14,500 13,300
REVENUES
1997 COMPARED TO 1996 Revenues for the Management Services Group decreased
1.6 percent, or $10 million. This decrease was primarily the result of lower
revenue for AMR Combs due to the March 1997 sale of its aircraft parts
division, decreased telemarketing services provided by TeleService Resources,
the sale of Data Management Services in September 1997 and the reduction in
fees for services provided to Canadian Airlines International Limited
(Canadian) as agreed upon in the fourth quarter of 1996. This decrease was
partially offset by higher revenues for AMR Services as a result of increased
airline passenger, ramp and cargo handling services.
1996 COMPARED TO 1995 Revenues for the Management Services Group increased
8.4 percent, or $48 million. This increase is due principally to AMR Global
Services Corporation, which experienced higher revenue as a result of increased
airline passenger, ramp and cargo handling services provided by its AMR
Services division and increased telemarketing services provided by TeleService
Resources. This increase was partially offset by a $12 million reduction in
fees for services provided to Canadian.
OPERATING EXPENSES
1997 COMPARED TO 1996 Operating expenses increased 2.0 percent, or $11
million, due to an $18 million increase in wages, salaries and benefits
resulting from a 2.1 percent increase in the average number of equivalent
employees and wage and salary adjustments for existing employees. This
increase was partially offset by the decrease in other operating expenses of $7
million, or 2.6 percent, commensurate with the decrease in revenues.
1996 COMPARED TO 1995 Operating expenses increased 9.8 percent, or $49
million, due to a $27 million increase in wages, salaries and benefits
resulting from an increase in the average number of equivalent employees and a
$22 million increase in other operating expenses commensurate with the increase
in revenues.
OTHER INCOME (EXPENSE)
Other income (expense) for 1996 included a $251 million charge associated with
the Company's relationship with Canadian. This charge included $192 million
related to the write-off of AMR's investment in the cumulative mandatorily
redeemable convertible preferred stock of Canadian and $59 million related to
the write-off of certain deferred costs relating to AMR's agreement to provide
a variety of management, technical and administrative services to Canadian.
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LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $2.9 billion in 1997, $2.7 billion in
1996 and $2.2 billion in 1995. The $204 million increase from 1996 to 1997
resulted primarily from an increase in the air traffic liability due to higher
advanced sales. The $536 million increase from 1995 to 1996 resulted primarily
from increased net earnings and an increase in the air traffic liability due to
higher advanced sales and fare sale activity in late 1996 compared to 1995.
Capital expenditures in 1997 totaled $1.4 billion, compared to $547
million in 1996 and $928 million in 1995, and included purchase deposits on new
aircraft orders of $745 million, purchases of computer related equipment
totaling $207 million and the acquisition of seven ATR aircraft. These
expenditures, as well as the expansion of certain airport facilities, were
funded primarily with internally generated cash. Proceeds from the sale of
equipment and property of $281 million in 1997 include proceeds received upon
the delivery of three of American's McDonnell Douglas MD-11 aircraft to Federal
Express Corporation (FedEx) in accordance with the 1995 agreement between the
two parties.
At December 31, 1997, the Company had commitments to acquire the
following aircraft: 75 Boeing 737-800s, 12 Boeing 757-200s, 11 Boeing 777-
200IGWs, eight Boeing 767-300ERs, 42 Embraer EMB-145s, 25 Bombardier CRJ-700s
and five ATR 72s (Super ATR). Deliveries of these aircraft commence in
1998 and will continue through 2004. Future payments, including estimated
amounts for price escalation through anticipated delivery dates for these
aircraft and related equipment, will approximate $1.5 billion in 1998, $1.9
billion in 1999, $560 million in 2000 and an aggregate of $1.5 billion in 2001
through 2004. In addition to these commitments for aircraft, the Company
expects to spend approximately $1.5 billion related to modifications to
aircraft, renovations of, and additions to, airport and office facilities, and
the acquisition of various other equipment and assets in 1998, of which
approximately $700 million has been authorized by the Company's Board of
Directors. While the Company expects to fund the majority of its capital
expenditures from the Company's existing cash balance and internally generated
cash, some new financing may be raised depending upon capital market conditions
and the Company's evolving view of its long-term needs.
In March 1998, the Company exercised its purchase rights to acquire
two additional Boeing 777-200IGWs for deliveries in 1999. Depending upon the
Company's fleet requirements, the Company may exercise additional aircraft
purchase rights throughout the remainder of 1998. Also in March 1998, the
Company exercised its option to sell its remaining seven MD-11 aircraft to
FedEx with deliveries between 2000 and 2002.
The new collective bargaining agreement reached between American and
the Allied Pilots Association granted pilots options to purchase 5.75 million
shares of AMR common stock at $83.375, $10 less than the average fair market
value of the stock on the date of grant, May 5, 1997. The options were
immediately exercisable. To offset the potential dilution from the exercise of
these options, the Company repurchased 5.75 million shares of its common stock
during 1997. Also in July 1997, the Company initiated a stock repurchase
program for up to an additional $500 million of its outstanding common stock,
to be purchased in the open market or in private transactions from time to time
over a 24-month period. As of December 31, 1997, a total of 7,043,375 shares
had been purchased by the Company under the two programs at a total cost of
approximately $740 million, and proceeds of approximately $200 million had been
received by the Company upon the exercise of stock options. The Company
expects to spend approximately $350 million during 1998 to repurchase the
remainder of the shares under the stock repurchase program.
The Board of Directors of The SABRE Group has also approved a stock
repurchase program for The SABRE Group, under which The SABRE Group will
repurchase, subject to certain business and market conditions, up to 1.5
million shares of The SABRE Group's Class A common stock. Based on current
market prices, the total cost of The SABRE Group's stock repurchase program
will be approximately $55 million.
In February 1998, The SABRE Group signed long-term agreements with
ABACUS International Holdings Ltd. which created a Singapore-based joint
venture company to manage travel distribution in the Asia-Pacific region. The
SABRE Group received 35 percent of the joint venture company, called ABACUS
International Ltd. The SABRE Group paid $139 million in cash and contributed
assets related to The SABRE Group's ongoing travel distribution activities in
the Asia-Pacific region and other considerations with a fair value of
approximately
27
29
$100 million. The SABRE Group provides ABACUS International with transaction
processing on the SABRE computer reservations system. The investment was
funded with existing cash.
The Company will continue to evaluate uses for any surplus cash, which
may include the retirement, refinancing, and/or repurchase in the open market
or otherwise of debt and/or other fixed obligations, and the continued
repurchase of equity in the open market. The total amount of debt and/or
equity retired, refinanced, and/or repurchased will depend on market
conditions, AMR's cash position and other considerations during the year.
American has a $1.0 billion credit facility agreement which expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1997, no borrowings were outstanding
under the agreement.
AMR (principally American Airlines) historically operates with a
working capital deficit as do most other airline companies. The existence of
such a deficit has not in the past impaired the Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below.
The sensitivity analyses presented do not consider the effects that such
adverse changes may have on overall economic activity nor do they consider
additional actions management may take to mitigate its exposure to such
changes. Actual results may differ. See Note 6 to the consolidated financial
statements for accounting policies and additional information.
AIRCRAFT FUEL The Company's earnings are affected by changes in the price and
availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the
price risk of fuel costs primarily utilizing fuel swap and fuel option
contracts. Market risk is estimated as a hypothetical 10 percent increase in
the December 31, 1997 cost per gallon of fuel. Based on projected 1998 fuel
usage, such an increase would result in an increase to aircraft fuel expense of
approximately $110 million in 1998, net of fuel hedge instruments outstanding
at December 31, 1997. As of December 31, 1997, the Company had hedged
approximately 23 percent of its 1998 fuel requirements.
FOREIGN CURRENCY The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of foreign currency-denominated
operating revenues and expenses. The Company's largest exposure comes from the
British pound and Japanese yen. The Company uses options to hedge its
anticipated foreign currency-denominated net cash flows. The result of a
uniform 10 percent strengthening in the value of the U.S. dollar from December
31, 1997 levels relative to each of the currencies in which the Company's sales
and expenses are denominated and have not historically adjusted for such
foreign exchange rate fluctuations would result in a decrease in operating
income of approximately $60 million for the year ending December 31, 1998, net
of hedge instruments outstanding at December 31, 1997, due to the Company's
foreign-denominated revenues exceeding its foreign-denominated expenses. The
increase to other income due to the remeasurement of net foreign currency-
denominated liabilities and the increase to common stockholders' equity due to
the translation of net foreign currency-denominated liabilities resulting from
a 10 percent strengthening in the value of the U.S. dollar is not material.
This sensitivity analysis was prepared based upon projected 1998 foreign
currency-denominated revenues and expenses and foreign currency-denominated
assets and liabilities as of December 31, 1997. Furthermore, this calculation
assumes that each exchange rate would change in the same direction relative to
the U.S. dollar.
INTEREST The Company's earnings are also affected by changes in interest
rates due to the impact those changes have on its interest income from cash and
short-term investments and its interest expense from variable-rate debt
instruments. The Company has variable-rate debt instruments representing
approximately five percent of its total long-term debt and interest rate swaps
on notional amounts of approximately $1.4 billion at December 31, 1997. If
interest rates average 10 percent more in 1998 than they did during 1997, the
Company's
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30
interest expense would increase by approximately $10 million. If interest
rates average 10 percent more in 1998 than they did during 1997, the Company's
interest income from cash and short-term investments would increase by
approximately $14 million. These amounts are determined by considering the
impact of the hypothetical interest rates on the Company's variable-rate long-
term debt, interest rate swap agreements, cash and short-term investment
balances at December 31, 1997.
Market risk for fixed-rate long-term debt is estimated as the
potential increase in fair value resulting from a hypothetical 10 percent
decrease in interest rates and amounts to approximately $105 million. The fair
values of the Company's long-term debt were estimated using quoted market
prices or discounted future cash flows based on the Company's incremental
borrowing rates for similar types of borrowing arrangements.
OTHER The Company is also subject to market risk in its investment in the
cumulative mandatorily redeemable convertible preferred stock of Canadian
Airlines International Limited (Canadian). However, the impact of such market
risk on earnings is not significant as the Company wrote down its investment in
Canadian to its estimated fair market value in 1996. Furthermore, the Company
considers its investment in Canadian as an available for sale security and, as
such, any future increase in the value of the Company's investment in Canadian
would be recorded directly to stockholders' equity and would not impact the
Company's earnings. The cumulative mandatorily redeemable convertible
preferred stock of Canadian is not publicly traded and has no readily
determinable fair value.
OTHER INFORMATION
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites and certain
airport locations. At sites where remedial litigation has commenced, potential
liability is joint and several. AMR's alleged volumetric contributions at
these sites are minimal. AMR does not expect these matters, individually or
collectively, to have a material impact on its results of operations, financial
position or liquidity. Additional information is included in Note 3 to the
consolidated financial statements.
YEAR 2000 COMPLIANCE The Company has implemented a Year 2000 compliance
program designed to ensure that the Company's computer systems and applications
will function properly beyond 1999. Such program includes both systems and
applications operated by the Company's businesses as well as software licensed
to or operated for third parties by The SABRE Group. The Company believes that
it has allocated adequate resources for this purpose and expects its Year 2000
date conversion program to be completed on a timely basis. The Company has
commenced testing on certain systems and applications and will continue to test
the remainder of the systems and applications throughout the course of the Year
2000 program. However, there can be no assurance that the systems of other
parties (e.g., Federal Aviation Administration, Department of Transportation,
airport authorities, data providers) upon which the Company's businesses also
rely will be converted on a timely basis. The Company's business, financial
condition, or results of operations could be materially adversely affected by
the failure of its systems and applications, those licensed to or operated for
third parties, or those operated by other parties to properly operate or manage
dates beyond 1999.
The Company expects to incur significant internal staff costs, as well
as consulting and other expenses, related to infrastructure and facilities
enhancements necessary to prepare its systems for the Year 2000. The Company's
total estimated cost of the Year 2000 compliance program is approximately $215
million to $250 million, of which approximately $65 million was incurred as of
December 31, 1997. The remaining expenses are expected to be incurred
primarily in 1998. A significant portion of these costs are not likely to be
incremental costs to the Company, but rather will represent the redeployment of
existing information technology resources. Maintenance or modification costs
associated with making existing computer systems Year 2000 compliant will be
expensed as incurred.
The costs of the project and the date on which the Company plans to
complete the Year 2000 compliance program are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from these estimates. Specific factors that might cause such material
differences include, but
29
31
are not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes and similar
uncertainties.
AIRLINE TRANSPORTATION TAXES The Federal airline passenger excise tax, which
was reimposed in the first quarter of 1997, expired on September 30, 1997. A
replacement tax mechanism took effect on October 1, 1997. Over a five year
period on a sliding scale, the airline ticket tax will be reduced from 10
percent to 7.5 percent and a $3 per passenger segment fee will be phased in.
Additionally, the fee for international arrivals and departures was increased
from $6 per departure to $12 for each arrival and departure and a 7.5 percent
tax was added on the purchase of frequent flyer miles.
DALLAS LOVE FIELD In 1968, as part of an agreement between the cities of Fort
Worth and Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond
ordinance was enacted by both cities (the Bond Ordinance). The Bond Ordinance
required both cities to direct all scheduled interstate passenger operations to
DFW and was an integral part of the bonds issued for the construction and
operation of DFW. In 1979, as part of a settlement to resolve litigation with
Southwest Airlines, the cities agreed to expand the scope of operations allowed
under the Bond Ordinance at Dallas' Love Field. This settlement was codified
by Congress and became known as the Wright Amendment. The Wright Amendment
limited interstate operations at Love Field to the four states contiguous to
Texas (New Mexico, Oklahoma, Arkansas and Louisiana) and prohibited through
ticketing to any destination outside that perimeter. In 1997, without the
consent of either city, Congress amended the Wright Amendment by (i) adding
three states (Kansas, Mississippi and Alabama) to the perimeter and (ii)
removing all federal restrictions on large aircraft configured with 56 seats or
less (the 1997 Amendment). In October 1997, the City of Fort Worth filed suit
in state district court against the City of Dallas and others seeking to
enforce the Bond Ordinance. Fort Worth contends that the 1997 Amendment does
not preclude the City of Dallas from exercising its proprietary rights to
restrict traffic at Love Field in a manner consistent with the Bond Ordinance
and, moreover, that it has an obligation to do so. American has joined in this
litigation. Thereafter, Dallas filed a declaratory judgment action in federal
district court seeking to have the court declare that, as a matter of law, the
1997 Amendment precludes Dallas from exercising any restrictions on operations
at Love Field. As a result of the foregoing, the future of flight operations
at Love Field and American's DFW hub is uncertain. To the extent that
operations at Love Field to new destinations increase, American may be
compelled for competitive reasons to divert resources from DFW to Love Field.
This diversion could adversely impact American's business.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), effective for fiscal years beginning after December 15, 1997. SFAS
130 establishes standards for the reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. The
adoption of SFAS 130 will have no impact on the Company's results of
operations.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), effective for fiscal years beginning after December
15, 1997. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," and requires that a public company report
annual and interim financial and descriptive information about its reportable
operating segments pursuant to criteria that differ from current accounting
practice. Operating segments, as defined, are components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Because this statement addresses how
supplemental financial information is disclosed in annual and interim reports,
the adoption will have no impact on the Company's financial condition or
results of operations.
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) No. 97-2, "Software Revenue
Recognition," effective for transactions entered into for fiscal years
beginning after December 15, 1997. SOP 97-2 provides revised and expanded
guidance on software revenue recognition and applies to entities that earn
revenue from licensing, selling or otherwise marketing computer software. The
Company's accounting policy for software revenue recognition is in compliance
with SOP 97-2 and its adoption is not expected to have a material impact on the
Company's financial position or results of operations.
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32
OUTLOOK FOR 1998
AIRLINE GROUP The Airline Group expects 1998 to be another satisfactory year.
A strong U.S. economy and healthy demand for air travel allow the Company to
remain optimistic about 1998 revenues. In 1998, total system capacity is
expected to increase slightly. The Airline Group expects to continue to
strengthen its position in several domestic markets while expanding its
international network. The recently approved bilateral agreement between the
U.S. and Japan coupled with the expansion of code-share alliances, delivery of
new Boeing aircraft and the addition of several new routes will enable American
to gain further presence internationally. The Company is continuing to improve
the regional airline feed to American by strengthening AMR Eagle with the
delivery of its first regional jet in early 1998.
Pressure to reduce costs will continue, although the volatility of
fuel prices makes any prediction of overall costs very difficult. Excluding
fuel, the Company anticipates an increase in unit costs of about two to three
percent, driven by increased maintenance costs as American's fleet continues to
mature, higher labor costs associated with the normal seniority and scale
increases in the union contracts and various other inflationary pressures.
THE SABRE GROUP The SABRE Group expects continued profitability and revenue
growth in 1998. Revenues from The SABRE Group's information technology
solutions business should grow significantly in 1998 as a result of the multi-
billion dollar technology services agreement signed between The SABRE Group and
US Airways, Inc. Additionally, The SABRE Group expects overall revenue growth
from the electronic travel distribution business to be consistent with those of
prior years. While The SABRE Group anticipates a decline in domestic airline
bookings growth in 1998, The SABRE Group expects to compensate for the decline
with growth in international bookings, non-air bookings and price increases.
MANAGEMENT SERVICES GROUP The Management Services Group comprises several
businesses whose activities are various and diverse. While most of the
businesses expect profitable growth in 1998, this growth will be offset by the
loss of revenue attributable to the sale of certain businesses in 1997. As a
result, combined Management Services Group operating results will likely remain
consistent with 1997 results.
FORWARD-LOOKING INFORMATION
The preceding discussions under Management's Discussion and Analysis of
Financial Condition and Results of Operations contain various forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which represent the Company's expectations or beliefs concerning future events.
When used in this document and in documents incorporated herein by reference,
the words "expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, without limitation, projections relating to results of operations and
financial condition, including increases in revenues and unit costs, Year 2000
compliance, overall economic projections and the Company's plans and objectives
for future operations, including plans to develop future code-sharing programs
and to evaluate new alliances. All forward-looking statements in this report
are based upon information available to the Company on the date of this report.
The Company undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future events or
otherwise. Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations. The
following factors, in addition to other possible factors not listed, could
cause the Company's actual results to differ materially from those expressed in
forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS The Company's
operations could be adversely affected by failure of the Company to reach
agreement with any labor union representing the Company's employees or by an
agreement with a labor union representing the Company's employees that contains
terms which prevent the Company from competing effectively with other airlines.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
national, regional and local economic conditions, inflation, war (or the threat
thereof), consumer preferences and spending patterns, demographic trends,
consumer perceptions of airline safety, costs of safety and security measures
and weather.
31
33
COMMODITY PRICES Due to the competitive nature of the airline industry, in
the event of any increase in the price of jet fuel, there can be no assurance
that the Airline Group would be able to pass on increased fuel prices to its
customers by increasing fares.
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Airline
Group's routes is highly competitive. On most of its non-stop routes, the
Airline Group competes with at least one, and usually more than one, major
domestic airline, as well as lower-cost carriers. The Airline Group also
competes with national, regional, all-cargo and charter carriers and,
particularly on shorter segments, ground transportation. Pricing decisions are
affected by competition from other airlines. Fare discounting by competitors
has historically had a negative effect on the Airline Group's financial results
because American is generally required to match competitors' fares to maintain
passenger traffic. No assurance can be given that any future fare reduction
would be offset by increases in passenger traffic or changes in the mix of
traffic that would improve yields.
COMPETITION IN ELECTRONIC TRAVEL DISTRIBUTION The markets in which The SABRE
Group's electronic travel distribution business competes are highly
competitive. The SABRE Group competes primarily against other large and well-
established global distribution systems and is always faced with the potential
of new competitors, particularly as new channels for distribution develop.
Increased competition could cause The SABRE Group to reduce prices, to increase
spending on marketing or product development or to otherwise take actions that
might adversely affect its operating earnings.
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the
Company may change its business strategy in the future and may not pursue some
of the goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary
based upon any actions which the governmental agencies with jurisdiction over
the Company's operations may take, including the granting and timing of certain
governmental approvals needed for code-sharing alliances and other arrangements
with other airlines, restrictions on competitive practices (e.g., new
regulations which would curtail an airlines ability to respond to a competitor)
and the adoption of more restrictive locally-imposed noise restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Page
-------
Report of Independent Auditors 34
Consolidated Statement of Operations 35
Consolidated Balance Sheet 37
Consolidated Statement of Cash Flows 39
Consolidated Statement of Stockholders' Equity 40
Notes to Consolidated Financial Statements 41
33
35
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 19, 1998
34
36
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- -------- --------
REVENUES
Airline Group:
Passenger - American Airlines, Inc. $ 14,310 $ 13,645 $ 13,134
- AMR Eagle 1,017 1,047 976
Cargo 687 682 677
Other 889 837 714
-------- -------- --------
16,903 16,211 15,501
The SABRE Group 1,784 1,622 1,529
Management Services Group 610 620 572
Less: Intergroup revenues (727) (700) (692)
-------- -------- --------
Total operating revenues 18,570 17,753 16,910
-------- -------- --------
EXPENSES
Wages, salaries and benefits 6,328 5,961 5,779
Aircraft fuel 1,923 1,936 1,623
Commissions to agents 1,278 1,252 1,293
Depreciation and amortization 1,244 1,204 1,259
Other rentals and landing fees 896 895 878
Maintenance materials and repairs 873 697 641
Food service 677 672 682
Aircraft rentals 574 616 671
Other operating expenses 2,851 2,681 2,536
Restructuring costs -- -- 533
-------- -------- --------
Total operating expenses 16,644 15,914 15,895
-------- -------- --------
OPERATING INCOME 1,926 1,839 1,015
OTHER INCOME (EXPENSE)
Interest income 138 80 63
Interest expense (399) (499) (670)
Gain on sale of stock by subsidiary -- 497 --
Miscellaneous - net (19) (284) (55)
-------- -------- --------
(280) (206) (662)
-------- -------- --------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS
1,646 1,633 353
Income tax provision 661 528 162
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY LOSS 985 1,105 191
EXTRAORDINARY LOSS, NET OF TAX BENEFIT -- (89) (29)
-------- -------- --------
NET EARNINGS $ 985 $ 1,016 $ 162
======== ======== ========
- --------------------------------------------------------------------------------
Continued on next page.
35
37
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- --------- ---------
EARNINGS APPLICABLE TO COMMON SHARES $ 985 $ 1,016 $ 162
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
BASIC
Before extraordinary loss $ 11.05 $ 12.83 $ 2.51
Extraordinary loss -- (1.03) (0.38)
--------- --------- ---------
Net earnings $ 11.05 $ 11.80 $ 2.13
========= ========= =========
DILUTED
Before extraordinary loss $ 10.78 $ 12.15 $ 2.49
Extraordinary loss -- (0.96) (0.38)
--------- --------- ---------
Net earnings $ 10.78 $ 11.19 $ 2.11
========= ========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
38
AMR CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions)
- --------------------------------------------------------------------------------
December 31,
-----------------------
1997 1996
--------- ---------
ASSETS
CURRENT ASSETS
Cash $ 64 $ 68
Short-term investments 2,370 1,743
Receivables, less allowance for uncollectible
accounts (1997 - $24; 1996 - $17) 1,370 1,382
Inventories, less allowance for obsolescence
(1997 - $203; 1996 - $213) 636 633
Deferred income taxes 406 404
Other current assets 225 240
--------- ---------
Total current assets 5,071 4,470
EQUIPMENT AND PROPERTY
Flight equipment, at cost 13,002 13,107
Less accumulated depreciation 4,459 3,922
--------- ---------
8,543 9,185
Purchase deposits for flight equipment 754 --
Other equipment and property, at cost 4,158 3,982
Less accumulated depreciation 2,284 2,100
--------- ---------
1,874 1,882
--------- ---------
11,171 11,067
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 2,980 2,998
Other equipment and property 274 261
--------- ---------
3,254 3,259
Less accumulated amortization 1,168 1,021
--------- ---------
2,086 2,238
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1997 - $211; 1996 - $182) 945 974
Airport operating and gate lease rights, less accumulated amortization
(1997 - $143; 1996 - $123) 325 345
Prepaid pension cost 382 446
Other 935 957
--------- ---------
2,587 2,722
--------- ---------
TOTAL ASSETS $ 20,915 $ 20,497
========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
39
AMR CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions, except shares and par value)
- --------------------------------------------------------------------------------
December 31,
----------------------
1997 1996
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,021 $ 1,068
Accrued salaries and wages 897 823
Accrued liabilities 1,123 1,232
Air traffic liability 2,044 1,889
Current maturities of long-term debt 397 424
Current obligations under capital leases 135 130
-------- --------
Total current liabilities 5,617 5,566
LONG-TERM DEBT, LESS CURRENT MATURITIES 2,260 2,752
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,629 1,790
OTHER LIABILITIES AND CREDITS
Deferred income taxes 1,105 743
Deferred gains 610 647
Postretirement benefits 1,579 1,530
Other liabilities and deferred credits 1,899 1,801
-------- --------
5,193 4,721
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $1 par value; shares authorized: 150,000,000;
shares issued: 1997 - 91,139,383; 1996 - 90,989,713 91 91
Additional paid-in capital 3,195 3,166
Treasury shares at cost: 1997 - 4,540,416 (485) --
Other (4) (23)
Retained earnings 3,419 2,434
-------- --------
6,216 5,668
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,915 $ 20,497
======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
38
40
AMR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 985 $ 1,016 $ 162
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 996 967 1,012
Deferred income taxes 362 218 50
Amortization 248 237 247
Gain on sale of stock by subsidiary -- (497) --
Provisions for losses -- 251 41
Extraordinary loss -- 136 45
Provision for restructuring costs -- -- 533
Change in assets and liabilities:
Decrease (increase) in receivables 12 (225) (109)
Increase in inventories (41) (66) (11)
Increase in accounts payable
and accrued liabilities 117 261 441
Increase (decrease) in air traffic liability 155 423 (7)
Other, net 86 (5) (224)
--------- --------- ---------
Net cash provided by operating activities 2,920 2,716 2,180
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (1,390) (547) (928)
Net increase in short-term investments (627) (924) (65)
Proceeds from sale of equipment and property 281 257 68
--------- --------- ---------
Net cash used for investing activities (1,736) (1,214) (925)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (648) (2,130) (1,401)
Repurchase of common stock (740) -- --
Proceeds from:
Exercise of stock options 200 25 21
Sale of stock by subsidiary -- 589 --
Issuance of long-term debt -- -- 184
--------- --------- ---------
Net cash used for financing activities (1,188) (1,516) (1,196)
--------- --------- ---------
Net increase (decrease) in cash (4) (14) 59
Cash at beginning of year 68 82 23
--------- --------- ---------
Cash at end of year $ 64 $ 68 $ 82
========= ========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
41
AMR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions, except shares and per share amounts)
- --------------------------------------------------------------------------------
Additional
Preferred Common Paid-in Treasury Retained
Stock Stock Capital Stock Other Earnings Total
------- ------- ------- ------- ------- ------- -------
Balance at January 1, 1995 $ 78 $ 76 $ 2,212 $ -- $ (242) $ 1,256 $ 3,380
Net earnings -- -- -- -- -- 162 162
Issuance of 507,826 shares pursuant
to stock option, deferred stock
and restricted stock incentive -- -- 27 -- -- -- 27
plans
Adjustment for minimum pension
liability, net of tax benefit of $120 -- -- -- -- 198 -- 198
Unrealized loss on investments, net
of tax benefit of $28 -- -- -- -- (47) -- (47)
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1995 78 76 2,239 -- (91) 1,418 3,720
Net earnings -- -- -- -- -- 1,016 1,016
Issuance of 13,926,774 shares upon
conversion of convertible
subordinated debentures and
preferred stock, net of
conversion fees and issuance costs (78) 14 881 -- -- -- 817
Issuance of 701,828 shares pursuant
to stock option, deferred stock
and restricted stock incentive -- 1 46 -- -- -- 47
plans
Adjustment for minimum pension
liability, net of tax benefit of $13 -- -- -- -- (21) -- (21)
Reversal of unrealized loss on
investment in Canadian Airlines
International Limited -- -- -- -- 91 -- 91
Unrealized loss on investments, net
of tax benefit of $1 -- -- -- -- (2) -- (2)
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1996 -- 91 3,166 -- (23) 2,434 5,668
Net earnings -- -- -- -- -- 985 985
Issuance of 156,070 shares pursuant
to stock option, deferred stock
and restricted stock incentive -- -- 13 -- -- -- 13
plans
Issuance of 5,750,000 stock options
at $10 below market value at date
of grant -- -- 58 -- -- -- 58
Repurchase of 7,043,375 common shares -- -- -- (740) -- -- (740)
Issuance of 2,502,959 shares from
Treasury pursuant to stock
option, deferred stock and
restricted stock incentive plans,
net of tax benefit of $15 -- -- (42) 255 -- -- 213
Adjustment for minimum pension
liability, net of tax expense of $13 -- -- -- -- 19 -- 19
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1997 $ -- $ 91 $ 3,195 $ (485) $ (4) $ 3,419 $ 6,216
======= ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
40
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION The consolidated financial statements include the
accounts of AMR Corporation (AMR or the Company), its wholly-owned
subsidiaries, including its principal subsidiary American Airlines, Inc.
(American), and its majority-owned subsidiaries, including The SABRE Group
Holdings, Inc. (The SABRE Group). All significant intercompany transactions
have been eliminated. Certain amounts from prior years have been reclassified
to conform with the 1997 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment
are carried at average acquisition cost and are expensed when incurred in
operations. Allowances for obsolescence are provided, over the estimated
useful life of the related aircraft and engines, for spare parts expected to be
on hand at the date aircraft are retired from service, plus allowances for
spare parts currently identified as excess. These allowances are based on
management estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment
and property is computed on the straight-line method applied to each unit of
property, except that spare assemblies are depreciated on a group basis. The
depreciable lives and residual values used for the principal depreciable asset
classifications are:
Residual
Depreciable Life Value
---------------------------- -----
Boeing 727-200 (Stage II) December 31, 1999(1) None
Boeing 727-200 (to be converted to Stage III) December 31, 2003(1) None
DC-10 December 31, 2002(2) None
Other jet aircraft 20 years 5%
Regional aircraft and engines 15-17 years 10%
Major rotable parts, avionics and assemblies Life of equipment to which 0-10%
applicable
Improvements to leased flight equipment Term of lease None
Buildings and improvements (principally on 10-30 years or term of lease None
leased land)
Furniture, fixtures and other equipment 3-20 years None
(1) In 1996, American changed the estimated useful lives of its
Boeing 727-200 aircraft and engines from an average
depreciable life of 21 years to an approximate common
retirement date of December 31, 1999 for those aircraft which
will not be converted to Stage III noise standards and
December 31, 2003 for those which will be converted to Stage
III. The impact of this change was not material.
(2) Approximate common retirement date.
Equipment and property under capital leases are amortized over the
term of the leases and such amortization is included in depreciation and
amortization. Lease terms vary but are generally 10 to 25 years for aircraft
and 7 to 40 years for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and
leased flight equipment are charged to operating expense as incurred, except
engine overhaul costs incurred by AMR's regional carriers, which are accrued on
the basis of hours flown.
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43
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS The Company continually evaluates intangible assets to
determine whether current events and circumstances warrant adjustment of the
carrying values or amortization periods.
Route acquisition costs and airport operating and gate lease rights
represent the purchase price attributable to route authorities, airport take-
off and landing slots and airport gate leasehold rights acquired. These assets
are being amortized on a straight-line basis over 40 years for route
authorities, 25 years for airport take-off and landing slots, and the term of
the lease for airport gate leasehold rights.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a
component of air traffic liability. Revenue derived from ticket sales is
recognized at the time transportation is provided. However, due to various
factors, including the complex pricing structure and interline agreements
throughout the industry, certain amounts are recognized in revenue using
estimates regarding both the timing of the revenue recognition and the amount
of revenue to be recognized. Actual results could differ from those estimates.
ELECTRONIC TRAVEL DISTRIBUTION REVENUES Revenues for airline travel
reservations are recognized at the time of the booking of the reservation, net
of estimated future cancellations. Revenues for car rental and other travel
providers are recognized at the time the reservation is used by the customer.
Fees billed on service contracts are recognized as revenue in the month earned.
INFORMATION TECHNOLOGY SOLUTIONS REVENUES Revenue from information technology
services is recognized in the period earned. Revenue from software license
fees for standard software products is recognized when the software is
delivered, provided no significant future vendor obligations exist and
collection is probable. Revenue on long-term software development and
consulting contracts is recognized under the percentage of completion method of
accounting. Losses, if any, on long-term contracts are recognized when the
current estimate of total contract costs indicates a loss on a contract is
probable. Fixed fees for software maintenance are recognized ratably over the
life of the contract.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $207 million, $205 million and $192 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free
travel awards is accrued when such award levels are reached. American sells
mileage credits and related services to companies participating in its frequent
flyer program. The portion of the revenue related to the sale of mileage
credits is deferred and recognized over a period approximating the period
during which the mileage credits are used.
STATEMENT OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statement of cash flows.
STOCK OPTIONS The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
42
44
2. INVESTMENTS
Short-term investments consisted of (in millions):
December 31,
---------------------
1997 1996
-------- --------
Overnight investments and time deposits $ 674 $ 81
Corporate notes 950 1,302
Other debt securities 746 360
-------- --------
$ 2,370 $ 1,743
======== ========
Short-term investments at December 31, 1997, by contractual maturity
included (in millions):
Due in one year or less $1,403
Due after one year through three years 662
Due after three years 305
------
$2,370
======
All short-term investments are classified as available-for-sale and
stated at fair value. Net unrealized gains and losses, net of deferred taxes,
are reflected as an adjustment to stockholders' equity.
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company had commitments to acquire the
following aircraft: 75 Boeing 737-800s, 12 Boeing 757-200s, 11 Boeing 777-
200IGWs, eight Boeing 767-300ERs, 42 Embraer EMB-145s, 25 Bombardier CRJ-700s
and five ATR 72s. Deliveries of these aircraft commence in 1998 and will
continue through 2004. Future payments, including estimated amounts for price
escalation through anticipated delivery dates for these aircraft and related
equipment, will approximate $1.5 billion in 1998, $1.9 billion in 1999, $560
million in 2000 and an aggregate of $1.5 billion in 2001 through 2004. In
addition to these commitments for aircraft, the Company's Board of Directors
has authorized expenditures of approximately $1.5 billion over the next five
years related to modifications to aircraft, renovations of, and additions to,
airport and office facilities, and the acquisition of various other equipment
and assets. AMR expects to spend approximately $700 million of this authorized
amount in 1998.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues.
Future costs of the remediation effort may be borne by carriers operating at
the Airport, including American, through increased landing fees and/or other
charges since certain of the potentially responsible parties are no longer in
business. The future increase in landing fees and/or other charges may be
material but cannot be reasonably estimated due to various factors, including
the unknown extent of the remedial actions that may be required, the proportion
of the cost that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision. The
ultimate resolution is not, however, expected to have a significant impact on
the financial position or liquidity of AMR.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx), with
delivery of the aircraft between 1996 and 1999. No gain or loss is expected to
be recognized as a result of this transaction. Six aircraft had been delivered
as of December 31, 1997. The carrying value of the six remaining aircraft
American has committed to sell was approximately $357 million as of December
31, 1997. In addition, American has the option to sell its remaining seven MD-
11 aircraft with deliveries between 2000 and 2002.
43
45
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
AMR and American have included an event risk covenant in approximately
$3.1 billion of debt and lease agreements. The covenant permits the holders of
such instruments to receive a higher rate of return (between 50 and 700 basis
points above the stated rate) if a designated event, as defined, should occur
and the credit rating of the debentures or the debt obligations underlying the
lease agreements is downgraded below certain levels.
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
which are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have
rates that are periodically reset and are remarketed by various agents. In
certain circumstances, American may be required to purchase up to $437 million
of the special facility revenue bonds prior to scheduled maturity, in which
case American has the right to resell the bonds or to use the bonds to offset
its lease or debt obligations. American may borrow the purchase price of these
bonds under standby letter of credit agreements. At American's option, these
letters of credit are secured by funds held by bond trustees and by
approximately $492 million of short-term investments.
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft, passenger terminals, equipment and various other
facilities. The future minimum lease payments required under capital leases,
together with the present value of net minimum lease payments, and future
minimum lease payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of December 31,
1997, were (in millions):
Capital Operating
Year Ending December 31, Leases Leases
------------ ------------
1998 $ 255 $ 1,011
1999 250 985
2000 315 935
2001 297 931
2002 247 887
2003 and subsequent 1,206 13,366
------------ ------------
2,570(1) $ 18,115(2)
============
Less amount representing interest 806
------------
Present value of net minimum lease payments $ 1,764
============
(1) Future minimum payments required under capital leases include
$192 million guaranteed by AMR relating to special facility
revenue bonds issued by municipalities.
(2) Future minimum payments required under operating leases
include $6.2 billion guaranteed by AMR relating to special
facility revenue bonds issued by municipalities.
At December 31, 1997, the Company had 186 jet aircraft and 44
turboprop aircraft under operating leases, and 82 jet aircraft and 63 turboprop
aircraft under capital leases. The aircraft leases can generally be renewed at
rates based on fair market value at the end of the lease term for one to five
years. Most aircraft leases have purchase options at or near the end of the
lease term at fair market value, but generally not to exceed a stated
percentage of the defined lessor's cost of the aircraft or at a predetermined
fixed amount.
During 1996, American made prepayments totaling $565 million on
cancelable operating leases it had on 12 of its Boeing 767-300 aircraft. Upon
the expiration of the amended leases, American can purchase the aircraft for a
nominal amount. As a result, the aircraft are recorded as flight equipment
under capital leases.
Rent expense, excluding landing fees, was $1.2 billion for 1997 and 1996 and
$1.3 billion for 1995.
44
46
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted
of (in millions):
December 31,
---------------------
1997 1996
-------- --------
6.50% - 10.70% notes due through 2021 $ 1,469 $ 1,859
8.625% - 10.20% debentures due through 2021 437 506
Variable rate indebtedness due through 2024
(3.55% - 6.824% at December 31, 1997) 135 162
6.0% - 9.25% bonds due through 2031 176 176
Other 43 49
-------- --------
Long-term debt, less current maturities $ 2,260 $ 2,752
======== ========
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 1998 - $397 million; 1999 - $34 million; 2000 - $230
million; 2001 - $436 million; 2002 - $66 million.
During 1996, AMR repurchased and/or retired prior to scheduled
maturity approximately $1.1 billion in face value of long-term debt and capital
lease obligations. Cash from operations provided the funding for the
repurchases and retirements. These transactions resulted in an extraordinary
loss of $136 million ($89 million after tax) in 1996. In May 1996, the
Company's convertible debentures were converted into common stock of AMR, which
resulted in an $834 million decrease in long-term debt and an $817 million
increase in stockholders' equity (net of conversion fees and issuance costs).
American has a $1.0 billion credit facility agreement which expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1997, no borrowings were outstanding under
the agreement.
Certain debt is secured by aircraft, engines, equipment and other
assets having a net book value of approximately $739 million. In addition,
certain of American's debt and credit facility agreements contain restrictive
covenants, including a cash flow coverage test and a minimum net worth
requirement, which could affect AMR's ability to pay dividends. At December
31, 1997, under the most restrictive provisions of those agreements,
approximately $1.9 billion of American's retained earnings were available for
payment of dividends to AMR.
Cash payments for interest were $409 million, $515 million and $685
million for 1997, 1996 and 1995, respectively.
45
47
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety
of financial instruments, including interest rate swaps, fuel swaps and
currency exchange agreements. The Company does not hold or issue derivative
financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
The Company is exposed to credit losses in the event of
non-performance by counterparties to these financial instruments, but it does
not expect any of the counterparties to fail to meet its obligations. The
credit exposure related to these financial instruments is represented by the
fair value of contracts with a positive fair value at the reporting date,
reduced by the effects of master netting agreements. To manage credit risks,
the Company selects counterparties based on credit ratings, limits its exposure
to a single counterparty under defined guidelines, and monitors the market
position of the program and its relative market position with each
counterparty. The Company also maintains industry-standard security agreements
with the majority of its counterparties which may require the Company or the
counterparty to post collateral if the value of these instruments falls below
certain mark-to-market thresholds. As of December 31, 1997, no collateral was
required under these agreements, and the Company does not expect to post
collateral in the near future.
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively
convert a portion of its fixed-rate obligations to floating-rate obligations.
These agreements involve the exchange of amounts based on a floating interest
rate for amounts based on fixed interest rates over the life of the agreement
without an exchange of the notional amount upon which the payments are based.
The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment.
The following table indicates the notional amounts and fair values of
the Company's interest rate swap agreements (in millions):
December 31,
--------------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
------------ ------------ ------------ -----------
Interest rate swap agreements $ 1,410 $ 12 $ 1,480 $ (9)
The fair values represent the amount the Company would pay or receive
to terminate the agreements at December 31, 1997 and 1996, respectively.
46
48
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
At December 31, 1997, the weighted-average remaining life of the
interest rate swap agreements in effect was 3.7 years. The weighted-average
floating rates and fixed rates on the contracts outstanding were:
December 31,
---------------------
1997 1996
----- -----
Average floating rate 5.901% 5.728%
Average fixed rate 5.844% 5.627%
Floating rates are based primarily on LIBOR and may change
significantly, affecting future cash flows.
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap contracts to protect against increases
in jet fuel prices. Under the agreements, American receives or makes payments
based on the difference between a fixed price and a variable price for certain
fuel commodities. The changes in market value of such agreements have a high
correlation to the price changes of the fuel being hedged. Gains and losses on
fuel swap agreements are recognized as a component of fuel expense when the
underlying fuel being hedged is used. Gains and losses on fuel swap agreements
would be recognized immediately were the changes in the market value of the
agreements to cease to have a high correlation to the price changes of the fuel
being hedged. At December 31, 1997, American had agreements with broker-
dealers to exchange payments on approximately 847 million gallons of fuel
products, which represents approximately 23 percent of its expected 1998 fuel
needs and approximately eight percent of its expected 1999 fuel needs. The
fair value of the Company's fuel swap agreements at December 31, 1997,
representing the amount the Company would pay to terminate the agreements,
totaled $34 million.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various
periods through September 30, 1999, which otherwise would expose the Company to
foreign currency risk. Realized gains on the currency put option agreements
are recognized as a component of passenger revenues. At December 31, 1997, the
notional amount related to these options totaled approximately $602 million and
the fair value, representing the amount AMR would receive to terminate the
agreements, totaled approximately $42 million.
The Company has entered into Japanese yen currency exchange agreements
to effectively convert certain lease obligations into dollar-based obligations.
Changes in the value of the agreements due to exchange rate fluctuations are
offset by changes in the value of the foreign currency denominated lease
obligations translated at the current exchange rate. Discounts or premiums are
accreted or amortized as an adjustment to interest expense over the lives of
the underlying lease obligations. The related amounts due to or from
counterparties are included in other liabilities or other assets. The net fair
values of the Company's currency exchange agreements, representing the amount
AMR and American would pay or receive to terminate the agreements, were:
December 31,
---------------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
Notional Fair Value Notional Fair Value
Amount (in millions) Amount (in millions)
------------- ------------ ------------ ------------
Japanese yen 24.5 billion $ (15) 24.7 billion $ 14
The exchange rates on the Japanese yen agreements range from 66.50 to
118.80 yen per U.S. dollar.
47
49
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and estimated fair values of the Company's
long-term debt, including current maturities, were (in millions):
December 31,
---------------------------------------------------
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
6.50% - 10.70% notes $ 1,859 $ 2,088 $ 2,214 $ 2,406
8.625% - 10.20% debentures 437 540 564 648
Variable rate indebtedness 136 136 165 165
6.0% - 9.25% bonds 176 194 176 180
Other 49 50 57 58
--------- --------- --------- ---------
$ 2,657 $ 3,008 $ 3,176 $ 3,457
========= ========= ========= =========
All other financial instruments are either carried at fair value or
their carrying value approximates fair value.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
Year Ended December 31,
-----------------------------------------
1997 1996 1995
--------- --------- ---------
Current $ 299 $ 310 $ 112
Deferred 362 218 50
--------- --------- ---------
$ 661 $ 528 $ 162
========= ========= =========
The income tax provision includes a federal income tax provision of
$573 million, $463 million and $133 million for the years ended December 31,
1997, 1996 and 1995, respectively.
48
50
7. INCOME TAXES (CONTINUED)
The income tax provision differed from amounts computed at the
statutory federal income tax rate as follows (in millions):
Year Ended December 31,
-----------------------------------
1997 1996 1995
-------- -------- --------
Statutory income tax provision $ 576 $ 572 $ 125
State income tax provision, net 47 36 11
Meal expense 21 18 22
Minority interest 12 1 --
Gain on sale of stock by subsidiary -- (174) --
Change in valuation allowance -- 60 --
Other, net 5 15 4
-------- -------- --------
Income tax provision $ 661 $ 528 $ 162
======== ======== ========
The change in valuation allowance in 1996 relates to the deferred tax
asset resulting from the write-off of AMR's investment in Canadian Airlines
International Limited (see Note 14) and expiring foreign tax credits.
The components of AMR's deferred tax assets and liabilities were (in
millions):
December 31,
------------------------
1997 1996
--------- ---------
Deferred tax assets:
Alternative minimum tax credit carryforwards $ 862 $ 680
Postretirement benefits other than pensions 583 550
Rent expense 323 231
Gains from lease transactions 234 248
Frequent flyer obligation 232 172
Other 417 603
Operating loss carryforwards -- 345
Valuation allowance (72) (72)
--------- ---------
Total deferred tax assets 2,579 2,757
--------- ---------
Deferred tax liabilities:
Accelerated depreciation and amortization (2,964) (2,679)
Pensions (94) (144)
Other (220) (273)
--------- ---------
Total deferred tax liabilities (3,278) (3,096)
--------- ---------
Net deferred tax liability $ (699) $ (339)
========= =========
At December 31, 1997, AMR had available for federal income tax
purposes approximately $862 million of alternative minimum tax credit
carryforwards available for an indefinite period.
Cash payments (refunds) for income taxes were $423 million, $194
million and $(36) million for 1997, 1996 and 1995, respectively.
49
51
8. COMMON AND PREFERRED STOCK
In January 1998, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation increasing the total number of
authorized shares of all classes of stock to 770 million, of which 20 million
may be shares of preferred stock (without par value) and 750 million may be
shares of common stock ($1 par value). The amendment to the Company's
Certificate of Incorporation will be presented to the Company's stockholders
for approval at the Company's 1998 annual meeting.
9. STOCK AWARDS AND OPTIONS
Under the 1988 Long Term Incentive Plan (1988 Plan), as amended in
1994, officers and key employees of AMR and its subsidiaries may be granted
stock options, stock appreciation rights, restricted stock, deferred stock,
stock purchase rights, other stock-based awards and/or performance related
awards, including cash bonuses. The total number of common shares authorized
for distribution under the 1988 Plan is 7,200,000 shares. In the event that
additional shares of the Company's common stock are issued, 7.65 percent of
such newly issued shares will be allocated to the 1988 Plan. The 1988 Plan
will terminate no later than May 18, 1998. Options are awarded with an
exercise price equal to the fair market value of the stock on date of grant,
becoming exercisable in equal annual installments over five years following the
date of grant and expiring 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded. As of January 1, 1996,
all outstanding stock appreciation rights were canceled, while the underlying
stock options remain in effect.
In January 1998, the Board of Directors approved the 1998 Long Term
Incentive Plan (1998 Plan), the successor plan to the 1988 Plan. The 1998 Plan
will be presented to the Company's stockholders for approval at the Company's
1998 annual meeting. If approved, the 1998 Plan will become effective on May
21, 1998 and will terminate on May 21, 2008. Under the 1998 Plan, officers and
key employees of AMR and its subsidiaries may be granted stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
other stock based awards and/or performance related awards, including cash
bonuses. The 1998 Plan authorizes the issuance of 5,000,000 shares.
In 1997, the total charge for stock compensation expense included in
wages, salaries and benefits expense was $75 million. No compensation expense
was recognized for stock option grants under the 1988 Plan since the exercise
price of the Company's stock option grants was the fair market value of the
underlying stock on the date of grant.
Stock option activity was:
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- ----------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price Options
---------- ---------- ---------- ---------- ----------
Outstanding at January 1 1,831,795 $ 67.19 2,322,780 $ 62.85 2,404,010
Granted 447,740 104.57 392,475 78.43 440,600
Exercised (492,888) 64.35 (580,800) 59.41 (390,510)
Canceled(1) (33,260) 67.64 (302,660) 62.97 (131,320)
---------- ---------- ----------
Outstanding at December 31 1,753,387 $ 77.54 1,831,795 $ 67.19 2,322,780
========== ========== ==========
(1) Includes 235,950 options canceled upon conversion to The SABRE Group stock
options for 1996 and 20,500 options canceled upon exercise of stock
appreciation rights for 1995.
50
52
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The following table summarizes information about the stock options
outstanding at December 31, 1997:
Weighted- Weighted- Weighted-
Range of Number of Average Average Number of Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life (years) Price Exercisable Price
--------- ----------- ------------ ---------- ----------- -----
$40-$58 305,292 5.25 $54.66 189,472 $54.14
$61-$70 428,790 5.49 66.26 272,270 65.35
$71-$94 605,005 8.04 77.60 146,505 77.12
$97-$116 414,300 9.65 105.97 - -
--------- -------
1,753,387 7.30 $77.54 608,247 $64.69
========= =======
In May 1997, in conjunction with the labor agreement reached between
American and members of the Allied Pilots Association, the Company established
the Pilots Stock Option Plan (The Pilot Plan). The Pilot Plan granted members
of the Allied Pilots Association the option to purchase 5.75 million shares of
AMR stock at $83.375 per share, $10 less than the average fair market value of
the stock on the date of grant, May 5, 1997. These shares were exercisable
immediately.
Pilot Plan option activity was:
Year Ended
December 31, 1997
-------------------
Options
-------------------
Outstanding at January 1 --
Granted 5,750,000
Exercised (2,030,890)
----------
Outstanding at December 31 3,719,110
==========
The weighted-average grant date fair value of all stock option awards
granted during 1997 and 1996 was $22.01 and $25.80, respectively.
Shares of deferred stock are awarded at no cost to officers and key
employees under the 1988 Plan's Career Equity Program and will be issued upon
the individual's retirement from AMR or, in certain circumstances, will vest on
a pro rata basis. Deferred stock activity was:
Year Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
Outstanding at January 1 1,197,331 1,424,058 1,496,803
Granted 87,750 102,650 120,300
Issued (33,670) (54,724) (116,016)
Canceled(1) (22,816) (274,653) (77,029)
---------- ---------- ----------
Outstanding at December 31 1,228,595 1,197,331 1,424,058
========== ========== ==========
(1) Includes 210,400 shares canceled upon conversion to The SABRE
Group stock options and awards for 1996.
The weighted-average grant date fair value of career equity awards
granted during 1997 and 1996 was $109.96 and $79.27, respectively.
51
53
9. STOCK AWARDS AND OPTIONS (CONTINUED)
A performance share plan was implemented in 1993 under the terms of
which shares of deferred stock are awarded at no cost to officers and key
employees under the 1988 Plan. The shares vest over a three-year performance
period based upon AMR's ratio of operating cash flow to adjusted assets.
Performance share activity was:
Year Ended December 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
Outstanding at January 1 839,730 824,411 508,330
Granted 404,368 382,307 340,991
Issued (95,383) (68,504) --
Awards settled in cash (256,532) (178,088) --
Canceled(1) (23,546) (120,396) (24,910)
-------- -------- --------
Outstanding at December 31 868,637 839,730 824,411
======== ======== ========
(1) Includes 90,551 shares canceled upon conversion to The SABRE
Group stock awards for 1996.
The weighted-average grant date fair value of performance share awards
granted during 1997 and 1996 was $104.55 and $78.81, respectively.
There were 9.1 million shares of AMR's common stock at December 31,
1997 reserved for the issuance of stock upon the exercise of options and the
issuance of stock awards.
The SABRE Group has established the 1996 Long Term Incentive Plan
(1996 Plan), whereby its officers and other key employees may be granted stock
options and other stock-based awards. Initially, 13 million shares of The
SABRE Group's Class A Common Stock were authorized to be issued under the 1996
Plan. At December 31, 1997, approximately 3.8 million shares of The SABRE
Group's Class A Common Stock were outstanding under the 1996 Plan.
In January 1998, in connection with the information technology
services agreement executed between The SABRE Group and US Airways, Inc., The
SABRE Group granted two tranches of stock options to US Airways, each to
acquire three million shares of The SABRE Group's Class A Common Stock. US
Airways may select an alternative vehicle of substantially equivalent value in
place of receiving stock. The first tranche of options is exercisable during
the six month period ending two years after the transfer of US Airways'
information technology assets, has an exercise price of $27 per share and is
subject to a cap on share price of $90. The second tranche of options is
exercisable during the 10 year period beginning on the fifth anniversary of
the asset transfer date, has an exercise price of $27 per share and is subject
to a cap on share price of $127.
The Company has adopted the pro forma disclosure features of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). As required by SFAS 123, pro forma information
regarding net earnings and earnings per share has been determined as if the
Company and The SABRE Group had accounted for its employee stock options and
awards granted subsequent to December 31, 1994 using the fair value method
prescribed by SFAS 123. The fair value for the stock options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995: risk-free interest rates
ranging from 5.80% to 6.70%; dividend yields of 0%; expected stock volatility
ranging from 25.0% to 29.0%; and expected life of the options of 4.5 years for
all Plans, with the exception of The Pilot Plan which was 1.5 years.
52
54
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options. In
addition, because SFAS 123 is applicable only to options and stock-based awards
granted subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
The Company's pro forma net earnings and earnings per share assuming
the Company had accounted for its employee stock options using the fair value
method would have resulted in 1997 net earnings of $960 million and basic and
diluted earnings per share of $10.77 and $10.50, respectively. The pro forma
effect of SFAS 123 is immaterial to the Company's 1996 and 1995 net earnings
and earnings per share.
10. RETIREMENT BENEFITS
Substantially all employees of American and employees of certain other
subsidiaries are eligible to participate in pension plans. The defined benefit
plans provide benefits for participating employees based on years of service
and average compensation for a specified period of time before retirement.
Airline pilots and flight engineers also participate in defined contribution
plans for which Company contributions are determined as a percentage of
participant compensation.
Total costs for all pension plans were (in millions):
Year Ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
Defined benefit plans:
Service cost - benefits earned during the period $ 189 $ 204 $ 165
Interest cost on projected benefit obligation 403 375 323
Return on assets (435) (91) (1,288)
Net amortization and deferral 26 (322) 1,008
--------- --------- ---------
Net periodic pension cost for defined
benefit plans 183 166 208
Defined contribution plans 142 132 124
--------- --------- ---------
Total $ 325 $ 298 $ 332
========= ========= =========
In addition to the pension costs shown above, in late 1995, AMR
offered early retirement programs to select groups of employees as part of its
restructuring efforts. In accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," AMR recognized
additional pension expense of $220 million associated with these programs in
1995 which was included in restructuring costs. Of this amount, $118 million
was for special termination benefits and $102 million was for the actuarial
losses resulting from the early retirements for 1995.
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10. RETIREMENT BENEFITS (CONTINUED)
The funded status and actuarial present value of benefit obligations
of the defined benefit plans were (in millions):
December 31,
------------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
Plans with Plans with Plans with Plans with
Assets in Accumulated Assets in Accumulated
Excess of Benefit Excess of Benefit
Accumulated Obligation in Accumulated Obligation in
Benefit Excess of Benefit Excess of
Obligation Assets Obligation Assets
------------ ------------ ------------ ------------
Vested benefit obligation $ 4,580 $ 53 $ 2,729 $ 1,435
============ ============ ============ ============
Accumulated benefit obligation
$ 4,802 $ 57 $ 2,882 $ 1,510
Effect of projected future
salary increases 940 26 650 202
------------ ------------ ------------ ------------
Projected benefit obligation 5,742 83 3,532 1,712
------------ ------------ ------------ ------------
Plan assets at fair value 5,213 6 3,154 1,463
Plan assets less than projected
benefit obligation (529) (77) (378) (249)
Unrecognized net loss 761 27 729 237
Unrecognized prior service
cost 58 5 37 29
Unrecognized transition asset (21) 1 (32) --
Adjustment to record minimum
pension liability -- (11) -- (69)
------------ ------------ ------------ ------------
Prepaid (accrued) pension
cost(1) $ 269 $ (55) $ 356 $ (52)
============ ============ ============ ============
(1) AMR's funding policy is to make contributions equal to, or in
excess of, the minimum funding requirements of the Employee
Retirement Income Security Act of 1974.
Plan assets consist primarily of domestic and foreign government and
corporate debt securities, marketable equity securities, and money market and
mutual fund shares, of which approximately $92 million and $71 million of plan
assets at December 31, 1997 and 1996, respectively, were invested in shares of
mutual funds managed by a subsidiary of AMR.
The projected benefit obligation was calculated using weighted-average
discount rates of 7.25% and 7.75% at December 31, 1997 and 1996, respectively;
rates of increase for compensation ranging from 4.0% to 4.20% at December 31,
1997 and 1996; and the 1983 Group Annuity Mortality Table. The weighted-
average expected long-term rate of return on assets was 9.50% in 1997, 1996 and
1995. The vested benefit obligation and plan assets at fair value at December
31, 1997, for plans whose benefits are guaranteed by the Pension Benefit
Guaranty Corporation were $4.6 billion and $5.2 billion, respectively.
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10. RETIREMENT BENEFITS (CONTINUED)
In October 1997, AMR spun off the portion of its defined benefit
pension plan applicable to employees of The SABRE Group to the Legacy Pension
Plan (LPP), a defined benefit plan established by The SABRE Group effective
January 1, 1997. At the date of the spin-off, the net obligation attributable
to The SABRE Group employees participating in AMR's plan was approximately $20
million. The SABRE Group also established The SABRE Group Retirement Plan
(SGRP), a defined contribution plan. Effective January 1, 1997, employees of
The SABRE Group who were under the age of 40 as of December 31, 1996
participate in the SGRP. Employees of The SABRE Group who were age 40 or over
as of December 31, 1996 had the option of participating in either the SGRP or
the LPP. The SABRE Group contributes 2.75 percent of each participating
employee's base pay to the SGRP. The employees vest in the contributions after
three years of service, including any prior service with AMR affiliates. In
addition, The SABRE Group matches 50 cents of each dollar contributed by
participating employees, limited to the first six percent of the employee's
base pay contribution, subject to IRS limitations. Employees are immediately
vested in their own contributions and the Company's matching contributions. In
1997, costs for the SGRP were $11 million.
In addition to pension benefits, other postretirement benefits,
including certain health care and life insurance benefits, are also provided to
retired employees. The amount of health care benefits is limited to lifetime
maximums as outlined in the plan. Substantially all employees of American and
employees of certain other subsidiaries may become eligible for these benefits
if they satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and makes contributions to match employee prefunding.
Net other postretirement benefit cost was (in millions):
Year Ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
Service cost - benefits earned during the period $ 48 $ 58 $ 48
Interest cost on accumulated other postretirement
benefit obligation 95 102 101
Return on assets (4) (3) (2)
Net amortization and deferral (14) (5) (6)
--------- --------- ---------
Net other postretirement benefit cost $ 125 $ 152 $ 141
========= ========= =========
In addition to net other postretirement benefit cost, in late 1995,
AMR offered early retirement programs to select groups of employees as part of
its restructuring efforts. In accordance with Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," AMR recognized additional other postretirement
benefit expense of $93 million associated with the program in 1995 which was
included in restructuring costs. Of this amount, $26 million was for special
termination benefits and $67 million was for the net actuarial losses resulting
from the early retirements for 1995.
55
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10. RETIREMENT BENEFITS (CONTINUED)
The funded status of the plan, reconciled to the accrued other
postretirement benefit cost recognized in AMR's balance sheet, was (in
millions):
December 31,
---------------------
1997 1996
-------- --------
Retirees $ 630 $ 593
Fully eligible active plan participants 178 128
Other active plan participants 598 492
-------- --------
Accumulated other postretirement benefit obligation 1,406 1,213
Plan assets at fair value 56 39
-------- --------
Accumulated other postretirement benefit obligation
in excess of plan assets 1,350 1,174
Unrecognized net gain 177 300
Unrecognized prior service benefit 52 56
-------- --------
Accrued other postretirement benefit cost $ 1,579 $ 1,530
======== ========
Plan assets consist primarily of shares of mutual funds managed by a
subsidiary of AMR.
For 1997 and 1996, future benefit costs were estimated assuming per
capita cost of covered medical benefits would increase at a five and six
percent annual rate, respectively, decreasing gradually to a four percent
annual growth rate by 2001. A one percent increase in this annual trend rate
would have increased the accumulated other postretirement benefit obligation at
December 31, 1997 by approximately $144 million and 1997 other postretirement
benefit cost by approximately $19 million. The weighted-average discount rate
used in estimating the accumulated other postretirement benefit obligation was
7.25% and 7.75% at December 31, 1997 and 1996, respectively.
11. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (SFAS 128). SFAS 128 replaced the primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. Earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the SFAS 128 requirements.
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11. EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
Year Ended December 31,
------------------------------------------
1997 1996 1995
--------- --------- ---------
NUMERATOR:
Earnings before extraordinary loss -
Numerator for basic earnings per $ 985 $ 1,105 $ 191
share
Effect of dilutive securities:
Interest upon assumed conversion of
convertible subordinated
debentures, net of tax -- 14(a) --
Dividends upon assumed conversion of
convertible preferred stock -- 1(a) --
--------- --------- ---------
-- 15 --
--------- --------- ---------
Numerator for diluted earnings per
share - income available to
common shareholders after assumed
conversions $ 985 $ 1,120 $ 191
========= ========= =========
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares 89 86 76
Effect of dilutive securities:
Convertible subordinated debentures -- 4 --
Convertible preferred stock -- 1 --
Employee options and shares 7 3 3
Treasury shares repurchased (5) (2) (2)
--------- --------- ---------
Dilutive potential common shares 2 6 1
Denominator for diluted earnings per
share - adjusted weighted-average
and assumed conversions 91 92 77
========= ========= =========
Basic earnings per share $ 11.05 $ 12.83 $ 2.51
========= ========= =========
Diluted earnings per share $ 10.78 $ 12.15 $ 2.49
========= ========= =========
(a) Through date of actual conversion
57
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12. RESTRUCTURING COSTS
In 1995, the Company recorded $533 million for restructuring costs
which included (in millions):
Year Ended
December 31,
------------
1995
------------
Special termination benefits:
Pension $ 118
Other postretirement benefits 26
Other termination benefits 19
Actuarial losses:
Pension 102
Other postretirement benefits 67
---------
Total cost of early retirement programs 332
Provisions for aircraft impairment and retirement 193
Other 8
---------
$ 533
=========
In 1995, approximately 2,100 mechanics and fleet service clerks and
300 flight attendants elected early retirement under programs offered in
conjunction with renegotiated union labor contracts, and the majority of these
employees left the Company's workforce during 1996. The Company recorded
restructuring costs of $332 million in 1995 related to these early retirement
programs. A large portion of the funding for the programs was done in 1995.
The remaining cash payments associated with these programs will be expended as
required for funding the appropriate pension and other postretirement benefit
plans in future years.
The aircraft portion of the 1995 restructuring costs includes a $145
million provision related to the write-down of certain McDonnell Douglas DC-10
aircraft. Effective January 1, 1995, AMR adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. In 1995,
the Company evaluated its fleet operating plan with respect to the DC-10-10
fleet and, as a result, believes that the estimated future cash flows expected
to be generated by these aircraft will not be sufficient to recover their net
book value. Management estimated the undiscounted future cash flows utilizing
models used by the Company in making fleet and scheduling decisions. As a
result of this analysis, the Company determined that a write-down of the DC-10-
10 aircraft to the net present value of their estimated discounted future cash
flows was warranted, which resulted in a $112 million charge. In addition, the
Company recorded a $33 million charge to reflect a diminution in the estimated
market value of certain DC-10 aircraft previously grounded by the Company. No
cash costs have been incurred or are expected as a result of these DC-10 write-
downs.
Also included in the aircraft restructuring costs is a $48 million
charge related to the planned early retirement in 1996 of certain turboprop
aircraft operated by AMR's regional carriers. The charge relates primarily to
future lease commitments on these aircraft past the dates they will be removed
from service and write-down of related inventory to its estimated fair value.
Cash payments on the leases in 1997 and 1996 totaled approximately $20 million
and $8 million, respectively, and additional payments will occur over the
remaining lease terms.
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13. GAIN ON SALE OF STOCK BY SUBSIDIARY
Pursuant to a reorganization consummated on July 2, 1996 (the
Reorganization), The SABRE Group Holdings, Inc. (a holding company incorporated
on June 25, 1996) became the successor to the businesses of The SABRE Group
which were formerly operated as divisions or subsidiaries of American or AMR.
During October 1996, The SABRE Group Holdings, Inc. completed an initial public
offering of 23,230,000 shares of its Class A Common Stock, representing 17.8
percent of its economic interest, at $27 per share for net proceeds of
approximately $589 million. This transaction resulted in a reduction of the
Company's economic interest in The SABRE Group from 100 percent to 82.2
percent. In accordance with the Company's policy of recognizing gains or
losses on the sale of a subsidiary's stock based on the difference between the
offering price and the Company's carrying amount of such stock, the Company
recorded a $497 million gain. The issuance of stock by The SABRE Group
Holdings, Inc. was not subject to federal income taxes. In accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," no income tax expense was recognized on the gain.
14. OTHER INCOME (EXPENSE) - MISCELLANEOUS
Other income (expense) - miscellaneous, net included the following (in
millions):
Year Ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
Canadian Airlines charges $ -- $ (251) $ --
Loss of aircraft -- -- (41)
Litigation settlement -- (21) --
Minority interest (36) (2) --
Other, net 17 (10) (14)
--------- --------- ---------
$ (19) $ (284) $ (55)
========= ========= =========
During 1996, the Company determined that the decline in the value of
its investment in the cumulative mandatorily redeemable convertible preferred
stock of Canadian Airlines International Limited (Canadian) was not temporary
and, in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," recorded a
$192 million charge to write down the investment to its estimated fair value.
Additionally, the Company recorded a charge of $59 million to write off certain
deferred costs relating to the Company's agreement to provide a variety of
services to Canadian.
The charge for loss of aircraft relates to the loss of an aircraft
operated by American in 1995.
15. FOREIGN OPERATIONS
American conducts operations in various foreign countries. American's
operating revenues from foreign operations were (in millions):
Year Ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Latin America $ 2,716 $ 2,438 $ 2,316
Europe 2,035 1,967 2,059
Pacific 356 336 373
--------- --------- ---------
Foreign operating revenues $ 5,107 $ 4,741 $ 4,748
========= ========= =========
The SABRE Group also conducts operations in various foreign countries.
The SABRE Group's operating revenues from foreign operations were $339 million,
$284 million and $251 million for 1997, 1996 and 1995, respectively.
59
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16. SEGMENT INFORMATION
AMR's operations fall within three industry segments: the Airline
Group, The SABRE Group and the Management Services Group. For a description of
each of these groups, refer to Management's Discussion and Analysis on pages 17
and 18.
The following table presents selected financial data by industry
segment (in millions):
December 31,
-------------------------------
1997 1996 1995
------- ------- -------
Airline Group:
Total revenues $16,903 $16,211 $15,501
Intergroup revenues 47 41 --
Operating income 1,569 1,442 564
Depreciation and amortization expense 1,038 1,018 1,071
Restructuring costs -- -- 533
Capital expenditures 1,139 338 745
Identifiable assets 18,709 18,560 18,290
The SABRE Group:
Total revenues 1,784 1,622 1,529
Intergroup revenues 526 500 548
Operating income 308 327 380
Depreciation and amortization expense 185 165 171
Capital expenditures 218 184 167
Identifiable assets 1,503 1,246 596
Management Services Group:
Total revenues 610 620 572
Intergroup revenues 154 159 144
Operating income 49 70 71
Depreciation and amortization expense 21 21 17
Capital expenditures 33 25 16
Identifiable assets 297 287 313
Identifiable assets are gross assets used by a business segment,
including an allocated portion of assets used jointly by more than one business
segment. General corporate and other assets not allocated to business segments
were $406 million, $404 million and $357 million at December 31, 1997, 1996 and
1995, respectively, and consist primarily of income tax assets.
In the second quarter of 1996, American and The SABRE Group completed
the negotiations of a new technology services agreement pursuant to which The
SABRE Group performs data processing and solutions services for American. This
agreement reflected the downward trend in market prices for data processing
services. Additionally, the two companies completed negotiations on new
agreements covering the provision of air travel and certain marketing services
by American to The SABRE Group. The parties agreed to apply the financial
terms of these agreements as of January 1, 1996, which is reflected in the
selected segment financial data in the above table. Excluding the effects of
the new agreements and the Reorganization, operating income for 1996 would have
approximated $1.38 billion for the Airline Group and $392 million for The SABRE
Group.
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17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1997 and 1996 (in
millions, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
Operating revenues $4,426 $4,710 $4,798 $4,636
Operating income 349 588 610 379
Net earnings 152 302 323 208
Earnings per common share:
Basic 1.67 3.32 3.66 2.41
Diluted 1.65 3.26 3.56 2.33
1996
Operating revenues $4,308 $4,550 $4,562 $4,333
Operating income 401 586 588 264
Earnings before extraordinary loss 157 293 282 373
Net earnings 157 293 282 284
Earnings per common share:
Basic
Before extraordinary loss 2.05 3.40 3.10 4.10
Net earnings 2.05 3.40 3.10 3.12
Diluted
Before extraordinary loss 1.84 3.20 3.06 4.05
Net earnings 1.84 3.20 3.06 3.08
Results for the third quarter of 1996 include a $21 million provision
for American's share of a multi-carrier travel agency class action litigation
settlement. Results for the fourth quarter of 1996 include a $497 million gain
recorded by the Company related to the initial public offering of The SABRE
Group (See Note 13), a $251 million charge related to the write-off of the
Company's investment in Canadian and certain deferred costs relating to the
Company's agreement to provide a variety of services to Canadian (See Note 14)
and a $26 million charge to write down the value of aircraft interiors the
Company planned to refurbish.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 20, 1998. Information concerning
the executive officers is included in Part I of this report on page 14.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 20, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 20, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 20, 1998.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditors' Report
are filed as part of this report:
Page
-----
Report of Independent Auditors 34
Consolidated Statement of Operations for the Years Ended
December 31, 1997, 1996 and 1995 35-36
Consolidated Balance Sheet at December 31, 1997 and 1996 37-38
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 39
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 40
Notes to Consolidated Financial Statements 41-61
62
64
(2) The following financial statement schedule and Independent
Auditors' Report are filed as part of this report:
Page
----
Report of Independent Auditors 69
Schedule II Valuation and Qualifying Accounts and Reserves 70
Schedules not included have been omitted because they are not
applicable or because the required information is included in
the consolidated financial statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under
any of AMR's long-term debt agreements does not exceed 10
percent of AMR's assets, pursuant to paragraph (b)(4) of Item
601 of Regulation S-K, in lieu of filing such as an exhibit,
AMR hereby agrees to furnish to the Commission upon request a
copy of any agreement with respect to such long-term debt.)
EXHIBIT
3.1 Restated Certificate of Incorporation of AMR, incorporated by
reference to AMR's Registration Statement on Form S-4, file
number 33-55191.
3.2 Amended Bylaws of AMR, incorporated by reference to Exhibit
10(ppp) to AMR's report on Form 10-Q for the period ended June
30, 1995.
3.3 Bylaws of AMR, amended as of May 21, 1997.
10.1 Employment Agreement among AMR, American Airlines and Robert
L. Crandall, dated January 1, 1988, incorporated by reference
to Exhibit 10(t) to AMR's report on Form 10-Q for the period
ended March 31, 1988; amendments thereto incorporated by
reference to Exhibit 10(ff) to AMR's report on Form 10-K for
the year ended December 31, 1989, Exhibit 10(tt) to AMR's
report on Form 10-K for the year ended December 31, 1990,
Exhibit 10(uu) to AMR's report on Form 10-Q for the period
ended June 30, 1992, and Exhibit 10(ooo) to AMR's report on
Form 10-Q for the period ended March 31, 1995.
10.2 Amended and Restated Employment Agreement among AMR, American
Airlines and Robert L. Crandall, dated January 21, 1998.
10.3 Irrevocable Executive Trust Agreement, dated as of May 1,
1992, between AMR and Wachovia Bank of North Carolina N.A.,
incorporated by reference to Exhibit 10(vv) to AMR's report on
Form 10-K for the year ended December 31, 1992.
10.4 Deferred Compensation Agreement, dated April 14, 1973, as
amended March 1, 1975, between American and Robert L.
Crandall, incorporated by reference to Exhibit 10(c)(7) to
American's Registration Statement No. 2-76709.
10.5 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's report on
Form 10-K for the year ended December 31, 1985.
10.6 Management Severance Allowance, dated as of February 23, 1990,
for levels 1-4 employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(oo) to AMR's report on
Form 10-K for the year ended December 31, 1989.
10.7 Management Severance Allowance, dated as of February 23, 1990,
for level 5 and above employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(pp) to AMR's report on
Form 10-K for the year ended December 31, 1989.
63
65
10.8 Description of informal arrangement relating to deferral of
payment of directors' fees, incorporated by reference to
Exhibit 10(c)(11) to American's Registration Statement No. 2-
76709.
10.9 Directors Stock Equivalent Purchase Plan, incorporated by
reference to Exhibit 10(gg) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.10 Directors Stock Incentive Plan dated May 18, 1994, as amended,
incorporated by reference to Exhibit 10.9 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.11 Deferred Compensation Agreement, dated as of December 27,
1995, between AMR and Howard P. Allen, incorporated by
reference to Exhibit 10(sss) to AMR's report on Form 10-K for
the year ended December 31, 1995.
10.12 Deferred Compensation Agreement, dated as of January 31, 1990,
between AMR and Edward A. Brennan, incorporated by reference
to Exhibit 10(hh) to AMR's report on Form 10-K for the year
ended December 31, 1989.
10.13 Deferred Compensation Agreement, dated as of February 7, 1996,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10(ttt) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.14 Deferred Compensation Agreement, dated as of February 10,
1997, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.13 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.15 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Armando M. Codina.
10.16 Deferred Compensation Agreement, dated as of February 9, 1996,
between AMR and Charles T. Fisher, III, incorporated by
reference to Exhibit 10(uuu) to AMR's report on Form 10-K for
the year ended December 31, 1995.
10.17 Deferred Compensation Agreement, dated as of January 30, 1997,
between AMR and Charles T. Fisher, III, incorporated by
reference to Exhibit 10.15 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.18 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Charles T. Fisher, III.
10.19 Deferred Compensation Agreement, dated as of February 23,
1996, between AMR and Charles H. Pistor, Jr., incorporated by
reference to Exhibit 10(vvv) to AMR's report on Form 10-K for
the year ended December 31, 1995.
10.20 Deferred Compensation Agreement, dated as of January 30, 1997,
between AMR and Charles H. Pistor, Jr., incorporated by
reference to Exhibit 10.17 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.21 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Charles H. Pistor, Jr.
10.22 Deferred Compensation Agreement, dated as of July 16, 1997,
between AMR and Judith Rodin.
10.23 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Judith Rodin.
64
66
10.24 Description of American's Split Dollar Insurance Program,
dated December 28, 1977, incorporated by reference to Exhibit
10(c)(1) to American's Registration Statement No. 2-76709.
10.25 AMR Corporation 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(t) to AMR's report on Form 10-K for
the year ended December 31, 1988.
10.26 Amendment to AMR's 1988 Long-term Incentive Plan dated May 18,
1994, incorporated by reference to Exhibit A to AMR's
definitive proxy statement with respect to the annual meeting
of stockholders held on May 18, 1994.
10.27 Form of Stock Option Agreement for Corporate Officers under
the AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(rr) to AMR's report on Form 10-K for
the year ended December 31, 1990.
10.28 Current form of Stock Option Agreement under the AMR 1988
Long-Term Incentive Plan.
10.29 Form of Career Equity Program Agreement, incorporated by
reference to Exhibit 10(nnn) to AMR's report on Form 10-K for
the year ended December 31, 1994.
10.30 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1988 Long-Term
Incentive Plan.
10.31 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1988 Long-Term
Incentive Plan.
10.32 Form of Guaranty to Career Equity Program under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to Exhibit
10(ccc) to AMR's report on Form 10-K for the year ended
December 31, 1993.
10.33 Performance Share Program for the years 1994 to 1996 under the
1988 Long-term Incentive Program, incorporated by reference to
Exhibit 10(lll) to AMR's report on Form 10-K for the year
ended December 31, 1994.
10.34 Performance Share Program for the years 1995 to 1997 under the
1988 Long-term Incentive Program, incorporated by reference to
Exhibit 10(ooo) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.35 Performance Share Program for the years 1996 to 1998 under the
1988 Long-term Incentive Program, incorporated by reference to
Exhibit 10.26 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.36 Performance Share Program for the years 1997 to 1999 under the
1988 Long-term Incentive Program, incorporated by reference to
Exhibit 10.27 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.37 Form of Performance Share Program for the years 1997 to 1999
under the 1988 Long-term Incentive Program.
10.38 Performance Share Program for the years 1998 to 2000 under the
1988 Long-term Incentive Program.
10.39 American Airlines, Inc. Supplemental Executive Retirement
Program, as amended January 1997, incorporated by reference to
Exhibit 10.28 to AMR's report on Form 10-K for the year ended
December 31, 1996.
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67
10.40 American Airlines, Inc. 1987 Executive Deferral Plan, as
amended through 1997.
10.41 American Airlines, Inc. 1996 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.29 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.42 American Airlines, Inc. 1997 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.30 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.43 American Airlines, Inc. 1998 Employee Profit Sharing Plan.
10.44 American Airlines, Inc. 1996 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10(qqq) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.45 American Airlines, Inc. 1997 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.32 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.46 American Airlines, Inc. 1998 Incentive Compensation Plan for
Officers and Key Employees.
10.47 Aircraft Sales Agreement by and between American Airlines,
Inc. and Federal Express Corporation, dated April 7, 1995,
incorporated by reference to Exhibit 10(rrr) to AMR's report
on Form 10-K for the year ended December 31, 1995.
Confidential treatment was granted as to a portion of this
document.
10.48 Aircraft Purchase Agreement by and between American Airlines,
Inc. and The Boeing Company, dated October 31, 1997.
Confidential treatment has been requested as to a portion of
this document.
10.49 Aircraft Purchase Agreement by and between AMR Eagle Holding
Corporation and Bombardier Inc., dated January 31, 1998.
Confidential treatment has been requested as to a portion of
this document.
10.50 Aircraft Purchase Agreement by and between AMR Eagle, Inc. and
Embraer-Empresa Brasileira de Aeronautica S.A., dated December
22, 1997. Confidential treatment has been requested as to a
portion of this document.
10.51 The SABRE Group, Inc. Long-Term Incentive Plan, incorporated
by reference to Exhibit 10.25 to The SABRE Group Holdings,
Inc.'s Registration Statement on Form S-1, file number 333-
09747.
10.52 The SABRE Group, Inc. Directors' Stock Incentive Plan,
incorporated by reference to Exhibit 10.26 to The SABRE Group
Holdings, Inc.'s Registration Statement on Form S-1, file
number 333-09747.
10.53 Form of Executive Termination Benefits Agreement for The SABRE
Group, Inc., incorporated by reference to Exhibit 10.27 to The
SABRE Group Holdings, Inc.'s Registration Statement on Form S-
1, file no. 333-09747.
66
68
21 Significant subsidiaries of the registrant as of December 31,
1997.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1997.
27.2 Restated Financial Data Schedule as of December 31, 1996.
27.3 Restated Financial Data Schedule as of December 31, 1995.
(b) Reports on Form 8-K:
None.
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69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMR CORPORATION
/s/ Robert L. Crandall
- -------------------------------------------------
Robert L. Crandall
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gerard J. Arpey
- -------------------------------------------------
Gerard J. Arpey
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates noted:
Directors:
/s/ David L. Boren /s/ Dee J. Kelly
--------------------------------- --------------------------------
David L. Boren Dee J. Kelly
/s/ Edward A. Brennan /s/ Ann D. McLaughlin
--------------------------------- --------------------------------
Edward A. Brennan Ann D. McLaughlin
/s/ Armando M. Codina /s/ Charles H. Pistor, Jr.
--------------------------------- --------------------------------
Armando M. Codina Charles H. Pistor, Jr.
/s/ Christopher F. Edley /s/ Joe M. Rodgers
--------------------------------- --------------------------------
Christopher F. Edley Joe M. Rodgers
/s/ Charles T. Fisher, III /s/ Judith Rodin
--------------------------------- --------------------------------
Charles T. Fisher, III Judith Rodin
/s/ Earl G. Graves /s/ Maurice Segall
--------------------------------- --------------------------------
Earl G. Graves Maurice Segall
Date: March 25, 1998
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the consolidated financial statements of AMR
Corporation as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
January 19, 1998. Our audits also included Schedule II - Valuation and
Qualifying Accounts and Reserves. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
schedule based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 19, 1998
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71
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
(IN MILLIONS)
CHARGED TO
----------
SALES,
BALANCE RETIRE- BALANCE
AT OTHER DEPREC. NET MENTS AT
BEGINNING OPERATING AND RESTRUCT WRITE- AND END OF
OF YEAR EXPENSES AMORT. COSTS OFF TRANSFERS YEAR
--------- --------- -------- ------- --------- ------- ---------
YEAR ENDED DECEMBER 31, 1997
Allowance for
uncollectible accounts $ 17 $ 26 $ -- $ -- $ (19) $ -- $ 24
Allowance for
obsolescence of inventories 213 -- 36 -- -- (46) 203
YEAR ENDED DECEMBER 31, 1996
Allowance for
uncollectible accounts 18 20 -- -- (21) -- 17
Allowance for
obsolescence of inventories 250 -- 23 -- -- (60) 213
YEAR ENDED DECEMBER 31, 1995
Allowance for
uncollectible accounts 26 17 -- -- (25) -- 18
Allowance for
obsolescence of inventories 179 -- 38 18 -- 15 250
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72
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.3 Bylaws of AMR, amended as of May 21, 1997.
10.2 Amended and Restated Employment Agreement among AMR, American
Airlines and Robert L. Crandall, dated January 21, 1998.
10.15 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Armando M. Codina.
10.18 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Charles T. Fisher, III.
10.21 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Charles H. Pistor, Jr.
10.22 Deferred Compensation Agreement, dated as of July 16, 1997,
between AMR and Judith Rodin.
10.23 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Judith Rodin.
10.28 Current form of Stock Option Agreement under the AMR 1988
Long-Term Incentive Plan.
10.30 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1988 Long-Term
Incentive Plan.
10.31 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1988 Long-Term
Incentive Plan.
73
10.37 Form of Performance Share Program for the years 1997 to 1999
under the 1988 Long-term Incentive Program.
10.38 Performance Share Program for the years 1998 to 2000 under the
1988 Long-term Incentive Program.
10.40 American Airlines, Inc. 1987 Executive Deferral Plan, as
amended through 1997.
10.43 American Airlines, Inc. 1998 Employee Profit Sharing Plan.
10.46 American Airlines, Inc. 1998 Incentive Compensation Plan for
Officers and Key Employees.
10.48 Aircraft Purchase Agreement by and between American Airlines,
Inc. and The Boeing Company, dated October 31, 1997.
Confidential treatment has been requested as to a portion of
this document.
10.49 Aircraft Purchase Agreement by and between AMR Eagle Holding
Corporation and Bombardier Inc., dated January 31, 1998.
Confidential treatment has been requested as to a portion of
this document.
10.50 Aircraft Purchase Agreement by and between AMR Eagle, Inc. and
Embraer-Empresa Brasileira de Aeronautica S.A., dated December
22, 1997. Confidential treatment has been requested as to a
portion of this document.
21 Significant subsidiaries of the registrant as of December 31,
1997.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1997.
27.2 Restated Financial Data Schedule as of December 31, 1996.
27.3 Restated Financial Data Schedule as of December 31, 1995.
1
Exhibit 3.3
AMR CORPORATION
BYLAWS
(As amended May 21, 1997)
ARTICLE I
Offices
The registered office of the corporation in the State of Delaware is to
be located in the City of Wilmington, County of New Castle. The corporation may
have other offices within and without the State of Delaware.
ARTICLE II
Meetings of Stockholders
Section l. Annual Meetings. An annual meeting of stockholders to elect
directors and to take action upon such other matters as may properly come before
the meeting shall be held on the third Wednesday in May of each year, or on such
other day, and at such time and at such place, within or without the State of
Delaware, as the board of directors or the chairman of the board may from time
to time fix.
Any stockholder wishing to bring a matter before an annual meeting must
notify the secretary of the corporation of such fact not less than sixty nor
more than ninety days before the date of the meeting. Such notice shall be in
writing and shall set forth the business proposed to be brought before the
meeting, shall identify the stockholder and shall disclose the stockholder's
interest in the proposed business.
2
Section 2. Special Meetings. A special meeting of stockholders shall be
called by the secretary upon receipt of a request in writing of the board of
directors, the chairman of the board or the president. Any such meeting shall be
held at the principal business office of the corporation unless the board shall
name another place therefor, at the time specified by the body or persons
calling such meeting.
Section 3. Nominees For Election As Director. Nominations for election
as director, other than those made by or at the direction of the board of
directors, must be made by timely notice to the secretary, setting forth as to
each nominee the information required to be included in a proxy statement under
the proxy rules of the Securities and Exchange Commission. If such election is
to occur at an annual meeting of stockholders, notice shall be timely if it
meets the requirements of such proxy rules for proposals of security holders to
be presented at an annual meeting. If such election is to occur at a special
meeting of stockholders, notice shall be timely if received not less than ninety
days prior to such meeting.
Section 4. Notice of Meetings. Written notice of each meeting of
stockholders shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such notice shall
be mailed, postage prepaid, to each stockholder entitled to vote at such
meeting, at his address as it appears on the records of the corporation, not
less than ten nor more than sixty days before the date of the meeting. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless the adjournment is for more than thirty
days or a new record date is
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3
fixed for the adjourned meeting, in which case a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 5. Chairman and Secretary at Meetings. At any meeting of
stockholders the chairman of the board, or in his absence, the president, or if
neither such person is available, then a person designated by the board of
directors, shall preside at and act as chairman of the meeting. The secretary,
or in his absence a person designated by the chairman of the meeting, shall act
as secretary of the meeting.
Section 6. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period.
Section 7. Quorum. At all meetings of the stock- holders the holders of
one-third of the number of shares of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum requisite for the election of directors and the transaction
of other business, except as otherwise provided by law or by the certificate of
incorporation or by any resolution of the board of directors creating any series
of Preferred Stock.
If holders of the requisite number of shares to constitute a quorum
shall not be present in person or represented by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. Voting. At any meeting of stockholders, except as otherwise
provided
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4
by law or by the certificate of incorporation or by any resolution of the board
of directors creating any series of Preferred Stock:
(a) Each holder of record of a share or shares of stock on the record
date for determining stockholders entitled to vote at such meeting shall be
entitled to one vote in person or by proxy for each share of stock so held.
(b) Directors shall be elected by a plurality of the votes cast by the
holders of Common Stock, present in person or by proxy.
(c) Each other question properly presented to any meeting of
stockholders shall be decided by a majority of the votes cast on the question
entitled to vote thereon.
(d) Elections of directors shall be by ballot but the vote upon any
other question shall be by ballot only if so ordered by the chairman of the
meeting or if so requested by stockholders, present in person or represented by
proxy, entitled to vote on the question and holding at least l0% of the shares
so entitled to vote.
Section 9. Action By Written Consent. Any stock- holder seeking to act
by written consent of stockholders shall notify the secretary in writing of such
intent and shall request the board of directors to fix a record date for
determining the stockholders entitled to vote by consent. The notice shall
specify the actions sought to be taken and, if the election of one or more
individuals as director is sought, shall include as to each nominee the
information required to be included in a proxy statement under the proxy rules
of the Securities and Exchange Commission. Such record date shall not be more
than ten (10) days after the date upon which the resolution fixing the record
date is adopted by the board of directors.
4
5
The board of directors shall promptly, but in all events within ten
(10) days after the date on which the written request for fixing a record date
was received by the secretary, adopt a resolution fixing the record date. If no
record date has been fixed by the board of directors within ten (10) days of the
date on which such a request is received, the record date for determining
stockholders entitled to vote by consent, when no prior action by the board of
directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
was delivered to the corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or any officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by applicable law, the record date for
determining stockholders entitled to vote by consent shall be at the close of
business on the date on which the board of directors adopts the resolution
taking such prior action.
Section l0. List of Stockholders. At least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder
shall be prepared. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where
5
6
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section ll. Judges of Election. Whenever a vote at a meeting of
stockholders shall be by ballot, or whenever written consent to action is
sought, the proxies and ballots or consents shall be received and taken charge
of, and all questions touching on the qualification of voters and the validity
of proxies and consents and the acceptance and rejection of votes shall be
decided by two judges of election. In the case of a meeting of stockholders,
such judges of election shall be appointed by the board of directors before or
at the meeting, and if no such appointment shall have been made, then by the
stockholders at the meeting. In the case of a solicitation of consents, such
judges of election shall be appointed by the board of directors on or before the
record date for determining the stockholders entitled to vote by consent, and if
no such appointment shall have been made, then by the chairman of the board or
the president. If for any reason either of the judges of election previously
appointed shall fail to attend or refuse or be unable to serve, a judge of
election in place of any so failing to attend or refusing or unable to serve,
shall be appointed by the board of directors, the stockholders at the meeting,
the chairman of the board or the president.
ARTICLE III
Directors: Number, Election, Etc.
Section l. Number. The board of directors shall consist of such number
of members, not less than three, as the board of directors may from time to time
determine by resolution, plus such additional persons as the holders of the
Preferred Stock may be entitled from time to time,
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7
pursuant to the provisions of any resolution of the board of directors creating
any series of Preferred Stock, to elect to the board of directors.
Section 2. Election, Term, Vacancies. Directors shall be elected each
year at the annual meeting of stockholders, except as hereinafter provided, and
shall hold office until the next annual election and until their successors are
duly elected and qualified. Vacancies and newly created directorships result-
ing from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum.
Section 3. Resignation. Any director may resign at any time by giving
written notice of such resignation to the board of directors, the chairman of
the board, the president or the secretary. Any such resignation shall take
effect at the time specified therein or, if no time be specified, upon the
receipt thereof by the board of directors or one of the above-named officers
and, unless specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4. Removal. Any director may be removed from office at any
time, with or without cause, by a vote of a majority of a quorum of the
stockholders entitled to vote at any regular meeting or at any special meeting
called for the purpose.
Section 5. Fees and Expenses. Directors shall receive such fees and
expenses as the board of directors shall from time to time prescribe.
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8
ARTICLE IV
Meetings of Directors
Section l. Regular Meetings. Regular meetings of the board of directors
shall be held at the principal office of the corporation, or at such other place
(within or without the State of Delaware), and at such time, as may from time to
time be prescribed by the board of directors or stockholders. A regular annual
meeting of the board of directors for the election of officers and the
transaction of other business shall be held on the same day as the annual
meeting of the stockholders or on such other day and at such time and place as
the board of directors shall determine. No notice need be given of any regular
meeting.
Section 2. Special Meetings. Special meetings of the board of directors
may be held at such place (within or without the State of Delaware) and at such
time as may from time to time be determined by the board of directors or as may
be specified in the call and notice of any meeting. Any such meeting shall be
held at the call of the chairman of the board, the president, a vice president,
the secretary, or two or more directors. Notice of a special meeting of
directors shall be mailed to each director at least three days prior to the
meeting date, provided that in lieu thereof, notice may be given to each
director personally or by telephone, or dispatched by telegraph, at least one
day prior to the meeting date.
Section 3. Waiver of Notice. In lieu of notice of meeting, a waiver
thereof in writing, signed by the person or persons entitled to said notice
whether before or after the time stated therein, shall be deemed equivalent
thereto. Any director present in person at a meeting of the board of directors
shall be deemed to have waived notice of the time and place of meeting.
8
9
Section 4. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting if all members of the board of directors or of such committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the board of directors or of such
committee.
Section 5. Quorum. At all meetings of the board, one-third of the total
number of directors shall constitute a quorum for the transaction of business.
The act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by law.
If at any meeting there is less than a quorum present, a majority of
those present (or if only one be present, then that one), may adjourn the
meeting from time to time without further notice other than announced at the
meeting until a quorum is present. At such adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally scheduled.
Section 6. Business Transacted. Unless otherwise indicated in the
notice of meeting or required by law, the certificate of incorporation or bylaws
of the corporation, any and all business may be transacted at any directors'
meeting.
ARTICLE V
Powers of the Board of Directors
The management of all the property and business of the corporation and
the regulation and government of its affairs shall be vested in the board of
directors. In addition to the powers and
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10
authorities by these bylaws and the certificate of incorporation expressly
conferred on them, the board of directors may exercise all such powers of the
corporation and do all such lawful acts and things as are not by law, or by the
certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
ARTICLE VI
Committees
Section l. Executive Committee. The board of directors may, by
resolution passed by a majority of the whole board, designate an executive
committee, to consist of three or more members. The chief executive officer plus
one other member of the executive committee shall constitute a quorum.
The executive committee shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, with the exception of such powers and authority as
may be specifically reserved to the board of directors by law or by resolution
adopted by the board of directors.
Section 2. Audit Committee. The board of directors may, by resolution
passed by a majority of the whole board, designate an audit committee, to
consist of three or more members, none of the members of which shall be
employees or officers of the corporation. A majority of the members of the audit
committee shall constitute a quorum.
The audit committee shall from time to time review and make
recommendations to the board of directors with respect to the selection of
independent auditors, the fees to be paid such auditors, the adequacy of the
audit and accounting procedures of the corporation, and such other
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11
matters as may be specifically delegated to the committee by the board of
directors. In this connection the audit committee shall, at its request, meet
with representatives of the independent auditors and with the financial officers
of the corporation separately or jointly.
Section 3. Compensation Committee. The board of directors may, by
resolution passed by a majority of the whole board, designate a compensation
committee, to consist of three or more members of the board of directors, except
that no member of the compensation committee may (i) be an employee or officer
of the corporation or (ii) maintain a relationship with the Corporation that
would cause such member to be ineligible for membership on the compensation
committee pursuant to rules or regulations adopted by the Securities and
Exchange Commission, the Internal Revenue Service or any other governmental
agency. A majority of the members of the compensation committee shall constitute
a quorum.
The compensation committee shall from time to time review and make
recommendations to the board of directors with respect to the management
remuneration policies of the corporation including but not limited to salary
rates and fringe benefits of elected officers, other remuneration plans such as
incentive compensation, deferred compensation and stock option plans, directors'
compensation and benefits and such other matters as may be specifically
delegated to the committee by the board of directors.
Section 4. Nominating and Governance Committee. The board of directors
may, by resolution passed by a majority of the whole board, designate a
nominating and governance committee, to consist of three or more members, none
of the members of which shall be employees or officers of the corporation. A
majority of the members of the nominating and governance committee shall
constitute a quorum.
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The nominating and governance committee shall make recommendations to
the board of directors (i) concerning suitable candidates for election to the
board, (ii) with respect to assignments to board committees, (iii) with respect
to promotions, changes and succession among the senior management of the
corporation and (iv) concerning practices and procedures for the proper and
efficient management of the board of directors. The nominating and governance
committee shall perform such other duties as may be specifically delegated to
the committee by the board of directors.
Section 5. Committee Procedure, Seal.
(a) The executive, compensation, nominating and governance and audit
committees shall keep regular minutes of their meetings, which shall be reported
to the board of directors, and shall fix their own rules of procedures.
(b) The executive, compensation, nominating and governance and audit
committees may each authorize the seal of the corporation to be affixed to all
papers which may require it.
(c) In the absence or disqualification of a member of any committee,
the members of that committee present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of such
absent or disqualified member.
Section 6. Special Committees. The board of directors may, from time to
time, by resolution passed by a majority of the whole board, designate one or
more special committees. Each such committee shall have such duties and may
exercise such powers as are granted to it in the resolution designating the
members thereof. Each such committee shall fix its own rules of procedure.
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ARTICLE VII
Indemnification
Section l. Nature of Indemnity. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was or has agreed to become a director or officer of the corporation, or is or
was serving or has agreed to serve at the request of the corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action by reason of the fact that he
is or was or has agreed to become an employee or agent of the corporation, or is
or was serving or has agreed to serve at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding had no reasonable cause to believe his
conduct was unlawful; except that in the case of an action or suit by or in the
right of the corporation to procure a judgment in its favor (l) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware
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14
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section l
hereof or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 3. Determination That Indemnification Is Proper. Any
indemnification of a director or officer of the corporation under Section l
hereof (unless ordered by a court) shall be made by the corporation unless a
determination is made that indemnification of the director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section l hereof. Any indemnification of an employee or
agent of the corporation under Section l hereof (unless ordered by a court) may
be made by the corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section l hereof. Any such
determination shall be made
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(1) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 4. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate. The board of directors may authorize the corporation's
counsel to represent a director, officer, employee or agent in any action, suit
or proceeding, whether or not the corporation is a party to such action, suit or
proceeding.
Section 5. Procedure for Indemnification of Directors or Officers. Any
indemnification of a director or officer of the corporation under Sections l and
2, or advance of costs, charges and expenses of a director or officer under
Section 4 of this Article, shall be made promptly, and in any event within 60
days, upon the written request of the director or officer. If the corporation
fails to respond within 60 days, then the request for indemnification shall be
deemed to be approved. The right to indemnification or advances as granted by
this Article shall be enforceable by the director or officer in any court of
competent jurisdiction if the corporation denies such request, in whole or in
part. Such person's costs and expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the corporation.
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It shall be a defense to any such action (other than an action brought to
enforce a claim for the advance of costs, charges and expenses under Section 4
of this Article where the required undertaking, if any, has been received by the
corporation) that the claimant has not met the standard of conduct set forth in
Section l of this Article, but the burden of proving such defense shall be on
the corporation. Neither the failure of the corporation (including its board of
directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section l of this Article, nor the fact that
there has been an actual determination by the corporation (including its board
of directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6. Survival; Preservation of Other Rights.
The foregoing indemnification provisions shall be deemed to be a
contract between the corporation and each director, officer, employee and agent
who serves in such capacity at any time while these provisions as well as the
relevant provisions of the Delaware Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of
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stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7. Insurance. The corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire board of
directors.
Section 8. Savings Clause. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and to the full extent
permitted by applicable law.
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ARTICLE VIII
Officers
Section l. General. The officers of the corporation shall be the
chairman of the board, president, one or more vice presidents (including
executive vice presidents and senior vice presidents), a secretary, a
controller, a treasurer, and such other subordinate officers as may from time to
time be designated and elected by the board of directors.
Section 2. Other Offices. The chairman of the board shall be chosen by
the board of directors from among their own number. The other officers of the
corporation may or may not be directors.
Section 3. Term. Officers of the corporation shall be elected by the
board of directors and shall hold their respective offices during the pleasure
of the board and any officer may be removed at any time, with or without cause,
by a vote of the majority of the directors. Each officer shall hold office from
the time of his appointment and qualification until the next annual election of
officers or until his earlier resignation or removal except that upon election
thereof a shorter term may be designated by the board of directors. Any officer
may resign at any time upon written notice to the corporation.
Section 4. Compensation. The compensation of officers of the
corporation shall be fixed, from time to time, by the board of directors.
Section 5. Vacancy. In case any office becomes vacant by death,
resignation, retirement, disqualification, removal from office, or any other
cause, the board of directors may abolish the office (except that of president,
secretary and treasurer) or elect an officer to fill such vacancy.
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ARTICLE IX
Duties of Officers
Section l. Chairman of the Board, President. The chairman of the board
shall be the chief executive officer of the corporation. He shall have general
supervisory powers over all other officers, employees and agents of the
corporation for the proper performance of their duties and shall otherwise have
the general powers and duties of supervision and management usually vested in
the chief executive officer of a corporation. The president shall have the
general powers and duties of supervision and management of the corporation as
the chairman shall assign. The chairman of the board shall preside at and act as
chairman of all meetings of the board of directors. The president shall preside
at any meeting of the board of directors in the event of the absence of the
chairman of the board. The offices of chairman of the board and president may be
filled by the same individual.
Section 2. Vice Presidents. Each vice president shall perform such
duties as shall be assigned to him by the board of directors, the chairman of
the board or the president.
Section 3. Secretary. The secretary shall record all proceedings of the
meetings of the corporation, its stockholders and the board of directors and
shall perform such other duties as shall be assigned to him by the board of
directors, the chairman of the board, or the president. Any part or all of the
duties of the secretary may be delegated to one or more assistant secretaries.
Section 4. Controller. The controller shall perform such duties as
shall be assigned to him by the chairman of the board, the president or such
vice president as may be responsible for financial matters. Any or all of the
duties of the controller may be delegated to one or more assistant controllers.
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Section 5. Treasurer. The treasurer shall, under the direction of the
chairman of the board, the president or such vice president as may be
responsible for financial matters, have the custody of the funds and securities
of the corporation, subject to such regulations as may be imposed by the board
of directors. He shall deposit, or have deposited, all monies and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors or as may be designated by the
appropriate officers pursuant to a resolution of the board of directors. He
shall disburse, or have disbursed, the funds of the corporation as may be
ordered by the board of directors or properly authorized officers, taking proper
vouchers therefor. If required by the board of directors he shall give the
corporation bond in such sum and in such form and with such security as may be
satisfactory to the board of directors, for the faithful performance of the
duties of his office. He shall perform such other duties as shall be assigned to
him by the board of directors, the chairman of the board, the president or such
vice president as may be responsible for financial matters. Any or all of the
duties of the treasurer may be delegated to one or more assistant treasurers.
Section 6. Other Officers' Duties. Each other officer shall perform
such duties and have such responsibilities as may be delegated to him by the
superior officer to whom he is made responsible by designation of the chairman
of the board or the president.
Section 7. Absence or Disability. The board of directors or the
chairman of the board may delegate the powers and duties of any absent or
disabled officer to any other officer or to any director for the time being. In
the event of the absence or temporary disability of the chairman of the board,
the president shall assume his powers and duties while he is absent or so
disabled.
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ARTICLE X
Stock
Section l. Certificates. Certificates of stock of the corporation shall
be signed by, or in the name of the corporation by, the chairman of the board,
the president or a vice president, and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation. If
such certificate is countersigned, (l) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation or
its employee, then any other signature on the certificate may be a facsimile. In
case any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 2. Transfers. Shares of stock shall be transferable on the
books of the corporation by the holder of record thereof in person or by his
attorney upon surrender of such certificate with an assignment endorsed thereon
or attached thereto duly executed and with such proof of authenticity of
signatures as the corporation may reasonably require. The board of directors may
from time to time appoint such transfer agents or registrars as it may deem
advisable and may define their powers and duties. Any such transfer agent or
registrar need not be an employee of the corporation.
Section 3. Record Holder. The corporation may treat the holder of
record of any shares of stock as the complete owner thereof entitled to receive
dividends and vote such shares, and accordingly shall not be bound to recognize
any interest in such shares on the part of any other person, whether or not it
shall have notice thereof.
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Section 4. Lost and Damaged Certificates. The corporation may issue a
new certificate of stock to replace a certificate alleged to have been lost,
stolen, destroyed or mutilated upon such terms and conditions as the board of
directors may from time to time prescribe.
Section 5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action.
ARTICLE XI
Miscellaneous
Section l. Fiscal Year. The fiscal year of the corporation shall begin
upon the first day of January and termi- nate upon the 3lst day of December, in
each year.
Section 2. Stockholder Inspection of Books and Records. The board of
directors from time to time shall determine whether and to what extent and at
what times and places and under what conditions and regulations the accounts and
books of the corporation, or any of them, shall be open to the inspection of a
stockholder and no stockholder shall have any right to inspect any account, book
or document of the corporation except as conferred by statute or authorized by
resolution of the board of directors.
Section 3. Seal. The corporate seal shall be circular in form and have
inscribed thereon the name of the corporation and the words "Corporate Seal,
Delaware."
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ARTICLE XII
Amendments to Bylaws
Subject to the provisions of any resolution of the board of directors
creating any series of Preferred Stock, the board of directors shall have power
from time to time to make, alter or repeal bylaws, but any bylaws made by the
board of directors may be altered, amended or repealed by the stockholders at
any annual meeting of stockholders, or at any special meeting provided that
notice of such proposed alteration, amendment or repeal is included in the
notice of such special meeting.
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EXHIBIT 10.2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated effective as of the 21st day
of January, 1998, by and among AMR CORPORATION ("AMR"), a Delaware corporation,
and AMERICAN AIRLINES, INC. ("American"), a Delaware corporation, each of which
has its principal office at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155
(collectively with their successors or assigns permitted under this Agreement,
the "Company"), and ROBERT L. CRANDALL, who currently resides at 5243 Park Lane,
Dallas, Texas 75220 ("Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive originally entered into this
Employment Agreement as of January 1, 1988, which Employment Agreement has
subsequently been amended five times, and the parties desire to restate the
Employment Agreement, as so amended, in its entirety; and
WHEREAS, Executive is presently acting as the Chairman, President
and Chief Executive Officer of AMR, the Chairman and Chief Executive Officer of
American and Chairman of AMR's other operating subsidiaries; and
WHEREAS, on January 1, 1988, the Board of Directors of AMR (the
"Board") decided that Executive had played a pivotal role in the successes of
AMR, American and AMR's other subsidiaries, and that the retention of Executive
until his retirement was critical to the future success of AMR, American and
AMR's other subsidiaries; and
WHEREAS, on January 1, 1988, the Board and the Company decided to
continue to employ Executive as Chairman, President and Chief Executive Officer
of AMR and American and Chairman of AMR's other operating subsidiaries for the
period from January 1, 1988 through December 31, 1992 and the Board and Company
desire to have the right, subject to Executive's consent, to extend such
employment to December 31, 2000 (the end of the year in which Executive attains
age 65) on similar terms; and
WHEREAS, on March 15, 1995, the Executive relinquished his position
as President of American; and
WHEREAS, the Company and the Executive have agreed to extend the
Agreement through December 31, 2000;and
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WHEREAS, the Company and the Executive desire to have the Executive
continue to serve the Company in the capacities and upon the terms and
conditions hereinafter set forth; and
WHEREAS, the Company has, pursuant to Paragraph 1.1(h) of Schedule
A, deposited all the shares of Deferred Stock in the Trust contemplated by such
Paragraph; and
WHEREAS, the Company and Executive desire to amend and restate the
terms and conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Executive hereby agree as follows:
1. Term of Employment.
The Company hereby employs the Executive, and Executive hereby
accepts such employment by the Company, in the positions and with the duties and
responsibilities set forth in Section 2 and upon such other terms and conditions
as are hereinafter stated, for the period commencing on January 1, 1988, and
except as otherwise provided herein, ending on the earlier to occur of (i)
December 31, 2000, or (ii) the termination of Executive's employment.
2. Position and Duties.
During the Term of Employment, Executive shall be employed as, and
perform the duties of, President and Chief Executive Officer of AMR and Chief
Executive Officer of American (with due recognition of Executive's performance
of duties as President of American from January 1, 1988, through March 15,
1995), in each case subject to the election provisions and other terms of the
by-laws of AMR and American. Subject to his election as such, Executive shall
serve during the Term of Employment as a Director on, and Chairman of, the
Board, the board of directors of American (the "American Board") and the board
of directors of each of AMR's other operating subsidiaries, if requested to do
so, and to serve as a member of the Executive Committee of the Board and the
Executive Committee of the American Board and as a member of any other Committee
of the Board, the American Board or the board of directors of any other
operating subsidiary of AMR to which Executive may be elected or appointed.
In carrying out his duties under this Agreement, Executive shall
report directly to the Board. During the Term of Employment, Executive shall
devote his full business time and attention to the business and affairs of the
Company and shall use his best efforts, skills and abilities to promote the
interests of the
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Company, provided, however, that Executive may from time to time engage in such
other pursuits, including (without limitation) personal legal, financial and
business affairs and outside board memberships, as shall not interfere with the
proper performance of his duties and obligations under the terms hereof.
3. Compensation and Other Benefits.
Subject to the provisions of this Agreement, the Company shall
provide the following compensation and other benefits to Executive during the
Term of Employment:
(a) Base Salary. The Company shall pay Executive a base salary (as
increased from time to time, the "Base Salary") at an annualized rate of not
less than $790,000 (the same rate as Executive's current annualized rate as of
December 31, 1997), at such intervals as apply to other senior officers of the
Company, but at least as frequently as monthly. Such Base Salary shall be
reviewed by the Board at least as often as the compensation of other senior
officers is reviewed, and may be increased (but not decreased), in the sole
discretion of the Board, at any time. Increases, once granted, will not be
subject to revocation.
Notwithstanding the above, Executive may elect, in accordance with
and subject to the provisions of any applicable Company deferral plan or
arrangement, to defer all or part of the Base Salary payable for any period.
(b) Annual Incentive Compensation. For each year during the Term of
Employment, Executive shall have an annual incentive compensation (f)
opportunity under the Company's Incentive Compensation Plan for Officers and Key
Employees for such year (as amended from time to time and including any
successor plan or arrangement) equal to 100% of Executive's Base Salary for such
year (the same rate as Executive's current incentive compensation opportunity as
of December 31, 1997). The actual amount of such incentive compensation payment
shall be determined by the Board, in its sole discretion, but, stated as a
percentage of annual incentive compensation opportunity, shall not be less than
the average percentage of annual incentive compensation opportunity payable to
the Company's other senior officers based on the actual amounts awarded to such
group. Subject to the provisions of Section 4 below, such amount shall be paid
to Executive within 120 days after the end of the year for which awarded, unless
payment is timely deferred by Executive under any applicable Company deferral
plan or arrangement.
(c) Long Term Incentive Compensation. During the Term of Employment,
Executive shall also be entitled to participate in AMR's 1988 Long Term
Incentive Plan (the "1988 LTIP"), 1979 Stock Option Plan and 1985 Restricted
Stock Incentive Plan and in any other long term equity or incentive
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compensation plan or arrangement that the Company may hereafter adopt in which
senior executives of the Company are generally eligible to participate.
(i) In this connection, the Compensation Committee of the Board:
has made, as of January 20, 1988, a special retention grant to
Executive of 355,000 shares of Deferred Stock, subject to
shareholder approval of the 1988 LTIP, in recognition of
Executive's past and anticipated future leadership and
contributions, and
(ii) has amended certain provisions of Executive's existing stock
option and restricted stock grants,
in each case subject to the terms and conditions set forth in attached
Schedule A.
(d) Pension Benefits. During the Term of Employment, Executive shall
also be entitled to continuing pension accrual credit under and subject to the
terms of the Company's tax-qualified and supplemental pension plans (including
any successors thereto), subject, in the case of the tax-qualified plan(s), to
the applicable limitations of ERISA, provided, however:
(i) that pensionable compensation, for purposes of the Company's
Supplemental Executive Retirement Plan ("SERP") and this
Agreement, shall be determined under the rules and definitions
in effect under the SERP as of January 1, 1988 or the time of
termination, whichever are more favorable to Executive;
(ii) that Executive's annual accrual rate under the SERP shall be
2.7% for each year of credited service after January 1, 1988,
under the terms of the Company's tax qualified pension plan;
(iii) Executive shall receive additional years of credited service
under the terms of the Company's tax qualified and
supplemental pension plans (including any successors thereto)
in accordance with the following table:
Age at Retirement
----------------------------
60 61 62 63
-- -- -- --
Additional Years
of Credited Service: 2 4 7 10
(iv) that Executive shall have the right to elect to have a 50%
annual survivor benefit paid to his designated beneficiary for
life,
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commencing no later than 30 days after the death of Executive,
subject to the applicable actuarial adjustment provisions of
the SERP in effect under the terms of the SERP as of January
1, 1988, or, if more favorable to Executive, those in effect
under the terms of the SERP at the time of termination; and
(v) that the Company shall make such arrangements as it deems
appropriate with respect to the availability of funds to pay
such supplemental non-qualified pension benefits through use
of a trust or annuities, provided that, if so requested by
Executive, the Company shall enter into a grantor ("rabbi")
trust arrangement with respect to such benefits, if, in the
opinion of counsel to the Company, such arrangement does not
result in the immediate taxation of such benefits at the time
at which such trust is funded.
(e) Other Benefit Programs.
(i) During the Term of Employment, Executive shall be eligible to
participate in all other employee benefit plans and programs
made available to senior executives of the Company at its
expense, as such programs may be in effect from time to time,
including, without limitation, any group or split dollar life
insurance, accidental death and dismemberment insurance,
hospitalization, surgical and major medical coverage and
short-term and long-term disability plans (subject to a
$250,000 minimum annual benefit until age 65 for long term
disability, with the premiums for such disability benefit
coverage being paid by the Company on a basis that results in
no after-tax current cost to Executive for such coverage).
(ii) During the Term of Employment, the Company, in addition to
any group life insurance and split dollar life insurance
provided to Executive as of December 31, 1987 (which shall be
continued pursuant to Section 3(e)(i) above), shall also
provide Executive, on an after-tax no cost basis to
Executive, with additional life insurance coverage through
December 31, 1989, by means of an individual policy, a group
policy or a combination thereof, in an amount no less than
the amount of additional coverage in effect on December 31,
1987. Beginning on January 1, 1990 and for the balance of the
Term of Employment, the additional coverage in effect on
December 31, 1989 shall continue, but shall be reduced to
two-thirds of such initial additional coverage for the
calendar year 1990, and thereafter to one-sixth of such
initial additional coverage.
(iii) Subject to the coverage continuation provisions in Section 4,
in the event of termination of Executive's employment with
the Company,
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Executive (or his legal representative, if Executive is
disabled) shall have the right to assume, without any
payment to the Company (other than any required premium
reimbursement with respect to any policy having an
underlying cash surrender value), and continue at his own
expense, whatever individual policy or policies of life
insurance are then maintained by the Company pursuant to
Section 3(e)(ii), plus any coverage under the Company's
group or split dollar life insurance policy or policies
pursuant to Section 3(e)(i) to the extent permitted
thereunder.
(f) Executive Benefits. In addition to the other compensation and
benefits provided under Sections 3(a) through (e), during the Term of
Employment, Executive shall be provided with the same type and level of travel
and other executive benefits provided to Executive as of December 31, 1987 and
such other executive benefits as are generally provided to other senior
executives of the Company.
(g) Vacation and Sick Leave. Executive shall be entitled to reasonable
paid vacation and paid sick leave in accordance with the policies established
from time to time by the Company and the Board, with the paid vacation allowance
being at least four (4) weeks per calendar year, with no carryover of unused
vacation from year to year.
(h) Expense Reimbursement. The Company shall also reimburse Executive
for all reasonable business travel, business entertainment and other business
expenses properly incurred by him in the performance of his duties hereunder in
accordance with the reimbursement policies established from time to time by the
Company and the Board, and for any legal and related fees and expenses incurred
by Executive with respect to the preparation and execution of this Agreement.
(i) Impact of Deferrals of Salary and Bonus. For purposes of
determining the opportunities and benefits provided to Executive pursuant to
Sections 3(b), (c), (d), (e), (f) and (g), the annual salary and bonus of
Executive shall be deemed to be the Base Salary and Annual Incentive
Compensation computed under Sections 3(a) and (b) without regard to any
deferrals of Base Salary or Annual Incentive Compensation under Section 3(a) or
(b); provided, however, that benefits provided to Executive pursuant to any
tax-qualified plans shall be subject to any compensation limitations and other
terms and conditions contained in such plans.
4. Termination of Employment.
(a) Termination Due to Retirement, Death or Disability. In the event of
termination of Executive's employment during the Term of Employment due to
retirement at or after age 60, or death or Disability (as defined below),
Executive
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or his estate or other legal representative, as the case may be, shall be
entitled to:
(i) Base Salary at the rate in effect at the date of termination
through (x) in the case of Executive's retirement, the end of
the month in which termination of employment occurs, and (y)
in the case of termination due to death or Disability, the
end of the six-month period following such termination of
employment;
(ii) any annual incentive compensation awarded for a prior year
but not yet paid under Section 3(b), plus an annual incentive
compensation award under Section 3(b) for the award year
immediately preceding the date of termination if awards have
not yet been made for such year, based on performance for
such year, as determined by the Board, in its sole
discretion;
(iii) a pro rata annual incentive compensation award under Section
3(b) for the year of termination based on actual service and
performance to the date of such termination or, if higher,
such other amount as may be determined by the Board, in its
sole discretion;
(iv) subject to the terms and conditions of Schedule A, the
payment of any Deferred Stock vested under Schedule A, and,
subject to the terms and conditions of any future long term
incentive grants, payment of any vested portion of such
grants;
(v) basic and supplemental pension benefit accruals under Section
3(d) above, based on Executive's years of credited service
(including such additional years of credited service as
provided pursuant to Section 3(d)(iii)), under the Company's
tax qualified and supplemental pension plans (including any
successors thereto);
(vi) in the case of retirement, continuing retiree insurance
coverage to the extent provided under the Company's plans and
programs, provided, however, that Executive shall in any
event be entitled to lifetime executive medical coverage
under the Company's Executive Medical Expense Plan (or the
equivalent thereof) on the same basis and to the same extent
applicable to actively employed senior executives of the
Company (but in no event on a basis less favorable to
Executive than the coverage provided just prior to
termination);
(vii) in the case of termination due to Disability, continuation of
the life insurance coverage provided under Section 3(e)(ii),
and the
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hospitalization, surgical and major medical coverage
provided under Section 3(e)(i), in each case at the level
that would otherwise be in effect from time to time under
this Agreement but for such termination of employment, for
the six-month Base Salary continuation period specified in
Section 4(a)(i), provided, however, that Executive shall in
any event be entitled (A) to lifetime executive medical
coverage under the Company's Executive Medical Expense Plan
(or the equivalent thereof) on the same basis and to the same
extent applicable to actively employed senior executives of
the Company (but in no event on a basis less favorable to
Executive than the coverage provided just prior to
termination), and (B) to additional life insurance coverage
under Section 3(e)(ii) for the balance of the current Term of
Employment determined without regard to such termination due
to Disability (as and if extended under Section 1(b) prior to
termination);
(viii) travel benefits and American Airlines Admirals Club
membership at the same level and to the same degree provided
to actively employed senior executives of the Company
generally; and
(ix) any other rights and benefits provided under employee benefit
plans and programs of the Company, determined in accordance
with the applicable terms and provisions of such plans and
programs.
For purposes of this Agreement, "Disability" shall mean the inability
of Executive due to illness, accident or otherwise to perform his duties for any
period of six consecutive months or for any period of eight months out of any
twelve month period, as determined by an independent physician selected by the
Company and reasonably acceptable to Executive (or his legal representative),
provided that Executive does not return to work on substantially a full-time
basis within 30 days after written notice from the Company of an intent to apply
the Disability provisions of this Section 4(a).
(b) Termination Without Cause. Subject to Section 4(d) below, in the
event of a termination of Executive's employment by the Company without Cause
during the Term of Employment, Executive shall be entitled to:
(i) Base Salary at the rate in effect immediately prior to the
occurrence of such event for the balance of the Term of
Employment;
(ii) any annual incentive compensation awarded for a prior year
but not yet paid under Section 3(b), plus an annual incentive
compensation award for the award year immediately preceding
the date of termination if awards have not yet been made for
such year
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in an amount equal to the three-year average percentage
determined under Section 4(b)(iii) below multiplied by
Executive's Base Salary rate at the end of such year;
(iii) the equivalent of annual incentive compensation under Section
3(b) for the year of termination and thereafter through the
end of the Base Salary continuation period specified in
Section 4(b)(i) (prorated for partial years), calculated in
each case based on Executive's highest annual incentive award
during the three years immediately preceding termination,
stated as a percentage of the Base Salary in effect for the
year for which awarded, and then applied to the Base Salary
applicable under Section 4(b)(i) (but not less than 50% of
the highest target bonus rate applicable to Executive during
such prior three-year period, multiplied by the applicable
annual Base Salary determined under Section 4(b)(i) above);
(iv) subject to the terms and conditions of Schedule A, the
payment of any Deferred Stock vested under Schedule A, and,
subject to the terms and conditions of any future long term
incentive grants, payment of any vested portion of such
grants;
(v) basic and supplemental pension benefit accruals under Section
3(d) above, based on Executive's years of credited service
(including such additional years of credited service as
provided pursuant to Section 3(d)(iii)), under the Company's
tax qualified and supplemental pension plans (including any
successors thereto), plus supplemental pension benefit
accruals under Section 3(d) for the Base Salary continuation
period specified in Section 4(b)(i), based on deemed service
continuation and deemed continuation of pensionable
compensation at the annualized equivalent of the Base Salary
and annual incentive compensation amounts payable under
Sections 4(b)(i) and (iii) above;
(vi) continuation of the life insurance coverage provided under
Section 3(e)(ii), and the hospitalization, surgical and major
medical coverage and the short-term and long-term disability
coverage provided under Section 3(e)(i), in each case at the
level that would otherwise be in effect from time to time
under this Agreement but for such termination of employment,
for the Base Salary continuation period specified in Section
4(b)(i); provided, however, that Executive shall in any event
be entitled to lifetime executive medical coverage under the
Company's Executive Medical Expense Plan (or the equivalent
thereof) on the same basis and to the same extent applicable
to actively employed senior executives
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of the Company (but in no event on a basis less favorable to
Executive than the coverage provided just prior to
termination);
(vii) travel benefits and American Airlines Admirals Club
membership at the same level and to the same degree provided
to actively employed senior executives of the Company
generally; and
(viii) any other rights and benefits available to Executive under
the employee benefit plans and programs of the Company in
effect immediately prior to his termination (or the
equivalent thereof) at the same level and to the same degree
provided to actively employed senior executives of the
Company generally, for the Base Salary continuation period
specified in Section 4(b)(i) (or longer, if and to the extent
applicable under such plans and programs).
(c) Termination by Executive for "Good Reason". Subject to Section 4(d)
below, in the event of termination of employment by Executive for "Good Reason"
during the Term of Employment, Executive shall be entitled to the same payments
and other benefits that are provided under Section 4(b). For this purpose,
Executive shall be entitled to terminate his employment for "Good Reason" if:
(i) without Executive's written consent, one or more of the
following events occurs:
(A) Executive is not appointed to or is otherwise removed
from any office or position referred to in Section 2
for any reason other than in connection with the
termination of his employment;
(B) Executive's Base Salary under Section 3(a) and/or his
annual incentive compensation opportunity under
Section 3(b) is reduced for any reason other than in
connection with the termination of his employment;
(C) the principal office of the Company is moved, without
Executive's consent, to a location that is more than
50 miles from the City of Dallas, Texas;
(D) for any reason other than in connection with the
termination of his employment, Executive suffers a
significant reduction in the authority, duties and
responsibilities associated with his position with
the Company as described in Section 2 above, on the
basis of which he makes a determination in good faith
that he can no longer carry out such position in
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the manner contemplated at the time this Agreement was
entered into by the parties;
(E) for any reason other than in connection with the
termination of his employment, the Company asserts the
intention to reduce or reduces either the supplemental
pension benefits provided in Section 3(d) or the
additional life insurance coverage provided in Section
3(e)(ii) below the level provided in this Agreement,
other than pursuant to the terms of this Agreement, or
the Company reduces any other benefit provided to
Executive below the level of such benefit provided
generally to actively employed senior executives of
the Company, unless the Company agrees to fully
compensate Executive for any such reduction, provided,
in any event, that no such reduction will be effective
without 30 days' prior written notice; or
(f) the Company otherwise breaches, or is unable to
perform its obligations under, this Agreement.
(ii) within 180 days following the date on which the occurrence of
such event becomes known to Executive, Executive notifies the
Board in writing (care of the Company) of the occurrence of
such event;
(iii) within 30 days following receipt of such written notice, the
Board does not cure such event and deliver to Executive a
written statement that it has done so; and
(iv) within 60 days following the expiration of the 30-day period
specified in clause (iii) above (without the occurrence of a
cure and written notice thereof as described in clause (iii)
above), Executive voluntarily terminates his employment with
the Company.
(d) Termination Without Cause or For Good Reason After a Change in
Control. In the event of "Change in Control" (as defined in the Executive
Termination Benefits Agreement between the Company and Executive dated September
18, 1985, as amended, hereinafter referred to as the "Termination Benefits
Agreement"), and a termination of Executive's employment by the Company without
Cause or Executive for "Good Reason" thereafter, then:
(i) the salary and annual incentive amounts payable under Sections
4(b)(i) and (iii) above shall be offset on a dollar for dollar
basis by any salary or annual incentive amounts payable under
the Termination Benefits Agreement up to but not in excess of
the amounts payable under Sections 4(b)(i) and (iii);
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(ii) Executive's stock options, Restricted Stock awards and
Deferred Stock awards shall be governed by the terms of
attached Schedule A, except to the extent that the Termination
Benefits Agreement provides a greater benefit to Executive
with respect to such items; and
(iii) with respect to each other category or type of benefit payable
under this Agreement and the Termination Benefits Agreement,
the benefits and coverage provided under this Agreement shall
be offset, on a category by category basis, by any amounts
payable under the Termination Benefits Agreement.
(e) Termination for Cause or Voluntary Termination. If, during the Term
of Employment, the Company terminates Executive's employment for "Cause" (which
shall be defined for purposes of this Agreement as gross dishonesty or willful
misconduct, either of which is directly and materially harmful to the business
of the Company or American) or Executive terminates his employment on his own
initiative (other than as described in Section 4(a) or 4(c) above), Executive
shall be entitled to:
(i) Base Salary through the date of termination of employment;
(ii) any incentive compensation awarded for a prior year but not
yet paid under Section 3(b) due to a deferral election;
(iii) in the case of a voluntary termination not involving "Cause",
the payment of any Deferred Stock vested under Schedule A,
subject to the terms and conditions of Schedule A, and, in
the case of any future long term incentive grants, payment of
any vested portion of such grants, subject to the terms and
conditions thereof.
(iv) basic and supplemental pension benefit accruals under Section
3(d) above based on Executive's actual period of employment,
and
(v) any other rights and benefits provided under employee benefit
plans and programs of the Company, determined in accordance
with the applicable terms and provisions of such plans and
programs.
5. Covenants.
(a) Covenant Not to Compete. During the term of his employment by the
Company and, except in the event of a Change in Control as defined in the
Termination Benefits Agreement, for a period of 24 months following the date of
termination of Executive's employment (or, in the case of a termination by the
Company without Cause or a termination by Executive for "Good Reason", the
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continuation period specified in Section 4(b)(i) if less than 24 months),
Executive shall not, directly or indirectly, except when acting on behalf of or
for the benefit of AMR, American or any other subsidiary of AMR or any affiliate
of AMR (defined as an entity other than a subsidiary of which AMR directly or
indirectly owns 20% or more of the ownership interests):
(i) engage in any business, whether as an employee, consultant,
partner, principal, agent, representative or stockholder
(other than as an owner of less than 1% of the outstanding
shares of any publicly-held class of stock) or in any other
corporate or representative capacity, if such activity
involves:
(A) managing or participating in the management of a
commercial airline, certificated under Section 401 of
the Federal Aviation Act;
(B) rendering services or advice pertaining to the types
of activity described in Section 5(a)(i)(A);
(C) rendering services or advice pertaining to, or
assisting any other entity to enter into, any other
line of business that the Company, or any
corporation, partnership or other entity owned wholly
or in part by the Company, was actively conducting or
actively considering during the last 24 months of
Executive's employment with the Company in
competition with AMR, American or any other
subsidiary or affiliate of AMR in the United States;
(ii) take any action to divert from AMR, American or any other
subsidiary or affiliate of AMR, any business involving
services or products marketed or under active consideration by
AMR, American or any other subsidiary or affiliate of AMR, or
any corporation, partnership or other entity owned wholly or
in part by AMR, American or any other subsidiary or affiliate
of AMR during the last 24 months of Executive's employment
hereunder; or
(iii) induce customers, agents, franchisees or other persons doing
business with AMR, American or any other subsidiary or
affiliate of AMR, to terminate, reduce or alter business with
or from AMR, American or any other subsidiary or affiliate of
AMR.
Each provision of this Section 5 is intended by the parties to be a
separate and divisible provision and if, for any reason, any such provision is
held to be invalid or unenforceable, neither the validity nor the enforceability
of any other subsection shall thereby be affected. It is the intention of the
parties that the foregoing restrictions on Executive's future employment be
reasonable
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in both duration and geographic scope. If for any reason any court of competent
jurisdiction shall find such provisions unreasonable in duration or geographic
scope, the prohibitions contained herein shall be effective to the fullest
extent allowed under applicable law.
(b) Covenants Regarding Other Employees. Executive agrees that so long
as he is an employee of the Company and for the period described in Section 5(a)
above, except when acting on behalf of AMR, American or any other subsidiary or
affiliate of AMR, he shall not induce any person in the employment of AMR,
American or any other subsidiary or affiliate of AMR, to (i) terminate such
employment, (ii) accept employment with anyone other than AMR, American or any
other subsidiary or affiliate of AMR or (iii) interfere with the business of
AMR, American or any other subsidiary or affiliate of AMR.
(c) Covenants to Protect Confidential Information. Executive shall not,
during the Term of Employment or thereafter, without the prior written consent
of the Company, divulge, disclose or make accessible to any other person or
entity "Confidential Information", except (i) in the performance of his duties
while employed by AMR, American or any subsidiary or affiliate of AMR (e.g.,
providing information to the Company's attorneys, accountants or banks) or (ii)
when required to do so by the lawful order of a court of competent jurisdiction.
For this purpose, "Confidential Information" shall mean all non-public
information respecting the Company's business, including, but not limited to,
its services, pricing, scheduling, products, research and development,
processes, customer lists, marketing plans and strategies and financing plans,
but excluding information that is, or becomes, available to the public (unless
such availability occurs through an unauthorized act on the part of the
Executive).
Except as may be otherwise consented to in writing by the Company,
Executive shall proffer to an appropriate officer of the Company, upon the
termination of his employment under this Agreement, without retaining any
copies, notes or excerpts thereof, all memoranda, diaries, notes, records, cost
information, customer lists, marketing plans and strategies, and other
documents, in each case containing any Confidential Information made or compiled
by, or delivered or made available to, or otherwise obtained by, Executive, then
in his possession or subject to his control, except that Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(d) Remedy for Violation of Noncompetition or Confidential Information
Provisions. Executive acknowledges that the Company has no adequate remedy at
law and would be irreparably harmed if Executive breaches or threatens to breach
the provisions of Section 5(a), (b) or (c) and therefore agrees that the Company
shall be entitled to injunctive relief to prevent any
-14-
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breach or threatened breach of such Sections and to specific performance of the
terms of each of such Sections in addition to any other legal or equitable
remedy it may have, provided that, in the event that the Company concludes that
Executive has breached any covenant in this Section 5, the Company shall provide
Executive 15 days' prior written notice of such claim and an opportunity to cure
such alleged violation during such 15-day period. Executive further agrees that
he shall not, in any equity proceeding involving him relating to the enforcement
of Section 5(a), (b) or (c) raise the defense that the Company has an adequate
remedy at law. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have or
any other rights that it may have under any other agreement.
6. Indemnification.
Executive shall be indemnified by the Company to the extent provided
in the Company's certificate of incorporation or by-laws.
7. Withholding.
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of
taxes, provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
8. Resolution of Disputes.
If a dispute arises regarding any termination of Executive's
employment or the interpretation or enforcement of this Agreement, the parties
agree to resolve such dispute by arbitration under the auspices of the American
Arbitration Association.
Such arbitration shall be held in Dallas, Texas (or in such other
place as the parties may mutually agree to), and shall be governed by the then
current rules of the American Arbitration Association. In this regard, the
parties agree that:
(i) such arbitration shall commence as promptly as possible after
the 20th day following service of notice of a dispute by one
party on the other;
(ii) that the arbitrator(s) shall have no authority to order a
modification or amendment of this Agreement; and
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(iii) that the decision of the arbitrator(s) shall be final and
binding upon the parties thereto.
All legal and other fees and expenses, including, without limitation,
any arbitration expenses, incurred by Executive in connection with any such
dispute or otherwise in successfully (in whole or in part) contesting or
disputing any termination or in seeking to obtain or enforce any right or
benefit provided for in this Agreement or in otherwise pursuing any right or
claim shall be paid by the Company, to the extent permitted by law.
In the event that the Company refuses or otherwise fails to make a
payment when due and it is ultimately decided that Executive is entitled to such
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank, N.A. as its prime rate as
of the relevant date.
9. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs and assigns.
No rights or obligations of Executive under this Agreement may be
assigned or transferred by Executive other than his rights to compensation and
benefits hereunder, which may be transferred only by will or operation of law
and subject to the limitations of this Agreement.
No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company, except pursuant to a merger or
consolidation in which the Company is not the continuing entity, or the sale or
liquidation of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law.
10. Entire Agreement; Amendment or Waiver.
This Agreement and the schedules attached hereto (which are
incorporated herein and which shall be treated as part hereof), together with
the Termination Benefits Agreement between the Company and Executive dated
September 18, 1985 (as amended to date, and any successor thereto) and any stock
option and restricted stock agreements previously executed by the Company and
Executive with respect to prior awards granted to Executive, contain the entire
agreement between the parties hereto concerning the subject
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matter hereof and supersede all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Company and
Executive with respect thereto.
No provision in this Agreement may be amended or waived unless such
amendment or waiver is agreed to in writing and signed by Executive and a duly
authorized officer of the Company. No waiver by either party hereto of any
breach by the other party or any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time.
11. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable, in whole or in part, for any
reason, 19. the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
12. Governing Law.
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of Texas without reference to the
principles of conflict of laws.
13. Notices.
Any notice given to either party to this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or sent
by certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the party concerned at the address indicated below or to such
changed address as such party may subsequently give notice of:
If to the Company or to the Board:
AMR Corporation
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
Attn: Secretary
With copies to:
American Airlines, Inc.
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
Attn: Secretary
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and
AMR Corporation
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
Attn: General Counsel
If to the Executive:
Robert L. Crandall
5243 Park Lane
Dallas, Texas 75220
14. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
15. Counterparts.
This Agreement may be executed in two counterparts.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
AMERICAN AIRLINES, INC. AMR CORPORATION
By: By:
----------------------------- ---------------------------
Anne H. McNamara, its Anne H. McNamara, its
Senior Vice President and Senior Vice President and
General Counsel General Counsel
--------------------------
Robert L. Crandall
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Schedule A
1.1 Special Retention Grant.
The Compensation Committee of the Board hereby grants to Executive as
of January 20, 1988, subject to the approval of the 1988 Long Term Incentive
Plan (the "1988 LTIP") by the Company's stockholders at the 1988 annual meeting,
355,000 deferred shares of AMR Common Stock, $1.00 par value ("Deferred Stock"),
under Section 8 of the 1988 LTIP, subject to the terms of the 1988 LTIP and the
following terms and conditions:
(a) Vesting.
(i) The Deferred Stock covered by this special retention grant
shall vest in equal installments at the rate of 12.5% for
each full year of employment with the Company after December
31, 1987 (with prorated vesting credit for each full month of
employment in any partial year, subject to shareholder
approval of the 1988 LTIP for months prior to May 1988).
(ii) The vesting of the Deferred Stock granted hereunder shall be
partially accelerated so that such Deferred Stock vests at
the rate of 20% for each full year of employment with the
Company after December 31, 1987 (with prorated vesting credit
for each full month in any partial year, subject to
shareholder approval of the 1988 LTIP for months prior to May
1988), in the event of Executive's termination due to death
or Disability.
(iii) The vesting of the Deferred Stock granted hereunder shall be
fully accelerated in the event of:
(1) termination of Executive's employment with the
Company due to Executive's early retirement prior to
December 31, 1995, with the express consent of the
Board for purposes of the vesting acceleration
provisions of this Deferred Stock award;
(2) termination of Executive's employment with the
Company by the Company without Cause or by Executive
for "Good Reason" (as defined in Section 4(c) above);
or
(3) a "Change in Control" of AMR, or a "Potential Change
in Control" of AMR, as defined under the 1988 LTIP.
(i)
20
(iv) In the event of termination of employment, any shares of
Deferred Stock not otherwise vested under this Paragraph
1.1(a) at or prior to the effective date of such termination
shall be forfeited.
(v) If Executive is terminated by the Company for Cause, all
shares of Deferred Stock otherwise vested under this
Paragraph 1.1(a) but not yet distributed to Executive under
Paragraph 1.1(b) below shall be forfeited.
(b) Distribution of Vested Deferred Stock.
Unless further deferred by Executive pursuant to a timely election
under Paragraph 1.1(c), Deferred Stock, if and to the extent vested under
Paragraph 1.1(a), shall be distributed to Executive within 30 days of his
termination of employment with the Company, subject, in the event of a Change in
Control, to the provisions of Section 11 of the 1988 LTIP with respect to
cashouts. In the event of Executive's death, any Deferred Stock that vests by
reason of such death, and any other vested Deferred Stock not yet issued and
distributed to Executive, shall be issued and distributed to Executive's
designated beneficiary (or, in the absence of an effective beneficiary
designation, Executive's estate) within 60 days after the Compensation Committee
is notified of such death, unless Executive otherwise elects in writing prior to
death, subject to the approval of the Compensation Committee.
(c) Elective Deferral.
Notwithstanding the provisions of Paragraph 1.1(b), the Executive
may, at any time prior to his termination of employment, elect in writing to
voluntarily defer receipt of any distribution otherwise payable under Paragraph
1.1(b) in the manner specified in such election (the "Elective Deferral
Period"); provided, however, that any election received by the Company within 60
days of the date on which such termination occurs shall be void and without
effect (e.g., if the Executive terminates his employment on July 1, 1998, an
election received by the Company after May 1, 1998, shall have no effect). Any
distribution deferred pursuant to this Paragraph 1.1(c) shall be made to the
Executive (or his designated beneficiary or, in the absence of an effective
designation, his estate) within 30 days after the end of the applicable Elective
Deferral Period.
(d) Minimum Payment Provision.
Executive shall be entitled, with respect to the vested portion (if
any) of the Deferred Stock granted hereunder up to and including the date on
which such vested portion first becomes payable under Paragraph 1.1(b) above
(extended up to six months to reflect any then applicable holding period for
purposes of Section 16(b) of the Securities Exchange Act of 1934), to a
supplemental payment in cash (subject to any applicable elective deferral), if
(ii)
21
and to the extent that, on such date, the fair market value of the shares
covered by such vested portion is less than $33.20 multiplied by the number of
vested shares involved.
(e) Payment of Dividend Equivalents; Voting Rights.
Amounts equal to (i) any dividends declared per share on the AMR's
Common Stock during each calendar quarter from the effective date of grant until
issuance to, or forfeiture by, Executive of the shares covered by this Deferred
Stock award, multiplied by (ii) the number of undistributed and unforfeited
shares covered by this award as of the dividend date for such quarter shall be
payable to Executive on a deferred basis in the form of deferred cash (with an
interest adjustment from the dividend payment date at a rate not less than the
deemed earnings rate then applicable generally to deferrals of base salary by
actively employed senior executives of the Company), subject to the same vesting
and other terms and conditions that apply to the related shares of Deferred
Stock with respect to which such dividend equivalents were payable. Executive
shall have no voting rights with respect to the shares of Deferred Stock covered
by this award unless and until such shares are actually issued to Executive.
(f) Transfer Restrictions.
This Deferred Stock award is non-transferable otherwise than by
will or by the laws of descent and distribution, and may not otherwise be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process.
(g) Miscellaneous.
The terms of this Deferred Stock award (a) shall be binding upon
and inure to the benefit of any successor of the Company, (b) shall be governed
by the laws of the State of Texas, and any applicable laws of the United States,
and (c) may not be amended without the written consent of both the Company and
Executive.
The Company shall not be required to issue shares pursuant to this
award unless and until (a) such shares have been duly listed upon each stock
exchange on which the Company's Stock is then registered; and (b) a registration
statement under the Securities Act of 1933 with respect to such shares is then
effective, provided, however, that Executive, by written notice, may require the
Company to so register such shares at its expense, and, if the Company fails to
so register such shares or such registration is ineffective for any reason,
Executive shall have the right, on 30 days' written notice to the Company, to
"put" any vested unregistered shares covered by this Deferred Stock Award to the
Company for a price equal to such vested shares' then
(iii)
22
current fair market value, provided that such right may only be exercised during
the first 30 days after distribution of the vested shares in question to
Executive pursuant to Paragraph 1.1(b) above.
The Compensation Committee may require Executive to furnish to the
Company, prior to the issuance of any shares of Common Stock in connection with
this award, an agreement, in such form as the Committee may from time to time
deem appropriate, in which Executive represents that the shares acquired by him
under the award are being acquired for investment and not with a view to the
sale or distribution thereof.
The General Counsel of the Company shall be authorized to make
such arrangements (if any) as he deems appropriate with respect to creating any
trust arrangement with respect to the Deferred Stock award.
This award is made pursuant to the 1988 LTIP and is subject to all
of the terms and provisions of the 1988 LTIP as if the same were fully set forth
herein. Capitalized terms not otherwise defined herein shall have the meanings
set forth for such terms in the 1988 LTIP.
(h) Creation of Rabbi Trust.
The Company and Executive are parties to an Irrevocable Executive
Trust Agreement, a copy of which is attached hereto as Exhibit 1, pursuant to
which the Company has deposited into a grantor trust (the "Trust") the Deferred
Stock that has vested pursuant to Paragraph 1.1(a)(1) of this Schedule A,
together with amounts credited to Executive as dividends or dividend equivalents
paid or accrued on such Deferred Stock. By reason of such deposit, the Company
has been relieved of any obligation to deliver Executive AMR Common Stock in
respect of the Deferred Stock that has vested. Instead, the Company shall be
obligated to deliver to Executive an amount, in cash, equal to the value of the
assets of the Trust.
Given Executive's economic interest in the performance of the
Trust and recognizing that Executive has no legal claim to the assets of the
Trust (other than as a general unsecured creditor), the Company agrees that it
will cause the Trustee to provide Executive with a copy of each accounting of
the Trust (or will provide Executive with a copy thereof within 2 business days
after its receipt thereof from the Trustee) and will deliver to the Trustee any
objection to such accounting that Executive delivers to the Company in writing
within 45 days of delivery of a copy of such accounting to Executive, unless
upon review the Company determines Executive's objections to be without merit.
The amount payable to Executive hereunder shall be distributed to
Executive within 30 days of his termination of employment with the Company or
within 30 days of such later date or dates as may be specified under an elective
(iv)
23
deferral made by Executive under Paragraph 1.1(c) of this Schedule A, subject to
earlier distribution, including in the event of a Change in Control, in
accordance with the terms of the Irrevocable Executive Trust Agreement (which
are incorporated herein and made a part hereof).
1.2 Amendments to Stock Option Grants Outstanding as of
January 20, 1988.
Any AMR stock options held by Executive as of January 20, 1988 shall be
amended to provide for accelerated vesting, and a post-termination exercise
period of three years (or, if shorter, until the expiration of the option's
original term), in the event of termination due to retirement, Disability or
death, termination by the Company without Cause or "Good Reason" termination by
Executive; to cancel such options on termination for Cause; and to provide for
accelerated vesting and cashout (or limited SARs) on Change in Control.
1.3 Amendments to Restricted Stock Grants Outstanding as of
January 20, 1988.
Any Restricted Stock grants held by Executive as of January 20, 1988
shall be amended to provide for accelerated vesting on termination by the
Company without Cause or "Good Reason" termination by Executive, and accelerated
vesting and cashout on Change in Control.
(v)
1
EXHIBIT 10.15
February 19, 1998
Mr. Armando M. Codina
Chairman
Codina Group, Inc.
Two Alhambra Plaza, PH2
Coral Gables, FL 33134
Dear Armando:
This will confirm the following agreement relating to the deferral of,
and payment of, your directors' fees in 1998:
1. All directors' fees and retainers ("Fees") payable to you in
connection with your service on the boards of directors (including committees of
such boards) of AMR Corporation and American Airlines, Inc. for the period
January 1, 1998, through December 31, 1998, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in accordance with
the Directors' Stock Equivalent Purchase Plan, a copy of which is attached
hereto as Exhibit A.
3. On or before January 31, 2008, all the Stock Equivalent Units will
be converted to cash and paid to you by multiplying the number of Stock
Equivalent Units as of December 31, 2007, by the arithmetic mean of the high and
low of AMR stock ("fair market value") during the immediately preceding calendar
month.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof
will not be released or modified by reason of your death. In such event, the
number of Stock Equivalent Units as of your date of death will be multiplied by
the fair market value of AMR stock during the calendar month immediately
preceding your death, and the amount paid to Margarita Codina.
2
If the foregoing is satisfactory to you, please indicate by signing and
returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- ---------------------------
Armando M. Codina
- ---------------------------
Date
1
EXHIBIT 10.18
February 19, 1998
Mr. Charles T. Fisher, III
Renaissance Center
Tower 100
Suite 3520
Detroit, Michigan 48243
Dear Chick:
This will confirm the following agreement relating to the deferral of,
and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in connection with
your service on the boards of directors (including committees of such boards) of
AMR Corporation ("AMR") and American Airlines, Inc. for the period January 1,
1998, through December 31, 1998, will be paid to you on a deferred basis as set
forth below.
2. Interest will be accrued on the amounts to be paid on a deferred
basis pursuant to paragraph 1 above, from the date such fees would otherwise
have been paid to the date actually paid, at the prime rate which The Chase
Manhattan Bank (National Association) from time to time charges in New York for
90-day loans to responsible commercial borrowers, such interest to be compounded
monthly.
3. The total amount to be paid on a deferred basis plus the aggregate
amount of interest accrued thereon and to accrue on the portion unpaid from time
to time will be paid to you in four installments as follows:
a) on January 1, 2003, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
b) on January 1, 2004, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
c) on January 1, 2005, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year; and
d) on January 1, 2006, 25% of the deferred fees and all interest
accrued and remaining to be paid on such payment date.
2
4. AMR's obligation to make payments pursuant to paragraph 3 hereof
will not be released or modified by reason of your death. In the event of your
death prior to the payments contemplated by paragraph 3 hereof, the amounts
remaining will be paid to Charles T. Fisher, III, trustee, under the Charles T.
Fisher, III Revocable Living Trust, dated March 24, 1988, as amended c/o NBD
Bank, Detroit, Michigan.
If the foregoing is satisfactory to you, please indicate by signing and
returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- --------------------------
Charles T. Fisher, III
- --------------------------
Date
1
EXHIBIT 10.21
February 19, 1998
Mr. Charles H. Pistor, Jr.
4200 Belclaire
Dallas, Texas 75205
Dear Charlie:
This will confirm the following agreement relating to the deferral of,
and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in connection with
your service on the boards of directors (including committees of such boards) of
AMR Corporation ("AMR") and American Airlines, Inc. for the period January 1,
1998, through December 31, 1998, will be paid to you on a deferred basis as set
forth below.
2. Interest will be accrued on the amounts to be paid on a deferred
basis pursuant to paragraph 1 above, from the date such fees would otherwise
have been paid to the date actually paid, at the prime rate which The Chase
Manhattan Bank (National Association) from time to time charges in New York for
90-day loans to responsible commercial borrowers, such interest to be compounded
monthly.
3. The total amount to be paid on a deferred basis plus the aggregate
amount of interest accrued thereon and to accrue on the portion unpaid from time
to time will be paid to you in four installments as follows:
a) on January 1, 2000, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
b) on January 1, 2001, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
c) on January 1, 2002, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year; and
d) on January 1, 2003, 25% of the deferred fees and all interest
accrued and remaining to be paid on such payment date.
2
4. AMR's obligation to make payments pursuant to paragraph 3 hereof
will not be released or modified by reason of your death. In the event of your
death prior to the payments contemplated by paragraph 3 hereof, the amounts
remaining will be paid to Regina Pistor.
If the foregoing is satisfactory to you, please indicate by signing and
returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- --------------------------
Charles H. Pistor, Jr.
- --------------------------
Date
1
EXHIBIT 10.22
July 16, 1997
Judith Rodin, PhD.
President
University of Pennsylvania
100 College Hall
Philadelphia, PA 19104
Dear Judith:
This will confirm the following agreement relating to the deferral of,
and payment of, your directors' fees and retainers in 1997:
1. All directors' fees and retainers ("Fees") payable to you in
connection with your service on the boards of directors (including committees of
such boards) of AMR Corporation and American Airlines, Inc. for the period July
16, 1997, through December 31, 1997, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in accordance with
the Directors' Stock Equivalent Purchase Plan, a copy of which is attached
hereto as Exhibit A.
3. Upon your retirement from the Board of Directors of AMR all the
Stock Equivalent Units will be converted to cash and paid to you by multiplying
the number of Stock Equivalent Units as of the date of your retirement by the
arithmetic mean of the high and low of AMR stock ("fair market value") during
the calendar month immediately preceding such retirement date. Such payment will
occur within 30 days of your retirement date.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof
will not be released or modified by reason of your death. In such event, the
number of Stock Equivalent Units as of your date of death will be multiplied by
the fair market value of AMR stock during the calendar month immediately
preceding your death, and the amount paid to the Judith Rodin Family Trust.
2
If the foregoing is satisfactory to you, please indicate by signing and
returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- ---------------------------
Judith Rodin
2
1
EXHIBIT 10.23
February 19, 1998
Judith Rodin, PhD.
President
University of Pennsylvania
100 College Hall
Philadelphia, PA 19104
Dear Judith:
This will confirm the following agreement relating to the deferral of,
and payment of, your directors' fees and retainers in 1998:
1. All directors' fees and retainers ("Fees") payable to you in
connection with your service on the boards of directors (including committees of
such boards) of AMR Corporation and American Airlines, Inc. for the period
January 1, 1998 through December 31, 1998, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in accordance with
the Directors' Stock Equivalent Purchase Plan, a copy of which is attached
hereto as Exhibit A.
3. Upon your retirement from the Board of Directors of AMR all the
Stock Equivalent Units will be converted to cash and paid to you by multiplying
the number of Stock Equivalent Units as of the date of your retirement by the
arithmetic mean of the high and low of AMR stock ("fair market value") during
the calendar month immediately preceding such retirement date. Such payment will
occur within 30 days of your retirement date.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof
will not be released or modified by reason of your death. In such event, the
number of Stock Equivalent Units as of your date of death will be multiplied by
the fair market value of AMR stock during the calendar month immediately
preceding your death, and the amount paid to the Judith Rodin Family Trust.
2
If the foregoing is satisfactory to you, please indicate by signing and
returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- ------------------------
Judith Rodin
- ------------------------
Date
1
EXHIBIT 10.28
STOCK OPTION
STOCK OPTION granted DATE, by AMR Corporation, a Delaware corporation
(the "Corporation"), to <> <>, employee number <>, an employee
of the Corporation or one of its Subsidiaries or Affiliates (the "Optionee").
W I T N E S S E T H:
WHEREAS, the stockholders of the Corporation approved the l988 Long
Term Incentive Plan (the "l988 Plan") at the Corporation's annual meeting held
on May l8, l988;
WHEREAS, the l988 Plan provides for the grant of an option to purchase
shares of the Corporation's Common Stock to those individuals selected by the
Committee or, in lieu thereof, the Board of Directors of AMR Corporation (the
"Board"); and
WHEREAS, the Board has determined that the Optionee is eligible under
the Plan and that it is to the advantage and interest of the Corporation to
grant the option provided for herein to the Optionee as an incentive for
Optionee to remain in the employ of the Corporation or one of its Subsidiaries
or Affiliates, and to encourage ownership by the Optionee of the Corporation's
Common Stock, $l par value (the "Common Stock").
NOW, THEREFORE:
l. Option Grant. The Corporation hereby grants to the Optionee a
non-qualified stock option, subject to the terms and conditions hereinafter set
forth, to purchase all or any part of an aggregate of <> shares of
Common Stock at a price of $ per share (being the fair market value of the
Common Stock on the date hereof), exercisable in approximately equal
installments on and after the following dates and with respect to the following
number of shares of Common Stock:
Exercisable On and Number of
After Shares
- ---------------------------- -------------------
- ---------------------------- -------------------
<> <>
- ---------------------------- -------------------
<> <>
- ---------------------------- -------------------
<> <>
- ---------------------------- -------------------
<> <>
- ---------------------------- -------------------
<> <>
- ---------------------------- -------------------
-1-
2
provided, that in no event shall this option be exercisable in whole or in part
ten years from the date hereof and that the Company shall in no event be
obligated to issue fractional shares. The right to exercise this option and to
purchase the number of shares comprising each such installment shall be
cumulative, and once such right has become exercisable it may be exercised in
whole at any time and in part from time to time until the date of termination of
the Optionee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other provision hereof,
this option shall not be exercised if at such time such exercise or the delivery
of certificates representing shares of Common Stock purchased pursuant hereto
shall constitute a violation of any provision of any applicable Federal or State
statute, rule or regulation, or any rule or regulation of any securities
exchange on which the Common Stock may be listed.
3. Manner of Exercise. This option may be exercised with respect to all
or any part of the shares of Common Stock then subject to such exercise by
written notice from the Optionee to the Corporation addressed to P.O. Box
6l96l6, Dallas/Fort Worth Airport, Texas 7526l-96l6, Attention: Executive
Compensation. Such notice shall be accompanied by the payment of the option
price in cash or by check and, in the event that at the time of such exercise
the shares of Common Stock as to which this option is exercisable have not been
registered under the Securities Act of l933, shall include a representation by
the Optionee that at the time of such exercise he is acquiring the shares of
Common Stock for investment only and not with a view to distribution. Subject to
compliance by the Optionee with all the terms and conditions hereof, the
Corporation shall promptly thereafter deliver to the Optionee a certificate or
certificates for such shares with all requisite transfer stamps attached.
4. Termination of Option. This option shall terminate and may no longer
be exercised if (i) the Optionee ceases to be an employee of the Corporation or
one of its Subsidiaries or Affiliates; or (ii) the Optionee becomes an employee
of a Subsidiary that is not wholly owned, directly or indirectly, by the
Corporation; or (iii) the Employee takes a leave of absence without
reinstatement rights, unless otherwise agreed in a writing between the
Corporation and the Employee; except that
(a) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) terminates by reason of death, the
option may thereafter be exercised, to the extent such option
was exercisable at the time of death, by the legal
representative of the estate or by the legatee of the Optionee
under the will of the Optionee, for a period of three years
from the date of such death or until the expiration of the
stated term of the option, whichever period is the shorter;
-2-
3
(b) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) terminates by reason of Disability,
the option may thereafter be exercised, to the extent it was
exercisable at the time of such disability, for a period of
three years from the date of such disability or until the
expiration of the stated term of such option, whichever
period is the shorter; provided, however, that, if the
Optionee dies within such three-year period, any unexercised
portion of the option shall thereafter be exercisable to the
extent to which it was exercisable at the time of death for
a period of twelve months from the date of such death or
until the expiration of the stated term of the option,
whichever period is the shorter;
(c) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) terminates by reason of Normal or
Early Retirement, the option may thereafter be exercised, to
the extent it was exercisable at the time of such Retirement,
for a period of three years from the date of such retirement
or the expiration of the stated term of the option, whichever
period is the shorter; provided, however, that, if the
Optionee dies within such three-year period, any unexercised
portion of the option shall thereafter be exercisable, to the
extent to which it was exercisable at the time of death, for a
period of twelve months from the date of such death or until
the expiration of the stated term of the option, whichever
period is the shorter; and
(d) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) is involuntarily terminated by the
Corporation or a Subsidiary or Affiliate (as the case may be)
without Cause, the option may thereafter be exercised, to the
extent it was exercisable at the time of termination, for a
period of three months from the date of such termination of
employment or until the stated term of such option, whichever
period is shorter.
(e) Change in Control; Potential Change in Control. In the
event of a Change in Control or a Potential Change in
Control of the Corporation, this option shall become
exercisable in accordance with the l988 Plan, or its
successor.
5. Adjustments in Common Stock. In the event of any stock dividend,
stock split, merger, consolidation, reorganization, recapitalization or other
change in the corporate structure, appropriate adjustments shall be made by the
Board in the number of shares, class or classes of securities and the price per
share subject to outstanding options and Rights.
6. Non-Transferability of Option. This option may not be transferred
except by will or the laws of descent and distribution to the extent provided
herein. During the lifetime of the Optionee this option may be exercised only by
him or her.
7. Miscellaneous. This option (a) shall be binding upon and inure to
the benefit of any successor of the Corporation, (b) shall be governed by the
laws of the State of Texas,
-3-
4
and any applicable laws of the United States, and (c) may not be amended except
in writing. No contract or right of employment shall be implied by this option.
If this option is assumed or a new option is substituted
therefore in any corporate reorganization (including, but not limited to, any
transaction of the type referred to in Section 425(a) of the Internal Revenue
Code of l986, as amended), employment by such assuming or substituting
corporation or by a parent corporation or a subsidiary thereof shall be
considered for all purposes of this option to be employment by the Corporation.
8. Securities Law Requirements. The Corporation shall not be required
to issue shares upon the exercise of this option unless and until (a) such
shares have been duly listed upon each stock exchange on which the Corporation's
Stock is then registered; and (b) a registration statement under the Securities
Act of l933 with respect to such shares is then effective.
The Board may require the Optionee to furnish to the
Corporation, prior to the issuance of any shares of Stock in connection with the
exercise of this option, an agreement, in such form as the Board may from time
to time deem appropriate, in which the Optionee represents that the shares
acquired by him upon such exercise are being acquired for investment and not
with a view to the sale or distribution thereof.
9. Option Subject to l988 Plan. Except as contemplated by Section 4(e),
this option shall be subject to all the terms and provisions of the l988 Plan,
and the Optionee shall abide by and be bound by all rules, regulations and
determinations of the Board of Directors of the Corporation now or hereafter
made in connection with the administration of the l988 Plan. Capitalized terms
not otherwise defined herein shall have the meanings set forth for such terms in
the l988 Plan.
-4-
5
IN WITNESS WHEREOF, the Corporation has executed this Stock Option as
of the day and year first above written.
AMR Corporation
By
----------------------------------
Charles D. MarLett
Corporate Secretary
Optionee
----------------------------------
-5-
1
EXHIBIT 10.30
CAREER EQUITY PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of _______, 199_, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), to
<> <> (the "Employee"), employee number <>.
WHEREAS, the stockholders of the Corporation approved the 1988
Long Term Incentive Plan (the "1988 Plan") at the Corporation's annual meeting
held on May 18, 1988; and
WHEREAS, pursuant to the Career Equity Program adopted by the
Board of Directors of the Corporation (the "Board"), the Board has determined to
make a Career Equity Program grant to the Employee of Deferred Stock (subject to
the terms of the l988 Plan and this Agreement), as an inducement for the
Employee to remain an employee of the Corporation, and to retain and motivate
such Employee during his employment with the Corporation.
NOW, THEREFORE, the Corporation and the Employee hereby agree
as follows:
l. Grant of Award. The Employee is hereby granted as of
______, 199_, (the "Grant Date") a Deferred Stock Award (the "Award"), subject
to the terms and conditions hereinafter set forth, with respect to <>
shares of Common Stock, $l.00 par value, of the Corporation ("Stock"). The
shares of Stock covered by the Award shall vest in accordance with Sections 2,
3, 4, 5, and 6 hereof.
2. Vesting - Normal Retirement or Early Retirement. In the
event of the termination of Employee's employment with the Corporation (or any
Subsidiary or Affiliate thereof) on or after the Grant Date due to Normal
Retirement (which is defined as retirement from employment with the Corporation,
or any Subsidiary or Affiliate thereof, at or after age 60), the shares of Stock
covered by the Award shall become fully vested.
In the event of the termination of the Employee's employment
with the Corporation (or any Subsidiary or Affiliate thereof) on or after the
Grant Date due to Early Retirement (which is defined as an early retirement from
employment with the Corporation, or any Subsidiary or Affiliate thereof, at or
after age 55 but before age 60), the shares of stock covered by the Award shall
vest in accordance with the following schedule:
1
2
Percentage of
Award
Age Vested
--- -------------
55 85%
56 88%
57 91%
58 94%
59 97%
Share certificates for the number of shares covered by a
vested Award (whether in full or partial) shall be issued and delivered to the
Employee on or about the date of Retirement.
Notwithstanding anything to the contrary contained herein and
for the purposes of this Award, in order to be eligible for the benefits
hereunder associated with Early Retirement, the recipient must be entitled to
receive early retirement pension benefits under the then existing policies of
the Corporation, Subsidiary or Affiliate, as applicable.
3. Vesting - Death or Disability. In the event of the
termination of Employee's employment with the Corporation (or any Subsidiary or
Affiliate thereof) on or after the Grant Date due to the Employee's death or
Disability, the shares of Stock covered by the Award shall vest at a rate of 20%
for each full year of employment with the Corporation (or any Subsidiary or
Affiliate thereof) after the Grant Date (with pro rata vesting for each full
month of employment in partial years). In such case, share certificates for the
number of shares so vested shall be issued and delivered to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary for
purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) within 60 days after the Employee's death or
Disability.
4. Vesting - Termination Not for Cause. If the Employee's
employment with the Corporation (or any Subsidiary or Affiliate thereof) is
terminated on or after the Grant Date by the Corporation (or any Subsidiary or
Affiliate thereof) other than for Cause, the shares of Stock covered by the
Award shall vest at a rate of 10% for each full year of employment with the
Corporation (or any Subsidiary or Affiliate thereof) after the Grant Date (with
pro rata vesting for each full month of employment in partial years). In such
case, share certificates for the number of shares so vested shall be issued and
delivered to the Employee in five equal annual installments with the first
installment being made one year after the date of such termination; provided,
however, that in the event of such termination, vesting of the shares under the
Award as provided herein may be predicated upon the Employee agreeing to such
terms and conditions as required by the Corporation, including, but not limited
to, non-competition and non-disclosure agreements.
5. Vesting - Termination for Cause; Other. In the event that
(a) the Employee's employment with the Corporation (or any Subsidiary or
Affiliate thereof) is terminated for Cause; or (b) the Employee terminates his
employment with the Corporation, or any Subsidiary or Affiliate thereof, (other
than for reasons of Retirement or Disability); or (c) the Employee becomes an
employee of a Subsidiary that is not wholly owned, directly or indirectly, by
the Corporation; or (d) the Employee takes a leave of absence
2
3
without reinstatement rights, unless otherwise agreed in a writing between the
Corporation and the Employee; then all shares of Stock covered by the Award
shall be forfeited.
6. Vesting - Change in Control; Potential Change in Control.
In the event of a Change in Control or Potential Change in Control of the
Corporation, shares under the Award shall vest in accordance with the l988 Plan
or its successor.
7. Elective Deferrals. At any time at least l2 months prior to
the date of the Employee's Retirement, the Employee may elect in writing,
subject to Board approval, to voluntarily defer the receipt of the shares of
Stock covered by the Award for a specified additional period beyond the date of
the Employee's termination of employment (the "Elective Deferral Period"). Any
shares deferred pursuant to this Section 7 shall be issued to the Employee
within 60 days after the end of the Elective Deferral Period. In the event of
the death of the Employee during the Elective Deferral Period, the shares so
deferred shall be issued to the Employee's designated Beneficiary (or to the
Employee's estate, in the absence of an effective beneficiary designation)
within 60 days after the Board receives written notification of death.
8. Transfer Restrictions. This Award is non-transferable
otherwise than by will or by the laws of descent and distribution, and may not
otherwise be assigned, pledged or hypothecated and shall not be subject to
execution, attachment or similar process. Upon any attempt by the Employee (or
the Employee's successor in interest after the Employee's death) to effect any
such disposition, or upon the levy of any such process, the Award shall
immediately become null and void, at the discretion of the Board.
9. Miscellaneous. This Agreement (a) shall be binding upon and
inure to the benefit of any successor of the Corporation, (b) shall be governed
by the laws of the State of Texas and any applicable laws of the United States,
and (c) may not be amended without the written consent of both the Corporation
and the Employee. No contract or right of employment shall be implied by this
Agreement. If this Award is assumed or a new award is substituted therefore in
any corporate reorganization, employment by such assuming or substituting
corporation or by a parent corporation or subsidiary or affiliate thereof shall
be considered for all purposes of this Award to be employment by the
Corporation. In the event Employee does not forward to the Corporation, within
the applicable period, required taxes with respect to any Award distributed
pursuant to this Agreement, the Corporation may withhold from any payments to be
made to the Employee by the Corporation (or any Subsidiary or Affiliate
thereof), an amount(s) equal to such taxes.
l0. Securities Law Requirements. The Corporation shall not be
required to issue shares pursuant to this Award unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act of
l933 with respect to such shares is then effective.
The Board may require the Employee to furnish to the
Corporation, prior to the issuance of any shares of Stock in connection with
this Award, an agreement, in such form as the Board may from time to time deem
appropriate, in which the Employee represents that the shares acquired by him
under the Award are being acquired for investment and not with a view to the
sale or distribution thereof.
3
4
ll. Incorporation of l988 Plan Provisions. Except as
contemplated by Section 6, this Agreement is made pursuant to the l988 Plan and
is subject to all of the terms and provisions of the l988 Plan as if the same
were fully set forth herein. Capitalized terms not otherwise defined herein
shall have the meanings set forth for such terms in the l988 Plan.
l2. Participation in Long-Term Incentive Plans. If at the time
of i) Employee's Retirement from the Corporation (or any Subsidiary or Affiliate
thereof) or ii), the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) for reasons contemplated by Sections 3
or 4, the Employee has received payment(s) under the terms of a long-term
incentive plan(s) adopted by any Subsidiary or Affiliate of the Corporation, the
Employee agrees that in lieu of the shares of Stock that have vested pursuant to
this Award, the Employee will receive shares of stock having a fair market value
as of the vesting date equal to the positive difference, if any, between the
fair market value (as of the vesting date) of the shares of Stock that have
vested hereunder and the aggregate nominal value of the payment(s) made under
such long-term incentive plan(s).
13. Payment of Performance Return Payments and Dividend
Equivalents; Voting Rights.
(a) Performance Return Payments. Subject to the terms and
conditions set forth in the attached Schedule A, Performance Return Payments (as
defined in such Schedule A) shall be paid annually on or about the date as may
be designated from time to time by the Board or any committee thereof (the
"Payment Date") on all or a specified portion of the shares of Deferred Stock
covered by this Award, as set forth in such Schedule A, based on: (i) the
greater of (y) a deemed investment rate equal to the Corporation's Rolling
Average ROI as defined and determined in accordance with the terms and
conditions set forth in such Schedule A or (z) 6%; and (ii) the value of the
Stock as determined by the Board, or any committee thereof, pursuant to Schedule
A.
In addition, the Employee shall be entitled, subject to the
consent of the Board, to elect to defer receipt of such Performance Return
Payments in accordance with the American Airlines, Inc. 1987 Executive Deferral
Plan or its successor plan.
(b) Dividend Equivalents. The Employee shall also be entitled
to payment of an amount equal to (i) the amount of any dividend declared per
share on the Corporation's Stock after the Grant Date and prior to issuance to,
or forfeiture by, the Employee of the shares of Deferred Stock covered by this
Award, multiplied by (ii) the number of unissued and unforfeited shares of
Deferred Stock covered by this Award, provided (y) that the amount of any such
dividend equivalents shall be offset by the amount of any Performance Return
Payments paid under this Award within the preceding 11 months and (z) that,
unless the Board otherwise decides prior to the dividend payment date, such
dividend equivalent payment shall be automatically deferred and treated as
additional shares of Deferred Stock, subject to the same terms and conditions
that apply to the related shares of Deferred Stock with respect to which such
dividend equivalents were initially payable.
4
5
(c) Voting and Other Rights. The Employee shall have no
ownership rights, including voting rights, with respect to the shares of
Deferred Stock covered by this Award unless and until shares of stock are
actually issued to the Employee."
* * *
EMPLOYEE AMR CORPORATION
- ----------------------------- ----------------------------
C. D. MarLett
Corporate Secretary
5
6
Schedule A
Performance Return Payments
1. Performance Return Payments may be paid on a percentage of the shares
covered by the Award, such percentage to be established, from time to
time, by the Chairman of the Corporation.
2. The price of those shares, if any, subject to Performance Return
Payments, will be as determined by the Board, or any committee thereof,
and will approximate the then existing price of the Stock on the New
York Stock Exchange.
3. The three-year rolling average return of investment of AMR Corporation
(the "ROI"), as referenced in Section 13 of the Agreement, will be
calculated as soon as practical following the end of the Corporation's
fiscal year. In determining ROI, the following definitions will
control:
The Measurement Period is the three most recent fiscal years.
AMR is AMR Corporation.
Committee is the AMR Incentive Compensation Committee.
Plan Returns is the sum of AMR pre-tax income, interest expense, and
any accounting adjustments or extraordinary or unusual items which may
be included or excluded at the discretion of the Committee and approved
by the Board of Directors of AMR, or a committee thereof.
Adjusted Investment is the sum of AMR's notes payable, current
maturities of long term debt, current maturities on capital leases,
non-current long term debt, non-current capital leases, and
stockholders' equity and any extraordinary or unusual items which may
be included or excluded at the discretion of the Committee and approved
by the Board of Directors of AMR, or a committee thereof.
Average Adjusted Investment for a fiscal year is (i) the sum of
Adjusted Investment as of December 31 of the immediately prior fiscal
year and Adjusted Investment as of September 30 of the fiscal year for
which ROI is being calculated (ii) divided by two.
ROI for a fiscal year is Plan Returns for a fiscal year divided by
Average Adjusted Investment for that same fiscal year, stated as a
percentage.
ROI for the Measurement Period is the sum of ROI for each year of the
Measurement Period divided by three.
4. In the event of an Employee's termination of employment with the
Corporation (and any Subsidiary or Affiliate thereof) for reasons of
death, Disability, or Retirement, Performance Return Payments, if any,
which are paid on or around the first occurrence of the Payment Date
after the date of death, Disability, or Retirement, shall be paid to
the Employee (or, in the event of the Employee's
6
7
death, the Employee's designated beneficiary for purposes of the
Award, or in the absence of an effective beneficiary designation, the
Employee's estate) at the rate of 8 1/3% for each full or partial
month of employment since the Payment Date of the preceding year.
Notwithstanding the foregoing, however, no Performance Return Payments
shall be made to an Employee if the Employee's employment with the
Corporation (and any Subsidiary or Affiliate thereof) is terminated
for Cause.
7
1
EXHIBIT 10.31
CAREER EQUITY PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of ______, 199_, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), to <> <>
(the "Employee"), employee number <>.
WHEREAS, the stockholders of the Corporation approved the 1988
Long Term Incentive Plan, as amended (the "1988 Plan"); and
WHEREAS, pursuant to the Career Equity Program adopted by the
Board of Directors of the Corporation (the "Board"), the Board has determined to
make a Career Equity Program grant to the Employee of Deferred Stock (subject to
the terms of the l988 Plan and this Agreement), as an inducement for the
Employee to remain an employee of the Corporation, and to retain and motivate
such Employee during his employment with the Corporation.
NOW, THEREFORE, the Corporation and the Employee hereby agree
as follows:
l. Grant of Award. The Employee is hereby granted as of
_______, 199_, (the "Grant Date") a Deferred Stock Award (the "Award"), subject
to the terms and conditions hereinafter set forth, with respect to <>
shares of Common Stock, $l.00 par value, of the Corporation ("Stock"). The
shares of Stock covered by the Award shall vest in accordance with Sections 2,
3, 4, 5, and 6 hereof.
2. Vesting - Normal Retirement or Early Retirement. In the
event of the termination of Employee's employment with the Corporation (or any
Subsidiary or Affiliate thereof) on or after the Grant Date due to Normal
Retirement (which is defined as retirement from employment with the Corporation,
or any Subsidiary or Affiliate thereof, at or after age 60), the shares of Stock
covered by the Award shall become fully vested.
In the event of the termination of the Employee's employment with the
Corporation (or any Subsidiary or Affiliate thereof) on or after the Grant Date
due to Early Retirement (which is defined as an early retirement from employment
with the Corporation, or any Subsidiary or Affiliate thereof, at or after age 55
but before age 60), the shares of stock covered by the Award shall vest in
accordance with the following schedule:
1
2
Percentage of
Age Award Vested
--- ------------
55 85%
56 88%
57 91%
58 94%
59 97%
Share certificates for the number of shares covered by a
vested Award (whether in full or partial) shall be issued and delivered to the
Employee on or about the date of Retirement.
Notwithstanding anything to the contrary contained herein, and
for the purposes of this Award, in order to be eligible for the benefits
hereunder associated with Early Retirement, the recipient must be entitled to
receive early retirement pension benefits under the then existing policies of
the Corporation, Subsidiary or Affiliate, as applicable.
3. Vesting - Death or Disability. In the event of the
termination of Employee's employment with the Corporation (or any Subsidiary or
Affiliate thereof) on or after the Grant Date due to the Employee's death or
Disability, the shares of Stock covered by the Award shall vest at a rate of 20%
for each full year of employment with the Corporation (or any Subsidiary or
Affiliate thereof) after the Grant Date (with pro rata vesting for each full
month of employment in partial years). In such case, share certificates for the
number of shares so vested shall be issued and delivered to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary for
purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) within 60 days after the Employee's death or
Disability.
4. Vesting - Termination Not for Cause. If the Employee's
employment with the Corporation (or any Subsidiary or Affiliate thereof) is
terminated on or after the Grant Date by the Corporation (or any Subsidiary or
Affiliate thereof) other than for Cause, the shares of Stock covered by the
Award shall vest at a rate of 10% for each full year of employment with the
Corporation (or any Subsidiary or Affiliate thereof) after the Grant Date (with
pro rata vesting for each full month of employment in partial years after the
initial year). In such case, share certificates for the number of shares so
vested may be issued and delivered to the Employee in five equal annual
installments with the first installment being made one year after the date of
such termination; provided, however, that in the event of such termination,
vesting of the shares under the Award as provided herein may be predicated upon
the Employee agreeing to such terms and conditions as required by the
Corporation, including, but not limited to, non-competition and non-disclosure
agreements.
5. Vesting - Termination for Cause; Other. In the event that
(a) the Employee's employment with the Corporation (or any Subsidiary or
Affiliate thereof) is terminated for Cause; or (b) the Employee terminates his
employment with the Corporation; or (c) the Employee becomes an employee of a
Subsidiary that is not wholly owned, directly or indirectly, by the Corporation;
or (d) the Employee takes a leave of absence without reinstatement rights,
unless otherwise agreed in a writing between the Corporation and the Employee;
or (e) the employee ceases to be a member of management at level 5 and
2
3
above; then all shares of Stock covered by the Award shall be forfeited.
6. Vesting - Change in Control; Potential Change in Control.
In the event of a Change in Control or Potential Change in Control of the
Corporation, shares under the Award shall vest in accordance with the 1988 Plan
or its successor.
7. Elective Deferrals. At any time at least 12 months prior to
the date of the Employee's Retirement, the Employee may elect in writing,
subject to Board approval, to voluntarily defer the receipt of the shares of
Stock covered by the Award for a specified additional period beyond the date of
the Employee's termination of employment (the "Elective Deferral Period"). Any
shares deferred pursuant to this Section 7 shall be issued to the Employee
within 60 days after the end of the Elective Deferral Period. In the event of
the death of the Employee during the Elective Deferral Period, the shares so
deferred shall be issued to the Employee's designated Beneficiary (or to the
Employee's estate, in the absence of an effective beneficiary designation)
within 60 days after the Board receives written notification of death.
8. Transfer Restrictions. This Award is non-transferable
otherwise than by will or by the laws of descent and distribution, and may not
otherwise be assigned, pledged or hypothecated and shall not be subject to
execution, attachment or similar process. Upon any attempt by the Employee (or
the Employee's successor in interest after the Employee's death) to effect any
such disposition, or upon the levy of any such process, the Award shall
immediately become null and void, at the discretion of the Board.
9. Miscellaneous. This Agreement (a) shall be binding upon and
inure to the benefit of any successor of the Corporation, (b) shall be governed
by the laws of the State of Texas and any applicable laws of the United States,
and (c) may not be amended without the written consent of both the Corporation
and the Employee. No contract or right of employment shall be implied by this
Agreement. If this Award is assumed or a new award is substituted therefore in
any corporate reorganization, employment by such assuming or substituting
corporation or by a parent corporation or subsidiary or affiliate thereof shall
be considered for all purposes of this Award to be employment by the
Corporation. In the event Employee does not forward to the Corporation, within
the applicable period, required taxes with respect to any Award distributed
pursuant to this Agreement, the Corporation may withhold from any payments to be
made to the Employee by the Corporation (or any Subsidiary or Affiliate
thereof), an amount(s) equal to such taxes.
10. Securities Law Requirements. The Corporation shall not be
required to issue shares pursuant to this Award unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act of
1933 with respect to such shares is then effective.
The Board may require the Employee to furnish to the
Corporation, prior to the issuance of any shares of Stock in connection with
this Award, an agreement, in such form as the Board may from time to time deem
appropriate, in which the Employee represents that the shares acquired by him
under the Award are being acquired for investment and not with a view to the
sale or distribution thereof.
3
4
11. Incorporation of 1988 Plan Provisions. Except as
contemplated by Section 6, this Agreement is made pursuant to the 1988 Plan and
is subject to all of the terms and provisions of the 1988 Plan as if the same
were fully set forth herein. Capitalized terms not otherwise defined herein
shall have the meanings set forth for such terms in the 1988 Plan.
12. Participation in Long-Term Incentive Plans. If at the time
of i) Employee's Retirement from the Corporation (or any Subsidiary or Affiliate
thereof) or ii), the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) for reasons contemplated by Section 3
or 4, the Employee has received payment(s) under the terms of a long-term
incentive plan(s) adopted by any Subsidiary or Affiliate of the Corporation, the
Employee agrees that in lieu of the shares of Stock that have vested pursuant to
this Award, the Employee will receive shares of stock having a fair market value
as of the vesting date equal to the positive difference, if any, between the
fair market value (as of the vesting date) of the shares of Stock that have
vested hereunder and the aggregate nominal value of the payment(s) made under
such long-term incentive plan(s).
* * *
IN WITNESS HEREOF, the Employee and the Corporation have
executed this Career Equity Grant as of the day and year first above written.
* * * * * * * *
EMPLOYEE AMR CORPORATION
- -------------------------- -----------------------------
C. D. MarLett
Corporate Secretary
4
1
EXHIBIT 10.37
1997-1999 PERFORMANCE SHARE PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of _____, 199_, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), and (the "Employee"),
employee number .
WHEREAS, the stockholders of the Corporation approved the 1988
Long Term Incentive Plan (the "1988 Plan") at the Corporation's annual meeting
held on May 18, 1988; and
WHEREAS, pursuant to the Performance Share Program (the
"Program") adopted by the Board of Directors of the Corporation (the "Board"),
the Board has determined to make a Program grant to the Employee of Deferred
Stock (subject to the terms of the l988 Plan and this Agreement), as an
inducement for the Employee to remain an employee of the Corporation (or a
Subsidiary or Affiliate thereof), and to retain and motivate such Employee
during such employment.
NOW, THEREFORE, the Corporation and the Employee hereby agree
as follows:
l. Grant of Award. The Employee is hereby granted as of ____,
199_, (the "Grant Date") a Deferred Stock Award (the "Award"), subject to the
terms and conditions hereinafter set forth, with respect to ___ shares of Common
Stock, $l.00 par value, of the Corporation ("Stock"). The shares of Stock
covered by the Award shall vest in accordance with Section 2.
2. Vesting. (a) The Award will vest, if at all, in accordance
with Schedule A, attached hereto and made a part of this Agreement. (b) In the
event of the termination of Employee's employment with the Corporation (or a
Subsidiary or Affiliate thereof) prior to the end of three year measurement
period set forth in Schedule A (the "Measurement Period") due to the Employee's
death, Disability, Retirement or termination not for Cause (each an "Early
Termination") the Award will vest, if at all, on a prorata basis and will be
paid to the Employee (or, in the event of the Employee's death, the Employee's
designated beneficiary for purposes of the Award, or in the absence of an
effective beneficiary designation, the Employee's estate) as soon as practicable
after the end of the Measurement Period. The prorata share will be a percentage
where the denominator is 36 and the numerator is the number of months from
January 1, 1997 through the month of the Early Termination, inclusive.
(c) In the event of the termination of Employee's employment
with the Corporation (or any Subsidiary or Affiliate thereof) for Cause, or if
the Employee terminates his employment with the Corporation (or any Subsidiary
or Affiliate thereof) prior to the distribution of any Award hereunder, the
Award shall be forfeited in its entirety.
-1-
2
(d) In the event of a Change in Control or Potential Change in
Control of the Corporation, the Award shall vest in accordance with the l988
Plan, or its successor.
(e) If prior to the distribution of any Award hereunder, the
Employee becomes an employee of a Subsidiary that is not wholly owned, directly
or indirectly, by the Corporation, then the Award shall be forfeited in its
entirety.
(f) If prior to the distribution of any Award hereunder, the
Employee takes a leave of absence without reinstatement rights, and unless
otherwise agreed in a writing between the Corporation and the Employee, then the
Award shall be forfeited in its entirety.
3. Payment in Cash. Upon a determination by the Board, an
Award may be paid in cash or other consideration in accordance with a formula as
adopted by the Board.
4. Elective Deferrals. At any time at least 12 months prior to
the end of the Measurement Period, the Employee may elect in writing, subject to
Board approval, to voluntarily defer the receipt of the Stock for a specified
additional period beyond the end of the Measurement Period (the "Elective
Deferral Period"). Any Stock deferred pursuant to this Section 4 shall be issued
to the Employee within 60 days after the end of the Elective Deferral Period. In
the event of the death of the Employee during the Elective Deferral Period, the
Stock so deferred shall be issued to the Employee's designated Beneficiary (or
to the Employee's estate, in the absence of an effective beneficiary
designation) within 60 days after the Corporation receives written notification
of death.
5. Transfer Restrictions. This Award is non-transferable
otherwise than by will or by the laws of descent and distribution, and may not
otherwise be assigned, pledged or hypothecated and shall not be subject to
execution, attachment or similar process. Upon any attempt by the Employee (or
the Employee's successor in interest after the Employee's death) to effect any
such disposition, or upon the levy of any such process, the Award may
immediately become null and void, at the discretion of the Board.
6. Miscellaneous. This Agreement (a) shall be binding upon and
inure to the benefit of any successor of the Corporation, (b) shall be governed
by the laws of the State of Texas and any applicable laws of the United States,
and (c) may not be amended without the written consent of both the Corporation
and the Employee. No contract or right of employment shall be implied by this
Agreement. In the event Employee does not forward to the Corporation, within the
applicable period, required taxes with respect to any Award distributed pursuant
to this Agreement, the Corporation may withhold from any payments to be made to
the Employee by the Corporation (or any Subsidiary or Affiliate thereof), an
amount(s) equal to such taxes.
7. Securities Law Requirements. The Corporation shall not be
required to issue Stock pursuant to this Award unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act of
1933 with respect to such shares is then effective.
-2-
3
The Board may require the Employee to furnish to the
Corporation, prior to the issuance of the Stock in connection with this Award,
an agreement, in such form as the Board may from time to time deem appropriate,
in which the Employee represents that the shares acquired by him under the Award
are being acquired for investment and not with a view to the sale or
distribution thereof.
8. Incorporation of l988 Plan Provisions. Except as
contemplated by Section 2(d), this Agreement is made pursuant to the l988 Plan
and is subject to all of the terms and provisions of the l988 Plan as if the
same were fully set forth herein. Capitalized terms not otherwise defined herein
(inclusive of Schedule A)
shall have the meanings set forth for such terms in the l988 Plan.
IN WITNESS HEREOF, the Employee and the Corporation have executed this
Performance Share Grant as of the day and year first above written.
EMPLOYEE AMR CORPORATION
By:
- -------------------------------- ----------------------------
Charles D. MarLett
Corporate Secretary
-3-
4
SCHEDULE A
AMR CORPORATION
1997 - 1999 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
PURPOSE
The purpose of the 1997 - 1999 AMR Corporation Performance Share Plan (Plan) for
Officers and Key Employees is to provide greater incentive to officers and key
employees of AMR Corporation (AMR or the Corporation), to achieve the highest
level of individual performance, and to meet or exceed specified goals which
will contribute to the success of the Corporation.
DEFINITIONS
Unless otherwise indicated in the 1988 Plan as amended or the applicable award
agreement between the Corporation and the Employee relating to the performance
shares, the following definitions will control:
AMR is defined as AMR Corporation.
COMMITTEE is defined as the Compensation/Nominating Committee of the AMR Board
of Directors.
ADJUSTED EARNINGS/(LOSS) is defined as the sum of the Corporation's Consolidated
earnings/(loss) applicable to common shares, preferred dividends, and American
Airlines Inc. (American) aircraft rental expense - net of the Related Tax
Impact, less: Calculated Interest on Operating Leases - net of the Related Tax
Impact, and Calculated Amortization of Operating Leases - net of the Related Tax
Impact.
NET CASH FLOW is defined as the sum of Adjusted Earnings/(Loss), the
Corporation's depreciation and amortization expense, Calculated Interest on
Operating Leases - net of the Related Tax Impact, Calculated Amortization of
Operating Leases, and any accounting adjustments or extraordinary or unusual
items (net of the Related Tax Impact) or other non-cash items which may be added
or deducted at the discretion of the AMR Incentive Compensation Committee
(Committee) and approved by the AMR Board of Directors.
PLAN AVERAGE NET CASH FLOW is defined as the sum of the Net Cash Flow amounts
for all of the fiscal years in the measurement period divided by three.
-4-
5
ADJUSTED GROSS ASSETS is defined as the Corporation's consolidated total assets
plus the Capitalized Value of Operating Leases plus Accumulated Depreciation on
Equipment and Property plus Accumulated Amortization on Equipment and Property
under Capital Leases, minus cash and short-term investments.
CAPITALIZED VALUE OF OPERATING LEASES is defined as the initial present value of
the lease payments required under American's aircraft operating leases over the
initial stated lease term, calculated using a discount rate of Prime plus one
percent.
PRIME is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
CALCULATED INTEREST ON OPERATING LEASES is defined as the interest expense
imputed in American's operating leases and is determined by applying the
interest rate used in determining the Capitalized Value of Operating Leases to
the average obligation balance of such leases (calculated as the remaining
obligation balance at the end of the fiscal year plus the remaining obligation
balance at the end of the prior fiscal year, divided by two).
CALCULATED AMORTIZATION OF OPERATING LEASES is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
RELATED TAX IMPACT of an adjustment made in determining Adjusted Earnings/(Loss)
or Net Cash Flow is defined as the amount of that adjustment multiplied by the
Corporation's estimated marginal tax rate for the relevant year, as determined
by the Tax Department.
MEASUREMENT PERIOD is defined as the three year period beginning January 1, 1997
and ending December 31, 1999.
AVERAGE ADJUSTED GROSS ASSETS is Adjusted Gross Assets as of December 31 of a
given year during the measurement period, plus Adjusted Gross Assets as of
December 31 of the prior fiscal year, divided by two.
PLAN AVERAGE ADJUSTED GROSS ASSETS is the sum of Average Adjusted Gross Assets
for each of the years during the measurement period divided by three.
CASH FLOW RETURN ON GROSS ASSETS is defined as Plan Average Net Cash Flow
divided by Plan Average Adjusted Gross Assets.
COMPARISON AIRLINES shall consist of UAL Corp., Delta Airlines Inc., Southwest
Airlines Inc., and USAir Group.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
-5-
6
ACCUMULATION OF SHARES
The number of shares under the Plan to be distributed to individual participants
is based on the applicable award agreement between the Corporation and the
Employee and is determined by (i) the Corporation's Cash Flow Return on Gross
Assets (CFROGA), and (ii) the Corporation's relative rank among the Comparison
Airlines with regard to Cash Flow Return on Gross Assets. The accumulation of
shares is specified below:
- --------------------------------------------------------------------------------------------------------------
GRANTED SHARES - PERCENT OF TARGET
AMR'S CFROGA
----------------------------------------------------------------------------------------------
AMR's > = 5.70% and > = 6.80% and > = 7.90% and
--- --- ---
Ranking < 5.70% < 6.80% < 7.90% < 8.60% > = 8.60%
------- ------- ------- ------- ------- ---------
1st 75% 100% 125% 150% 175%
2nd 50% 75% 100% 125% 150%
3rd 25% 50% 75% 100% 125%
4th 0% 25% 50% 75% 100%
5th 0% 0% 0% 0% 0%
- -------------------------------------------------------------------------------------------------------------
ADMINISTRATION
The Compensation Committee ("Committee") of the Corporation shall have authority
to administer and interpret the Plan, establish administrative rules, approve
eligible participants, and take any other action necessary for the proper
operation of the Plan. In computing the Cash Flow Return on Assets of the
Comparison Airlines, the Committee may include or exclude special or
non-recurring items. The amount, if any, of the fund shall be computed by the
General Auditor of American based on a certification of CFROGA by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards. The Committee may determine to pay a cash equivalent in lieu of the
stock award.
GENERAL
Nothing in the Plan shall be deemed to give any employee the right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive shares as may have been expressly
awarded by the Committee.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees not to disclose any trade secrets of, or other
confidential/restricted information during his or her employment with the
Corporation or any of its Affiliates or after such employment is terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
-6-
1
EXHIBIT 10.38
AMR CORPORATION
1998 - 2000 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1998 - 2000 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of AMR Corporation ("AMR" or "the Corporation"), to achieve the
highest level of individual performance, and to meet or exceed specified goals
which will contribute to the success of the Corporation.
Definitions
This Plan has been approved by the Committee under the terms and conditions of
the 1988 Long Term Incentive Plan, as amended ("LTIP"). Capitalized terms not
otherwise defined in the Plan or the award agreement for performance shares
between the Corporation and the employee, will have the meanings set forth in
the LTIP.
For purposes of the Plan, the following definitions will control:
"AMR" is defined as AMR Corporation.
"Committee" is defined as the Compensation Committee of the AMR Board of
Directors.
"Adjusted Earnings/(Loss)" is defined as the sum of the Corporation's
Consolidated earnings/(loss) applicable to common shares, preferred dividends,
and American Airlines Inc. ("American") aircraft rental expense - net of the
Related Tax Impact, less: Calculated Interest on Operating Leases - net of the
Related Tax Impact, and Calculated Amortization of Operating Leases - net of the
Related Tax Impact.
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), the
Corporation's depreciation and amortization expense, Calculated Interest on
Operating Leases - net of the Related Tax Impact, Calculated Amortization of
Operating Leases, and any accounting adjustments or extraordinary or unusual
items (net of the Related Tax Impact) or other non-cash items which may be added
or deducted at the discretion of the AMR Incentive Compensation Committee and
approved by the AMR Board of Directors.
"Plan Average Net Cash Flow" is defined as the sum of the Net Cash Flow amounts
for all of the fiscal years in the measurement period divided by three.
1
2
"Adjusted Gross Assets" is defined as the Corporation's consolidated total
assets plus the Capitalized Value of Operating Leases plus Accumulated
Depreciation on Equipment and Property plus Accumulated Amortization on
Equipment and Property under Capital Leases, minus cash and short-term
investments.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Calculated Interest on Operating Leases" is defined as the interest expense
imputed in American's operating leases and is determined by applying the
interest rate used in determining the Capitalized Value of Operating Leases to
the average obligation balance of such leases (calculated as the remaining
obligation balance at the end of the fiscal year plus the remaining obligation
balance at the end of the prior fiscal year, divided by two).
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
"Related Tax Impact" of an adjustment made in determining Adjusted
Earnings/(Loss) or Net Cash Flow is defined as the amount of that adjustment
multiplied by the Corporation's estimated marginal tax rate for the relevant
year, as determined by the Tax Department.
"Measurement Period" is defined as the three year period beginning January 1,
1998 and ending December 31, 2000.
"Average Adjusted Gross Assets" is Adjusted Gross Assets as of December 31 of a
given year during the measurement period, plus Adjusted Gross Assets as of
December 31 of the prior fiscal year, divided by two.
"Plan Average Adjusted Gross Assets" is the sum of Average Adjusted Gross Assets
for each of the years during the measurement period divided by three.
"Cash Flow Return on Gross Assets" is defined as Plan Average Net Cash Flow
divided by Plan Average Adjusted Gross Assets.
"Comparison Airlines" shall consist of Delta Air Lines Inc., Southwest Airlines
Inc., UAL Corp., and USAir Group.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
2
3
Accumulation of Shares
The number of shares under the Plan to be distributed to individual participants
is based on the applicable award agreement between the Corporation and the
Employee and is determined by (i) the Corporation's Cash Flow Return on Gross
Assets ("CFROGA"), and (ii) the Corporation's relative rank among the Comparison
Airlines with regard to CFROGA. The accumulation of shares is specified below:
- ------------------------------------------------------------------------------------------------------------
GRANTED SHARES - PERCENT OF TARGET
AMR'S CFROGA
--------------------------------------------------------------------------------------------
AMR's > = 5.70% > = 6.80% > = 7.90%
Ranking < 5.70% and < 6.80% and < 7.90% and < 8.60% > = 8.60%
------- ------- ----------- ----------- ----------- ---------
1st 75% 100% 125% 150% 175%
2nd 50% 75% 100% 125% 150%
3rd 25% 50% 75% 100% 125%
4th 0% 25% 50% 75% 100%
5th 0% 0% 25% 50% 75%
- ------------------------------------------------------------------------------------------------------------
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing CFROGA
of the Comparison Airlines, the Committee may include or exclude special or
non-recurring items. The amount, if any, of the fund shall be computed by the
General Auditor of American based on a certification of CFROGA by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards. The Committee may determine to pay a cash equivalent in lieu of the
stock award.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive an award as may have been expressly
awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or
3
4
any other act beyond the control of the Company, whether similar or dissimilar,
(each a "Force Majeure Event"), which Force Majeure Event affects the Company or
its Subsidiaries or its Affiliates, the Board of Directors of the Company, at
its sole discretion, may (i) terminate or (ii) suspend, delay, defer (for such
period of time as the Board may deem necessary), or substitute any awards due
currently or in the future under the Plan, including, but not limited to, any
awards that have accrued to the benefit of participants but have not yet been
paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
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EXHIBIT 10.40
AMERICAN AIRLINES, INC.
1987 EXECUTIVE DEFERRAL PLAN
(AS AMENDED THROUGH 1997)
MASTER PLAN DOCUMENT
JANUARY 1, 1987
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TABLE OF CONTENTS
Article Subject
================== ===================================================
1 Definitions
2 Eligibility
3 Deferral Commitments
4 Effect on Other Benefits
5 Establishment of Account/Crediting of Interest
6 Benefit
7 Survivor Benefits
8 Termination of Employment
9 Beneficiary
10 Leave of Absence
11 Employer Liability
12 No Guarantee of Continuing Employment
13 Termination, Amendment or Modification of Plan
14 Restriction on Alienation of Benefits
15 Early Withdrawal
16 Administration of the Plan
17 Miscellaneous
18 Trust
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1987 EXECUTIVE DEFERRAL PLAN
OF
AMERICAN AIRLINES, INC.
PURPOSE
The purpose of this Plan is to provide specified benefits to key
employees who contribute materially to the growth, development and business
success of AMERICAN AIRLINES, INC. and its affiliates and subsidiaries.
The Plan is intended to be a "top hat plan" within the meaning of
sections 201((2), 301(a)(3) and 401(a)(2) of the Employee Retirement Income
Security Act of 1974, as amended, and accordingly, all terms hereof shall be
construed in a manner consistent with such provisions.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 ACCOUNT BALANCE shall consist of Deferrals and the earnings
credited thereon pursuant to Article 5, less any withdrawals.
1.2 AGREEMENT shall mean the form of written agreement entered into
by and between an Employer and a Participant with respect to the Plan. Each
Agreement executed by a Participant shall provide within the context of the
Master Plan Document for the Benefit to which such Participant is entitled under
the Plan.
1.3 ANNIVERSARY DATE shall be the last day of a Plan year.
1.4 BENEFIT shall mean the amount paid under the Plan.
1.5 BENEFICIARY shall mean the person of persons or the estate of
Participant named (pursuant to Article 10) to receive any benefits under this
Plan upon the death of a Participant.
1.6 COMMITTEE shall mean the committee appointed to manage and
administer the Plan in accordance with the provisions of this Master Plan
Document.
1.7 COMPANY shall mean AMERICAN AIRLINES, INC., its affiliates,
subsidiaries and the successors of each.
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1.8 COVERED COMPENSATION shall mean that portion of a Participant's
Gross Salary, Performance Return(s), Performance Share(s), and Incentive(s)
eligible for Deferral.
1.9 DEFERRAL(S) shall mean the amount or amounts of Covered
Compensation that a Participant elects to defer pursuant to the Plan.
1.10 EFFECTIVE DATE shall be January 1, 1987.
1.11 EMPLOYER shall mean the Company and any affiliate or subsidiary
having one or more Executives.
1.12 EXECUTIVE shall mean any person in the regular full-time
employment of the Company or any of its affiliates or subsidiaries (as
determined by the then existing personnel policies and practices of the Company
or affiliate or subsidiary) who has been determined by the Committee to be
eligible for participation in the Plan.
1.13 GROSS SALARY will mean the yearly salary and commissions paid
to an Executive, excluding, Incentive(s), overtime, and non-monetary awards, for
employment services to the Employer.
1.14 INCENTIVE(S) shall mean payment pursuant to any incentive,
commission, profit sharing, or other bonus payment plan sponsored by the
Employer.
1.15 MASTER PLAN DOCUMENT is this document setting forth the
provisions of the Plan.
1.16 PARTICIPANT shall mean any Executive who elects to participate
in the Plan, signs an Agreement and is accepted into the Plan.
1.17 PERFORMANCE RETURN(S) shall be the proceeds that the
Participant could receive during a Plan Year as a Performance Return on Career
Equity pursuant to the Participant's career equity contract.
1.18 PERFORMANCE SHARE(S) shall be the cash equivalent proceeds that
the Participant could receive during a Plan Year pursuant to the Performance
Share Program.
1.19 PLAN shall mean this 1987 Executive Deferral Plan of American
Airlines, Inc., which shall be evidenced by this Master Plan Document and by
each Agreement.
1.20 PLAN YEAR shall begin on January 1 of each year.
1.21 RETIREMENT shall mean achievement of retiree status with the
Employer (as determined by the then existing personnel policies of the
Employer).
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1.22 TERMINATION OF EMPLOYMENT or TERMINATION shall mean the ceasing
of employment, voluntarily or involuntarily, excluding Retirement or death.
ARTICLE 2
ELIGIBILITY
2.1 The Committee shall have the sole discretion to determine those
individuals who are eligible to become Participants in the Plan.
2.2 To become a Participant, the Executive shall complete, execute,
and return to the Committee an Agreement and comply with any further conditions
as many be established by the Committee.
ARTICLE 3
DEFERRAL COMMITMENTS
3.1 Elections to defer Covered Compensation must be made and
received by the Committee by December 31 of the Plan Year prior to the Plan Year
in which the Deferral will actually be made.
3.2 The minimum annual Deferral shall be: either one hundred percent
(100%) of, or a minimum of five thousand dollars ($5,000) from, Gross Salary;
either one hundred percent (100%) of, or a minimum of five thousand dollars
($5,000) from, Incentives; either one hundred percent (100%) of, or a minimum of
five thousand dollars ($5,000) from, Performance Returns; or either one hundred
percent (100%) of, or a minimum of five thousand dollars ($5,000) from,
Performance Shares.
3.3 The maximum annual Deferral shall be 100% of Covered
Compensation per Plan Year, excluding FICA and other deductions required by law.
3.4 Deferrals from the Participant's Gross Salary shall be deducted
in equal amounts for each pay period during the Plan Year.
3.5 Deferrals from the Participant's Incentives, Performance
Returns, or Performance Shares shall be deducted at the time of the Incentive
payment, Performance Return, or Performance Share payment.
3.6 A Participant shall be fully vested in his or her Account
Balance at all times.
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ARTICLE 4
EFFECT ON OTHER BENEFITS
4.1 Deferrals shall not reduce benefits from any other employee
benefit plan of the Employer that is based on a Participant's Gross Salary,
except that Deferrals shall not constitute compensation for purposes of
calculating pension benefits or allowable deductions under the Employer's
section 401(k) plan (the $uper $aver Plan) unless and until distributed. This
includes, but is not limited to, life insurance and disability benefits.
ARTICLE 5
ESTABLISHING OF ACCOUNT AND CREDITING OF EARNINGS
5.1 The Employer shall establish on its books an account for each
Participant in the Plan.
5.2 Each such account shall constitute only a bookkeeping entry by
the Employer for purposes of facilitating the computation of Benefits.
5.3 Account Balances shall be adjusted monthly as though they were
invested pursuant to the Participant's direction under rules established by the
Committee among the investment funds chosen by the Committee. The earnings rate
for a partial month shall be prorated.
ARTICLE 6
BENEFIT
6.1 The Employer will pay the Benefit from the Participant's Account
Balance at the time and in the manner specified by the Participant in the
Agreement.
6.2 If the Participant has failed to specify the manner in which the
Benefit shall be distributed, payment of the Benefit shall be in a lump sum as
soon as is administratively feasible following Termination of Employment or
Retirement.
6.3 The unpaid Account Balance will be adjusted monthly pursuant to
Section 5.3.
6.4 The Employer shall withhold from payments made under this Plan
any taxes required to be withheld from a Participant's wages for Federal, state,
or local government.
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ARTICLE 7
SURVIVOR BENEFITS
7.1 If the Participant dies prior to (i) the commencement of
benefits (as contemplated under Article 6) or (ii) the payment in full of the
amount in the Participant's Account Balance, the Account Balance as of the
Participant's death shall be paid to the Beneficiary.
7.2 The Participant may request the mode of payment of the foregoing
benefit in the Agreement, which the Committee, in its sole discretion, may
authorize.
7.3 Benefits will be paid in the same manner as in Section 6.2, 6.3,
and 6.4.
ARTICLE 8
TERMINATION OF EMPLOYMENT
8.1 Upon a Termination of Employment, the Participant will be
entitled to a Benefit at the time and in the manner specified by the Participant
in the election form. Account Balances will continue to be adjusted pursuant to
Section 5.3.
ARTICLE 9
BENEFICIARY
9.1 All payments made by the Employer under the Plan shall be made
to the Participant during the Participant's lifetime.
9.2 A Participant shall designate a Beneficiary to receive benefits
under the Plan by completing the appropriate form as designated by the
Committee.
9.3 A Participant shall have the right at any time to change the
Beneficiary by submitting to the Committee a Change of Beneficiary Notice in the
form prescribed by the Committee.
9.4 Each Change of Beneficiary Notice shall be in writing and shall
be effective when received by the Employer. The Employer shall acknowledge in
writing receipt of each Change of Beneficiary Notice.
9.5 Each Change of Beneficiary Notice shall automatically revoke and
supersede any prior Beneficiary designation, if any.
9.6 Any payment made by the Employer in accordance with this Plan
shall fully discharge the Employer from all further obligations with respect to
the amount of such payment.
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9.7 If no Beneficiary designation is in effect at the time of the
Participant's death or if the named Beneficiary has predeceased the Participant,
then the Beneficiary (ies) shall be: (1) the surviving spouse, (2) if there is
no surviving spouse, then the Participant's issue per stirpes, or (3) if no such
issue survive the Participant, then the Participant's estate.
ARTICLE 10
LEAVE OF ABSENCE
10.1 If a Participant is authorized by the Company for any reason to
take a PAID Leave of Absence, the Deferral commitments shall remain in full
force and effect.
10.2 If a Participant takes an UNPAID Leave of Absence from the
employment of the Company, the Deferral commitments shall be suspended until the
Leave of Absence ends and the Participant's paid status resumes.
ARTICLE 11
EMPLOYER LIABILITY
11.1 Benefits to a Participant shall be paid exclusively from the
general assets of the Employer.
11.2 The right of the Participant to Benefits shall be no greater
than that of an unsecured general creditor, except as otherwise provided by law.
11.3 The Employer shall have no obligation to a Participant under
the Plan, except as provided in the Master Plan Document.
11.4 The Participant must cooperate with the Employer in furnishing
all information requested by the Employer in order to facilitate the payment of
Benefits.
ARTICLE 12
NO GUARANTEE OF CONTINUING EMPLOYMENT
12.1 Nothing herein shall constitute a contract of continuing
employment between the Employer and the Participant.
ARTICLE 13
TERMINATION, AMENDMENT OR MODIFICATION OF PLAN
13.1 The Employer reserves the right to terminate this Plan. In the
event of Employer-instigated Plan termination, the Participants will receive
their Account Balances as of the date of termination. The mode of payment shall
be determined by the Committee.
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13.2 Termination of this Plan shall not terminate the rights of a
Participant or a Beneficiary to continue to receive any Benefits under this Plan
to which they have become entitled prior to its termination.
ARTICLE 14
RESTRICTION ON ALIENATION OF BENEFITS
14.1 No right or benefit under the Plan shall be subject to
alienation, sale, transfer, pledge, assignment or encumbrance by a Participant,
a Beneficiary or other person except as may be required by law.
ARTICLE 15
EARLY WITHDRAWAL
15.1 No withdrawal for hardship is contemplated by this Plan.
However, the Committee, in its sole discretion, may consider and grant a request
for hardship withdrawal upon terms which the Committee may deem fair and
equitable. A hardship for these purposes shall mean a severe financial hardship
to the Participant resulting from extraordinary circumstances beyond the control
of the Participant.
15.2 A Participant may, upon 30 days' prior written notice to the
Committee, elect to receive all or a portion of his or her Account Balance, in
which case the Committee shall promptly after the 30-day period pay to the
Participant 90% of the portion of the Account Balance that the Participant has
elected to receive. The remaining 10% of the elected portion of the Account
Balance shall be canceled and the Company shall have no further obligation with
respect thereto. If the Participant elects an immediate pay-out pursuant to this
Section 15.2, the Participant may not make further Deferrals in this Plan for a
period of two-years thereafter. The Participant is not eligible to make further
Deferrals in this Plan again if the Participant elects a withdrawal pursuant to
this Section 15.2 more than once. Notwithstanding anything else in this Plan to
the contrary, in the event of any act of God, war, natural disaster, aircraft
grounding, revocation of operating certificate, terrorism, strike, lockout,
labor dispute, work stoppage, fire, other act, whether similar or dissimilar,
beyond the control of the Company (each a "Force Majeure Event"), which Force
Majeure Event affects the Company or its subsidiaries or its affiliates, the
Board of Directors of the Company, at its sole discretion, may (i) terminate
this Section 15.2 or (ii) suspend, delay, defer or substitute (for such period
of time as the Board may deem necessary) any payments due by operation of this
Section 15.2.
ARTICLE 16
ADMINISTRATION OF THE PLAN
16.1 The general administration of this Plan, as well as
construction and interpretation thereof, shall be vested in the Committee. The
number of Committee members shall be established by, and the members shall be
appointed from time to time
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by, and shall serve at the pleasure of, the Board of Directors of the Employer;
provided, however, that no member of the Committee shall be allowed to
participate in decisions regarding his own eligibility or benefits under the
Plan.
16.2 Subject to the Plan, the Committee shall from time to time
establish rules, forms and procedures for the administration of the Plan. Except
as otherwise expressly provided, the Committee shall have the exclusive right to
interpret the Plan and to decide any and all matters arising thereunder. The
Committee's decisions shall be conclusive and binding upon all persons having or
claiming to have any right or interest under the Plan.
16.3 The Committee may employ such consultants, advisors and
managers as it deems necessary or useful in carrying out its duties.
16.4 No member of the Committee shall be liable for any act or
omission on such Committee member's own part, excepting willful misconduct. The
Employer shall indemnify and save harmless each member of the Committee against
any and all expenses and liabilities arising out of membership on the Committee,
with the exception of expenses and liabilities arising out of willful
misconduct.
16.5 To enable the Committee to perform its functions, the Employer
shall supply full and timely information to the Committee on all matters
relating to the compensation of all Participants, their retirement, death or
other cause for termination of employment and such other pertinent facts as the
Committee may require.
16.6 The Committee shall have the power, in its sole discretion, to
change the manner and time of payments to be made to a Participant or
Beneficiary from that set forth in the Participant's Agreement.
16.7 The Company reserves the right to amend this Plan as it deems
appropriate for future deferral years.
16.8 Dispute Resolution Procedure:
(a) Notice of Denial of Claim. When a Participant's claim for
benefits under this Plan has been denied, the Committee shall provide notice to
the Participant in writing of the denial within 90 days after the submission of
the claim. The notice shall be written in a manner calculated to be understood
by the applicant and shall include:
(i) the specific reason or reasons for denial;
(ii) specific references to the pertinent Plan provisions
on which the denial is based;
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(iii) a description of any additional material or
information necessary for the applicant to perfect the claim and an
explanation of why such material or information is necessary; and
(iv) an explanation of the Plan's claim review procedures.
If special circumstances require an extension of time for processing the initial
claim, a written notice of the extension and the reason therefore shall be
furnished to the claimant before the end of the initial 90-day period. In no
event shall this extension exceed 90 days.
(b) Appeal of Denied Claim. In the event a claim for benefits
under the Plan is denied or if the applicant has had no response to such claim
within 90 days of its submission (in which case the claim for benefits shall be
deemed to have been denied), the applicant or his duly authorized
representative, at the applicant's sole expense, may appeal the denial to his
Employer within 60 days of the receipt of written notice of the denial or 60
days from the date such claim is deemed to be denied. In pursuing such appeal
the applicant or his duly authorized representative:
(i) may request in writing that his Employer review the
denial;
(ii) may review pertinent documents; and
(iii) may submit issues and comments in writing.
The decision on review shall be made within 60 days of receipt of the request
for review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon as possible, but
not later than 120 days after receipt of the request for review. If such an
extension of time is required, written notice of the extension shall be
furnished to the claimant before the end of the original 60-day period. The
decision on review shall be made in writing, shall be written in a manner
calculated to be understood by the claimant, and shall include specific
references to the provisions of this Plan on which the denial is based. If the
decision on review is not furnished within the time specified above, the claim
shall be denied on review
ARTICLE 17
MISCELLANEOUS
17.1 Any notice given under the Plan shall be in writing and shall
be mailed or delivered to: American Airlines, Inc., Executive Compensation and
Benefits, Mail Drop 5131 HDQ, P . O. Box 619616, DFW Airport, TX 75261-9616.
17.2 The Plan shall be binding upon the Employer and its respective
successors or assigns and upon a Participant, Participant's Beneficiary,
assigns, heirs, executors and administrators.
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17.3 The Plan and Plan Agreement shall be governed by and construed
under the Laws of the State of Texas.
17.4 Headings in the Master Plan Document are inserted for
convenience of reference only. In the event of any conflict between such
headings and the text, the text shall govern.
17.5 Masculine pronouns, however used, shall include feminine
pronouns and when the context dictates, the singular shall include the plural.
ARTICLE 18
TRUST
18.1 To assist in the payment of Benefits following a Change in
Control or Potential Change in Control (each as defined in the 1988 Long-Term
Incentive Plan (or its successors) of AMR Corporation ("AMR") with respect to
AMR, the Board of Directors of AMR or its General Counsel or its Corporate
Secretary may establish a trust.
18.2 The trust which may be established pursuant to Section 18.1
will be: i) with a nationally recognized banking institution with experience in
serving as a trustee for such matters, ii) pursuant to such documentation as
recommended by outside counsel to AMR, and iii) funded so as to enable the trust
to pay the Benefits contemplated under the Plan as may be determined by AMR's
independent compensation consultant. In addition, AMR's Board of Directors, its
General Counsel or its Corporate Secretary, may take those additional actions
deemed reasonably necessary to accomplish the stated purpose of Section 18.1.
IN WITNESS WHEREOF the Employer has signed this Plan this ___ day of __________,
1997.
AMERICAN AIRLINES, INC.
By:
--------------------------------
C.D. MarLett
Title: Corporate Secretary
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EXHIBIT 10.43
AMERICAN AIRLINES, INC.
1998 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 1998 American Airlines Employee Profit Sharing Plan ("Plan")
is to provide participating employees with a sense of commitment to, and direct
financial interest in, the success of American Airlines, Inc. ("American").
Definitions
Capitalized terms not otherwise defined in the Plan will have the meanings set
forth in the 1988 Long Term Incentive Plan, as amended.
"AMR" is defined as AMR Corporation.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc.
"Committee" is defined as the AMR Incentive Compensation Committee.
"Fund" is defined as the profit sharing fund, if any, accumulated in accordance
with this plan.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market rate
differential, overrides and license premiums and does not include such things as
travel and incidental expenses, moving expenses, relocation allowance (COLA),
payouts from any retirement plan, disability payments, Workers Compensation
payments, imputed income from D-3 service charges or Company provided life
insurance, nor does it include any special monetary awards or allowances such as
IdeAAs in Action payments, lump sum payments, or incentive compensation or
profit sharing payments.
"Plan Earnings" is defined as the sum of American's pre-tax income, interest
expense, aircraft rental expense, AMR Minority Interest Expense, and any
accruals for American's Pilot Variable Compensation Plan, TWU Profit Sharing
Plan, Employee Profit Sharing Plan, and Incentive Compensation Plan, less
Calculated Amortization of Operating Leases and any accounting adjustments or
extraordinary or unusual items which may be added or deducted at the discretion
of the Committee and approved by the Board of Directors.
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"Adjusted Investment" is defined as the sum of American's notes payable, current
maturities of long term debt and capital leases, long term debt, capital leases,
present value of operating leases, and stockholders' equity, and any
extraordinary or unusual items which may be added or deducted at the discretion
of the Committee and the Board of Directors.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under American's aircraft operating leases over the remaining
lease term, calculated using a discount rate of Prime plus one percent. Amounts
for 3/31/98, 6/30/98, and 9/30/98 are computed by determining the difference
between the Present Value of Operating Leases as of 12/31/98 and 12/31/97 and
allocating that difference evenly over the four quarters of 1998.
"AMR Minority Interest Expense" is defined as outside stockholder's ownership in
AMR subsidiaries other than American Airlines, Inc.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases and is
determined by the straight line method over the lease term.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
12/31/97, 3/31/98, 6/30/98, and 9/30/98, divided by four.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Average
Adjusted Investment, stated as a percentage.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
Eligibility for Participation
In order to be eligible for a profit sharing award, the individual must:
o Have worked during the plan year as a regular full-time or part-time
employee at American in a participating workgroup (flight attendant,
AAdvantage customer service representative, reservations,
coordinator/planner, airport agent, support staff, management levels 04 and
below).
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o Must have completed six consecutive months of service as a regular
employee at American or an Affiliate during his/her tenure. If the six
months service requirement is fulfilled during the plan year, eligible
earnings from the time worked at American during those six months will be
included in the award calculation.
o Must be actively employed at American or an Affiliate at the time awards
are paid. If at the time awards are paid under the Plan, an individual has
retired from American or an Affiliate, has been laid off, is disabled or
has died, the award which the individual otherwise would have received
under the Plan but for such retirement, lay-off, disability or death may be
paid to the individual or his/her estate in the event of death, at the
discretion of the Committee.
Notwithstanding the foregoing, however, an employee will not be eligible to
participate in the Plan if such employee is, at the same time, eligible to
participate in:
i) the 1998 American Airlines Incentive Compensation Plan for Officers
and Key Employees,
ii) the Pilot Profit Sharing (as implemented in 1997),
iii) the TWU Profit Sharing Plan for members of the Transport Workers Union
(as implemented in 1995 and revised in 1996),
iv) any incentive compensation, profit sharing, commission or other bonus
plan for employees of any division of American, or
v) any incentive compensation, profit sharing, commission or other bonus
plan sponsored by an Affiliate.
Profit Sharing awards will be determined on a proportionate basis for
participation in more than one plan. Employees who transfer from/to Affiliates
or any other plan described above, and satisfy aforementioned eligibility
requirements, will receive awards from each plan on a proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by ROI and the Fund will accumulate based on that
performance. The Fund is established at 1% of Qualified Earnings when ROI is
equal to 6.4%. The fund will accumulate on a straight-line basis at the rate of
0.583% of qualified earnings for each additional point of ROI.
The profit sharing fund will not exceed an amount equal to 8% of Qualified
Earnings at levels of ROI above 18.4%.
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Award Distribution
For domestic employees, individual awards will be distributed based on an
employee's Qualified Earnings for the Plan year multiplied by the appropriate
percentage of Qualified Earnings based upon the ROI achieved for the Plan year.
The percent of Qualified Earnings used for fund accumulation and award
distribution will be the same.
A portion of the Fund will be allocated for international employees based on
eligible international employees' Qualified Earnings as a percentage of eligible
employees' total Qualified Earnings. This portion of the Fund will be set aside
for distribution at the discretion of the appropriate Officer, subject only to
the Committee's approval.
Administration
The Plan will be administered by a Committee comprised of officers of American
appointed by the Chairman of AMR. The Committee will have authority to
administer and interpret the Plan, establish administrative rules, determine
eligibility and take any other action necessary for the proper and efficient
operation of the Plan. The amount, if any, of the Fund shall be computed by the
General Auditor of American based on a certification of ROI by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards.
Method of Payment
The Committee shall determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year 1998
are available. Individuals, except retirees, may elect to defer their awards
into the 401(k) plan established by American.
General
Neither this Plan nor any action taken thereunder shall be construed as giving
to any employee or participant the right to be retained in the employ of
American or any Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
thereunder, other than the right to receive payment of such award as may have
been expressly determined by the Committee.
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In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the Company,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects the Company or its Subsidiaries or its Affiliates, the
Board of Directors of the Company, at its sole discretion, may (i) terminate or
(ii) suspend, delay, defer (for such period of time as the Board may deem
necessary), or substitute any payments due currently or in the future under the
Plan, including, but not limited to, any payments that have accrued to the
benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
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EXHIBIT 10.46
AMERICAN AIRLINES, INC.
1998 INCENTIVE COMPENSATION PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1998 American Airlines Incentive Compensation Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of American Airlines, Inc. ("American"), to achieve the highest
level of individual performance, and to meet or exceed specified goals which
will contribute to the success of American.
Definitions
This Plan has been approved by the Committee under the terms and conditions of
the 1988 Long Term Incentive Plan, as amended ("LTIP"). Capitalized terms not
otherwise defined in the Plan will have the meanings set forth in the LTIP.
For purposes of the Plan, the following definitions will control:
"AMR" is defined as AMR Corporation.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc.
"Committee" is defined as the Compensation Committee of the AMR Board of
Directors.
"Fund" is defined as the incentive compensation fund, if any, accumulated in
accordance with this Plan.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market rate
differential, overrides and license premiums and does not include such things as
travel and incidental expenses, moving expenses, relocation allowance (COLA),
payouts from any retirement plan, disability payments, Workers Compensation
payments, imputed income from D-3 service charges or Company provided life
insurance, nor does it include any special monetary awards or allowances such as
IdeAAs in Action payments, lump sum payments, or incentive compensation or
profit sharing payments.
1
2
"Target Award" is defined as the award (stated as a percentage of Qualified
Earnings) for an eligible participant when Target CFROGA is achieved; subject,
however, to adjustment by the Committee or senior management, as the case may
be, based upon the participant's individual performance.
"Adjusted Earnings/(Loss)" is defined as the sum of American's net
earnings/(loss), aircraft rental expense net of the Related Tax Impact, Net
Interest Expense - net of the Related Tax Impact, and AMR Minority Interest
Expense - net of Related Tax Impact, less: Calculated Amortization on Operating
Leases - net of the Related Tax Impact .
"Net Interest Expense" is defined as interest expense less interest income.
"Calculated Amortization on Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), depreciation
and amortization expense, Calculated Amortization on Operating Leases, and any
accounting adjustments or extraordinary or unusual items (net of the Related Tax
Impact) or other non-cash items which may be added or deducted at the discretion
of the AMR Incentive Compensation Committee and approved by the AMR Board of
Directors.
"Adjusted Gross Assets" is defined as the sum of American's total assets, the
Capitalized Value of Operating Leases, Accumulated Depreciation on Equipment and
Property, and Accumulated Amortization on Equipment and Property under Capital
Leases, less cash and short-term investments, less accident receivables, and
other assets which may be added or deducted at the discretion of the AMR
Incentive Compensation Committee and approved by the AMR Board of Directors.
"Accident Receivables" is defined as amounts recorded as receivables from
insurance carriers related to significant accident losses, and for which an
offsetting liability has been recorded.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"AMR Minority Interest Expense" is defined as outside stockholder's ownership in
AMR subsidiaries other than American Airlines, Inc.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
2
3
"Related Tax Impact" of an adjustment made in determining Adjusted Net
Earnings/(Loss) or Net Cash Flow is defined as the amount of that adjustment
multiplied by American's estimated marginal tax rate for the relevant year, as
determined by American's Tax Department.
"Average Adjusted Gross Assets" is defined as the sum of Adjusted Gross Assets
as of 12/31/97, 3/31/98, 6/30/98, and 9/30/98, divided by four.
"Cash Flow Return on Gross Assets" or "CFROGA" is defined as Net Cash Flow
divided by Average Adjusted Gross Assets, stated as a percentage.
"Comparison Airlines" shall consist of UAL Corp., Delta Air Lines, Inc.,
Southwest Airlines, Inc., and USAir Group.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"Threshold CFROGA" is defined as 6.7%.
Eligibility for Participation
In order to be eligible to participate in the Plan, an individual must be an
officer or key employee (as designated by American's Chairman and CEO) of
American. Additionally, the individual must have been employed by American or an
Affiliate as an officer or key employee for at least three consecutive months
during the Plan year. The three months service requirement may be waived in
cases of mandatory retirement prior to completing three months of service.
During a Plan year, individuals with less than twelve months eligibility in the
Plan may be eligible to participate in the Plan on a pro rata basis, at the
discretion of the Committee. In addition, the Committee, in its discretion, may
permit participation by officers and key employees of Affiliates who have been
so employed by the Affiliate for at least three consecutive months during the
Plan year.
Notwithstanding the forgoing, however, an officer or key employee will not be
eligible to participate in the Plan if such officer or key employee is, at the
same time, eligible to participate in a commission, incentive, profit sharing or
other bonus compensation program sponsored by American or an Affiliate, unless
the Committee otherwise decides.
3
4
In order to receive an award under the Plan, an individual must satisfy the
aforementioned eligibility requirements and must be an employee of American or
an Affiliate at the time an award under the Plan is paid. If at the time awards
are paid under the Plan, an individual has retired from American or an
Affiliate, is disabled, or has died, the award which the individual otherwise
would have received under the Plan but for such retirement, disability, or death
may be paid to the individual, or his/her estate in the event of death, at the
discretion of the Committee.
The Incentive Compensation Fund
a) As CFROGA exceeds the Threshold CFROGA, the Fund will begin to
accumulate.
b) Target CFROGA will vary from 7.4% - 7.8% depending upon CFROGA
rank among the Comparison Airlines. At target CFROGA, the Fund
will accumulate to a size that will allow Target Awards for all
eligible participants.
c) Maximum Payout CFROGA will vary from 9.0% to 10.2% depending on
CFROGA rank among the comparison airlines. At Maximum Payout
CFROGA, the Fund will accumulate to a size that will allow 210% of
Target Awards for all eligible participants.
d) Once Threshold CFROGA has been attained, the Fund will accumulate
on a linear basis such that at Target CFROGA, the Fund size equals
100% of Target Awards. Following the attainment of Target CFROGA,
the Fund will accumulate on a linear basis such that maximum
awards are funded at Maximum Payout CFROGA.
American's --CFROGA--
Competitive ---------- Comparison
Rank Threshold Target Max Payout Airlines
------------ --------- ------ ---------- ----------
1 6.7% 7.4% 9.0% Delta
2 6.7% 7.5% 9.3% UAL
3 6.7% 7.6% 9.6% USAir
4 6.7% 7.7% 9.9% Southwest
5 6.7% 7.8% 10.2%
4
5
Allocation of Individual Awards
Individual awards for officers of American under the Plan will be determined by
the Committee based upon each participant's performance. Individual awards for
key employees of American will be determined by the senior management of
American based upon each participant's performance. Unless the Committee or
senior management, as the case may be, decides otherwise, an award made under
the Plan, in combination with any other award made under an incentive,
commission, profit sharing or other bonus compensation program sponsored by
American or an Affiliate may not, in the aggregate, exceed 100% of the
participant's base salary. At the discretion of the Committee, the Fund may not
be fully distributed. In addition, the aggregate of all awards paid hereunder
will not exceed the lesser of 2.1 times the target fund or 50% of total base
salaries of all participants.
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing the
Cash Flow Return on Gross Assets of the Comparison Airlines, the Committee may
include or exclude special or non-recurring items. Notwithstanding anything to
the contrary contained herein, no awards will be made under the Plan unless
awards are also made under the 1998 American Airlines Employee Profit Sharing
Plan, the 1998 Pilot Variable Compensation Plan for members of the Allied Pilots
Association, and the 1998 TWU Profit Sharing Plan for members of the Transport
Workers Union. The amount, if any, of the Fund shall be computed by the General
Auditor of American based on a certification of CFROGA by American's independent
auditors. A summary of awards under the Plan shall be provided to the Board of
Directors at the first regular meeting following determination of the awards.
Method of Payment
The Committee will determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year 1998
are available. Individuals, except retirees, may elect to defer their awards
into a 401(k) plan established by American or AMR or into a deferred
compensation program, if any, administered by American or AMR.
5
6
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive payment of such incentive
compensation as may have been expressly awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the Company,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects the Company or its Subsidiaries or its Affiliates, the
Board of Directors of the Company, at its sole discretion, may (i) terminate or
(ii) suspend, delay, defer (for such period of time as the Board may deem
necessary), or substitute any payments due currently or in the future under the
Plan, including, but not limited to, any payments that have accrued to the
benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
6
1
EXHIBIT 10.48
AIRCRAFT GENERAL TERMS AGREEMENT
AGTA-AAL
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
AGTA-AAL
2
TABLE OF CONTENTS
PAGE
ARTICLES NUMBER
-------- ------
1. Subject Matter of Sale 1
2. Price, Taxes and Payment 2
3. Regulatory Requirements and Certificates 3
4. Detail Specification; Changes 5
5. Representatives, Inspection, Flight Tests, Test Data
and Performance Guarantee Compliance 5
6. Delivery 8
7. Excusable Delay 8
8. Risk Allocation/Insurance 10
9. Assignment, Resale or Lease 11
10. Termination for Certain Events 14
11. Notices 14
12. Miscellaneous 15
EXHIBITS
A Buyer Furnished Equipment Provisions Document
B Customer Support Document
C Product Assurance Document
D Escalation Adjustment to Airframe Price and Optional Features Price
APPENDICES
I Sample Insurance Certificate
II Sample Purchase Agreement Assignment
III Sample Manufacturer's Consent and Agreement to Assignment of
Warranties
IV Sample Post-Delivery Sale Notice
V Sample Contractor Confidentiality Agreement
VI Sample Bill of Sale
i
AGTA-AAL
3
AIRCRAFT GENERAL TERMS AGREEMENT
Relating to
BOEING AIRCRAFT
This Aircraft General Terms Agreement Number (hereinafter,
together with its exhibits, appendices and letter agreements referred to as the
AGTA) dated as of October ____, 1997, between The Boeing Company (hereinafter,
together with its successors and permitted assigns referred to as Boeing) and
American Airlines, Inc. (hereinafter, together with its successors and permitted
assigns referred to as Customer) will apply to all Boeing Aircraft and related
goods and services contracted for purchase between Boeing and Customer pursuant
to any purchase agreement which expressly incorporates the terms and conditions
of the AGTA. Capitalized terms used herein but not otherwise defined in this
AGTA shall have the meanings assigned thereto in Exhibit C to the applicable
purchase agreement referenced in the preceding sentence.
Article 1. Subject Matter of Sale.
1.1 Aircraft and Related Goods and Services. Boeing will
manufacture and sell to Customer and Customer will purchase from Boeing, under
the applicable Purchase Agreement, Aircraft and other things. The "other things"
referred to in the preceding sentence shall mean data, documents, software,
training, tools, parts, systems, accessories, equipment, services, and things
which are not installed in and therefore are not part of the Aircraft.
1.2 Buyer Furnished Equipment. The Buyer Furnished Equipment
Provisions Document attached as Exhibit A hereto contains the obligations of
Customer and Boeing with respect to equipment, parts, accessories, and other
things purchased and provided by Customer, which Boeing will receive, inspect,
store and install in an Aircraft before delivery to Customer. This equipment is
defined as Buyer Furnished Equipment (BFE).
1.3 Customer Support. The Customer Support Document attached as
Exhibit B hereto contains the obligations of Boeing relating to data, documents,
software, training, services and other things required for operation,
maintenance, and engineering in support of the Aircraft and Customer.
1.4 Product Assurance. The Product Assurance Document attached as
Exhibit C hereto contains the obligations of Boeing and the suppliers of
equipment installed in each Aircraft at delivery or provided thereafter pursuant
to the Product Assurance Document relating to warranties, patent indemnities,
software copyright indemnities, Boeing interface commitments, service life
policies, and other things.
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AGTA-AAL
4
Article 2. Price, Taxes and Payment.
2.1 Price.
2.1.1 Airframe Price. Airframe Price is defined as the
price of the airframe for a specific model of Aircraft described in a Purchase
Agreement. (For Model 737-600, 737-700 and 737-800 aircraft, the Airframe Price
includes Engine Price.)
2.1.2 Optional Features Prices. Optional Features
Prices are defined as the prices for Optional Features selected in writing by
Customer for a specific model of Aircraft and described in a Purchase Agreement.
2.1.3 Engine Price. Engine Price is defined as the
price set by the Engine Supplier for a specific Engine to be installed on the
model of Aircraft described in a Purchase Agreement (not applicable to Models
737-600, 737-700 and 737-800 aircraft).
2.1.4 Aircraft Basic Price. Aircraft Basic Price is
defined as the sum of the Airframe Price, the Engine Price (for Models 737-600,
737-700 and 737-800 aircraft, the Engine Price is included in the Airframe
Price) and the Optional Features Prices.
2.1.5 Escalation Adjustment. Escalation Adjustment is
defined as the aggregate price adjustment to the Airframe Price (for Models
737-600, 737-700 and 737-800 aircraft, the Engine Price is included in the
Airframe Price), Optional Features Prices, and Engine Price (for other than 737
models). The price adjustment to the Airframe Price and Optional Features Prices
will be calculated using the economic price formula contained in the Escalation
Adjustment to Airframe Price and Optional Features Price Document attached as
Exhibit D hereto (Airframe Escalation Adjustment Document). The price adjustment
to the Engine Price (not applicable to Model 737-600, 737-700 and 737-800
aircraft) will be calculated using the economic price formula contained in
Supplemental Exhibit EE1 to the applicable Purchase Agreement.
2.1.6 Advance Payment Base Price. Advance Payment Base
Price is the amount set forth in Table 1 to the applicable Purchase Agreement
and is intended to be an estimate of the Aircraft Price to be used solely for
calculation of the amount of the Advance Payment in respect of an Aircraft. The
Advance Payment Base Price is determined using commercial forecasts for the
indices used in the calculation of the Escalation Adjustment. Such amount may be
adjusted from time to time in accordance with provisions of the applicable
Purchase Agreement.
2.1.7 Aircraft Price. Aircraft Price is defined as the
total amount Customer is to pay for an Aircraft which is the sum of the Aircraft
Basic Price, the Escalation Adjustment and other price adjustments made pursuant
to the applicable Purchase Agreement.
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AGTA-AAL
5
2.2 Taxes. Taxes are defined as all taxes, fees, charges or duties
and any interest, penalties, fines or other additions to tax (other than any
such interest, penalties, fines or additions resulting from the failure of
Boeing to pay any such tax, unless such nonpayment is directed in writing by
Customer), including, but not limited to sales, use, value added, gross
receipts, stamp, excise, transfer and similar taxes, imposed on Boeing by any
domestic or foreign taxing authority arising out of or in connection with the
sale, delivery, transfer or storage for the benefit of Customer of any aircraft,
BFE, or goods and services furnished under the applicable Purchase Agreement.
Except for U.S. federal income taxes and Washington State business and
occupation taxes imposed on Boeing, Customer will be responsible for filing all
tax returns, reports and declarations and for paying all Taxes.
If claim is made against Boeing for any such tax, Boeing will promptly notify
Customer. If seasonably requested by Customer in writing, Boeing will, at
Customer's expense, take such action as Customer may reasonably direct with
respect to such claim, and any payment by Boeing of such tax shall be made under
protest, if protest is necessary and proper. If payment is made, Boeing will, at
Customer's expense, take such action as Customer may reasonably direct to
recover such payment and shall, if requested, permit Customer in Boeing's name
to file a claim or prosecute an action to recover such payment.
2.3 Payment.
2.3.1 Advance Payment Schedule. Customer will make
Advance Payments to Boeing for each Aircraft in the amounts and on the dates
indicated in the Advance Payment schedule set forth in the applicable Purchase
Agreement.
2.3.2 Payment at Delivery. The amounts of the Advance
Payments including any Deposits paid prior to delivery by Customer for an
Aircraft will be applied to the Aircraft Price at delivery of each such
Aircraft. Any unpaid balance of the Aircraft Price is due at the time of
delivery of each Aircraft.
2.3.3 Form of Payment. Customer will make all payments
to Boeing under the applicable Purchase Agreement by unconditional deposit of
United States Dollars in a bank account in the United States mutually acceptable
to Customer and Boeing.
2.3.4 Monetary and Government Regulations. Customer is
responsible for complying with all monetary control regulations applicable to
Customer, and for obtaining necessary governmental authorizations related to
payments obligations under this Article 2.
Article 3. Regulatory Requirements and Certificates.
3.1 Certificates. Boeing will manufacture each Aircraft to conform
to the appropriate Type Certificate for the specific model of Aircraft and will
obtain from the
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AGTA-AAL
6
FAA and furnish to Customer at delivery of each Aircraft a Standard
Airworthiness Certificate. Boeing will provide to Customer the Standard
Airworthiness Certificate at Boeing's expense except as provided in Sections 3.2
and 3.3 herein.
Boeing shall obtain any additional certificates required to be obtained by the
manufacturer of commercial aircraft to permit operation of the Aircraft under
those requirements of the FAA regulations generally applicable to aircraft
manufacturers.
If the use of any of the certificates identified in this Article 3
(Certificates) is discontinued during the performance of this AGTA, thereafter
reference to such discontinued Certificates will be deemed a reference to any
other certificate or instrument issued by the FAA which corresponds to such
Certificate or, if there should not be any such other certificate or instrument,
then Boeing will be deemed to have obtained such discontinued Certificate upon
demonstrating that each Aircraft complies substantially with the FAA
requirements for such discontinued Certificate.
3.2 FAA Manufacturer Changes.
3.2.1 Definition of Manufacturer Change. A
Manufacturer Change is defined as any change or modification to or testing of an
Aircraft required by any United States Governmental Authority including the FAA
pursuant to any United States law or Governmental Regulation or requirement or
interpretation thereof by any United States Governmental Authority in order to
obtain the Standard Airworthiness Certificate or to obtain the Type Certificate.
3.2.2 Incorporation of Manufacturer Change. Any
Manufacturer Change will be incorporated in each Aircraft prior to delivery. All
such Manufacturer Changes shall be at no charge to Customer unless (i) the
requirement is enacted after the date of the applicable Purchase Agreement, and
(ii) the affected Aircraft is scheduled for delivery to Customer more than
eighteen (18) months after the date of such Purchase Agreement or after the
issuance of the Type Certificate for the model of aircraft, whichever is later,
in which event Customer will pay Boeing's reasonable price for such change
incorporated in an Aircraft.
3.3 FAA Operator Changes.
3.3.1 Definition of Operator Changes. Operator Changes
are defined as changes that are required by Federal Aviation Regulations which
(i) are generally applicable to transport category aircraft to be used in United
States certified air carriage and (ii) require compliance on or before the date
of delivery of the Aircraft. Boeing will deliver each Aircraft with, at Boeing's
option, the Operator Changes incorporated or with suitable provisions for the
incorporation of Operator Changes as set forth in the applicable Detail
Specification. Boeing agrees to use all commercially reasonable efforts to
deliver the Aircraft with the Operator Changes incorporated.
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AGTA-AAL
7
3.3.2 Cost of Operator Changes. Customer will pay
Boeing's reasonable price for any Operator Changes incorporated in an Aircraft.
3.3.3 No Waiver. Nothing contained in this Article 3
shall be construed so as to impair any obligation of Boeing under any warranty
and other provisions contained in the Product Assurance Document.
Article 4. Detail Specification; Changes.
4.1 Configuration Changes. The Detail Specification is defined as
the Boeing document, as amended from time to time, that describes the
configuration of each Aircraft purchased by Customer and which is referenced in
Table 1 of each Purchase Agreement. The Aircraft will be manufactured by Boeing
in accordance with the applicable Detail Specification. The Detail Specification
for each Aircraft may be amended (i) by Boeing to reflect the incorporation of
Manufacturer Changes and Operator Changes or (ii) by the mutual written
agreement of the parties. Prior to making any amendment to the Detail
Specification in accordance with this Section 4.1, Boeing will furnish the
Customer with a written notice describing the particular changes to be made and
any effect on design, performance, weight, balance, interchangeability,
replaceability, time of delivery, Aircraft Basic Price, Aircraft Price and
Advance Payment Base Price. Boeing will also notify Customer, to the extent
Boeing is aware, of effects of changes in operations and maintainability of the
Aircraft.
4.2 Development Changes. Development Changes are defined as changes
to Aircraft that do not affect the Aircraft Price or delivery, and do not
adversely affect guaranteed weight, guaranteed performance or compliance with
the interchangeability or replaceability requirements set forth in the
applicable Detail Specification. Boeing may, at its option, incorporate
Development Changes into the Detail Specification and into an Aircraft prior to
delivery to Customer. Development Changes are changes deemed necessary to
correct defects, improve the Aircraft, prevent delay, or insure compliance with
the applicable Purchase Agreement.
4.3 Change Notices. Boeing will promptly notify Customer of any
amendments to the Detail Specification. Such notice will set forth a written
explanation of Boeing's reasons for making such amendment and furnish revised
pages for the Detail Specification.
Article 5. Representatives, Inspection, Flight Tests, Test Data and
Performance Guarantee Compliance.
5.1 Office Space. Twelve (12) months before delivery of the first
Aircraft purchased, and continuing until the delivery of the last Aircraft on
firm order, Boeing will furnish, free of charge, suitable office space and
reproduction and communications equipment (including computer communication
access) for the accommodation of up to
-5-
AGTA-AAL
8
five (5) representatives of Customer in or conveniently located near the
applicable assembly plant and/or delivery center as applicable.
5.2 Inspection. Boeing's manufacture of the Aircraft, and all
components obtained by Boeing therefor, shall at all reasonable times be open to
inspection by any duly authorized representatives of Customer; provided,
however, if access to any part of Boeing's plant where manufacture is in
progress or components are stored is restricted by the United States Government,
Boeing will be allowed a reasonable time to make the items available for
inspection elsewhere than in the restricted area. All inspections by Customer's
representatives shall be performed in such manner as not to unduly delay or
hinder manufacture or performance by Boeing. The representations, warranties,
indemnities and agreements of Boeing made in this AGTA or the applicable
Purchase Agreement shall not be affected or deemed waived by reason of any
investigation made by Customer pursuant to this Section 5.2. Customer shall not
have any duty to make any such inspection and shall not incur any liability or
obligation by reason of not making any such inspection.
5.3 Demonstration Flights. Prior to delivery, Boeing will fly each
Aircraft (not less than one and one-half (1-1/2) hours nor more than the number
of hours reasonably necessary to effect corrections to any defect in the
functioning of the Aircraft and its equipment) to reasonably demonstrate to
Customer the functioning of the Aircraft and its equipment following Boeing's
production flight test procedures (to the extent provided to and reasonably
approved by Customer prior to such flight test). During such demonstration
flight, a pilot of Customer may conduct routine flight maneuvers and tests as
may be reasonably required to demonstrate to Customer the functioning of the
Aircraft and its equipment, subject to the supervision and operational control
of Boeing flight test personnel. Customer may designate up to five (5)
representatives (or more if consented to by Boeing) to participate as observers
on such flight. Boeing will give Customer reasonable prior notice of the
demonstration flight.
5.4 Test Data; Performance Guarantee Compliance. Performance
Guarantees are defined as the written guarantees in the applicable Purchase
Agreement regarding the operational performance of an Aircraft. Boeing
represents to Customer that at the time of delivery to Customer, each Aircraft
shall conform to and comply with all Performance Guarantees. An Aircraft will be
deemed to conform to and comply with the Performance Guarantees if reasonable
engineering interpretations and calculations based on the flight test data
establish that such Aircraft would, if actually flown, comply with the
Performance Guarantees. Boeing will furnish to Customer, as soon as practicable,
but not later than the date of delivery of the first Aircraft, flight test data
obtained on an aircraft of the same model type to evidence compliance with such
Performance Guarantees. Boeing will make best reasonable efforts to supply the
guarantee compliance document to Customer at least ten (10) days prior to
delivery of the first Aircraft of each model type.
-6-
AGTA-AAL
9
5.5 Special Aircraft Test Requirements.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
Article 6. Delivery.
6.1 Notice of Delivery Dates. Boeing will notify Customer of the
delivery date of each Aircraft at least thirty (30) days before the scheduled
delivery date. Each Aircraft shall be delivered to Customer assembled and
completed, per the Detail Specification, and ready for flight and in good
operating condition.
6.2 Place of Delivery. Each Aircraft will be delivered at a
facility selected by Boeing in the State of Washington, unless otherwise
mutually agreed in writing. Consent to such agreement shall not be unreasonably
withheld.
6.3 Bill of Sale; Records. At delivery of an Aircraft, Boeing will
provide Customer a warranty bill of sale, substantially in the form of Appendix
VI attached, duly conveying to Customer good title to such Aircraft, free and
clear of all liens, claims, charges and encumbrances of every kind whatsoever,
and such other appropriate documents of title and other records relating to such
Aircraft as Customer may reasonably request. Title to and risk of loss of each
Aircraft shall pass from Boeing to Customer upon delivery of such Aircraft but
not prior thereto.
6.4 Delay. If Customer delays acceptance of an Aircraft by more
than ten (10) days beyond the scheduled delivery date, Customer will reimburse
Boeing for all reasonable costs incurred by Boeing as a result of such delay.
Boeing will use reasonable efforts to mitigate costs and expenses incurred by
Boeing as a result of any delay in delivery of an Aircraft due to Customer's
responsibility.
Article 7. Excusable Delay.
7.1 General. Boeing will not be liable for any delay in delivery of
an Aircraft or other performance under the applicable Purchase Agreement only to
the extent caused by (i) acts of God; (ii) war or armed hostilities; (iii)
government acts or priorities affecting materials, facilities, or completed
aircraft; (iv) fires, floods, or earthquakes; (v) strikes or labor troubles
causing cessation, slowdown, or interruption of work; or (vi) any other cause to
the extent such cause is beyond Boeing's control and not occasioned by Boeing's
fault or negligence. A delay resulting from any such cause is defined as an
Excusable Delay.
7.2 Notice. Boeing will notify Customer in writing, as soon as
possible, of the revised delivery month as soon as Boeing concludes that an
Aircraft will be delayed beyond the Scheduled Delivery Month due to an event or
events of Excusable Delay.
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AGTA-AAL
10
Boeing will use reasonable efforts to mitigate any Excusable Delay and resume
performance.
7.3 Delay in Delivery of Twelve Months or Less. If the revised
delivery month is twelve (12) months or less after the Scheduled Delivery Month,
Customer will accept such Aircraft when tendered for delivery, subject to the
following:
7.3.1 The calculation of the Escalation Adjustment will
be based on the originally Scheduled Delivery Month.
7.3.2 The Advance Payment schedule will be adjusted to
reflect the revised delivery month.
7.3.3 All other provisions of the applicable Purchase
Agreement, including the BFE on-dock dates (unless Boeing and Customer otherwise
agreed to different dates) for the delayed Aircraft, are unaffected by an
Excusable Delay.
7.4 Delay in Delivery of More Than Twelve Months. If the revised
delivery month in such notice is more than twelve (12) months after the
Scheduled Delivery Month, either party may terminate the applicable Purchase
Agreement with respect to such Aircraft within thirty (30) days of receipt of
such notice. If Customer does not terminate the applicable Purchase Agreement
with respect to such Aircraft, all terms of the applicable Purchase Agreement
will remain in effect.
7.5 Aircraft Damaged Beyond Repair. If an Aircraft is destroyed or
damaged beyond repair for any reason before delivery, Boeing will notify
Customer in writing as soon as possible but no later than thirty (30) days after
such event, and such notice will specify the earliest month possible, consistent
with Boeing's other contractual commitments and production capabilities, in
which Boeing can deliver a replacement. Customer will have thirty (30) days from
receipt of such notice to elect to have Boeing manufacture a replacement
aircraft under the same terms and conditions of purchase, except that the
calculation of the Escalation Adjustment will be based upon the Scheduled
Delivery Month, or, failing such election, the applicable Purchase Agreement
will terminate with respect to such Aircraft. Boeing will not be obligated to
manufacture a replacement aircraft if it requires the reactivation of the
production line for the specific model of aircraft so damaged.
7.6 Termination. Termination under this Article 7 will discharge
all obligations and liabilities of Boeing and Customer with respect to any
Aircraft and all related undelivered items and services terminated under the
applicable Purchase Agreement, except that Boeing will return to Customer,
without interest, an amount equal to all Advance Payments paid by Customer for
the terminated Aircraft. If Customer terminates the applicable Purchase
Agreement as to any Aircraft, Boeing may elect, by written notice to Customer
within thirty (30) days, to purchase from Customer any BFE
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related to the terminated Aircraft, at the invoice prices paid, or contracted to
be paid, by Customer.
7.7 Exclusive Rights. The termination rights in this Article 7 are
in substitution for all other rights of termination or any claim arising by
operation of law by virtue of delays in performance covered by this Article 7.
Article 8. Risk Allocation/Insurance.
8.1 Title and Risk with Boeing.
8.1.1 Boeing's Indemnification of Customer. Until
transfer of title to an Aircraft to Customer, Boeing will indemnify and hold
Customer and Customer's observers harmless from and against all claims and
liabilities, including all expenses and attorneys' fees incident thereto or
incident to establishing the right to indemnification, for injury to or death of
any person(s), including employees of Boeing but not employees of Customer, or
for loss of or damage to any property, including an Aircraft, arising out of or
in any way related to the operation of an Aircraft during all demonstration and
test flights conducted under the provisions of the applicable Purchase
Agreement, whether or not arising in tort or occasioned by the negligence of
Customer or any of Customer's observers.
8.1.2 Definition of Customer. For the purpose of this
Section 8.1, "Customer" is defined as American Airlines, Inc., its divisions,
subsidiaries, Affiliates, the assignees of each and their respective directors,
officers, employees and agents.
8.2 Title and Risk with Customer.
8.2.1 Insurance Requirements. Customer will purchase
insurance and provide a certificate of such insurance that names Boeing as an
additional insured only on the liability policy (for hull, only waiver of
subrogation required) and otherwise complies with all requirements of the
attached Appendix I. Customer will provide such certificate of insurance at
least thirty (30) days before the scheduled delivery of the first Aircraft under
the applicable Purchase Agreement. The insurance certificate will reference each
Aircraft delivered to Customer pursuant to the applicable Purchase Agreement.
Annual renewal certificates will be submitted to Boeing before the expiration of
the policy periods. The form of the insurance certificate, attached as Appendix
I, states the terms, limits, provisions and coverages required by this Section
8.2.1.
8.2.2 Customer's Indemnification of Boeing. If
Customer fails to comply with any of the insurance requirements of Section 8.2.1
or any of the insurers fails to pay a claim covered by the insurance or
otherwise fails to meet any of its obligations required by Section 8.2.1,
Customer will indemnify and hold Boeing harmless from and against all claims and
liabilities, including all expenses and attorneys' fees incident thereto or
incident to successfully establishing the right to indemnification, for injury
or death of
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any person, including employees of Customer but not employees of Boeing, or for
loss or damage to any property, including an Aircraft, arising out of or in any
way relating to training, services or other things provided under the Customer
Support Document and the applicable Purchase Agreement, whether or not arising
in tort or occasioned by the negligence of Boeing. This indemnity will not apply
to legal liability to persons or parties (other than Customer or Customer's
assignees) arising out of an accident caused solely by a product defect in an
aircraft.
Any claim received by or suit instituted against Boeing for which
indemnification by Customer is sought under the provisions of this Section 8.2.2
shall be reported to Customer promptly in writing. Upon Customer's receipt of
Boeing's tender of the claim or suit to Customer hereunder, Customer shall have
the option at any time to conduct negotiations with respect to settlement of the
claim or suit, to intervene in any suit, and to assume, conduct or control the
defense thereof.
8.2.3 Definition of Boeing. For purposes of this
Section 8.2, "Boeing" is defined as The Boeing Company, its divisions,
subsidiaries, assignees of each and their respective directors, officers,
employees and agents.
Article 9. Assignment, Resale or Lease.
9.1 Assignment. The Purchase Agreement is for the benefit of and
binding upon each of the parties and their respective successors and assigns. No
rights or duties of either party may be assigned or delegated, or contracted to
be assigned or delegated, without the prior written consent of the other party,
except as permitted by Sections 9.1.1 through 9.1.5 and by Sections 9.2 and 9.3
of this AGTA:
9.1.1 Either party may assign its interest to a
corporation that (i) results from any merger, consolidation or reorganization of
such party, (ii) acquires substantially all the assets of such party or (iii)
into which such party may be merged or with which it may be consolidated;
9.1.2 Boeing may assign its rights to receive money;
and
9.1.3 Boeing may assign any of its rights and duties
under the Purchase Agreement to any wholly-owned subsidiary of Boeing, provided
that (i) such assignment shall be effective in accordance with its terms as to
each such Aircraft, spare part or other thing to be delivered hereunder, (ii) if
Boeing assigns its rights and obligations under the Purchase Agreement or
assigns title to any Aircraft, spare part or other thing to be delivered
thereunder to such subsidiary, such subsidiary shall perform such obligations
and sell and deliver such Aircraft, spare part or other thing to Customer
pursuant and subject to all the terms and conditions of the Purchase Agreement,
(iii) Boeing will remain fully and solely liable to Customer to perform all such
obligations under the applicable Purchase Agreement as if the assignment had not
been effected and will remain fully and solely responsible to Customer in
accordance with the terms of the applicable Purchase
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Agreement for all obligations and liabilities of the seller with respect to the
Aircraft, spare part or other things to be delivered thereunder, and Customer
will continue to deal exclusively with Boeing under the Purchase Agreement.
9.1.4 Customer may assign any of its rights and duties
under the Purchase Agreement to any wholly-owned subsidiary of AMR Corporation,
provided that (i) such assignment shall be effective in accordance with its
terms as to each such Aircraft, spare part or other thing to be delivered
thereunder, (ii) if Customer assigns its rights and obligations under the
Purchase Agreement with respect to any Aircraft, spare part or other thing to be
delivered thereunder to such subsidiary, such subsidiary shall perform such
obligations and purchase and accept such Aircraft, spare part or other thing
from Boeing pursuant and subject to all the terms and conditions of the Purchase
Agreement including, without limitation, the disclaimer and release and
exclusion of liabilities provisions in the Product Assurance Document and the
insurance and indemnity provisions in Section 8.2 of this AGTA, and (iii)
Customer will remain fully and solely liable to Boeing to perform all such
obligations under the Purchase Agreement as if such assignment had not been
effected and will remain fully and solely responsible to Boeing in accordance
with the terms of the Purchase Agreement for all obligations and liabilities of
the Customer with respect to the Aircraft, spare part or other thing to be
delivered thereunder, and Boeing will continue to deal exclusively with Customer
under the Purchase Agreement.
9.1.5 Boeing may assign any of its rights and duties
with respect to Articles 1, 2, 4, and 5 of Part 1 of the Customer Support
Document, to FlightSafety Boeing Training International, L.L.C.; provided,
however, Boeing will remain fully responsible to Customer for all obligations
that Boeing assigns to FlightSafety Boeing Training International, L.L.C.
9.1.6 No action taken under this Section 9.1 by either
party or by an assignee of either party to whom rights under the applicable
Purchase Agreement inure pursuant to this Section 9.1 shall subject the other
party to any liability to which it would not otherwise be subject under the
Purchase Agreement, or modify in any way the other party's contract rights under
the Purchase Agreement.
9.2 Assignment in Connection with Aircraft Financing.
Prior to delivery of an Aircraft, Customer will not resell,
lease, or transfer such Aircraft, or contract to do so, without Boeing's written
consent, which consent will not be unreasonably withheld. Boeing will take any
requested action (including, but not limited to, the execution and delivery of a
consent and agreement substantially in the form of Appendix II or III, as
applicable, or otherwise in form and substance reasonably satisfactory to Boeing
and Customer) reasonably required for the purpose of causing an Aircraft, at or
following delivery, to be subject to an equipment trust, conditional sale, lien
or other arrangement for the financing by Customer of the Aircraft. However, no
such action will require Boeing to divest itself of title to or possession of
the Aircraft until delivery of and payment for the Aircraft.
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9.3 Assignment in Connection with Sale or Lease of Aircraft.
If, following delivery of an Aircraft, Customer sells or
leases such Aircraft, Customer may assign all or any of its rights under the
Purchase Agreement to the purchaser or lessee of such Aircraft if the purchaser
or lessee of such Aircraft enters into an agreement substantially in the form of
Appendix IV or otherwise in form and substance reasonably satisfactory to Boeing
and Customer, such agreement to contain provisions whereby the purchaser or
lessee agrees to be bound by and comply with all applicable terms of the
Purchase Agreement.
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9.4 Notice of Sale or Lease After Delivery.
As soon as practicable following the sale or lease of an
Aircraft, Customer will use reasonable efforts to notify Boeing of the name and
address of the owner or lessee of such Aircraft.
9.5 Appointment of Agent - Warranty Claims.
If, following delivery of an Aircraft, Customer appoints an
agent to act directly with Boeing with respect to the administration of claims
relating to the warranties under the Purchase Agreement, Boeing will deal with
the agent for that purpose, effective upon Boeing's receipt of the agent's
agreement (in form and substance reasonably satisfactory to Boeing and Customer)
to be bound by and to comply with all applicable terms and conditions of the
Purchase Agreement.
9.6 No Increase in Liability.
No assignment of Customer's rights under the Purchase
Agreement will subject Boeing to any liability to which it would not otherwise
be subject under the Purchase Agreement or modify in any respect the contract
rights of Boeing under the Purchase Agreement except as otherwise agreed to in
writing by Boeing.
9.7 Exculpatory Clause in Post-Delivery Sale or Lease.
If, following the delivery of an Aircraft, Customer sells
or leases such Aircraft and obtains from the transferee any form of exculpatory
clause protecting Customer from liability for loss of or damage to the Aircraft,
and/or related incidental or consequential damages, including without limitation
loss of use, revenue or profit, Customer will obtain for Boeing the purchaser's
or lessee's written agreement to be bound by terms and conditions substantially
as set forth in Appendix IV. This Section 9.7 applies only if such purchaser or
lessee has not provided to Boeing the written agreement described in Section 9.3
above.
Article 10. Termination for Certain Events.
10.1 Termination.
If either party:
10.1.1 ceases doing business as a going concern,
suspends all or substantially all its business operations, makes an assignment
for the benefit of creditors, or generally does not pay its debts, or admits in
writing its inability to pay its debts as they become due, or
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10.1.2 petitions for or acquiesces in the appointment
of any receiver, trustee or similar officer to liquidate or conserve its
business or any substantial part of its assets; commences any legal proceeding
such as bankruptcy, reorganization, readjustment of debt, dissolution or
liquidation available for the relief of financially distressed debtors; or
becomes the object of any such proceeding or action of the type described in
this clause and, such proceeding or action remains undismissed or unstayed for a
period of at least sixty (60) days,
the other party may terminate the Purchase Agreement with respect to any
undelivered Aircraft and related goods and any unperformed services by giving
written notice of termination.
10.2 Repayment of Advance Payments.
If Customer terminates the applicable Purchase
Agreement under this Article 10, Boeing will repay to Customer, without
interest, an amount equal to any Advance Payments received by Boeing from
Customer with respect to undelivered Aircraft.
Article 11. Notices.
All notices required by the Purchase Agreement will be
in English and in writing, will be effective on the date of receipt and may be
transmitted by the following: (i) overnight courier which provides signed
acknowledgment of receipt; (ii) certified mail; (iii) U.S. mail; or (iv)
facsimile, addressed as follows:
Customer: American Airlines, Inc.
P.O. Box 619616
Dallas-Fort Worth Airport, Texas 75261-9616
Courier address:
American Airlines, Inc.
4333 Amon Carter Boulevard
Mail Drop 5569
Fort Worth, Texas 76155
Attn: Vice President, Corporate Development and Treasurer
Telephone: 817-967-1227
Facsimile: 817-967-2199
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Boeing: Boeing Commercial Airplane Group
P.O. Box 3707
Seattle, Washington 98124-2207
U.S.A.
Attention: Vice President - Contracts
Mail Stop 75-38
Courier Address:
Boeing Commercial Airplane Group
8th St. & Park Ave. N.
Building 10-60 Lobby
Renton, WA 98055
Telephone: 425-237-2143
Facsimile: 425-237-1706
Article 12. Miscellaneous.
12.1 Government Approval. Boeing and Customer will use reasonable
efforts to assist each other in obtaining any governmental consents or approvals
necessary or appropriate to effect certification and sale of Aircraft under the
applicable Purchase Agreement.
12.2 Headings. Article and section headings used in this AGTA and
in any Purchase Agreement are for convenient reference only and not intended to
affect the interpretation of this AGTA or any Purchase Agreement, as the case
may be.
12.3 GOVERNING LAW. THIS AGTA AND ANY PURCHASE AGREEMENT WILL BE
GOVERNED BY THE LAWS OF THE STATE OF WASHINGTON, U.S.A., EXCLUSIVE OF
WASHINGTON'S CONFLICTS OF LAWS PRINCIPLES.
12.4 Waiver/Severability. Failure by either party to enforce any
provision of this AGTA or any Purchase Agreement will not be construed as a
waiver. If any provision of this AGTA or any of the provisions of any Purchase
Agreement are held unlawful or otherwise ineffective by a court of competent
jurisdiction, the remainder of the AGTA or the applicable Purchase Agreement
will remain in effect.
12.5 Survival of Obligations. The Articles and Exhibits of this
AGTA, including but not limited to, those relating to indemnification and
insurance, DISCLAIMER AND RELEASE and the EXCLUSION OF CONSEQUENTIAL AND OTHER
DAMAGES, will survive termination or cancellation of any Purchase Agreement.
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12.6 Prior Agreements. Nothing in this AGTA is intended to alter or
amend the rights and obligations of Customer and Boeing under any purchase
agreement, the schedules, exhibits, and/or appendices thereto or any other
agreements between Boeing and Customer entered into prior to or after the date
of this AGTA unless such agreement expressly incorporates the terms and
conditions of this AGTA.
12.7 Relationship of Parties. Each of the parties is an independent
contractor. Nothing in this AGTA is intended or shall be construed to create or
establish any agency, partnership, joint venture or fiduciary relationship
between the parties. Neither party nor any of its Affiliates has any authority
to act for or to incur any obligations on behalf of or in the name of the other
party or any of its Affiliates.
12.8 No Third Party Beneficiaries. All rights, remedies and
obligations of the parties shall accrue and apply solely to the parties and
their successors and permitted assigns and there is no intent to benefit any
third parties.
DATED as of the date first written above
AMERICAN AIRLINES, INC. THE BOEING COMPANY
By By
------------------------------ ----------------------------
Its Its
----------------------------- ---------------------------
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EXHIBIT A
TO
AIRCRAFT GENERAL TERMS AGREEMENT NO. AGTA-AAL
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT
20
BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT
1. General.
The BFE is designated "Buyer Furnished Equipment" and is listed in
the Detail Specification. Boeing will provide to Customer, in accordance with
Supplemental Exhibit BFE1 to the Purchase Agreement, a BFE Requirements
On-Dock/Inventory Document (BFE Document), in paper form or an electronic
transmission, which document may be periodically revised, setting forth the
items, quantities, on-dock dates and shipping instructions relating to the in
sequence installation of BFE in accordance with the applicable Supplemental
Exhibit BFE1 to the Purchase Agreement.
Notwithstanding the obligations defined below, Boeing and Customer
will cooperate to assure that all BFE satisfies quality, cost and schedule
requirements to successfully deliver service-ready Aircraft.
2. Supplier Selection.
Customer will:
2.1 Select and notify Boeing of the suppliers of BFE items (BFE
Suppliers) by those dates appearing in the Supplemental Exhibit BFE1 to the
applicable Purchase Agreement as may be amended from time to time by mutual
agreement of the parties.
2.2 Meet with Boeing and such selected BFE suppliers promptly (but
in any event within 60 days) after such selection to:
2.2.1 complete BFE configuration design requirements
for such BFE; and
2.2.2 confirm technical data submittal dates for BFE
certification.
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3. Customer's Obligations.
Customer will:
3.1 comply with, or use reasonable efforts to cause the BFE
Supplier to comply with, as applicable, the provisions of the BFE Document;
3.1.1 deliver technical data (in English) to Boeing as
reasonably required to support installation and FAA certification of the BFE in
accordance with the schedule provided by Boeing in the BFE Document or as
mutually agreed upon by Customer, Customer's BFE Supplier, and Boeing during the
BFE meeting referred to above;
3.1.2 deliver BFE including production and/or flight
training spares to Boeing in accordance with the quantities and schedule
provided in the BFE Document; and
3.1.3 deliver appropriate quality assurance
documentation to Boeing as reasonably required with each BFE part in accordance
with Boeing document D6-56586, BFE Product Acceptance Requirements;
3.2 authorize Boeing to discuss all details of the BFE directly
with the BFE Suppliers, and Boeing shall promptly notify Customer of all such
meetings;
3.3 authorize Boeing to conduct or delegate to the BFE Supplier
quality source inspection and supplier hardware acceptance of BFE at the BFE
Supplier location;
3.3.1 require BFE Supplier's contractual compliance to
Boeing defined source inspection and supplier delegation programs (as included
in Boeing Document D1-9000), and Customer will use best reasonable efforts to
cause such BFE Supplier to make available adequate facilities for Boeing
resident personnel; and
3.3.2 use best reasonable efforts to include in
agreements with BFE Suppliers an agreement by such BFE Suppliers that Boeing
identified supplier's quality systems be approved to Boeing document D1-9000;
3.4 use diligent efforts to obtain from each such BFE Supplier a
non-exclusive, royalty-free, non-transferable, irrevocable license for Boeing to
copy Aircraft Software provided by the BFE Suppliers (BFE Aircraft Software) to
the extent needed to enable Boeing to load the software copies in (i) the
Aircraft's mass storage device (MSD), (ii) media (e.g., diskettes, CD-ROMs,
etc.), (iii) the BFE hardware and/or (iv) an intermediate device or other media
solely for the purpose of facilitating copying of the BFE Aircraft Software into
the aircraft's MSD, BFE hardware and/or media, including media as Boeing may
deliver to Customer with the Aircraft;
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3.5 grant Boeing a license, extending the same rights set forth in
Section 3.4 above, to copy: (a) BFE Aircraft Software and data Customer has
modified and/or (b) other software and data Customer has added to the BFE
Aircraft Software, solely for the purposes described in Section 3.4 above and to
the extent Customer can do so without the consent of any applicable party.
Customer will use diligent efforts to obtain such consent.
3.6 provide field service representation at Boeing's facilities, as
necessary, to support Boeing on all issues related to the installation and
certification of BFE;
3.7 permit Boeing to deal directly with all BFE Suppliers to obtain
overhaul data, provisioning data, related product support documentation and any
warranty provisions applicable to the BFE;
3.8 provide reasonable assistance to Boeing and the BFE Suppliers
to resolve any difficulties, including defective BFE, that might arise;
3.9 be responsible for modifying, adjusting and/or calibrating BFE
as required for FAA approval and for all reasonable related expenses;
3.10 warrant that the BFE will meet the applicable requirements of
the Detail Specification; and
3.11 be responsible for either providing equipment which is FAA
certifiable at time of Aircraft delivery, or for obtaining waivers from the
applicable regulatory agency for non-FAA certifiable equipment.
4. Boeing's Obligations.
4.1 Without additional charge, Boeing will:
4.1.1 provide for the installation of and, in
accordance with the Detail Specification, install the BFE;
4.1.2 provide for storage of the BFE;
4.1.3 take reasonable actions in conjunction with
Customer and the BFE Suppliers to facilitate timely manufacture, shipment,
delivery, and installation of the BFE; and
4.1.4 obtain certification (including FAA certification
under FARs) of the Aircraft with the BFE installed.
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4.2 The BFE Document will set forth the specific dates by which
Boeing must receive "on dock" the BFE in order to permit in sequence
installation of such BFE in the Aircraft and delivery of such Aircraft. The "on
dock" schedule for the first Aircraft will be based upon the delivery schedule
in the Supplemental Exhibit BFE1 to the applicable Purchase Agreement. The BFE
Document will also contain shipping instructions, customs information and a list
of those BFE items and quantities to be supplied to Boeing by Customer to
support the manufacture of the Aircraft.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
6. Return of Equipment.
BFE delivered to Boeing but not installed in the Aircraft will be
returned to Customer in accordance with Customer's instructions and at
Customer's expense (unless due to the act or omission of Boeing, in which event
return shall be at Boeing's expense) no later than delivery of the last Aircraft
to be delivered under the applicable Purchase Agreement in as good condition as
was delivered by Customer to Boeing, reasonable wear and tear accepted.
7. Title and Risk of Loss.
Title to and risk of loss of BFE will at all times remain with
Customer or other owner and Boeing will have only such liability for BFE as a
bailee for mutual benefit would have, but will not be liable for loss of use.
8. Indemnification of Boeing.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
9. Patent Indemnity.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
10. Definitions.
For the purposes of the above indemnities, the term "Boeing"
includes The Boeing Company, its divisions, subsidiaries and Affiliates, the
assignees of each, and their directors, officers, employees and agents.
A
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EXHIBIT B
TO
AIRCRAFT GENERAL TERMS AGREEMENT NO. AGTA-AAL
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
CUSTOMER SUPPORT DOCUMENT
This document contains:
Part 1: Maintenance and Flight Training Programs; Operations
Engineering Support
Part 2: Field Services and Engineering Support
Services
Part 3: Technical Information and Materials
Part 4: Alleviation or Cessation of Performance
Part 5: Protection of Proprietary Information and
Proprietary Materials
B
i
AGTA-AAL
25
CUSTOMER SUPPORT DOCUMENT
PART 1: BOEING MAINTENANCE AND FLIGHT TRAINING PROGRAMS;
OPERATIONS ENGINEERING SUPPORT
1. Boeing Training Programs.
1.1 Boeing will provide those maintenance training and flight
training programs described in Supplemental Exhibit CS1 to the Purchase
Agreement. Such maintenance training and flight training, including instruction
and the provision of training aids and materials, will be provided at no
additional charge to Customer, except as otherwise provided herein.
1.2 Boeing will conduct all training at Boeing's training facility
in the Seattle area unless otherwise mutually agreed.
1.3 All training will be presented in the English language. If
translation is required for Customer's personnel, Customer will provide
interpreters.
1.4 Customer will be responsible for all living expenses of
Customer's personnel. Boeing will transport Customer's personnel between their
local lodging and Boeing's training facility.
2. Training Planning Conferences.
At least 12 months before the Scheduled Delivery Month of the first
Aircraft (or such later time as the parties may agree), Customer and Boeing will
conduct, at a mutually agreed upon location, planning conferences in order to
define and schedule the maintenance training and flight training programs.
3. Operations Engineering Support.
3.1 As long as an Aircraft is operated by Customer in scheduled
revenue service, Boeing will provide operations engineering support in Seattle,
Washington or at another location, as the parties may mutually agree. Such
support will include, but will not be limited to:
3.1.1 assistance with the analysis and preparation of
performance data to be used in establishing operating practices and policies for
Customer's efficient operation of Aircraft;
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3.1.2 assistance with interpretation of the minimum
equipment list, the definition of the configuration deviation list and the
analysis of individual Aircraft performance using in-service evaluations;
3.1.3 provide support and assistance with solving
operational problems associated with ferry and route-proving flights, if any,
contemplated under the Purchase Agreement; and
3.1.4 providing information regarding significant
service items relating to Aircraft performance or flight operations.
4. Training at a Facility Other Than Boeing's.
If requested by Customer, Boeing will conduct the classroom
portions of the maintenance and/or flight training (except for the Performance
Engineer training courses) at a mutually acceptable alternate training site,
subject to the following conditions:
4.1 Customer will provide suitable classroom space, simulators (as
necessary for flight training) and training equipment required to present the
courses;
4.2 Customer will pay Boeing's then-current per diem charge for
each necessary Boeing instructor for each day, or fraction thereof, that the
instructor is away from the Seattle area, including travel time;
4.3 Customer will reimburse Boeing for, or, subject to terms and
conditions mutually agreed upon prior to Boeing providing the instructors to
teach the course, Customer shall provide round-trip transportation for Boeing's
instructors and training materials between the Seattle area and the alternate
training site;
4.4 Customer will be responsible for taxes pursuant to Section 2.2
of the AGTA and for all fees, duties, licenses, permits and similar expenses
reasonably incurred by Boeing and its employees as a result of Boeing's
providing training at the alternate site or as a result of Boeing providing
revenue service training. Boeing will use best reasonable efforts to notify
Customer prior to commencement of training of any such fees, duties, licenses,
permits and similar charges of which Boeing has knowledge; and
4.5 Those portions of training that require the use of training
devices not available at the alternate site will be conducted at Boeing's
facilities or at the alternate site as may be otherwise agreed.
5. General Terms and Conditions.
5.1 Boeing flight instructor personnel will not be required to work
more than 5 days per week, or more than 8 hours in any one 24-hour period, of
which not more than 5 hours per 8-hour workday will be spent in actual flying;
provided, however, that
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the foregoing restrictions will not apply with respect to ferry assistance or
revenue service training services (it being agreed that in conjunction with such
services, the number of hours each Boeing flight instructor works shall be
mutually agreed to and shall be in accordance with FAA rules and regulations).
5.2 If requested by Boeing prior to flight crew training on an
Aircraft designated by Customer as a training aircraft, Customer will make such
Aircraft available to Boeing for the purpose of familiarizing the Boeing
instructor or ferry flight crew personnel with the operation of special
equipment or systems installed in such Aircraft. If flight of such Aircraft is
required for any Boeing instructor or ferry flight crew member to maintain an
FAA license for flight proficiency or landing currency, Boeing will be
responsible for the cost of fuel, oil, landing fees and spare parts attributable
to that portion of any flight conducted in order to maintain such FAA flight
proficiency or landing currency. Customer's authorization of the use of an
Aircraft pursuant to this Section 5.2 shall apply only to Boeing instructors
assigned to conduct flight training with respect to such Aircraft and a
reasonable number of alternate instructors and to members of any flight crew
(including navigator, if needed) who will participate in any ferry flight of any
Aircraft contemplated under the Purchase Agreement.
B
1-3
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28
CUSTOMER SUPPORT DOCUMENT
PART 2: FIELD SERVICES AND ENGINEERING SUPPORT SERVICES
The support services described in this Part 2 shall be provided at
no additional charge to Customer, unless otherwise provided herein. Except with
respect to field services provided pursuant to Section 1.1 below, the support
services described in this Part 2 shall be provided by Boeing to Customer during
a period commencing with delivery of the first Aircraft and continuing so long
as at least one Aircraft is regularly operated by Customer in commercial air
transport service.
1. Field Service Representation.
Boeing will furnish field service representation to advise Customer
with respect to the maintenance and operation of Aircraft (Field Services) as
follows:
1.1 Experienced Field Service representatives will be available to
provide Field Services to Customer at the main maintenance and engineering
facility designated by Customer for the Aircraft (or such other facility as
Customer and Boeing mutually agree upon) beginning before delivery of the first
Aircraft and ending 12 months after delivery of the last Aircraft. Customer
reserves the right, in its sole discretion, to reasonably require Boeing to
remove any such Field Service representative from Customer's facility and to
provide a replacement Field Service representative.
1.2 Customer will provide, at no charge and if requested by Boeing,
suitable furnished office space and office equipment at, or conveniently located
with respect to, the facility designated in Section 1.1 above for the
accommodation of any Boeing representatives providing Field Services. As
required, Customer will assist each representative providing Field Services with
mail handling, identification passes and formal introduction to local airport
authorities. If Field Services are provided outside the United States, in
addition to the foregoing, Customer will assist, in such manner as Boeing may
reasonably request without Customer incurring additional expense, each
representative providing Field Services in connection with obtaining visas, work
permits and customs clearances.
1.3 In addition to Field Services provided pursuant to Section 1.1
above, Customer shall also have available, as reasonably required, the services
of any Boeing Field Service representatives assigned at stations other than
Customer's main station where Customer's Aircraft may have occasion to land.
1.4 Boeing may from time to time, with Customer's agreement,
provide additional support services in the form of Boeing personnel visiting
Customer's facilities to work with Customer's personnel in an advisory capacity.
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2. Engineering Support Services.
Boeing will, if requested by Customer, provide technical advisory
assistance for any Aircraft and Boeing Product. Technical advisory assistance,
provided from the Seattle area or at a base designated by Customer as
appropriate, will include:
2.1 In-Service Problem Support. If Customer experiences service or
operational problems with an Aircraft, Boeing will analyze the data provided by
Customer to determine the probable nature and cause of the problem and to
suggest possible solutions.
2.2 Schedule Reliability Support. If Customer is not satisfied with
the schedule reliability of the Aircraft, Boeing will analyze data provided by
Customer to determine the nature and cause of the problem and to suggest
possible solutions.
2.3 Maintenance Cost Reduction Support. If Customer is concerned
that actual maintenance costs of the Aircraft are excessive, Boeing will analyze
data provided to determine the nature and cause of the problem and to suggest
possible solutions.
2.4 Aircraft Structural Repair Support. If Customer is designing
structural repairs to the Aircraft and desires Boeing support, Boeing will
analyze and comment on Customer's engineering releases relating to any such
structural repairs not covered by Boeing's Structural Repair Manual. If
requested by Customer, Boeing will take such actions as Customer may reasonably
request for the purpose of obtaining FAA approval of such repairs as soon as
practicable.
2.5 Aircraft Modification Support. If Customer is designing
Aircraft modifications and desires Boeing support, Boeing will analyze and
comment on Customer's engineering proposals for changes in, or replacement of,
any Boeing Products. Boeing will not analyze or comment on any major structural
change unless Customer's request for such analysis and comment includes complete
detailed drawings, substantiating data (including any data required by
applicable Government Authorities), all stress or other appropriate analyses,
and a specific statement from Customer of the substance of the review and the
response desired.
2.6 Facilities, Ground Equipment and Maintenance Planning Support.
Boeing will, at Customer's request, send qualified Boeing engineering
representatives to evaluate Customer's technical facilities, tools and equipment
for servicing and maintaining the Aircraft, to recommend changes where necessary
and to assist in the formulation of an overall maintenance plan.
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2.7 Additional Services. Boeing shall, from time to time, provide
additional special services with respect to the Aircraft after delivery which
may include, but shall not be limited to, such items as master changes (kits
and/or data), training and maintenance and repair of the Aircraft. The
provisions of any such additional services by Boeing shall be subject to
mutually agreeable terms and conditions including, without limitation, price,
schedule, place, and scope of work.
2.8 Post Delivery Aircraft Services. It is recognized that
Customer's personnel may request Boeing to perform unanticipated work on an
Aircraft promptly after delivery of such Aircraft to Customer pursuant to
Article 6 of the AGTA and either prior to the Aircraft's initial departure
flight from the delivery site or upon the return of the Aircraft to Boeing's
facilities in the Seattle, Washington area prior to completion of such initial
departure flight. The following provisions shall apply to all work performed by
Boeing under the circumstances identified above.
2.8.1 Title to and risk of loss of any such Aircraft
shall at all times remain with Customer.
2.8.2 The exclusion of liabilities and other provisions
of Part 2 of the Product Assurance Document and the indemnity and insurance
provisions of Section 8.2 of the AGTA shall be applicable.
2.8.3 If appropriate, Customer will reimburse Boeing
for any work performed on the Aircraft hereunder to the extent that such work is
not covered under the Boeing warranty applicable to the Aircraft.
2.8.4 The provisions of the Boeing warranty set forth
in Part 2 of the Product Assurance Document shall apply to any work performed by
Boeing under this Section 2.8 and to any Boeing Product installed on the
Aircraft as part of such work.
2.8.5 In performing work under this Section 2.8 Boeing
may conclusively rely upon the commitment authority of Customer's personnel
requesting the work.
2.9 Additional Informational Services. Boeing may from time to
time, at its own initiative or in response to a request from Customer or others,
provide Customer with additional services in the form of information about
Aircraft or other aircraft of the same type, including information concerning
design, manufacture, operation, maintenance, modification, repair and in service
experience.
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CUSTOMER SUPPORT DOCUMENT
PART 3: TECHNICAL INFORMATION AND MATERIALS
1. General.
Boeing will furnish to Customer the data and documents (both
tangible and intangible) hereinafter described (Documents) and revisions thereof
to support the maintenance and operation of the Aircraft at no additional charge
to Customer, except as otherwise provided herein. Such Documents will, where
applicable, be prepared essentially in accordance with the provisions of the
highest revision as may be incorporated by Boeing of the Air Transport
Association of America (ATA) Specification No. 100, entitled "Specification for
Manufacturers' Technical Data". Documents will be in English and in the units of
measure used by Boeing to manufacture the Aircraft, except as may be otherwise
specified in this Part 3 or as may be required to reflect Aircraft
instrumentation.
Digitally-produced Documents will, where applicable, be prepared generally in
accordance with ATA Specification No. 2100, Revision 2, entitled "Digital Data
Standards for Aircraft Support."
2. Documentation Planning Conferences.
At least 12 months before the Scheduled Delivery Month of the first
Aircraft (or such later time as the parties may agree), Customer and Boeing will
conduct, at a mutually agreed upon location, planning conferences in order to
mutually determine the proper format and quantity of Documents to be furnished
to Customer in support of the Aircraft. Such planning conferences will also be
used to resolve other details related to such Documents, including, but not
limited to, the provision by Boeing of advance copies and revision services.
When available, Customer may select Boeing standard digital format as the
delivery medium or, alternatively, Customer may select a reasonable quantity of
printed and 16mm microfilm formats. When Boeing standard digital format is
selected, Customer may also select up to 5 copies of printed or microfilm format
copies, with the exception of the Illustrated Parts Catalog, which will be
provided at no charge in one selected format only.
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3. Data and Documents - Incremental Increase.
Until one year after delivery of the last Aircraft of a specific
major model, Customer may annually request in writing a reasonable increase in
the quantity of Documents applicable to such specific major model, with the
exception of microfilm master copies, digital formats, and others for which a
specified number of copies are provided at no charge in accordance with
Supplemental Exhibit CS1 to the Purchase Agreement. Boeing will provide the
additional quantity at no additional charge beginning with the next normal
revision cycle. Customer may request a decrease in revision quantities at any
time.
4. Advance Representative Copies.
All advance representative copies of Documents will be identified
in the documentation planning conference and will be selected by Boeing from
available documents and will be reasonably representative of the Aircraft. Such
advance copies will be for advance planning purposes only.
5. Customized Documents.
All customized Documents will reflect the configuration of each
Aircraft as delivered.
6. Revisions.
6.1 Revision Service. Boeing will as necessary to reflect
configuration and, in the case of the Dispatch Deviation Procedures Guide, to
reflect changes in applicable FAA requirements, provide revisions free of charge
to those Documents designated in Attachment A to Supplemental Exhibit CS1 or
otherwise identified in the planning conference conducted pursuant to Section 2,
for a specific model of Aircraft, as long as Customer operates an Aircraft of
that model.
6.2 Revisions Based on Boeing Service Bulletin Incorporation. If
Boeing receives written notice from Customer that Customer intends to
incorporate, or has incorporated, any Boeing service bulletin in an Aircraft,
Boeing will at no charge issue revisions to Documents listed as Customized
Manuals in Supplemental Exhibit CS1 to the Purchase Agreement and to the
Illustrated Parts Catalog reflecting the effects of the incorporation of such
service bulletin into such Aircraft. Such revisions will be issued (a) in the
same form and quantity as the original Document to which the revisions pertain,
for the period specified in Section 3 above and (b) thereafter in printed form,
except for the Illustrated Parts Catalog (IPC) which shall be revised until 90
days after delivery of the last Aircraft.
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7. Computer Software Documentation for Boeing Manufactured Airborne
Components and Equipment.
Boeing will provide to Customer a Computer Software Index
containing a listing of (i) all programmed airborne avionics components and
equipment manufactured by Boeing or a Boeing subsidiary, designed and developed
in accordance with Radio Technical Commission for Aeronautics Document No.
RTCA/DO-178 dated January 1982 or No. RTCA/DO-178B dated December 1, 1992, or
later as available, and installed by Boeing in the Aircraft and (ii) specific
software documents (Software Documentation) available to Customer from Boeing
for the listed components and equipment.
Two copies of the Computer Software Index will be furnished to Customer with the
first Aircraft of a major model and, if requested by Customer, with the first
Aircraft of each derivative model. Revisions to the Computer Software Index
applicable to such major or derivative model of Aircraft, as applicable, will be
issued to Customer as revisions are developed by Boeing for so long as Customer
operates the Aircraft.
Software Documentation will be provided to Customer upon Customer's written
request therefor. The charge to Customer for Software Documentation will be
Boeing's price to reproduce the Software Documentation requested. Software
Documentation will be prepared essentially in accordance with ATA Specification
No. 102, entitled "Specification for Computer Software Manual as revised April
23, 1983;" but Software Documentation will not include, and Boeing will not be
obligated to provide, any code (including, but not limited to, original source
code, assembled source code, or object code) on computer sensible media.
8. Supplier Technical Data.
8.1 For supplier-manufactured programmed airborne avionics
components and equipment classified as Seller Furnished Equipment or Seller
Purchased Equipment which contain computer software designed and developed in
accordance with Radio Technical Commission for Aeronautics Document No.
RTCA/DO-178 dated January 1982 or No. RTCA/DO-178B dated December 1, 1992, or
later as available, Boeing will request that each supplier of the components and
equipment make software documentation available to Customer in a manner similar
to that described in Section 7 above.
8.2 The provisions of this Section will not be applicable to items
of BFE.
8.3 Boeing will furnish to Customer a Document identifying the
terms and conditions of the product support agreements between Boeing and its
suppliers requiring the suppliers to fulfill Customer's requirements for data
and services in support of the specific model of aircraft.
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9. Buyer Furnished Equipment Data.
Boeing will incorporate BFE data into the customized Documents,
provided Customer makes the data available to Boeing at least nine months prior
to delivery of Customer's first Aircraft of a specific derivative model. If
Customer does not provide Boeing with such data by such time, Customer may
provide such data to Boeing at any time up to the delivery date of such
Aircraft, and Boeing will use its best reasonable efforts to incorporate such
data, free of charge, at the next scheduled revision to each customized
Document. Customer agrees to furnish the data in Boeing standard digital format
if the applicable customized Documents are to be delivered in Boeing standard
digital format.
10. Technical Data and Documents Shipping Charges.
Boeing will pay the reasonable transportation costs of the
Documents. Customer is responsible for any customs clearance charges, duties,
and taxes imposed in connection with such transportation.
11. Customer's Shipping Address.
The Documents furnished to Customer hereunder will be sent to the
following address, as applicable, or to such other address as Customer may from
time to time designate in writing:
11.1 if to Maintenance and Engineering:
American Airlines, Inc.
3900 N. Mingo, MD107
Tulsa, Oklahoma 74116-5020
Attention: Engineering Library
11.2 if to Flight Training:
American Airlines, Inc.
4601 Hwy 360
MD 863 GSWFA
Ft. Worth, Texas 76155
Attention: Managing Director-Flight Training/
Flight Standards
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CUSTOMER SUPPORT DOCUMENT
PART 4: ALLEVIATION OR CESSATION OF PERFORMANCE
Boeing will not be required to provide any services, training, data or goods at
a facility designated by Customer when any of the following conditions exist:
1. a labor stoppage or dispute in progress involving Customer;
2. wars or warlike operations, riots or insurrections in the
country where the facility is located;
3. any condition at the facility which, in the opinion of Boeing,
is detrimental to the general health, welfare or safety of its personnel or
their families;
4. the United States Government refuses permission to Boeing
personnel or their families to enter into the country where the facility is
located, or officially recommends that Boeing personnel or their families leave
the country; or
5. the United States Government refuses permission to Boeing to
deliver goods or services to the country where the facility is located.
Boeing further reserves the right, during the existence of any of the foregoing
conditions subsequent to the location of Boeing personnel at the facility, to
immediately and without prior notice relocate its personnel and their families
to a place of Boeing's choosing. Any resulting delay will be deemed a delay by
mutual agreement. In the event Boeing must cease providing any training, or
other services or goods, including without limitation any cessation due to a
relocation of Boeing personnel, pursuant to the terms of this Part 4, the
parties hereto shall within a reasonable time under the then existing
circumstances enter into a written agreement containing the terms and conditions
for either the provision by Boeing of the remaining balance of such training,
other services or goods or the termination of Boeing's obligation to provide the
remaining balance of such training, other services or goods.
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CUSTOMER SUPPORT DOCUMENT
PART 5: PROTECTION OF PROPRIETARY INFORMATION AND PROPRIETARY MATERIALS
1. General.
All Documents provided by Boeing to Customer and not covered by
other agreements between Boeing and Customer defining Customer's right to use
and disclose the materials and included information will be covered by, and
subject to the terms of, this AGTA. Title to all Documents containing, conveying
or embodying confidential, proprietary or trade secret information (Proprietary
Information) belonging to Boeing or a third party, will at all times remain with
Boeing or such third party. All Documents which contain, convey, or embody
Proprietary Information are defined as Proprietary Materials. Customer will
treat all Proprietary Materials and all Proprietary Information in confidence
and use and disclose the same only as specifically authorized in this AGTA.
2. License Grant.
Boeing grants to Customer a worldwide, non-exclusive,
non-transferable license to use and disclose Proprietary Materials in accordance
with the terms and conditions of this AGTA. Customer is authorized to make
copies of Proprietary Materials (except for Proprietary Materials bearing the
copyright legend of a third party), and all copies of Proprietary Materials will
belong to Boeing and be treated as Proprietary Materials under this AGTA.
Customer will preserve all proprietary legends, and all copyright notices on all
Proprietary Materials and insure the inclusion of those legends and notices on
all copies.
3. Use of Proprietary Materials and Proprietary Information.
Customer is authorized to use Proprietary Materials and Proprietary
Information for the purpose of: (a) operation, maintenance, repair, or
modification of the Aircraft for which the Proprietary Materials have been
specified by Boeing and (b) development and manufacture of training devices for
use by Customer. Upon the resale or lease of any Aircraft by Customer, the
purchaser or lessee of such Aircraft may receive from Customer and may use any
Documents furnished hereunder, subject, however, to the foregoing limitations
and the requirement of Article 9 of the AGTA.
4. Providing of Proprietary Materials to Contractors.
Customer is authorized to provide Proprietary Materials to
Customer's contractors for the sole purpose of maintenance, repair, or
modification of Customer's Aircraft for which the Proprietary Materials have
been specified by Boeing. In addition,
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Customer may provide Proprietary Materials to Customer's contractors for the
sole purpose of developing and manufacturing training devices for Customer's
use. Before providing Proprietary Materials to its contractor, Customer will
first obtain a written agreement from the contractor by which the contractor
agrees (a) to use the Proprietary Materials only on behalf of Customer, (b) to
be bound by all of the restrictions and limitations of this Part 5, and (c) that
Boeing is an intended third party beneficiary under the written agreement.
Customer agrees to provide copies of all such written agreements to Boeing upon
request and be liable to Boeing for any breach of those agreements by a
contractor. A sample agreement acceptable to Boeing is attached as Appendix V.
5. Providing of Proprietary Materials and Proprietary Information to
Regulatory Agencies.
When and to the extent required by a government regulatory agency
having jurisdiction over Customer or an Aircraft, Customer is authorized to
provide Proprietary Materials and to disclose Proprietary Information to the
agency for use in connection with the Customer's operation, maintenance, repair,
or modification of such Aircraft. Customer agrees to take all reasonable steps
to prevent the agency from making any distribution, disclosure, or additional
use of the Proprietary Materials and Proprietary Information provided or
disclosed. Customer further agrees to notify Boeing immediately upon learning of
any (a) distribution, disclosure, or additional use by the agency, (b) request
to the agency for distribution, disclosure, or additional use, or (c) intention
on the part of the agency to distribute, disclose, or make additional use of
Proprietary Materials or Proprietary Information.
6. Additional Data and Documents.
If Boeing provides any Boeing owned data or documents other than
Documents described in Part 3 of the Exhibit B, such data and documents will be
considered as things delivered under the applicable Purchase Agreement and
treated as Documents.
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EXHIBIT C
TO
AIRCRAFT GENERAL TERMS AGREEMENT NO. AGTA-AAL
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
PRODUCT ASSURANCE DOCUMENT
This document contains:
Part 1: Definitions for this Product Assurance Document
Part 2: Boeing Warranty
Part 3: Boeing Service Life Policy
Part 4: Supplier Warranty Commitment
Part 5: Boeing Interface Commitment
Part 6: Boeing Indemnity against Patent and Copyright Infringement
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PRODUCT ASSURANCE DOCUMENT
PART 1: EXHIBIT C DEFINITIONS
AUTHORIZED AGENT - any agent appointed by Customer to perform
Corrections and to administer warranties pursuant to an authorization agreement
described in Section 6.1.
AVERAGE DIRECT HOURLY LABOR RATE - the average hourly rate (excluding
all fringe benefits, premium-time allowances, social charges, business taxes and
the like) paid by Customer to its Direct Labor employees.
AIRCRAFT SOFTWARE - software that is installed on and used in the
operation of the Aircraft.
BOEING PRODUCT - any system, accessory, equipment, Part, or Aircraft
Software that is (a) manufactured (or compiled) by Boeing, (b) manufactured (or
compiled) or intended to be manufactured (or compiled) to Boeing's detailed
design, or (c) work that is performed by Boeing.
CORRECT OR CORRECTION - to repair or modify (including Boeing providing
to Customer modification kits for a defective product) or to replace a defective
Boeing Product with a new product, whether performed by Customer, Boeing, or
otherwise restores the product to an airworthy condition.
CORRECTED BOEING PRODUCT - a Boeing Product on which a Correction has
been performed.
DIRECT LABOR - labor spent by direct labor employees in performing the
Correction including removal, disassembly, modification, repair, inspection
and/or bench testing (including functional testing) a defective Boeing Product
and reassembly and reinstallation of a Corrected Boeing Product.
DIRECT MATERIALS - materials installed, incorporated, consumed, or
expended in performing a Correction, excluding allowances for administration,
overhead, taxes, customs duties and the like.
SUPPLIER PRODUCT - any system, accessory, equipment, Part, or Aircraft
Software that is not manufactured (or compiled) to Boeing's detailed design.
WARRANTY INSPECTIONS - inspections to or of any Aircraft or Boeing
Products performed, no later than 90 days following expiration of the warranty
period, and which are recommended during the warranty period by a service
bulletin, service letter, other Boeing correspondence, or FAA Airworthiness
Directive which is covered by the Boeing warranty.
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PRODUCT ASSURANCE DOCUMENT
PART 2: BOEING WARRANTY
1. Warranty Applicability.
This warranty applies to the Aircraft and all Boeing Products.
Warranties applicable to Supplier Products are stated in Part 4. Warranties
applicable to Engines will be provided by Supplemental Exhibits to the Purchase
Agreements.
2. Warranty.
2.1 Coverage. Boeing warrants that at the time of each Aircraft
delivery and during the applicable warranty period set forth in Section 3 below:
(i) the Aircraft and all Boeing Products installed
therein will conform to the Detail Specification
except for portions stated expressly in such Detail
Specification to be estimates, approximations or
design objectives;
(ii) the Aircraft and all Boeing Products in the Aircraft
will be free from defects in material and
workmanship, including process of manufacture;
(iii) the Aircraft and all Boeing Products installed in the
Aircraft will be free from (A) defects in design,
including selection of materials, systems,
accessories, equipment, and the process of
manufacture, in view of the state of the art at the
time of the design of the system, accessory,
equipment or part in question, and (B) defects in
design known to Boeing on the date of issuance of the
original FAA type certificate for the Aircraft; and
(iv) the workmanship utilized for the installation and
interfacing of Supplier Products and BFE will be free
from defects.
For purposes of this Product Assurance Document, it is understood that
(a) non-conformance with the Detail Specification whether by omission or by a
defect in material, workmanship or design, (b) defects in material or
workmanship and (c) defects or faults in design are hereinafter collectively
called "defects" or a "defect." Further, the terms system, accessory, equipment
or Part may hereinafter collectively be called "item" or "items."
Any defect in the Boeing workmanship incorporated in the installation of
Supplier Products in the Aircraft, including any failure by Boeing to conform to
the installation instructions of the manufacturers of such items that
invalidates any applicable warranty
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from such manufacturers, shall constitute a defect in workmanship for the
purposes of this Part 2 and shall be covered by the warranty set forth in
Section 2.1(ii).
2.2 Exceptions. The following conditions will not constitute a defect
under this warranty:
(i) conditions resulting from normal wear and tear;
(ii) conditions resulting from negligent acts or omissions
of Customer (other than failure to properly service
and maintain the Aircraft); and
(iii) conditions resulting from failure to properly service
and maintain the Aircraft in accordance with a FAA
approved maintenance program
2.3 Year 2000 Compliant Software.
Boeing warrants to Customer that all Boeing-designed or
created Aircraft Software Boeing supplies to Customer pursuant to the applicable
Purchase Agreements will be "Year 2000 Compliant"; i.e., it will accommodate the
change from the year 1999 to year 2000. In the event such Aircraft Software is
not Year 2000 Compliant at the time of Aircraft delivery to Customer, Boeing
will either modify such Aircraft Software to be Year 2000 Compliant, replace
such non-compliant Aircraft Software with Aircraft Software that is Year 2000
Compliant or provide a reasonable workaround to allow continued use of such
software until final correction to the software can be accomplished.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
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3. Warranty Periods.
3.1 Initial Warranty. The initial warranty period for the warranties
described in this Part 2 begins on the date of delivery of the applicable
Aircraft and expires after the expiration of either 36 months or 48 months from
that date depending on the model of the Aircraft as indicated in the table
below.
========================= =========================
48 MONTHS 36 MONTHS
========================= =========================
777-200 737-300
------------------------- -------------------------
777-300 737-400
------------------------- -------------------------
737-600 737-500
------------------------- -------------------------
737-700 757-200
------------------------- -------------------------
737-800 757-300
------------------------- -------------------------
767-200
------------------------- -------------------------
767-300
------------------------- -------------------------
767-400
------------------------- -------------------------
747-400
========================= =========================
3.2 Residual Warranty. The warranty period applicable to a Corrected
Boeing Product resulting from a nonconformance to the Detail Specification in
accordance with Section 2.1(i) or a defect in material or workmanship, of the
type described in Section 2.1(ii), is the remainder of the initial warranty
period for the defective Boeing Product it replaced or 90 days after delivery of
the Corrected Boeing Product, whichever period last expires. A Corrected Boeing
Product resulting from a defect in design of the type described in Section
2.1(iii) and (iv) will receive a new 18 month warranty period or the remainder
of the initial warranty period covering that specific design, whichever is
greater. If either a Corrected Boeing Product or a kit for Correction is
provided to Customer but not both, then the new 18 month period begins at the
date of delivery of the Corrected Boeing Product or date of delivery of the kit
or kits furnished to perform the Correction, as applicable. If both a Corrected
Boeing Product and a kit are provided, then the new 18 month period begins on
the date of delivery of the Corrected Boeing Product or date of delivery of the
kit or kits furnished to perform the Correction, whichever is later.
3.3 Survival of Warranties. All warranties set forth in Section 2 above
will survive delivery of each Aircraft as set forth above except that neither
the warranty of conformance to the Detail Specification applicable to Supplier
Products, nor any Performance Guarantees will survive delivery of the Aircraft.
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4. Remedies.
4.1 Defect Correction. Boeing will, at Customer's option, either
promptly Correct or promptly reimburse (as provided below) Customer for the
Correction by Customer (or its contractor) of all defects in Boeing Products
(including defects in conformance to the Detail Specifications other than those
agreed by Customer and Boeing to be acceptable deviations) discovered during the
applicable (initial or residual) warranty period for which Customer has provided
written notice pursuant to Section 6. At Customer's option, defective Boeing
Products may be returned to Boeing for Correction at no charge, or Customer may
Correct any defective Boeing Product and be reimbursed by Boeing for such
Correction, each as provided below.
4.2 Warranty Labor Rate. If Customer Corrects a defective Boeing
Product, Boeing will promptly reimburse Customer for (a) the cost of Direct
Materials expended and (b) the number of expended Direct Labor hours which will
be reimbursed at Customer's Established Warranty Labor Rate. For purposes of
this Product Assurance Document, "Customer's Established Warranty Labor Rate"
will be the greater of the "standard labor rate" or 150% of Customer's Average
Direct Hourly Labor Rate. The "standard labor rate" referred to in the preceding
sentence is the standard labor rate paid by Boeing to its customers and is
established and published annually. Prior to or concurrently with submittal of
Customer's first claim for Direct Labor reimbursement, Customer will notify
Boeing of Customer's then-current Average Direct Hourly Labor Rate, and
thereafter notify Boeing of any material change in such rate. If requested,
Customer shall furnish to Boeing such data as may be reasonably required to
substantiate such rate.
4.3 Warranty Inspections. In addition to the remedies to Correct
defects in Boeing Products, Boeing will reimburse Customer for the cost of all
Direct Labor to perform inspections (covered solely by this Section 4.3) of the
Aircraft to determine whether or not a covered defect exists in a Boeing
Product, provided:
4.3.1 the inspections are Warranty Inspections; and
4.3.2 such reimbursement will not apply to any Warranty
Inspections performed as an alternative to accomplishing a Correction when
Customer is given notice of the Correction by Boeing and the Correction is
available to Customer at the time such inspections are performed unless the
continued inspections are recommended by Boeing.
4.4 Credit Memorandum Reimbursement. All reimbursements made by Boeing
under this warranty will be in the form of Boeing credit memoranda which
Customer will be entitled to use in lieu of cash payments to pay, in whole or in
part, for the purchase of goods and services provided by Boeing and/or its
Affiliates, excluding payment for the Aircraft.
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4.5 Maximum Reimbursement. Unless otherwise agreed in writing, prior to
a Correction, the maximum reimbursement for Direct Labor and Direct Materials
used in Correcting a defective Boeing Product will not exceed 65% of Boeing's
then-current sales price for a new replacement Boeing Product or in specific
instances such other percentage of the then-current sales prices as may be
mutually agreed by Boeing and Customer.
4.6 Duplicate Product Assurance Remedies. Boeing shall not be obligated
to provide Customer any remedy which is a duplicate of any other remedy which
has been provided to Customer under any part of this Product Assurance Document,
provided however, that Customer at all times shall be entitled to the most
favorable of any duplicate remedy.
5. Discovery and Notice.
5.1 Valid Claim. For a claim to be valid:
(i) the defect must be discovered during the warranty
period; and
(ii) Boeing Product Assurance Contracts (whose address
will be provided to Customer in writing) must receive
written or telegraphic notice of the discovery within
90 days after expiration of the applicable (initial
or residual) warranty period. The notice must include
the information required by Section 6.2.1.
5.2 Notice. Receipt of Customer's notice of the discovery of a defect
secures Customer's rights to remedies under this Product Assurance Document,
whether or not Customer has Corrected the defect at the time of the notice or
Boeing requests additional information regarding the defect or claim.
5.3 Claim Submittal. Once Customer has given valid notice of the
discovery of a defect, claims may be submitted at any time after the defect is
Corrected.
5.4 Service Bulletins. Boeing may release service bulletins or service
letters advising Customer of the availability of certain warranty remedies. When
such advice is provided, Customer will be deemed to have fulfilled the
requirements for discovery of the defect and submittal of notice in this Product
Assurance Document as of the date specified in the service bulletin or service
letter.
6. Filing a Claim.
6.1 Authority to File. Claims may be filed by Customer or any
Authorized Agents who Customer empowers to act on Customer's behalf.
Empowerments will only be effective upon Boeing's receipt of the Authorized
Agent's express written agreement, in form reasonably satisfactory to Boeing, to
be bound by and to comply with all applicable terms and conditions of this AGTA.
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6.2 Claim Information.
6.2.1 All claims will at a minimum include the following:
(i) identity of claimant;
(ii) serial or block number of the Aircraft on
which the defective Boeing Product was
delivered;
(iii) part number of defective Boeing Product if
available;
(iv) description of the claimed defect and
reasonable proof that the defect exists; and
(v) date the defect was discovered.
6.2.2 Additional information may be reasonably required based
on the nature of the defect and the remedies requested. Boeing will promptly
request such additional information from Customer.
6.2.3 Boeing may reject a claim which does not comply with the
requirements of this Section 6.2.
6.3 Boeing Claim Processing.
6.3.1 All claims must be signed and submitted directly by
Customer or its Authorized Agent to Boeing Product Assurance Contracts.
6.3.2 Boeing will promptly review the claim and give prompt
notification of claim approval or rejection. If the claim is rejected, then
Boeing will promptly provide written explanation as to the reason for such
rejection. In the event of rejection, Customer will have the opportunity to
resubmit the claim in accordance with the above procedures if additional
information not provided in the initial claim becomes available.
7. Corrections Performed by Customer.
7.1 Facilities Requirements. Customer may at its option perform
Corrections to Boeing Products or may subcontract Corrections to an Authorized
Agent of Customer.
7.2 Technical Requirements. All Corrections performed by Customer or
its Authorized Agent must be performed in accordance with Boeing's applicable
service manuals, bulletins or other written instructions provided in advance by
Boeing to Customer, using parts and materials furnished or approved by Boeing.
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7.3 Claims for Reimbursement.
7.3.1 As stated in Section 4 above, Boeing will promptly
reimburse Customer for reasonable costs of Direct Labor and Direct Materials,
excluding time expended for normal overhaul, to perform a Correction to a
defective Boeing Product. Customer's claim for reimbursement must contain
reasonably sufficient information to substantiate Direct Labor hours expended
and Direct Materials consumed. Customer or its Authorized Agent may be required
to produce invoices for materials. Boeing will also reimburse actual Direct
Labor hours reasonably necessary for interim repairs performed prior to a final
correction, if the repair and procedure is approved by Boeing. Direct Labor for
which Customer is reimbursed under this Section 7.3.1 includes work performed
towards a Correction that does not fully correct the defect if Boeing
instructions were not sufficient to Correct the defect.
7.3.2 Notwithstanding anything to the contrary contained
herein, reimbursement for Direct Labor hours to perform Corrections defined in a
service bulletin or service letter will be based on the labor estimates in the
service bulletin or service letter.
7.4 Disposition of Defective Boeing Products Beyond Economical Repair.
7.4.1 Unless Customer has received confirmation from Boeing or
its on-site customer services representative in accordance with Section 7.4.2,
defective Boeing Products that are found to be beyond economical repair will be
retained for a period of 60 days from the date Boeing receives Customer's claim
for such parts. Boeing may request return, at Boeing's expense, of such Boeing
Products during the 60 day period for inspection and confirmation of defect.
7.4.2 If after the 60 day holding period, Customer has not
received a request for return of a defective Boeing Product from Boeing, such
Boeing Product with a value of U.S. $2000 or less may be scrapped without
notification to Boeing. If such Boeing Product has a value greater than U.S.
$2000, Customer must obtain confirmation of unrepairability by Boeing's on-site
customer services representative prior to scrapping. Confirmation may be in the
form of the customer services representative's signature on Customer's claim or
through direct communication between the customer services representative and
Boeing Product Assurance Contracts.
8. Corrections Performed by Boeing.
Customer may, at its option, return Boeing Products to Boeing for
correction in which event the following provisions shall apply with respect to
each Boeing Product so returned to Boeing for Correction in accordance with this
Part 2 of this Product Assurance Document.
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8.1 Freight Charges. Customer will pay freight charges to return a
defective Boeing Product to Boeing. Boeing will promptly reimburse Customer for
the charge for any item determined to be defective under this Product Assurance
Document. Boeing will pay freight charges to return the Corrected Boeing
Product.
8.2 Customer Instructions. The documentation shipped with the returned
defective Boeing Product may include specific technical instructions for work to
be performed on the Boeing Product or written request to contact Customer prior
to commencing any Corrections. The absence of such instructions or request will
evidence Customer's authorization for Boeing to proceed to perform all
reasonably necessary Corrections and work required to return the Boeing Product
to a serviceable condition.
8.3 Correction Time Objectives.
8.3.1 All Corrections shall be performed by or for Boeing at
Boeing's expense with reasonable care and dispatch in order that the Aircraft or
Boeing Product involved will not be kept out of service longer than necessary.
Boeing's objective for making Corrections is 10 working days for avionics and
electronic Boeing Products, 30 working days for other Boeing Products Corrected
at Boeing's facilities, and 40 working days for other Boeing Products Corrected
at a Boeing subcontractor's facilities. The objectives are measured from the
date Boeing receives the defective Boeing Product and a valid claim to the date
Boeing ships the Corrected Boeing Product.
8.3.2 If Boeing reasonably believes that it will exceed or
does exceed a Correction time objective and Customer has procured spare Boeing
Products for the defective Boeing Product in quantities shown in Boeing's
Recommended Spare Parts List (RSPL), then Boeing will either expedite the
Correction to meet Customer's completion date or provide a similar Boeing
Product on a no-charge loan or lease basis until a Corrected Boeing Product is
returned to Customer.
8.4 Title Transfer and Risk of Loss.
8.4.1 Title to and risk of loss of any Boeing Product returned
to Boeing will at all times remain with Customer or any other title holder of
such Boeing Product. While Boeing has possession of the returned Boeing Product,
Boeing will have only such liabilities as a bailee for mutual benefit would
have, but will not be liable for loss of use.
8.4.2 If Correction of a defect requires shipment of a new
Boeing Product, then at the time Boeing ships the new item, title to and risk of
loss for the returned Boeing Product will pass to Boeing, and title to and risk
of loss for the new Boeing Product will pass to Customer.
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9. Returning an Aircraft.
9.1 Conditions. Unless Boeing and Customer agree otherwise, an Aircraft
may be returned to Boeing's facilities, or such other facility as may be
mutually agreed to, for Correction only if a defect occurs during the ferry
flight following delivery or if:
(i) Boeing and Customer agree a defect exists;
(ii) Customer lacks access to either its own adequate
facilities (or its contractor's facilities if used by
Customer in the normal course of its business),
equipment, qualified personnel, or data to perform
the Correction; and
(iii) it is not practical, in Boeing's reasonable
estimation, to dispatch Boeing personnel to perform
the Correction at a remote site.
9.2 Correction Costs. In the event an Aircraft is returned to Boeing
facilities, Boeing will perform the Correction at no charge to Customer in
accordance with the Correction objectives and other conditions herein. Subject
to the conditions of Section 9.1, Boeing will promptly reimburse Customer for
the costs of fuel, oil and landing fees incurred in ferrying the aircraft to
Boeing and back to Customer's facilities. Customer will use reasonable efforts
to minimize the length of both flights.
9.3 Separate Agreement. Boeing and Customer will enter into a separate
agreement covering return of the Aircraft and performance of the Correction.
Customer may be invoiced for work performed by Boeing that is not part of the
Correction if and to the extent authorized by Customer within a reasonable
period of time.
10. Customer's Indemnification of Boeing.
The provisions of Section 8.2, "Title and Risk with Customer", of the
AGTA will apply to any work performed with due care by Boeing in conformity with
Customer's specific technical instructions, to the extent any legal liability of
Boeing is based upon Boeing's performing such work in conformance with the
content of such instructions.
11. Disclaimer and Release; Exclusion of Liabilities.
11.1 DISCLAIMER AND RELEASE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
ELSEWHERE IN THE AGTA OR THE PURCHASE AGREEMENT, THE WARRANTIES, OBLIGATIONS AND
LIABILITIES OF BOEING AND THE REMEDIES OF CUSTOMER STATED IN THIS PRODUCT
ASSURANCE DOCUMENT ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND CUSTOMER HEREBY
WAIVES, RELEASES AND RENOUNCES, ALL OTHER WARRANTIES, OBLIGATIONS AND
LIABILITIES OF BOEING AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF CUSTOMER
AGAINST BOEING,
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EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
NONCONFORMANCE OR DEFECT IN ANY AIRCRAFT OR OTHER THING PROVIDED UNDER THIS AGTA
AND THE APPLICABLE PURCHASE AGREEMENTS, INCLUDING, BUT NOT LIMITED TO:
(A) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS;
(B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE;
(C) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN
TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF
BOEING; AND
(D) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR
LOSS OF OR DAMAGE TO ANY AIRCRAFT.
11.2 EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES. BOEING WILL HAVE NO
OBLIGATION OR LIABILITY, WHETHER ARISING IN CONTRACT (INCLUDING WARRANTY), TORT,
WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF BOEING, OR OTHERWISE, FOR LOSS OF
USE, REVENUE OR PROFIT, OR FOR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES
WITH RESPECT TO ANY NONCONFORMANCE OR DEFECT IN ANY AIRCRAFT, BOEING PRODUCT OR
OTHER THING PROVIDED UNDER THIS AGTA AND THE APPLICABLE PURCHASE AGREEMENTS.
11.3 Definitions. For the purpose of this Section 11, "BOEING" or
"Boeing" is defined as The Boeing Company, its divisions, subsidiaries,
Affiliates, the assignees of each, and their respective directors, officers,
employees and agents.
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PRODUCT ASSURANCE DOCUMENT
PART 3: BOEING SERVICE LIFE POLICY
1. Definitions.
FAILED COMPONENT - a SLP Component in which a Failure has occurred.
FAILURE - means any defect, failure or breakage, in a SLP Component.
SLP COMPONENT - the items listed in Supplemental Exhibit SLP1 to the
applicable Purchase Agreement for a specific model of Aircraft that is installed
in the Aircraft at the time of delivery or is purchased from Boeing by Customer
as a spare part, or is purchased from Boeing or delivered by Boeing as a
Correction or replacement under this Product Assurance Document.
POLICY - the Service Life Policy contained in this Part 3 to the
Product Assurance Document.
2. Service Life Policy.
2.1 SLP Commitment. If a Failure occurs in a SLP Component within the
time periods specified in Section 2.2 below, Boeing will as promptly as
practicable, at a price calculated pursuant to Section 3 below, either (i)
design and furnish to Customer a Correction of the Failed Component (including
Boeing standard parts but excluding industry standard parts), (ii) design and
furnish to Customer materials required to Correct or repair the Failed Component
(including Boeing standard parts but excluding industry standard parts) or (iii)
furnish to Customer a replacement SLP Component for the Failed Component.
2.2 SLP Policy Periods.
2.2.1 The Policy period for SLP Components initially installed
on an Aircraft is 12 years after delivery of the Aircraft.
2.2.2 The Policy period for SLP Components purchased from
Boeing by Customer as spare parts is 12 years after delivery of such SLP
Component, or 12 years after delivery of the last new Aircraft of a specific
model, whichever first expires.
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3. Price.
The price that Customer will pay for the correction or replacement of a
Failed Component will be calculated pursuant to the following formula:
P = C*T
---
144
where:
P = price to Customer
C = SLP Component sales price at time of correction or
replacement
T = total age in months (to the nearest month) of the
Failed Component from the date of delivery of Failed
Component to Customer to the date of correction or
replacement.
4. Conditions and Limitations.
Boeing's obligations under this Policy are conditioned upon the
following:
4.1 Customer must notify Boeing of the Failure within three months
after it becomes apparent.
4.2 Customer must provide reasonable evidence that the claimed defect
or Failure is covered by this Policy and, if requested by Boeing, that such
defect or Failure was not the result of (i) a defect or Failure in a component
not covered by this Policy, (ii) an extrinsic force, or (iii) a negligent or
improper act or omission of Customer, including, without limitation, operation
or maintenance contrary to applicable governmental regulations or Boeing's
applicable service bulletins, service letters, maintenance manuals, overhaul
manuals and other written Boeing instructions provided to Customer by Boeing
prior to such alleged negligent or improper act or omission of Customer.
4.3 If return of a Failed Component is practicable and requested by
Boeing, Customer will return such Failed Component to Boeing at Boeing's
expense.
4.4 Customer's rights and remedies under this Policy are limited to the
receipt of corrective materials or replacement components at prices calculated
pursuant to Section 3 above. If corrections or replacements are performed by
Boeing at Customer's request, the rates charged Customer for such installation
shall not exceed the rates charged other commercial customers of Boeing during
substantially the same time period.
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5. Disclaimer and Release; Exclusion of Liabilities.
This Part 3 and the rights and remedies of Customer and the obligations
of Boeing are subject to the DISCLAIMER AND RELEASE and EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES provisions of Section 11 of Part 2 of this
Product Assurance Document.
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PRODUCT ASSURANCE DOCUMENT
PART 4: SUPPLIER WARRANTY COMMITMENT
1. Supplier Warranties and Supplier Patent Indemnities.
Boeing will obtain adequate warranties and indemnities against patent
and copyright infringement enforceable by Customer from all suppliers and
manufacturers (Suppliers) of Supplier Products (and their replacements under
this Product Assurance Document) installed on the Aircraft at the time of
delivery. Boeing will furnish copies of the warranties and patent indemnities to
Customer as soon as available but no later than delivery of the first Aircraft
of a model.
2. Boeing Assistance in Administration of Supplier Warranties.
Customer will be responsible for submitting warranty claims directly to
Suppliers; however, if Customer experiences problems enforcing any Supplier
warranty obtained by Boeing for Customer, Boeing will promptly conduct an
investigation of the problem, report to Customer the results of its
investigation, and assist Customer in the resolution of those claims. To the
extent warranties are for the benefit of Boeing only and not enforceable by
Customer, Customer may submit its claim to Boeing and Boeing will promptly
enforce such warranty against the applicable Supplier.
3. Boeing Support in Event of Supplier Default.
3.1 In the event that:
3.1.1 any Supplier, under any Supplier warranty obtained by
Boeing pursuant to Section 1 above, defaults in the performance of any material
obligation contained in such Supplier warranty, with respect to a defect in
material or workmanship or a defect in design in any Supplier Product (and their
replacements under the Product Assurance Document) installed in the Aircraft at
the time of delivery, and
3.1.2 Customer submits to Boeing Product Assurance Contracts,
reasonable proof that such default has occurred, then the warranty set forth in
Section 2.1(ii) or 2.1(iii), as the case may be, of Part 2 of the Product
Assurance Document, and Sections 3.1 through Section 11.3 of such Part 2, shall
apply to such defect to the same extent as if such Supplier Product (or
replacement pursuant to this Product Assurance Document) were a Boeing Product,
except that:
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(i) the warranty period with respect to such Supplier
Product shall be the longer of the applicable period set forth in such Supplier
warranty, if a warranty period is expressly set forth therein, or the warranty
period set forth in Section 3.1 of Part 2 of this Product Assurance Document,
and
(ii) the warranty notice period shall be as specified
in Section 5 of Part 2 of this Product Assurance Document.
3.2 At Boeing's request, Customer will assign to Boeing, and Boeing
will be subrogated to, its rights against the Supplier provided by the Supplier
warranty.
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PRODUCT ASSURANCE DOCUMENT
PART 5: BOEING INTERFACE COMMITMENT
1. Interface Problems.
If Customer experiences any technical problems in the operation of an
Aircraft or its systems, the cause of which is not readily identifiable by
Customer but which Customer believes to be attributable to the design
characteristics of the Aircraft or one or more of its systems, defined as an
Interface Problem, Boeing will, without additional charge to Customer, promptly
conduct an investigation and analysis to determine the cause or causes of the
Interface Problem and to recommend such corrective action as may be feasible. At
the reasonable request of Boeing, Customer will furnish to Boeing all data and
information in its possession reasonably relevant to the Interface Problem and
will reasonably cooperate with Boeing in the conduct of investigations and tests
which may be required. Boeing will promptly advise Customer in writing at the
conclusion of its investigation of Boeing's opinion as to the causes of the
Interface Problem and Boeing's recommendation as to corrective action.
2. Boeing Responsibility.
If Boeing determines that the Interface Problem is primarily
attributable to the design of any Boeing Product, Boeing will Correct the design
of such item to the extent of any then-existing obligations of Boeing under the
provisions of the applicable Boeing warranty or Boeing Service Life Policy.
3. Supplier Responsibility.
If Boeing determines that the Interface Problem is primarily
attributable to the design of an item not manufactured to Boeing's detailed
design, Boeing will reasonably assist Customer in processing a warranty claim
against the Supplier of the item. Boeing will also take whatever reasonable
action is permitted by its contracts with such Supplier in an effort to obtain a
correction of the Interface Problem acceptable to Customer. If the Supplier
fails within a reasonable period of time to take appropriate action on Boeing's
recommendation as to the necessary corrective action and Customer submits to
Boeing, within a reasonable period of time, proof of such failure, then Boeing
shall take action in accordance with the provisions of the Supplier Warranty
Commitments (Part 4 to this Product Assurance Document).
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4. Joint Responsibility.
If Boeing determines that the Interface Problem is partially
attributable to the design of a Boeing Product and partially attributable to a
Supplier Product, Boeing will promptly seek a solution to the Interface Problem
through the cooperative efforts of Boeing and the Supplier of the other item and
will promptly advise Customer of such corrective actions as may be proposed by
Boeing and such Supplier; such proposal to be consistent with any then existing
obligations of Boeing and such Supplier. If such proposal is acceptable to
Customer, the proposed action shall be taken.
5. General.
Customer will, if requested by Boeing, assign to Boeing subject to
mutually agreed terms, any of its rights against any supplier as Boeing may
reasonably require to fulfill its obligations under this Boeing Interface
Commitment.
6. Disclaimer and Release; Exclusion of Liabilities.
This Part 5 and the rights and remedies of Customer and the obligations
of Boeing herein are subject to the DISCLAIMER AND RELEASE and EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES provisions of Section 11 of Part 2 of this
Product Assurance Document.
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PRODUCT ASSURANCE DOCUMENT
PART 6: BOEING INDEMNITIES AGAINST PATENT
AND COPYRIGHT INFRINGEMENT
1. Indemnity Against Patent Infringement.
Subject to the exceptions, limitations and conditions set forth in this
Part 6, Boeing will indemnify Customer with respect to all claims, suits and
liabilities arising out of any actual or alleged patent infringement through its
use, lease or resale of any Aircraft or any Boeing Product installed on an
Aircraft at delivery.
2. Indemnity Against Copyright Infringement.
Subject to the exceptions, limitations and conditions set forth in this
Part 6, Boeing will indemnify Customer with respect to all claims, suits and
liabilities arising out of any actual or alleged copyright infringement through
its use, lease or resale of any computer software installed on an Aircraft at
delivery.
3. Exceptions, Limitations and Conditions.
3.1 Boeing's obligation to indemnify Customer for patent infringement
will extend only to infringements in countries which, at the time of the
infringement, were party to and fully bound by either (a) Article 27 of Chicago
Convention on International Civil Aviation of December 7, 1944, or (b) the
International Convention for the Protection of Industrial Property (Paris
Convention).
3.2 Boeing's obligation to indemnify Customer for copyright
infringement is limited to infringements in countries which, at the time of the
infringement, are members of The Berne Union and recognize computer software as
a "work" under The Berne Convention.
3.3 The indemnities provided under this Part 6 will not apply to BFE,
Engines, any system, accessory, equipment, Part or software (i) not manufactured
to Boeing's detailed design; (ii) manufactured to Boeing's detailed design
without Boeing's authorization; or (iii) used other than for its intended
purpose.
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3.4 Customer must deliver written notice to Boeing (i) within 10 days
after Customer first receives written notice of any suit or other formal action
against Customer and (ii) within 20 days after Customer first receives any
written allegation or written claim of infringement covered by this Part 6.
Notwithstanding the preceding sentence, failure to so notify Boeing shall not
relieve it of any liability that it may have to Customer except to the extent
that Boeing demonstrates that the defense of such action or claim is prejudiced
thereby.
3.5 In the event that such action or claim shall be brought, Boeing
may, at any stage in the proceedings and at its option and expense following
prior written notice to Customer: (i) negotiate with any party claiming
infringement (ii) intervene in any infringement suit or action covered by this
indemnity, (iii) assume or control the defense of any infringement suit or
action covered by this indemnity, and/or (iv) attempt to resolve any claim of
infringement covered by these indemnities by replacing the allegedly infringing
Aircraft or any Boeing Product installed on an Aircraft at delivery (or
replacement part provided by Boeing thereafter under this Purchase Agreement) or
any computer software installed on an Aircraft at delivery (or replacement
computer software provided by Boeing thereafter under this Purchase Agreement)
with a noninfringing equivalent.
3.6 Customer will use best reasonable efforts to promptly furnish to
Boeing all data, records and assistance within its possession or control which
Boeing considers relevant or material to any alleged infringement covered by
this Part 6.
3.7 Except as required by a final judgment entered against Customer by
a court of competent jurisdiction from which no appeals can be or have been
filed, Customer will obtain Boeing's written approval prior to paying,
committing to pay, assuming any obligation or making any material concession
relative to any infringement covered by these indemnities.
3.8 BOEING WILL HAVE NO OBLIGATION OR LIABILITY UNDER THIS PART 6 FOR
LOSS OF USE, REVENUE OR PROFIT, OR FOR ANY OTHER INCIDENTAL OR CONSEQUENTIAL
DAMAGES. THE OBLIGATIONS OF BOEING AND REMEDIES OF CUSTOMER STATED IN THIS PART
6 ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND CUSTOMER HEREBY WAIVES, RELEASES
AND RENOUNCES ALL OTHER INDEMNITIES, OBLIGATIONS AND LIABILITIES OF BOEING AND
ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF CUSTOMER AGAINST BOEING OR ANY ASSIGNEE
OF BOEING, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
ACTUAL OR ALLEGED PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT
OR THE LIKE BY ANY AIRCRAFT OR ANY SYSTEM, ACCESSORY, EQUIPMENT, PART OR
SOFTWARE RELATED TO ANY AIRCRAFT.
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3.9 For the purposes of this Part 6, "BOEING" or "Boeing" is defined as
The Boeing Company, its divisions, wholly owned subsidiaries, the permitted
assignees of each and their respective directors, officers, employees and
agents.
3.10 For the purposes of this Part 6, "Customer" is defined as American
Airlines, Inc., its divisions, wholly owned subsidiaries, the permitted
assignees of each and their respective directors, officers, employees and
agents.
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EXHIBIT D
TO
AIRCRAFT GENERAL TERMS AGREEMENT NO. AGTA-AAL
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
AIRFRAME ESCALATION ADJUSTMENT DOCUMENT
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EXHIBIT D
AIRFRAME ESCALATION ADJUSTMENT DOCUMENT
1. Formula.
The Escalation Adjustment to the Airframe Price and the Optional
Features Price will be determined at the time of delivery of an Aircraft in
accordance with the following formula:
Pa = (P(o))(L + M - 1)
Where:
P a = Escalation Adjustment to the Airframe Price and
the Optional Features Price. (For Model 737-600,
737-700 and 737-800, the Airframe Price includes the
Engine Price.)
P(o) = Airframe Price and Optional Features Price (as set
forth in the Purchase Agreement).
L = .65 x ECI(n)
------
ECI(o)
In determining the value of L, the ratio of ECI(n) divided
by ECI(o) shall be expressed as a decimal rounded to the
nearest ten-thousandth and then multiplied by 0.65, with
the resulting value also expressed as a decimal and rounded
to the nearest ten-thousandth.
M = .35 x ICI(n)
------
ICI(o)
In determining the value of M, the ratio of ICI(n) divided
by ICI(o) shall be expressed as a decimal rounded to the
nearest ten-thousandth and then multiplied by 0.35, with
the resulting value also expressed as a decimal and rounded
to the nearest ten-thousandth.
ECI(n) = the three-month arithmetic average value
(expressed as a decimal and rounded to the
nearest tenth) of the "Employment Cost Index for
Workers in Aerospace Manufacturing" (ECI code
3721, base year 1989 = 100), as
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released by the U.S. Department of Labor, Bureau
of Labor Statistics for the fifth, sixth and
seventh months prior to the Scheduled Delivery
Month of the applicable Aircraft. As the
Employment Cost Index values are only released
on a quarterly basis, the value released for the
month of March will be used for the months of
January and February; the value for June used
for April and May; the value for September used
for July and August; and the value for December
used for October and November.
ECI(o) = the value specified in Table 1 to the Purchase
Agreement, which value is equal to the
three-month arithmetic average value (expressed
as a decimal and rounded to the nearest tenth)
of the "Employment Cost Index for Workers in
Aerospace Manufacturing" (ECI code 3721), as
released by the U.S. Department of Labor, Bureau
of Labor Statistics for the fifth, sixth and
seventh months prior to the month and year
specified as "Price Base Year" in Table 1 of the
Purchase Agreement. As the Employment Cost Index
values are only released on a quarterly basis,
the value released for the month of March will
be used for the months of January and February;
the value for June used for April and May; the
value for September used for July and August;
and the value for December used for October and
November.
ICI(n) = the three-month arithmetic average (expressed
as a decimal and rounded to the nearest tenth)
of the "Producer Prices and Price Index" of the
Industrial Commodities Index (base year 1982 =
100), as released by the U.S. Department of
Labor, Bureau of Labor Statistics, for the
fifth, sixth and seventh months prior to the
Scheduled Delivery Month of the applicable
Aircraft.
ICI(o) = the value specified in Table 1 to the Purchase
Agreement, which value is equal to the
three-month arithmetic average (expressed as a
decimal and rounded to the nearest tenth) of the
"Producer Prices and Price Index" of the
Industrial Commodities Index, as released by the
U.S. Department of Labor, Bureau of Labor
Statistics, for the fifth, sixth and seventh
months prior to the month and year specified as
"Price Base Year" in Table 1 of the Purchase
Agreement.
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Note: i. As an example, with respect to ECI(n) and ICI(n) above, for
an Aircraft having a Scheduled Delivery Month of January, the
months June, July and August of the preceding year will be utilized
in determining the value of ECI(n) and ICI(n).
ii. .65 is the numeric ratio attributed to labor in the formula
for the Escalation Adjustment to the Airframe Price and the
Optional Features Price.
iii. .35 is the numeric ratio attributed to materials in the
formula for the Escalation Adjustment to the Airframe Price and the
Optional Features Price.
2. Values to be Utilized in the Event of Unavailability or Revision of
Methodology.
2.1 If, prior to the delivery of an Aircraft, the Bureau of Labor
Statistics substantially revises the methodology used for the determination of
the indices to be used to determine the ECI and ICI values (in contrast to
benchmark adjustments or other corrections of previously released indices), or
for any reason has not released indices needed to determine the applicable
Escalation Adjustment to the Airframe Price and the Optional Features Price, the
parties will, prior to the delivery of such Aircraft, select a substitute index
from other Bureau of Labor Statistics data or similar data reported by
non-governmental organizations. Such substitute index will result in the same
adjustment, insofar as possible, as would have been achieved by continuing to
use the original index as such index may have fluctuated during the applicable
time period had such index not been discontinued or revised. However, if within
24 months from delivery of the Aircraft, the Bureau of Labor Statistics should
resume releasing indices without a revision in methodology for the months needed
to determine the Escalation Adjustment to the Airframe Price and the Optional
Features Price, such indices will be used to determine any increase or decrease
in the Escalation Adjustment to the Airframe Price and the Optional Features
Price for the Aircraft from that determined at the time of delivery of the
Aircraft.
2.2 Notwithstanding Section 2.1 above, if prior to the Scheduled
Delivery Month of an Aircraft, the Bureau of Labor Statistics changes the base
year for determination of the ECI and ICI values as defined above, such rebased
values will be incorporated in the Escalation Adjustment calculation.
2.3 In the event escalation provisions are made non-enforceable or
otherwise rendered void by any agency of the United States Government, the
parties agree, to the extent they may lawfully do so, to equitably adjust the
Aircraft Price of any affected Aircraft to reflect an allowance for increases or
decreases in labor compensation and material costs occurring since February
1995, which is consistent with the applicable provisions of Section 1 of this
Exhibit D.
2.4 Boeing will submit either a supplemental invoice or refund the
amounts due Customer as appropriate to reflect any increase or decrease in the
Escalation
D
3
AGTA-AAL
64
Adjustment for an Aircraft made pursuant to Section 2.1 above. Any payments due
to Boeing or Customer shall be made with reasonable promptness.
Note: i. The indices, released by the Bureau of Labor Statistics and
available to Boeing 30 days prior to the Scheduled Delivery Month
of an Aircraft, will be used to determine the ECI and ICI values
for the applicable months (including those noted as preliminary by
the Bureau of Labor Statistics) to calculate the Escalation
Adjustment for the Aircraft invoice at the time of delivery. The
values will be considered final and no increase or decrease in the
Escalation Adjustment for an Aircraft will be made after Aircraft
delivery for any subsequent changes in published indices.
ii. Any rounding of all numbers under this Exhibit D with
respect to calculating the Escalation Adjustment shall be
accomplished as follows: if the first digit of the portion to be
dropped from the number to be rounded is five or greater, then the
preceding digit shall be raised to the next higher number.
D
4
AGTA-AAL
65
Appendix I to Aircraft General Terms Agreement No. AGTA-AAL
SAMPLE INSURANCE CERTIFICATE (CUSTOMER)
================================================================================
BROKER'S LETTERHEAD
================================================================================
[date]
Certificate of Insurance Ref. No.
----------------
THIS IS TO CERTIFY TO:
The Boeing Company
Post Office Box 3707
Mail Stop 13-57
Seattle, Washington 98124
Attn: Manager - Aviation Insurance for
Vice President - Employee Benefits,
Insurance and Taxes
CC: Boeing Commercial Airplane Group
P.O. Box 3707
Mail Stop 75-38
Seattle, Washington 98124-2207
Attn: Vice President - Contracts
that Insurers, EACH FOR HIS OWN PART AND NOT ONE FOR THE OTHER, are providing
the following insurance:
NAMED INSURED: AMERICAN AIRLINES, INC.
ADDRESS OF INSURED: P.O. BOX 619616
DALLAS/FT. WORTH AIRPORT, TX 75261-9616
PERIOD OF INSURANCE: SEE ATTACHED SCHEDULE OF INSURERS
GEOGRAPHICAL LIMITS: WORLDWIDE
EQUIPMENT INSURED: ALL BOEING [MODEL] [TYPE] AIRCRAFT OWNED OR OPERATED BY
AMERICAN THAT ARE THE SUBJECT OF THAT CERTAIN PURCHASE
AGREEMENT NO._______ DATED _______, 1997 BETWEEN
AMERICAN AND BOEING, AS MORE PARTICULARLY DESCRIBED ON
THE ATTACHED SCHEDULE OF AIRCRAFT, AS SUCH SCHEDULE MAY
BE AMENDED FROM TIME TO TIME.
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Appendix I to Aircraft General Terms Agreement No. AGTA-AAL
DESCRIPTION OF COVERAGES
A. AIRCRAFT HULL INSURANCE All risks of ground and flight physical damage
coverage in respect of all aircraft owned by,
leased to or operated by the Named Insured,
including the Aircraft and any engines
(including the Engines) and any parts
(including the Parts) while attached to any
such Aircraft or removed therefrom but not
replaced, subject to policy terms, conditions,
limitations, exclusions and deductibles.
AMOUNT OF INSURANCE: Agreed Value (as per Policy terms and
conditions).
B. AIRCRAFT LIABILITY INSURANCE [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
LIMIT OF LIABILITY: [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
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Appendix I to Aircraft General Terms Agreement No. AGTA-AAL
SPECIAL PROVISIONS APPLICABLE TO THE ADDRESSEE(S)
Subject to the policy terms, conditions, limitations, exclusions and deductibles
and solely with respect to Purchase Agreement No._____ dated as of _____, 1997
(the "Purchase Agreement") between American and The Boeing Company ("Boeing"),
the policies set forth in the attached Schedule of Insurers are amended to
include the following:
1. Solely with respect to Aircraft Liability Insurance, Boeing is included
as an additional Insured, but only to the extent that American is
obligated by its agreements to indemnify and hold harmless Boeing under
Section 8.2.1 of the Aircraft General Terms Agreement, AGTA-AAL,
applicable to the Purchase Agreement and then only to the extent of
coverage provided by the policy;
2. Solely with respect to Aircraft Hull Insurance, each Insurer agrees to
waive any rights of subrogation against Boeing to the extent that
American has waived such rights by the terms of its agreements to
indemnify Boeing pursuant to the Purchase Agreement;
3. Solely with respect to Aircraft Liability Insurance, to the extent
Boeing is insured hereunder, such insurance shall not be invalidated or
minimized by any action or inaction, omission or misrepresentation by
the Insured regardless of any breach or violation of any warranty,
declaration or condition contained in such policies;
4. Solely with respect to Aircraft Liability Insurance, to provide that
all provisions of the insurance coverages referenced above, except the
limits of liability, will operate to give each Insured or additional
insured the same protection as if there were a separate Policy issue to
each;
5. Solely with respect to Aircraft Liability Insurance, such insurance
will be primary and not contributory nor excess with respect to any
other insurance available for the protection of Boeing, but only to the
extent that American is obligated by its agreements to indemnify and
hold harmless Boeing under Section 8.2.1 of the Aircraft General Terms
Agreement, AGTA-AAL, applicable to the Purchase Agreement and then only
to the extent of coverage provided by the policy;
6. Each of the Aircraft Liability Insurance policy and Aircraft Hull
Insurance policy provides that: Boeing shall not have any obligation or
liability for premiums, commissions, calls or assessments in connection
with such insurance;
7. With respect to the Aircraft Liability Insurance, if a policy is
canceled for any reason whatsoever, any substantial change is made
which would reduce the amount of coverage as certified herein, or if a
policy is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to Boeing for
thirty (30) days after receipt by Boeing of written notice from the
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Appendix I to Aircraft General Terms Agreement No. AGTA-AAL
Insurers or their authorized representatives or Broker of such
cancellation, change or lapse; and
8. For the purposes of the Certificate, "Boeing" is defined as The Boeing
Company, its divisions, any wholly-owned subsidiary of The Boeing
Company which is assigned any rights or obligations in accordance with
Article 9.1 of the AGTA, the assignees of each permitted under the
applicable Purchase Agreement, provided that such assignees or
subsidiaries have performed services under Exhibit B to the AGTA and
Supplemental Exhibit CS1 to the Purchase Agreement, and their
respective directors, officers and employees."
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Appendix I to Aircraft General Terms Agreement No. AGTA-AAL
AMR CORPORATION, AMERICAN AIRLINES, INC.,
AND ALL THEIR SUBSIDIARIES
SCHEDULE OF SUBSCRIBING INSURERS
POLICY TERM: DECEMBER 1, 1996 TO DECEMBER 1, 1997
COVERAGES:
Aircraft Hull and Liability Insurance
POLICY
SUBSCRIBING INSURERS FOR 100% PARTICIPATION NUMBER
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
SEVERAL LIABILITY NOTICE
The subscribing insurers' obligations under contracts of insurance to which
they subscribe are several and not joint and are limited solely to the extent of
their individual subscriptions. The subscribing insurers are not responsible for
the subscription of any co-subscribing insurer who for any reason does not
satisfy all or part of its obligation.
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Appendix I to Aircraft General Terms Agreement No. AGTA-AAL
Subject to the terms, conditions, limitations and exclusions of the relative
policies except for the specific declarations contained in this certificate.
(signature)
(typed name)
(title)
6
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Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
PURCHASE AGREEMENT ASSIGNMENT
This PURCHASE AGREEMENT ASSIGNMENT (this "Assignment"), dated
as of [__________, ____], is between AMERICAN AIRLINES, INC., a Delaware
corporation (together with its successors and permitted assigns, the
"Assignor"), and [____________], a [__________] corporation (the "Assignee").
W I T N E S S E T H :
WHEREAS, the Assignor and the Manufacturer (as hereinafter
defined) are parties to the Purchase Agreement (as hereinafter defined),
providing, among other things, for the manufacture and sale by the Manufacturer
to the Assignor of certain aircraft, engines and related equipment, including
the Aircraft (as hereinafter defined) covered by the Participation Agreement (as
hereinafter defined); and
WHEREAS, the Assignee wishes to acquire title to the Aircraft
from the Assignor, and the Assignor, on the terms and conditions hereinafter set
forth, is willing to assign to the Assignee certain of the Assignor's rights in
and interests under the Purchase Agreement, and the Assignee is willing to
accept such assignment as hereinafter set forth; and
WHEREAS, such acquisition and assignment are intended to
permit consummation of the transactions contemplated by the Participation
Agreement; and
WHEREAS, the Manufacturer is willing to execute and deliver to
the Assignee a Consent and Agreement (the "Consent and Agreement") to the
provisions hereof in substantially the form of Annex A hereto;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. For all purposes of this Assignment, except as otherwise expressly provided
or unless the context otherwise requires, the following terms shall have the
following meanings:
"Aircraft" shall mean the Boeing [model] [type] aircraft,
bearing United States registration number [N ], delivered or to be
delivered under the Purchase Agreement, including the aircraft engines
installed on such aircraft on the date of delivery thereof pursuant to
the Purchase Agreement.
"Lease" shall mean the Lease Agreement, dated as of
[__________, ____], between the Assignor, as lessee, and the Assignee,
as lessor, as the same may be amended, modified or supplemented in
accordance with the terms of the Operative Documents.
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Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
"Manufacturer" shall mean The Boeing Company, a Delaware
corporation, and its successors and assigns.
"Participation Agreement" shall mean the Participation
Agreement, dated as of [________, ____], between the Security Trustee,
the Lenders, the Assignor and the Assignee, as the same may be amended,
modified or supplemented from time to time in accordance with the terms
of the Operative Documents.
"Purchase Agreement" shall mean Purchase Agreement No.
[_____], dated as of [__________,_____], between the Manufacturer and
the Assignor (as heretofore amended, modified and supplemented),
providing, among other things, for the manufacture and sale by the
Manufacturer to the Assignor of Boeing Model [model] [type] aircraft,
as the same may hereafter be amended, modified or supplemented to the
extent permitted by the terms of this Assignment and the Mortgage, and
including, without limitation, as part thereof, the exhibits thereto.
All other terms used herein in capitalized form without definition shall, when
used herein, have the meanings specified in Appendix A to the Lease.
2. The Assignor has assigned, transferred and set over and does hereby assign,
transfer and set over unto the Assignee all the Assignor's rights in and
interests under the Purchase Agreement as and to the extent that the same relate
to the Aircraft and the purchase and operation thereof and in and to the
Manufacturer's Warranty Bill of Sale, except to the extent reserved below,
including, without limitation, in such assignment (a) all claims for damages in
respect of the Aircraft arising as a result of any default by the Manufacturer
under the Purchase Agreement or under its warranty included in the
Manufacturer's Warranty Bill of Sale, and (b) any and all rights of the Assignor
to compel performance of the terms of the Purchase Agreement in respect of the
Aircraft; reserving to the Assignor, however, (i) the right to purchase and take
title to the Aircraft pursuant to the Purchase Agreement, (ii) all the
Assignor's rights and interests in and to the Purchase Agreement as and to the
extent that the Purchase Agreement relates to aircraft other than the Aircraft
and the purchase and operation of such aircraft and to the extent that it
relates to any other matters not directly pertaining to the Aircraft, (iii) all
the Assignor's rights and interests in or arising out of any payments made or to
be made by the Assignor in respect of the Aircraft under the Purchase Agreement
or amounts credited or to be credited by the Manufacturer to the Assignor in
respect of the Aircraft or otherwise, (iv) the right to demand, accept and
retain all rights in and to all property (other than the Aircraft), data,
documents, software, training, services, tools, and other things that the
Manufacturer is obligated to provide or does provide pursuant to the Purchase
Agreement, (v) all rights in respect of parts covered by the [Spare Parts
General Terms Agreement No. __] between the Manufacturer and the Assignor (as
heretofore or from time to time hereafter amended, modified or supplemented)
relating to the Purchase Agreement, (vi) the right to maintain representatives
at the Manufacturer's assembly plant or delivery center pursuant to the Purchase
Agreement, and (vii) the additional rights set forth in any Letter Agreements or
Purchase Agreement Supplements (as such terms are used in the Purchase
Agreement), as at any time amended, modified or supplemented, to
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Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
the Purchase Agreement. The Assignee hereby accepts the foregoing assignment
subject to the terms hereof.
Notwithstanding the foregoing, with respect to the Aircraft,
if and so long as the Assignee shall not have declared the Lease to be in
default or the Lease shall not have been deemed to have been declared in default
pursuant to Section [ ] thereof, and after such declaration or deemed
declaration, as the case may be, if and so long as all Events of Default shall
have been remedied by the Assignor, the Assignee authorizes the Assignor, to the
exclusion of the Assignee, to exercise in the Assignor's name all rights and
powers of the "Customer" under the Purchase Agreement and to retain any recovery
or benefit resulting from the enforcement of any warranty or indemnity, or
resulting from any refund, damages or other claims under the Purchase Agreement
in respect of the Aircraft, except that the Assignor may not enter into any
change order or other amendment, modification or supplement to the Purchase
Agreement without the written consent or countersignature of the Assignee if
such change order, amendment, modification or supplement would result in any
rescission, cancellation or termination of the Purchase Agreement in respect of
the Aircraft. Any payments or amounts that, pursuant to the preceding sentence,
would have been required to be paid to the Assignor by the Manufacturer but for
the existence of an Event of Default (and that have been paid to the Assignee by
the Manufacturer) shall be held by the Assignee pursuant to Section [ ] of the
Lease or applied as otherwise provided in the Lease and shall be paid over to
the Assignor at the earlier of (a) such time as there shall not be existing any
Event of Default, and to the extent not used to cure any existing Event of
Default, and (b) [______] days after the Assignee's receipt of such payment,
during which period the Assignee shall not have been limited by operation of law
or otherwise from exercising remedies under the Lease and shall not have
commenced to exercise any remedy available to it under Section [ ] of the Lease.
Each of the Assignor and the Assignee agrees with the other
and expressly for the benefit of the Manufacturer that, for all purposes of this
Assignment, the Manufacturer shall not be deemed to have knowledge of, and need
not recognize, any Event of Default unless and until the Manufacturer shall have
received from the Assignee written notice thereof addressed to the
Manufacturer's Vice President, Contracts, at P.O. Box 3707, MS 75-38, Seattle,
Washington 98124, telex: 32-9430, answerback: BOEINGREN RNTN, and, in acting in
accordance with the terms of the Purchase Agreement and this Assignment, the
Manufacturer may act with acquittance and conclusively rely upon any such
notice.
3. Each of the Assignor and the Assignee agrees with the other and expressly for
the benefit of the Manufacturer that, anything herein contained to the contrary
notwithstanding: (a) the Assignor shall at all times remain liable to the
Manufacturer under the Purchase Agreement to perform all the duties and
obligations of the "Customer" thereunder to the same extent as if this
Assignment had not been executed; and (b) the exercise by the Assignee of any of
the rights assigned hereunder shall not release the Assignor from any of its
duties or obligations to the Manufacturer under the Purchase Agreement except to
the extent that such exercise by the Assignee
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Appendix II to Aircraft General Terms
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shall constitute performance of such duties and obligations. It is expressly
agreed that, except as provided in the next succeeding paragraph, none of the
Assignee, the Security Trustee or any Lender shall have any obligation or
liability under the Purchase Agreement by reason of, or arising out of, this
Assignment or be obligated to perform any of the obligations or duties of the
Assignor under the Purchase Agreement or to make any payment or to make any
inquiry as to the sufficiency of any payment received by any of them or to
present or file any claim or to take any other action to collect or enforce any
claim for any payment assigned hereunder.
Without in any way releasing the Assignor from any of its
duties or obligations under the Purchase Agreement, the Assignee expressly
confirms for the benefit of the Manufacturer that, insofar as the provisions of
the Purchase Agreement relate to the Aircraft, in exercising any rights under
the Purchase Agreement, or in making any claim with respect to the Aircraft or
any other things delivered or to be delivered pursuant to the Purchase
Agreement, the terms and conditions of the Purchase Agreement, including,
without limitation, the disclaimer and release and exclusion of liabilities
provisions in the Product Assurance Document and the insurance and indemnity
provisions in Section 8.2 of the AGTA (as such term is used in the Purchase
Agreement), shall apply to, and be binding upon, the Assignee to the same extent
as the Assignor; provided, however, that nothing contained in this Assignment
shall in any way diminish or limit the provisions of the Assignor's indemnities
in Section [ ] of the Participation Agreement with respect to any liability of
the Assignee or the Security Trustee to the Manufacturer in any way relating to
or arising out of the Purchase Agreement. Assignee further agrees, expressly for
the benefit of the Manufacturer, that at any time and from time to time upon the
written request of the Manufacturer, the Assignee shall promptly and duly
execute and deliver any and all such further assurances, instruments and
documents and take all such further action as the Manufacturer may reasonably
request in order to obtain the full benefits of the Assignee's agreements set
forth in this paragraph.
Nothing contained herein shall subject the Manufacturer to any
liability to which it would not otherwise be subject under the Purchase
Agreement or modify in any respect the contract rights of the Manufacturer
thereunder (except as provided in the attached Consent and Agreement).
The Assignor does hereby constitute, effective at any time
after the Assignee has declared the Lease to be in default or after the Lease
shall have been deemed to have been declared in default pursuant to Section [ ]
thereof, and thereafter so long as any Event of Default shall be continuing, the
Assignee and its successors and permitted assigns as the Assignor's true and
lawful attorney, irrevocably, with full power (in the name of the Assignor or
otherwise) to ask for, require, demand, receive, compound and give acquittance
for any and all monies and claims for monies due and to become due under, or
arising out of, the Purchase Agreement in respect of the Aircraft, to the extent
that the same have been assigned as provided in this Assignment and, for such
period as the Assignee may exercise rights with respect thereto under this
Assignment, to endorse any checks or other instruments or orders in connection
therewith and to file any
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Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
claims or take any actions or institute (or, if previously commenced, assume
control of) any proceedings and to obtain any recovery in connection therewith
which the Assignee may deem to be necessary or advisable in the premises.
4. The Assignor and the Assignee each agree that at any time and from time to
time, upon the written request of the other, it will promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as the other may reasonably request in order to obtain the full
benefits of this Assignment and of the rights and powers herein granted.
5. The Assignor does hereby represent and warrant that the Purchase Agreement,
insofar as it relates to the Aircraft, is in full force and effect and is a
legal, valid and binding obligation of the Assignor enforceable against the
Assignor in accordance with its terms and that the Assignor is not in default
thereunder. The Assignor does hereby further represent and warrant that the
Assignor has not assigned or pledged, and hereby covenants that it will not
assign or pledge so long as this Assignment shall remain in effect, the whole or
any part of the rights hereby assigned or any of its rights with respect to the
Aircraft under the Purchase Agreement not assigned hereby, to anyone other than
the Assignee.
6. The Assignee agrees that it will not enter into any agreement that would
amend, modify, supplement, rescind, cancel or terminate the Purchase Agreement
in any respect without the prior written consent of the Assignor.
7. This Assignment is executed by the Assignor and the Assignee concurrently
with the execution and delivery of the Participation Agreement and the Lease.
8. The Assignee agrees that it will not disclose to any third party the terms of
the Purchase Agreement or this Assignment, except (i) to the other parties to
the Participation Agreement or their successors and permitted assigns, (ii) to
[parent corporation of Assignee], (iii) as required by applicable law,
governmental regulation or judicial process, provided Assignee furnishes the
Manufacturer with prompt written notice and affords the Manufacturer reasonable
opportunity to obtain a protective order or other reasonably satisfactory
assurance that confidential treatment will be accorded the information required
to be disclosed, (iv) with the consent of the Assignor and the Manufacturer, (v)
to counsel to any of the parties to the Participation Agreement or any other
Lender or [parent corporation of Assignee], (vi) to bank examiners and auditors
of any of the parties to the Participation Agreement or their successors and
permitted assigns, (vii) in connection with any sale of any interest in the
Aircraft effectuated pursuant to the exercise of remedies under Section [ ] of
the Lease or (viii) to any Person with whom any Lender or any [investor in
Assignee] is in good faith conducting negotiations relating to the possible
transfer and sale of its interest in the transactions contemplated by the
Operative Documents, if such Person shall have entered into an agreement similar
to that contained in this Section 8 whereby such Person agrees for the express
benefit of the Assignor and the Manufacturer to hold such information
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Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
confidential. Any disclosure as contemplated by clauses (i), (ii), (v), (vi) and
(vii) of the preceding sentence shall be subject to the requirement that the
entity to which such information is disclosed shall be subject to obligations of
nondisclosure with respect to such information substantially the same as
contained herein.
9. Pursuant to the Mortgage, the Assignee has assigned to and pledged with the
Security Trustee all the rights and interest of the Assignee in and under the
Purchase Agreement to the extent assigned by this Assignment.
10. This Assignment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
11. THIS ASSIGNMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
12. This Assignment shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
13. All notices with respect to the matters contained herein shall be delivered
in the manner and to the addresses provided in Section [____] of the
Participation Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Purchase Agreement Assignment to be duly executed as of the day and year first
above written.
AMERICAN AIRLINES, INC.
By
---------------------------------
Name:
Title:
[name of ASSIGNOR]
By
---------------------------------
Name:
Title:
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Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
The undersigned, as Security Trustee for the benefit of the
Lenders and as assignee of, and holder of a security interest in, the rights and
interest of the Assignee in and under the Purchase Agreement and the foregoing
Purchase Agreement Assignment, agrees that its rights and remedies thereunder
shall be governed by the foregoing Purchase Agreement Assignment, including,
without limitation, the second paragraph of Section 3 of the Purchase Agreement
Assignment.
[name of Security Trustee], not in its
individual capacity, except as expressly
provided herein, but solely as Security
Trustee
By
---------------------------------------
Name:
Title:
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Annex A to Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
CONSENT AND AGREEMENT
N[ ]; MSN [ ]
The undersigned, The Boeing Company, a Delaware corporation,
hereby acknowledges notice of and consents to the terms of the foregoing
Purchase Agreement Assignment (herein called the "Assignment", the defined terms
therein being used hereinafter with the same meaning), and hereby confirms to
the Assignee that:
(i). all representations, warranties, indemnities, and agreements of
the Manufacturer under the Purchase Agreement with respect to the
Aircraft and the warranty of the Manufacturer included in the
Manufacturer's Warranty Bill of Sale shall, subject to the terms and
conditions thereof, inure to the benefit of the Assignee to the same
extent as if originally named the "Customer" therein, except as
provided in Section 2 of the Assignment;
(ii). neither the Assignee, the Security Trustee nor any Lender shall
be liable for any of the obligations or duties of the Assignor under
the Purchase Agreement, nor shall the Assignment give rise to any
duties or obligations whatsoever on the part of the Assignee, the
Security Trustee or any Lender owing to the Manufacturer, except for
the agreements of the Assignee and the Security Trustee in the
Assignment to the effect that, in exercising any rights under the
Purchase Agreement or making any claim with respect to the Aircraft or
any other things delivered or to be delivered pursuant to the Purchase
Agreement, the terms and conditions of the Purchase Agreement,
including, without limitation, the disclaimer and release and exclusion
of liabilities provisions in the Product Assurance Document and the
insurance and indemnity provisions in Section 8.2 of the AGTA (as such
term is used in the Purchase Agreement), shall apply to, and be binding
upon, the Assignee and the Security Trustee to the same extent as the
Assignor;
(iii). the Manufacturer consents to: [(w) the execution by the Assignor
and the Assignee of the Participation Agreement, and the sale of the
Aircraft by the Assignor to the Assignee under the Participation
Agreement; (x) the execution by the Assignor and the Assignee of the
Lease, and the lease of the Aircraft by the Assignee to the Assignor
under the Lease;] (y) the mortgage of all of the Assignee's right,
title and interest in and to the Purchase Agreement and the Aircraft by
the Assignee pursuant to the Mortgage to the Security Trustee for the
benefit of the Lenders; and (z) the assignment by the Assignee of its
rights under the Assignment to the Security Trustee pursuant to the
Mortgage, and agrees that each of the Assignment and the Mortgage
constitutes an agreement by the Assignee as required by Section 9.2 of
the AGTA; and
(iv). the Manufacturer will continue to pay to the Assignor all
payments that the Manufacturer may be required to make in respect of
the Aircraft under the
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Annex A to Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
Purchase Agreement, unless and until the Manufacturer shall have
received from the Assignee written notice addressed to the
Manufacturer's Vice President, Contracts at P.O. Box 3707, MS 75-38,
Seattle, Washington 98124, telex: 32-9430, answerback: BOEINGREN RNTN,
that the Lease has been declared to be in default or deemed to have
been declared in default pursuant to Section [____] thereof and that
such default is continuing, whereupon the Manufacturer will make any
and all payments that it may be required thereafter to make under the
Purchase Agreement in respect of the Aircraft (to the extent that the
right to receive such payments has been assigned under the Assignment
or the Mortgage), directly to the Security Trustee at its address at
[address of Security Trustee] or, after receiving written notice from
the Security Trustee that the Lien of the Mortgage has been released,
to the Assignee at such address as the Assignee may specify, unless and
until the Manufacturer shall have received from the Assignee notice
addressed as aforesaid, that no Event of Default is continuing,
whereupon the Manufacturer will make all such payments that the
Manufacturer may be required to make thereafter in respect of the
Aircraft under the Purchase Agreement to the Assignor.
The Manufacturer hereby represents and warrants that: (A) the
Manufacturer is a corporation duly organized and existing in good standing under
the laws of the State of Delaware; (B) the making and performance of the
Purchase Agreement and this Consent and Agreement have been duly authorized by
all necessary corporate action on the part of the Manufacturer, do not require
any stockholder approval and do not contravene the Manufacturer's certificate of
incorporation or by-laws or any indenture, credit agreement or other contractual
agreement to which the Manufacturer is a party or by which it is bound; (C) the
making and performance of this Consent and Agreement do not contravene any law
binding on the Manufacturer; and (D) the Purchase Agreement constituted as of
the date thereof and at all times thereafter to and including the date of this
Consent and Agreement, and constitutes as of the date hereof, a binding
obligation of the Manufacturer enforceable against the Manufacturer in
accordance with its terms, and this Consent and Agreement is a binding
obligation of the Manufacturer enforceable against the Manufacturer in
accordance with its terms, in each case subject to (i) the limitation of
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the rights of creditors generally, and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). It is understood that the execution by the Manufacturer of
this Consent and Agreement is subject to the condition that, concurrently with
the delivery of the Aircraft to the Assignee, the Assignee shall lease the
Aircraft to the Assignor under the Lease.
2
80
Annex A to Appendix II to Aircraft General Terms
Agreement No. AGTA-AAL
The Consent and Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of Washington, including
all matters of construction, validity and performance.
Dated as of _____________, ______.
THE BOEING COMPANY
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Manufacturer's Serial Number:
----------
3
81
Appendix III to Aircraft General Terms
Agreement No. AGTA-AAL
MANUFACTURER'S CONSENT AND AGREEMENT TO
ASSIGNMENT OF WARRANTIES
Reference is made to (i) Purchase Agreement No. [______], dated as of
[_________], 1997 (as amended, modified and supplemented, the "Purchase
Agreement") between THE BOEING COMPANY, a Delaware corporation (the
"Manufacturer"), and AMERICAN AIRLINES, INC., a Delaware corporation
("American"), and (ii) the Boeing [model] [type] aircraft bearing Manufacturer's
serial number [_____] and U.S. Registration No. N[_____] (the "Aircraft"). The
Manufacturer hereby acknowledges notice of and consents to the assignment (the
"Warranty Assignment") by American to [_________________________], as Security
Trustee (the "Security Trustee") under that certain Aircraft Security Agreement
dated as of [________, ____] (the "Security Agreement"; capitalized terms used
herein without definition have the meanings specified therefor in the Security
Agreement), between American and the Security Trustee, of all right, title and
interest of American in, to and under (i) Parts 1, 2, 3, 4 and 6 of Exhibit C to
the Purchase Agreement, but only to the extent that the same relate to
continuing rights of American in respect of any warranty or indemnity, express
or implied, as to title, materials, workmanship or design with respect to the
Airframe or the Engines (the "Warranty Rights") and (ii) the Warranty Bill of
Sale. The Manufacturer hereby confirms that:
(i) all obligations of the Manufacturer contained in the
Warranty Rights, the FAA Bill of Sale and the Warranty Bill of Sale,
together with all rights, powers, privileges, options and other
benefits of American under the same with respect to such warranties or
indemnities, shall, subject to the terms and conditions thereof, inure
to the benefit of the Security Trustee under the Security Agreement to
the extent provided therein to the same extent as if the Security
Trustee had originally been named the "Customer" in the Purchase
Agreement; and
(ii) except as otherwise provided herein, neither the Security
Trustee nor any Lender shall be liable, by virtue of the Warranty
Assignment, for any of the obligations or duties of the Customer under
the Purchase Agreement, nor shall the Warranty Assignment give rise to
any duties or obligations whatsoever on the part of the Security
Trustee or any Lender owing to the Manufacturer or to make any payment
or to make any inquiry as to the sufficiency of any payment received by
any of them or to present or file any claim or to take any other action
to collect or enforce any claim for any payment assigned hereunder.
Anything contained herein, in the Security Agreement or in any
other document to the contrary notwithstanding, the Manufacturer's consent and
agreements hereunder are expressly conditioned on the following: (i) American
shall at all times
1
82
Appendix III to Aircraft General Terms
Agreement No. AGTA-AAL
remain liable to the Manufacturer under the Purchase Agreement to perform all
the duties and obligations of the "Customer" thereunder to the same extent as if
this Manufacturer's Consent had not been executed; (ii) until the receipt from
the Security Trustee of written notice addressed to the Manufacturer's Vice
President - Contracts, at P.O. Box 3707, MS 75-38, Seattle, Washington 98124
(Telex: 32-9430, Answer back: BOEINGREN RNTN), that an Event of Default (as
defined in the Security Agreement) has been declared and is continuing, the
Manufacturer shall perform its duties and obligations under Parts 1, 2, 3, 4 and
6 of Exhibit C to the Purchase Agreement with respect to the Aircraft
exclusively at the direction of American, and after the receipt of such notice,
the Manufacturer shall make any and all payments which it may be required
thereafter to make under the Purchase Agreement in respect of the Aircraft (to
the extent that the right to receive such payments has been assigned under the
Security Agreement), directly to the Security Trustee at its address at [address
of Security Trustee], Attention: Corporate Trust Department, unless and until
the Manufacturer shall have received from the Security Trustee notice addressed
as aforesaid, that no Event of Default is continuing, whereupon the Manufacturer
will make all such payments which the Manufacturer may be required to make
thereafter in respect of the Aircraft under the Purchase Agreement to American;
(iii) the exercise by the Security Trustee of any of the rights assigned
hereunder shall not release American from any of its duties or obligations to
the Manufacturer under the Purchase Agreement except to the extent that such
exercise by the Security Trustee shall constitute performance of such duties and
obligations; and (iv) without in any way releasing American from any of its
duties or obligations under the Purchase Agreement, it is understood that the
Security Trustee agrees for the benefit of the Manufacturer that, insofar as the
provisions of the Purchase Agreement relate to the Aircraft, in exercising any
rights under the Warranty Rights, or in making any claim with respect to the
Aircraft thereunder or any other things delivered or to be delivered pursuant
thereto, the terms and conditions of the Purchase Agreement, including, without
limitation, the disclaimer and release and exclusion of liabilities provisions
in the Product Assurance Document and the insurance and indemnity provisions in
Section 8.2 of the AGTA (as defined in the Purchase Agreement), shall apply to,
and be binding upon, the Security Trustee to the same extent as American.
Nothing contained herein or in the Security Agreement shall subject the
Manufacturer to any liability to which it would not otherwise be subject under
the Purchase Agreement or modify in any respect the contract rights of the
Manufacturer thereunder.
The Manufacturer hereby represents and warrants that (A) the
Manufacturer is a corporation duly organized and existing in good standing under
the laws of the State of Delaware and has the requisite power and authority to
enter into and perform its obligations under the Purchase Agreement and this
Manufacturer's Consent; (B) the making and performance of the Purchase Agreement
and this Manufacturer's Consent have been duly authorized by all necessary
corporate action on the part of the Manufacturer, do not require any stockholder
approval and do not contravene the Manufacturer's certificate of incorporation
or by-laws or any indenture, credit agreement or other contractual agreement to
which the Manufacturer is a party or by which it is bound; (C) the making and
performance of this Manufacturer's Consent do not contravene
2
83
Appendix III to Aircraft General Terms
Agreement No. AGTA-AAL
law binding on the Manufacturer; and (D) each of the Purchase Agreement and the
Warranty Bill of Sale as of the date thereof and at all times thereafter to and
including the date of this Manufacturer's Consent and this Manufacturer's
Consent constitutes a binding obligation of the Manufacturer enforceable against
the Manufacturer in accordance with its terms, subject, in each case, to (i) the
limitation of applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
Dated: __________, ____.
THE BOEING COMPANY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Accepted and Agreed:
AMERICAN AIRLINES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Name of Security Trustee],
as Security Trustee
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Manufacturer's Serial Number:
------------------
3
84
Appendix IV to Aircraft General Terms
Agreement No. AGTA-AAL
POST-DELIVERY SALE NOTICE
[Date]
The Boeing Company
P.O. Box 3707
Seattle, Washington 98124-2207
Attention: Vice President - Contracts
Mail Stop 75-38
Ladies and Gentlemen:
Reference is made to (i) Purchase Agreement No. [______],
dated as of [_________], 1997 (as amended, modified and supplemented, the
"Purchase Agreement") between The Boeing Company ("Boeing"), and American
Airlines, Inc. ("American"), and (ii) the Boeing [model] [type] aircraft bearing
manufacturer's serial number [_____] and U.S. Registration No. N[_____] (the
"Aircraft"). Capitalized terms used herein without definition have the meanings
specified therefor in the Purchase Agreement.
In connection with the transfer by American to
[_______________] ("Assignee") of certain rights and interests of American in
and under the Purchase Agreement relating to the Aircraft and the operation
thereof, and the assumption by Assignee of certain of the obligations of
American accruing thereunder, such transfer and assumption being effected
pursuant to the [assignment and assumption agreement], dated as of [ , ] (the
"Assignment"), between American and Assignee, an executed copy of which is
attached hereto, the following is hereby confirmed for your benefit:
(1) Assignee agrees for your benefit to perform all of its
obligations under the Assignment. Without limiting the generality of
the foregoing, Assignee further agrees that, insofar as the provisions
of the Purchase Agreement relate to the Aircraft, in exercising any
rights under the Purchase Agreement, or in making any claim with
respect to the Aircraft or other thing delivered or to be delivered
pursuant to the Purchase Agreement, the terms and conditions of the
Purchase Agreement, including, without limitation, the disclaimer and
release and exclusion of liabilities provisions in the Product
Assurance Document and the insurance and indemnity provisions in
Section 8.2 of the AGTA, shall apply to, and be binding upon, Assignee
to the same extent as American.
(2) American hereby confirms that such transfer shall not be
deemed to release American from any obligation under the Purchase
Agreement in respect of the Aircraft relating to the period prior to
the date hereof.
AGTA-AAL
85
Appendix IV to Aircraft General Terms
Agreement No. AGTA-AAL
(3) Each of American and the Assignee confirms that nothing
contained in the Assignment shall subject Boeing to any liability to
which it would not otherwise be subject under the Purchase Agreement or
modify in any respect the contract rights of Boeing thereunder.
Boeing by its acknowledgment hereinbelow acknowledges for the benefit
of American and Assignee that: (a) Boeing has received notice of and consents to
the Assignment; and (b) except as otherwise provided in the Assignment, all
representations, warranties, indemnities, and agreements of Boeing under the
Purchase Agreement with respect to the Aircraft shall, subject to the terms and
conditions thereof, inure to the benefit of Assignee to the same extent as if
Assignee had originally been named the "Customer" therein.
[ASSIGNEE]
By:
-----------------------------
Name:
----------------------
Title:
---------------------
AMERICAN AIRLINES, INC.
By:
-----------------------------
Name:
----------------------
Title:
---------------------
ACKNOWLEDGED:
THE BOEING COMPANY
By:
-----------------------------
Name:
----------------------
Title: Attorney-in-Fact
---------------------
Manufacturer's Serial No.
-------
AGTA-AAL
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Appendix V to Aircraft General Terms
Agreement No. AGTA-AAL
CONTRACTOR CONFIDENTIALITY AGREEMENT
This Agreement is entered into between ____________________
(Contractor) and American Airlines, Inc. (Customer) and will be effective as of
the date stated below.
In connection with Customer's provision to ________________________
(Contractor) of certain Materials, Proprietary Materials and Proprietary
Information, reference is made to Purchase Agreement No. ______ dated as of
_______ , ______ between The Boeing Company (Boeing) and Customer (Purchase
Agreement).
Capitalized terms used herein without definition will have the same meaning as
in the Purchase Agreement.
Boeing has agreed to permit Customer to make certain Materials,
Proprietary Materials and Proprietary Information relating to Customer's Boeing
/SELECT AS APPROPRIATE://[Model ________ aircraft] [Model ________ aircraft
bearing Manufacturer's Serial Number ______, Registration No. ________]/ (the
Aircraft) available to Contractor in connection with Customer's contract with
Contractor (the Contract) to /SELECT://[maintain/repair/modify the
Aircraft]/[develop and/or manufacture training devices for Customer's use in
connection with the Aircraft]/[develop and/or manufacture or redesign any spare
part when permitted under the provisions of the Spare Parts General Terms
Agreement between Boeing and Customer, and then only to the extent expressly
permitted therein]/[develop training programs solely for Customer's use in
accordance with the provisions of the Purchase Agreement]. As a condition of
receiving the Proprietary Materials and Proprietary Information, Contractor
agrees as follows:
1. For purposes of this Agreement:
"AIRCRAFT SOFTWARE" means software intended to fly with and be utilized
in the operation of an Aircraft.
"MATERIALS" are defined as any and all items that are created by
Boeing or a third party, which are provided directly or indirectly from Boeing
and serve primarily to contain, convey or embody information. Materials may
include either tangible embodiments (for example, documents or drawings), or
intangible embodiments (for example, software and other electronic forms) of
information but exclude Aircraft Software.
"PROPRIETARY INFORMATION" means any and all proprietary, confidential
and/or trade secret information owned by Boeing or a Third Party.
"PROPRIETARY MATERIALS" means Materials that contain, convey, or embody
Proprietary Information.
AGTA-AAL
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Appendix V to Aircraft General Terms
Agreement No. AGTA-AAL
"THIRD PARTY" means anyone other than Boeing, Customer and Contractor.
2. Boeing has authorized Customer to grant to Contractor a worldwide,
non-exclusive, personal and nontransferable license to use Proprietary Materials
and Proprietary Information internally in connection with performance of the
Contract or as may otherwise be authorized by Boeing in writing. Contractor will
keep confidential and protect from disclosure to any person, entity or
government agency, including any person or entity affiliated with Contractor,
other than Contractor's employees and agents on a need-to-know basis, all
Proprietary Materials and Proprietary Information. Individual copies of all
Materials are provided to Contractor subject to copyrights therein, and all such
copyrights are retained by Boeing or, in some cases, by Third Parties.
Contractor is authorized to make copies of Materials (except for Materials
bearing the copyright legend of a Third Party) provided, however, Contractor
preserves the restrictive legends and proprietary notices on all copies. All
copies of Proprietary Materials will belong to Boeing and be treated as
Proprietary Materials under this Agreement.
3. Contractor specifically agrees not to use Proprietary Materials or
Proprietary Information in connection with the manufacture or sale of any part
or design except as expressly permitted by this Agreement. Unless otherwise
agreed with Boeing in writing, Proprietary Materials and Proprietary Information
may be used by Contractor only for /SELECT AS APPROPRIATE://[work on the
Aircraft for which Boeing has designated such Proprietary Materials]/[the sole
purpose of developing and/or manufacturing training devices for Customer's use
in connection with the Aircraft]/ [the sole purpose of developing and/or
manufacturing or redesigning any spare part only for use on Customer's Aircraft,
only as permitted under the provisions of the Spare Parts General Terms
Agreement between Boeing and Customer, and then only to the extent expressly
permitted therein]/[developing training programs solely for Customer's use in
accordance with the provisions of the Purchase Agreement]. Contractor recognizes
and agrees that it is responsible for ascertaining and ensuring that all
Materials are appropriate for the use to which they are put.
4. Contractor will not attempt to gain access to information by reverse
engineering, decompiling, or disassembling any portion of any software provided
to Contractor pursuant to this Agreement.
5. Upon Boeing's request at any time, Contractor will promptly return to
Boeing (or, at Boeing's option, destroy) all Proprietary Materials, together
with all copies thereof and will certify to Boeing that all such Proprietary
Materials and copies have been so returned or destroyed.
6. To the extent required by a government regulatory agency having
jurisdiction over Contractor, Customer or the Aircraft, Contractor is authorized
to provide Proprietary Materials and disclose Proprietary Information to the
agency for the agency's use in connection with Contractor's authorized use of
such Proprietary Materials and/or Proprietary Information for /SELECT AS
APPROPRIATE://[maintenance, repair, or modification
AGTA-AAL
88
Appendix V to Aircraft General Terms
Agreement No. AGTA-AAL
of the Aircraft]/[development and/or manufacturing of training devices for
Customer's use in connection with the Aircraft]/ [development and/or manufacture
or redesign of any spare part when permitted under the provisions of the Spare
Parts General Terms Agreement between Boeing and Customer, and then only to the
extent expressly permitted therein]/[development of training programs solely for
Customer's use in accordance with the provisions of the Purchase Agreement]/.
Contractor agrees to take reasonable steps to prevent such agency from making
any distribution or disclosure, or additional use of the Proprietary Materials
and Proprietary Information so provided or disclosed. Contractor will advise the
agency in writing of the restrictions contained in this Agreement on the
disclosure and use of such Proprietary Materials and Proprietary Information,
and will cooperate with all reasonable requests of Boeing or Customer in
connection with any efforts by Boeing to obtain an appropriate protective order
or other assurances that the agency will comply with such restrictions.
Contractor further agrees to promptly notify Boeing upon learning of any (i)
distribution, disclosure, or additional use by such agency, (ii) request to such
agency for distribution, disclosure, or additional use, or (iii) intention on
the part of such agency to distribute, disclose, or make additional use of the
Proprietary Materials or Proprietary Information.
7. Boeing is a third-party beneficiary of this Agreement, and Boeing may
enforce any and all of the provisions of the Agreement directly against
Contractor. Contractor hereby submits to the jurisdiction of the Washington
state courts and the United States District Court for the Western District of
Washington with regard to any claims Boeing may make under this Agreement. It is
agreed that Washington law (excluding Washington's conflict-of-law principles)
governs this Agreement.
8. No disclosure or physical transfer by Boeing or Customer to Contractor,
of any Proprietary Materials or Proprietary Information covered by this
Agreement will be construed as granting a license, other than as expressly set
forth in this Agreement, or any ownership right in any patent, patent
application, copyright or proprietary information.
9. The provisions of this Agreement will apply notwithstanding any
markings or legends, or the absence thereof, on any Proprietary Materials.
10. This Agreement is the entire agreement of the parties regarding the
ownership and treatment of Proprietary Materials and Proprietary Information,
and no modification of this Agreement will be effective as against Boeing unless
in writing signed by authorized representatives of Contractor, Customer and
Boeing.
AGTA-AAL
89
Appendix V to Aircraft General Terms
Agreement No. AGTA-AAL
11. Failure by either party to enforce any of the provisions of this
Agreement will not be construed as a waiver of such provisions. If any of the
provision of this Agreement is held unlawful or otherwise ineffective by a court
of competent jurisdiction, the remainder of the Agreement will remain in full
force.
ACCEPTED AND AGREED TO this
Date: _____________________, ______
- ----------------------------------- AMERICAN AIRLINES, INC.
(CONTRACTOR)
- ----------------------------------- -----------------------------------
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
AGTA-AAL
90
Appendix V to Aircraft General Terms
Agreement No. AGTA-AAL
================================================================================
BILL OF SALE
================================================================================
KNOW ALL PERSONS BY THESE PRESENTS:
THAT________________ (SELLER), a ( location of incorporation)
corporation whose address is (address of corporation), is the owner of the full
legal and beneficial title to that certain BOEING MODEL ______________ AIRCRAFT
manufactured by The Boeing Company bearing FEDERAL AVIATION ADMINISTRATION
REGISTRATION IDENTIFICATION ____________ and MANUFACTURER'S SERIAL NUMBER
____________, together with the (quantity) (Engine Model) series engines
installed thereon, manufactured by (Engine Manufacturer), bearing MANUFACTURER'S
SERIAL NUMBERS (engine serial numbers), respectively, together with all
appliances, parts, instruments, appurtenances, accessories, furnishings, or
other equipment or property installed on or attached to said aircraft and
engines, other than equipment furnished by (Customer) as Buyer Furnished
Equipment (BFE).
THAT for and in consideration of the sum of $1.00 and other
valuable consideration SELLER does this ____ day of_________ ,______ , grant,
convey, transfer, bargain and sell, deliver and set over, at (location: City,
State), pursuant and subject to the terms and conditions of Purchase Agreement
No._______ , dated ______, all of SELLER'S right, title and interest in and to
the above described aircraft, engines, appliances, parts, instruments,
appurtenances, accessories, furnishings and/or other equipment or property
(other than BFE) unto (Customer's Legal Name) (BUYER), and unto its successors
and assigns forever.
THAT SELLER hereby warrants to BUYER, its successors and assigns,
that there is hereby conveyed to BUYER on the date hereof, good title to the
aforesaid aircraft, engines, appliances, parts, instruments, appurtenances,
accessories, furnishings and/or other equipment or property (other than BFE),
free and clear of all liens, encumbrances and rights of others, and that it will
warrant and defend such title forever against all claims and demands whatsoever.
THIS Bill of Sale is delivered by SELLER to BUYER in (in Place:
City, State), and governed by the law of the State of Washington.
IN WITNESS WHEREOF, SELLER has caused this instrument to be
executed by its duly authorized Attorney-In-Fact this ______ day of ______,
______.
(Seller's Name)
By
--------------------------
Title Attorney-In-Fact
-----------------------
AGTA-AAL
91
PURCHASE AGREEMENT NO. 1977
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
DATED AS OF OCTOBER __, 1997
RELATING TO BOEING MODEL 737-823 AIRCRAFT
92
TABLE OF CONTENTS
PAGE
ARTICLES NUMBER
-------- ------
1. Quantity, Model and Description 1
2. Delivery Schedule 1
3. Price 1
4. Payment 2
5. Miscellaneous 2
TABLE
1. Aircraft Delivery, Description, Price and Advance Payments
EXHIBITS
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
C. Defined Terms
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
SLP1. Service Life Policy Components
EE1. Engine Escalation, Engine Warranty and Patent Indemnity
P.A. No. 1977
i
93
LETTER AGREEMENTS
Letter Agreement No. 6-1162-AKP-070 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-071 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-072 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-073 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-074 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-075 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-076 Aircraft Performance Guarantees
Letter Agreement No. 6-1162-AKP-077 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-078 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
P.A. No.1977
ii
94
Letter Agreement No. 6-1162-AKP-079 Escalation Sharing
Letter Agreement No. 6-1162-AKP-080 Installation of Cabin Systems
Equipment
Letter Agreement No. 6-1162-AKP-081 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-082 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-083 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-084 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
Letter Agreement No. 6-1162-AKP-085 Component Reliability Commitments
Letter Agreement No. 6-1162-AKP-117 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
P.A. No. 1977
iii
95
Purchase Agreement No. 1977
between
The Boeing Company
and
American Airlines, Inc.
------------------------------
This Purchase Agreement No. 1977 dated as of October _____,
1997 between The Boeing Company and American Airlines, Inc. relating to the
purchase and sale of Model 737-823 Aircraft hereby expressly incorporates by
reference all of the terms and conditions of the AGTA.
Article 1. Quantity, Model and Description.
Boeing will manufacture and sell to Customer, and Customer
will purchase, the Aircraft conforming to the Detail Specification, all in
accordance with the terms of this Purchase Agreement. The quantity of Aircraft
is specified in the Table 1 attached hereto and made a part hereof for all
purposes.
Article 2. Delivery Schedule.
The Scheduled Delivery Months of the Aircraft are as listed in
the attached Table 1.
Article 3. Price.
3.1 Basic Price. The Aircraft Basic Price (in 1995
dollars and subject to escalation in accordance with the applicable provisions
of the Purchase Agreement) for each Aircraft is listed in Table 1.
3.2 Advance Payment Base Price. The Advance Payment Base
Price for each Aircraft is listed in Table 1.
3.3 Aircraft and Advance Payment Price Components. The
components of the Aircraft Basic Price and the calculation of the Advance
Payment Base Prices for the Aircraft are listed in Table 1.
P.A. No. 1977
1
96
Article 4. Payment.
4.1 Deposit. Boeing acknowledges receipt of a Deposit in
the amount of $75,000 for each Aircraft.
4.2 Advance Payments. Customer will make Advance
Payments to Boeing in the amount of 30% of the Advance Payment Base Price of
each Aircraft in accordance with the payment schedule set forth in the attached
Table 1, beginning with a payment of 1%, less the Deposit, on the date of full
execution of this Purchase Agreement. Additional Advance Payments for each
Aircraft are due on the first business day of the months and in the amounts
listed in the attached Table 1.
4.3 Advance Payments Due. For any Aircraft whose
Scheduled Delivery Month is less than 24 months from the date of this Purchase
Agreement, the total amount of Advance Payments due upon the date of full
execution of this Purchase Agreement will include all Advance Payments which
are or were due on or before that date in accordance with the Advance Payment
schedule set forth in the attached Table 1.
4.4 Payment of Balances. Customer will pay the balance
of the Aircraft Price of each Aircraft, less the total amount of Advance
Payments and Deposits received by Boeing for such Aircraft, at delivery in
accordance with the terms and conditions of the Purchase Agreement.
Article 5. Miscellaneous.
5.1 Aircraft Information Table. Table 1 contains and
consolidates information contained in Articles 1, 2 and 3 of this Purchase
Agreement with respect to (i) quantity of Aircraft, (ii) applicable Detail
Specification, (iii) Scheduled Delivery Months, (iv) Aircraft Basic Price, (v)
applicable escalation factors, (vi) Advance Payment Base Prices, and (vii)
Advance Payments and their schedules.
5.2 Aircraft Configuration. Exhibit A to this Purchase
Agreement contains the configuration information for the Aircraft including the
Detail Specification and Optional Features.
5.3 Aircraft Delivery Requirements and Responsibilities.
Exhibit B to this Purchase Agreement contains certain documentation and
approval responsibilities of Customer and Boeing.
5.4 Defined Terms. Exhibit C to this Purchase Agreement
contains certain defined terms used in the AGTA or elsewhere in this Purchase
Agreement. All capitalized terms used in this Purchase Agreement but not
otherwise defined shall have the meaning set forth in Exhibit C to this
Purchase Agreement or elsewhere in such Purchase Agreement.
P.A. No. 1977
2
97
5.5 BFE Variables. Supplemental Exhibit BFE1 to this
Purchase Agreement contains vendor selection dates, on-dock dates and other
variables applicable to the Aircraft pursuant to the BFE Provisions Document.
5.6 Customer Support Variables. Supplemental Exhibit CS1
to this Purchase Agreement contains the variable information applicable to
goods and services furnished by Boeing in support of the Aircraft pursuant to
the Customer Support Document.
5.7 SLP Components. Supplemental Exhibit SLP1 to this
Purchase Agreement lists the airframe, landing gear and other components
covered by the Service Life Policy for the Aircraft as defined in Part 3 of the
Product Assurance Document.
5.8 Engine Escalation Variables. Supplemental Exhibit
EE1 to this Purchase Agreement contains the applicable escalation formula,
warranty, and patent indemnity for the Engines.
5.9 Negotiated Agreement; Entire Agreement. This
Purchase Agreement including, without limitation, the provisions of Article 8
of the AGTA relating to indemnification and insurance, and Section 11 of Part 2
of the Product Assurance Document relating to DISCLAIMER AND RELEASE and
EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES has been the subject of discussion
and negotiation and is understood by the parties. The Aircraft Price and other
agreements of the parties stated in this Purchase Agreement were arrived at in
consideration of such provisions. This Purchase Agreement contains the entire
agreement between the parties and supersedes all previous proposals,
understandings, commitments or representations whatsoever, oral or written, and
may be changed only in writing signed by authorized representatives of the
parties.
* * * * * * * * * * * * * * * *
DATED AS OF THE DATE FIRST ABOVE WRITTEN
AMERICAN AIRLINES, INC. THE BOEING COMPANY
By By
-------------------------- ----------------------------
Its Its
-------------------------- ----------------------------
P.A. No. 1977
3
98
TABLE 1 TO
PURCHASE AGREEMENT NO. 1977
737-823 AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
P.A. No. 1977
Page 1
99
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit A to Purchase Agreement Number 1977
A-1
100
AIRCRAFT CONFIGURATION
Dated October __________, 1997
relating to
BOEING MODEL 737-823 AIRCRAFT
The configuration of the Aircraft is described in Detail Specification
D6-38808-69, dated of even date herewith. The Detail Specification consists of
Boeing Standard Detail Specification D6-38808, Revision F, dated March 8, 1996,
as amended to incorporate the applicable specification language which reflects
the changes to be included herein when identified, including the effects of
such changes on the Manufacturer's Empty Weight (MEW) and Operating Empty
Weight (OEW). The current revision of the above Detail Specification
D6-38808-69 may be further revised under future change orders to reflect the
effects of additional changes and features as may be selected by Customer
concurrent with, or subsequent to, execution of this Purchase Agreement.
A-1
101
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit B to Purchase Agreement Number 1977
P. A. No. 1977 B
102
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 737-823 AIRCRAFT
Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of Customer's
Aircraft that are critical to making the delivery of each Aircraft a positive
experience for both parties. This Exhibit B documents those responsibilities
and indicates recommended completion deadlines for the actions to be
accomplished.
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of
the Scheduled Delivery Month of each Aircraft with respect to obtaining certain
government issued documentation.
1.1 Registration Documents.
Not later than 6 months prior to delivery of each
Aircraft, Customer will notify Boeing of the registration number to be painted
on the side of the Aircraft. In addition, and not later than 3 months prior to
delivery of each Aircraft, Customer will, by letter to the regulatory authority
having jurisdiction, authorize the temporary use of such registration number by
Boeing during the pre-delivery testing of the Aircraft. Customer is
responsible for furnishing any temporary or permanent registration certificates
required by any Governmental Authority having jurisdiction to be displayed
aboard the Aircraft after delivery.
1.2 Certificate of Sanitary Construction.
Boeing will obtain from the United States Public Health
Service prior to delivery of each Aircraft a United States Certificate of
Sanitary Construction for the Aircraft being delivered. The certificate will
be delivered to Customer at delivery of each Aircraft, and Customer will
display such certificate (or a written statement of the location of the
original certificate) aboard each Aircraft after delivery to Customer.
P.A. No. 1977
B-1
103
2. INSURANCE CERTIFICATES.
Insurance certificate requirements are defined in Article 8 of the
AGTA.
3. FLYAWAY CONFIGURATION AND FERRY FLIGHT INFORMATION.
3.1 Flyaway Configuration Notice.
Not later than 14 days prior to delivery of the Aircraft,
Customer will provide to Boeing a configuration letter stating the requested
flyaway configuration of the Aircraft for its ferry flight. This configuration
letter should include:
(i) the name of the company which is to furnish
fuel for the ferry flight and any scheduled post-delivery flight training, the
method of payment for such fuel, and fuel load for the ferry flight;
(ii) the cargo to be loaded and where it is to
be stowed on board the Aircraft and address where cargo is to be shipped after
flyaway; and
(iii) any BFE equipment to be removed prior to
flyaway and returned to Boeing BFE stores for installation on Customer's
subsequent Aircraft.
The information contained in such configuration letter may
be changed from time to time by the mutual consent of Boeing and Customer.
3.2 Ferry Flight Information.
Customer will provide to Boeing at least 24 hours prior
to delivery of each Aircraft:
(i) a complete list of names and citizenship of
each crew member and non-revenue passenger who will be aboard the ferry flight;
and
(ii) a complete ferry flight itinerary.
4. DELIVERY ACTIONS BY BOEING.
4.1 Schedule of Inspections. Subsequent to the Boeing
production flight test, all FAA, Boeing, Customer and, if required, U.S.
Customs Bureau inspections will be scheduled by Boeing for completion prior to
delivery of the Aircraft. Customer will be informed of such schedules with as
much advance notice as practicable.
P.A. No. 1977
B-2
104
4.2 Schedule of Demonstration Flights. All FAA and
Customer demonstration flights will be scheduled by Boeing for completion prior
to delivery of the Aircraft. Boeing will provide to Customer at least 14 days
prior written notice of the date, time, and location of such flight. Boeing
will notify Customer in writing of any changes to such date, time, and
location.
4.3 Schedule for Customer's Flight Crew. Boeing will
inform Customer of the date that a flight crew is required for acceptance
routines associated with delivery of the Aircraft.
4.4 Fuel Provided by Boeing. Boeing will provide to
Customer, without charge, 1,000 U.S. gallons of fuel and full capacity of
engine oil at the time of delivery or prior to the ferry flight of the
Aircraft.
4.5 Flight Crew and Passenger Consumables. Boeing will
provide a sufficient supply of food, potable water, coat hangers, towels,
toilet tissue, garbage bags, drinking cups and soap for the first segment of
the ferry flight for the Aircraft.
4.6 Delivery Papers, Documents and Data. Boeing will have
available at the time of delivery of the Aircraft all delivery papers,
documents and data for execution and delivery. Boeing will pre-position in
Oklahoma City, Oklahoma, for filing with the FAA at the time of delivery of the
Aircraft an executed original Form 8050-2, Aircraft Bill of Sale, for the sale
to Customer and any additional executed forms of such bill of sale for any
transfers of title to the Aircraft from any of Boeing's sales subsidiary so
that following recordation of such bill(s) of sale, Customer will have good and
marketable title to the Aircraft.
4.7 Delegation of Authority. Boeing will present a
certified copy of a Resolution of Boeing's Board of Directors, designating and
authorizing certain persons to act on its behalf in connection with delivery of
the Aircraft including the person executing the transfer of title documents.
4.8 Standard Airworthiness Certificate. Boeing will
provide at delivery of each Aircraft the Standard Airworthiness Certificate in
accordance with Article 3 of the AGTA.
P.A. No. 1977
B-3
105
5. DELIVERY ACTIONS BY CUSTOMER.
5.1 Aircraft Radio Station License. At delivery Customer
will provide a copy of its Aircraft Radio Station License (or a written
statement of the location of the original license) to be placed on board the
Aircraft following delivery.
5.2 Aircraft Flight Log. At delivery Customer will provide
the Aircraft Flight Log for the Aircraft.
5.3 Delegation of Authority. Customer will present to
Boeing at delivery of the Aircraft an original or certified copy of Customer's
Delegation of Authority designating and authorizing certain persons to act on
its behalf in connection with delivery of the specified Aircraft.
P.A. No. 1977
B-4
106
PURCHASE AGREEMENT DEFINITIONS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit C to Purchase Agreement Number 1977
P.A. No. 1977
C
107
PURCHASE AGREEMENT DEFINITIONS
Dated October ______, 1997
relating to
BOEING MODEL 737-823 AIRCRAFT
I. Definitions.
The following terms, when used in capitalized form in this Purchase Agreement,
including the AGTA and any exhibits, schedules, attachments, supplements,
amendments and letter agreements to this Purchase Agreement, have the following
meanings:
"Advance Payments" means the payments made by Customer in advance
of delivery with respect of an Aircraft pursuant to Section 4.2 of the Purchase
Agreement.
"Advance Payment Base Price" has the meaning set forth in Section
2.1.6 of the AGTA.
"Affiliate", with respect to a specified Person, means any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For the purposes of this definition,
"control" when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGTA" has the meaning set forth in the recital of the Aircraft
General Terms Agreement of even date herewith between Boeing and Customer.
"Aircraft" means any or all, as the context requires, of the
Boeing Model 737-823 aircraft described in Table 1 to the Purchase Agreement,
together with the Engines and Parts that are incorporated or installed in or
attached to such aircraft.
"Aircraft Basic Price" has the meaning set forth in Section 2.1.4
of the AGTA.
"Aircraft Price" has the meaning set forth in Section 2.1.7 of the
AGTA.
"Aircraft Software" has the meaning set forth in Part 1 of the
Product Assurance Document.
P.A. No. 1977
C-1
108
"Airframe Escalation Adjustment Document" has the meaning set forth
in Section 2.1.5 of the AGTA.
"Airframe Price" has the meaning set forth in Section 2.1.1 of the
AGTA.
"ATA" has the meaning set forth in Section 1 to Part 3 of the
Customer Support Document.
"Authorized Agent" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Average Direct Hourly Labor Rate" has the meaning set forth in
Part 1 of the Product Assurance Document.
"BFE Provisions Document" means the Buyer Furnished Equipment
Provisions Document attached to the AGTA as Exhibit A.
"Boeing" has the meaning set forth in the recital of the AGTA.
"Boeing Product" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Buyer Furnished Equipment" or "BFE" has the meaning set forth in
Section 1.2 of the AGTA.
"Correct" or "Correction" has the meaning set forth in Part 1 of
the Product Assurance Document.
"Corrected Boeing Product" has the meaning set forth in Part 1 of
the Product Assurance Document.
"Customer" has the meaning set forth in the recital of the AGTA.
"Customer Support Document" means the Customer Support Document
attached to the AGTA as Exhibit B.
"Deposit" means the deposit made by Customer in respect of an
Aircraft pursuant to Section 4.1 of the Purchase Agreement.
"Detail Specification" means the Detail Specification identified in
Exhibit A to the Purchase Agreement, as the same is amended from time to time
by Boeing and Customer pursuant to Article 4 of the AGTA.
"Development Changes" has the meaning set forth in Section 4.2 of
the AGTA.
P.A. No. 1977
C-2
109
"Direct Labor" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Direct Materials" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Documents" has the meaning set forth in Section 1 of Part 3 to the
Customer Support Document.
"Engine" means each of the two engines installed on an Aircraft and
identified in Table 1 to the Purchase Agreement, together with any and all
Parts incorporated or installed in or attached to each such engine.
"Engine Price" has the meaning set forth in Section 2.1.3 of the
AGTA.
"Engine Supplier" means the manufacturer of the Engine.
"Escalation Adjustment" has the meaning set forth in Section 2.1.5
of the AGTA.
"Excusable Delay" has the meaning set forth in Section 7.1 of the
AGTA.
"FAA" means the Federal Aviation Administration of the United
States of America and any agency or instrumentality of the United States
government succeeding to its functions.
"Failed Component" has the meaning set forth in Section 1 of Part 3
to the Product Assurance Document.
"Failure" has the meaning set forth in Section 1 of Part 3 to the
Product Assurance Document.
"Federal Aviation Regulations" means the regulations promulgated by
the FAA from time to time and any official interpretations thereof.
"Field Services" has the meaning set forth in Section 1 of Part 2
to the Customer Support Document.
"Governmental Authority" means any federal, state, county, local or
foreign governmental entity or municipality or subdivision thereof or any
authority, arbitrator, department, commission, board, bureau, body, agency,
court or other agency or instrumentality thereof.
P.A. No. 1977
C-3
110
"Governmental Regulations" means: (1) the Type Certificate for the
Aircraft; (2) any other certification, license or approval issued or required
for the Aircraft by the FAA or any other Governmental Authority having
jurisdiction over Boeing or the Aircraft; (3) any other law, rule, order or
regulation of the United States Government or any agency or instrumentality
thereof, having jurisdiction over the Aircraft or Boeing; (4) all regulations
and official interpretations of the certification, license, or approval
requirements described in (1), (2) and (3) above; and (5) all airworthiness
directives issued by the FAA.
"Interface Problem" has the meaning set forth in Section 1 of Part
5 of the Product Assurance Document.
"Manufacturer Change" has the meaning set forth in Section 3.2.1 of
the AGTA.
"Operator Changes" has the meaning set forth in Section 3.3.1 of
the AGTA.
"Optional Features" means those Parts identified as optional
features in the Detail Specification.
"Optional Features Prices" has the meaning set forth in Section
2.1.2 of the AGTA.
"Parts" means any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, and other equipment or property of
whatever nature incorporated or installed in or attached to an Aircraft upon
delivery or otherwise (as applicable) pursuant to the Purchase Agreement.
"Performance Guarantees" has the meaning set forth in Section 5.4
of the AGTA.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Policy" has the meaning set forth in Section 1 of Part 3 of the
Product Assurance Document.
"Product Assurance Document" means the Product Assurance Document
attached to the AGTA as Exhibit C.
"Proprietary Information" has the meaning set forth in Section 1 of
Part 5 to the Customer Support Document.
P.A. No. 1977
C-4
111
"Proprietary Materials" has the meaning set forth in Section 1 of
Part 5 to the Customer Support Document.
"Purchase Agreement" means Purchase Agreement No. 1977, of even
date herewith, between Boeing and Customer for the purchase of the Aircraft,
including, without limitation, the AGTA and any exhibits, schedules,
attachments, supplements, amendments and letter agreements to such Purchase
Agreement.
"Scheduled Delivery Month" means, with respect to an Aircraft, the
scheduled month and year of delivery for such Aircraft as set forth in Section
2 of the Purchase Agreement.
"Seller Furnished Equipment" or "SFE" means those Parts
incorporated or installed in, or attached to, the Aircraft by Boeing and
designated as "seller furnished equipment."
"Seller Purchased Equipment" or "SPE" means those Parts
incorporated or installed in, or attached to, the Aircraft by Boeing and
designated as "seller purchased equipment."
"SLP Component" has the meaning set forth in Section 1 of Part 3 of
Product Assurance Document.
"Standard Airworthiness Certificate" means a standard airworthiness
certificate for transport category aircraft applicable to an Aircraft issued by
the FAA pursuant to Part 21 of the Federal Aviation Regulations (or any
successor regulations).
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
"Suppliers" has the meaning set forth in Section 1 of Part 4 of the
Product Assurance Document.
"Supplier Product" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Taxes" has the meaning set forth in Section 2.2 of the AGTA.
"Type Certificate" means a type certificate for transport category
aircraft issued by the FAA pursuant to Part 21 of the Federal Aviation
Regulations or any successor regulation.
"Warranty Inspections" has the meaning set forth in Part 1 of the
Product Assurance Document.
P.A. No. 1977
C-5
112
II. Interpretive Provisions.
When reference is made to an article, section, attachment, exhibit, schedule or
supplement of the "AGTA" or a "Purchase Agreement" without further reference to
a particular letter agreement, attachment, exhibit, schedule or supplement
thereto, such reference shall be deemed to be a reference to the main text of
the AGTA or such Purchase Agreement, respectively.
P.A. No. 1977
C-6
113
SUPPLEMENTAL EXHIBIT BFE1
TO
PURCHASE AGREEMENT NO. 1977
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
BUYER FURNISHED EQUIPMENT (BFE) VARIABLES
MODEL 737-823 AIRCRAFT
This Exhibit Supplement contains vendor selection dates, on-dock dates and
other variables applicable to the Aircraft.
1. Supplier Selection.
Customer will:
1.1 Select and notify Boeing of the suppliers of the following BFE
items by the following dates:
Galley System January 7, 1998
2. On-dock Dates.
On or before April 1, 1998, Boeing will provide to Customer a BFE Requirements
On-Dock/Inventory Document (BFE Document) or an electronically transmitted BFE
Report which may be periodically revised, setting forth the items, quantities,
on- dock dates and shipping instructions relating to the in sequence
installation of BFE. For planning purposes, a preliminary BFE on-dock schedule
for the first Aircraft is set forth below:
- --------------------------------------------------------------------------------------------------
Delivery Seats Galleys Electronics Furnishings
Month & Year
- --------------------------------------------------------------------------------------------------
January 1999 11-4-98 10-29-98 9-11-98 10-29-98
- --------------------------------------------------------------------------------------------------
P.A. No. 1977
BFE1-1
114
SUPPLEMENTAL EXHIBIT CS1
TO
PURCHASE AGREEMENT NO. 1977
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
737 CUSTOMER SUPPORT VARIABLES
The customized Customer Support Program will be based upon and equivalent to
the entitlements summarized below. Customer may create a customized program by
selecting from the courses, training materials, services and technical data
and documents set forth below in quantities of Customer's choosing and/or by
substituting in lieu thereof such additional or different services or materials
as the parties may mutually agree; provided, that the value of the services and
materials comprising the customized program shall not in the aggregate exceed
the value of those entitlements summarized below.
PART 1: MAINTENANCE AND FLIGHT TRAINING PROGRAMS; OPERATIONS ENGINEERING
SUPPORT
1. Maintenance Training.
1.1 General Familiarization Course.
This course provides general systems information for
Customer's upper management personnel; it does not address the maintenance of
the Aircraft and its systems in the detail required by maintenance personnel.
One class; up to 24 students.
P.A. No. 1977
CS1-1
115
1.2 Mechanical/Power Plant Systems Course.
This course provides mechanical instruction on the
maintenance of the Aircraft and its systems, including engine systems.
Electrical instruction, where necessary, will be provided in order to clarify
mechanical system operation.
Two classes; up to 15 students per class.
1.3 Electrical Systems Course.
This course provides electrical instruction on the
maintenance of the Aircraft and its systems, including engine systems.
Mechanical instruction, where necessary, will be provided in order to clarify
electrical system operation.
Two classes; up to 15 students per class.
1.4 Avionics Systems Course.
This course provides instruction on the maintenance of
the Aircraft automatic flight control systems, communications and navigation
systems. It is oriented to those personnel who specialize in trouble analysis
and line maintenance on avionics systems.
Two classes; up to 15 students per class.
Note: A reasonably representative copy of the Maintenance Manual, Wiring
Diagram Manual and System Schematics Manual will be available for student
reference in each class of the courses described in Sections 1.2, 1.3 and 1.4
above. Boeing will exercise every reasonable effort to provide copies of
Customer's customized manuals for such reference.
1.5 Corrosion Prevention and Control Course.
This course provides instruction on Aircraft corrosion
prevention and control.
One class; up to 10 students.
1.6 Aircraft Rigging Course.
This course provides instruction on Aircraft rigging to
provide Customer's specialist personnel with the necessary information to rig
all flight control surfaces, landing gear components, aircraft doors and
engines.
One class; up to 6 students at a mutually agreed upon alternate facility.
P.A. No. 1977
CS1-2
116
1.7 Advanced Composite Repair Course.
This course provides instruction for Customer's
structural repair personnel and promotes understanding of the design
philosophy, inspection and repair of advanced composite components.
One class; up to 8 students.
1.8 Post-Delivery Practical Observation.
If requested by Customer prior to the conclusion of the
Maintenance Training Planning Conference, Boeing will coordinate the assignment
of up to 8 of Customer's maintenance personnel to observe the routine
maintenance practices Boeing performs on the Aircraft during Customer 's flight
training in the Seattle area provided pursuant to Part 1 of the Customer
Support Document.
1.9 Supplier Training.
Each maintenance training course will include
sufficient information, for purposes of supporting line maintenance functions,
on the location, operation and servicing of Aircraft Parts provided by
Suppliers. If Customer requires additional maintenance training with respect
to any Supplier Parts, Customer shall schedule such training directly with the
supplier thereof. If Customer experiences difficulty in scheduling such
training, Boeing shall, if requested by Customer, assist Customer in
coordinating and scheduling such Supplier-provided maintenance training.
1.10 Training Materials.
Training materials will be provided to each student.
In addition, one set of training materials as used in Boeing's training
program, including visual aids, computer-based training (CBT) courseware,
instrument panel wall charts, text/graphics, video programs, etc. will be
provided for use in Customer's own training program.
1.11 Student Training Material.
No revision service will be provided for the material
provided hereunder.
1.11.1 Manuals.
Boeing will provide at the beginning of
each Maintenance Training course one copy of a training manual or equivalent
for each student attending such course.
P.A. No. 1977
CS1-3
117
1.11.2 Panel Description/Component Locator/Field
Trip Checklist Manual.
Boeing will provide 1 copy of a Panel
Description/Component Locator/Field Trip Checklist Manual for each student in
the applicable Maintenance Training course.
1.12 Other Training Material.
Boeing will provide to Customer 1 set of the following
training materials, as used in the courses described above in Sections 1.1,
1.2, 1.3 and 1.4:
1.12.1 Visual Aids.
(a) 8-1/2 x 11-inch blackline
projection transparencies.
(b) Full-scale instrument panel
wall charts in the form of
black and white copies and
mylar reproducible copies.
(c) Training slides.
1.12.2 Reproducible Masters.
8-1/2 x 11-inch prints suitable for black
and white reproduction of all graphics and applicable text.
1.12.3 Video Programs.
Video programs on 3/4-inch U-matic or
1/2-inch VHS cassette formats in NTSC, PAL or SECAM standards, as selected by
Customer.
1.12.4 CBT Courseware.
CBT courseware, and instructions for
courseware installation and operation. This courseware will reflect the major
configuration of the first Aircraft as delivered to Customer.
1.12.5 Shipment of Materials.
The training materials described above will
be shipped to Customer 30 days after completion of the first class of each
applicable Maintenance Training course.
P.A. No. 1977
CS1-4
118
1.12.6 Training Material - Aircraft Configuration.
The visual aids and reproducible masters
described above will, at the conclusion of the shipments thereof, reflect the
configuration of the first Aircraft as delivered to Customer.
1.13 Course Completion Records.
At the completion of the Maintenance Training, Boeing
will provide Customer with course completion records consisting of the
following:
1.13.1 Master copies of all examinations given.
1.13.2 Attendance and examination records for each
student.
1.13.3 Certificate of Completion for each course
each student successfully completes.
2. Flight Training.
2.1 Transition Training.
The flight crew training course is approved by the FAA and is
designed to train flight crews to operate the Aircraft safely and efficiently
under normal and non-normal conditions. The training will consist of ground
school (utilizing CBT), fixed base simulator, full flight simulator and actual
aircraft training on Customer's Aircraft. The flight crew training
contemplated by this paragraph 2.1 may include, at Customer's election, one
ground school observer and one flight training observer in each class in
addition to the flight crews.
8 flight crews (16 pilots).
2.2 Flight Dispatcher Training.
This course provides familiarization training on the
Aircraft's systems, operation, performance capabilities and a brief description
of the Aircraft's limitations, followed by in-depth coverage of basic
performance, flight analysis, performance for nonstandard operation and flight
planning.
2 classes of 6 students.
2.3 Flight Attendant Training.
This course provides familiarization training for
airline passenger service personnel. It includes a description of the Aircraft
and its features. Emphasis is
P.A. No. 1977
CS1-5
119
placed on the equipment and furnishings with which the flight attendant is
concerned. Particular attention is given to the attendant's functions related
to communications, lighting and emergency equipment. When practicable, a field
trip to an aircraft is arranged to observe operation, location and arrangement
of equipment.
2 classes of 12 students.
2.4 Performance Engineer Training Courses.
Three types of courses are offered. A schedule for the
courses is published and mailed to all Boeing aircraft operators semiannually
and a mutually agreed upon number of Customer's personnel may attend, for as
long as Customer owns Boeing model aircraft.
2.4.1 General Performance Engineer Course.
This course provides detailed aircraft
performance information for personnel involved in route planning, performance
analysis and evaluation and engineering flight testing. The course includes a
review of basic high-speed aerodynamics and engine performance and operation.
Students will make calculations to help them recognize and understand the
variables which influence turbojet aircraft performance.
2.4.2 Model-Specific Performance Engineer Course.
This course relates to a specific model
aircraft. It covers a brief review of basic aerodynamics and basic jet engine
performance, followed by detailed coverage of specific performance for the
aircraft model type. Detailed flight planning, including emergency conditions,
is covered.
2.4.3 Operational Performance Engineer Course.
This course is directed toward personnel
who have completed the performance engineer general and specific courses and
have several years' related experience. The course includes expanded coverage
of aircraft noise, runway loading, and various operational, safety and economic
considerations.
2.5 Training Materials.
Training materials will be provided to each student.
In addition, one set of training materials as used in Boeing's training
program, including visual aids, CBT courseware, instrument panel wall charts,
text/graphics, video programs, etc., will be provided for use in Customer's own
training program.
P.A. No. 1977
CS1-6
120
2.5.1 Student training material, in Boeing's
then-standard format, will be provided to Customer's personnel (1 set for each
student and observer) as listed below. No revision service will be provided
for the material provided pursuant to this Section 2.5.1.
(a) Flight Crew Course.
Operations Manual
Quick Reference Handbook
Student Training Manual
Flight Crew Training Manual
Instrument Training Manual -
as required
(b) Flight Dispatcher Course.
Flight Dispatcher Training
Manual
(c) Flight Attendant Course.
Flight Attendant Training Manual
(d) Performance Engineer Courses.
Assorted documents, excerpts
and handouts.
2.5.2 Other Training Materials.
At the conclusion of the Flight Training,
Boeing will provide one set of the following material, as used in the Flight
Training Program. Revision service will not be provided for these materials.
All paper documentation will be provided in MS Word 6.0 format or compatible PC
format.
(a) Boeing will provide a copy of
Boeing developed CBT materials
used in the Flight Training
Program. This CBT courseware
will reflect major
configuration options delivered
on Customer's first Aircraft.
Customer will require certain
equipment and materials in
order to use the CBT Program.
Equipment and materials
required to run the CBT Program
will be procured by Customer at
Customer's expense. The CBT
materials provided include the
following:
P.A. No. 1977
CS1-7
121
(i) 1 copy of all lesson files
supplied on CD-ROM disc.
(ii) 1 paper copy of loading and
operation instructions for
installing the lessons on an
MS-DOS compatible Personal
computer or File Server.
(iii) 1 copy of the runtime
software required to run the
CBT lessons, together with a
license for unlimited
run-time use for presentation
via network system and/or
stand alone computer
terminals to any employee, or
contract trainee of customer
and/or any Affiliate, or
casual visitor at any
location. Customer agrees
not to sell such material.
(b) Full-Scale Color Instrument
Panel Wall Charts reflecting
the configuration of the first
Aircraft as delivered to
Customer.
(c) Flight Crew Training Record.
(d) Examinations Questions.
(e) Student Training Manual.
(f) Video programs on 3/4-inch
U-matic or 1/2 inch VHS
cassette format in NTSB, PAL or
SECAM standards as selected by
Customer.
(g) Flight Attendant Manual (50 copies).
(h) Flight Attendant Training
Course (script, slides and
video tapes on 3/4-inch U-matic
or 1/2 inch VHS cassette format
in NTBC, PAL or SECAM standards
as selected by Customer).
2.6 Additional Flight Operations Services.
2.6.1 Subject to availability, Boeing shall if
seasonably requested by Customer, provide Boeing flight crew personnel to
assist in ferrying the first Aircraft to Customer's main base, and Customer
shall pay Boeing's standard charge for such assistance;
P.A. No. 1977
CS1-8
122
2.6.2 Boeing will provide up to 90 days of
instructor pilot services which will include such activities as: (1) review of
Customer's flight crew operations; (2) observation of Customer's cockpit crews;
(3) post-flight reviews of flight crew operations; (4) consultation regarding
flight crew operations; and (5) route proving flights; and
2.6.3 Boeing will provide, approximately six (6)
months after completion of the flight training provided pursuant to the
immediately preceding subparagraph (b), at a base designated by Customer, the
services of an instructor pilot for a period of two (2) weeks to review
Customer's flight crew operations or to assist Customer's instructor personnel
in conducting proficiency checks, or both.
PART 2: FIELD SERVICES AND ENGINEERING SUPPORT SERVICES
1. Planning Assistance.
Boeing will provide the following additional documents and
services:
1.1 Spares.
1.1.1 Recommended Spares Parts List (RSPL).
A customized RSPL, data and documents will
be provided to identify spare parts required for Customer's support program.
1.1.2 Illustrated Parts Catalog (IPC)
A customized IPC in accordance with ATA 100
will be provided.
1.1.3 Provisioning Training
Provisioning training will be provided for
Customer's personnel at Boeing's facilities, where documentation and technical
expertise are available. Training is focused on the initial provisioning
process and calculations reflected in the Boeing RSPL.
1.1.4 Spares Provisioning Conference
A provisioning conference will be
conducted, normally at Boeing's facilities where technical data and personnel
are available.
P.A. No. 1977
CS1-9
123
PART 3: TECHNICAL INFORMATION AND MATERIALS
Boeing will provide the Documents listed in Attachment A hereto in
accordance with Part 3 of the Customer Support Document:
P.A. No. 1977
CS1-10
124
CUSTOMER SUPPORT DOCUMENT
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Attachment A to Supplemental Exhibit CS1
to Purchase Agreement Number 1977
P.A. No. 1977
125
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 1
Item Description Quantity
---- ----------- --------
A. FLIGHT OPERATIONS
-----------------
1. Airplane Flight Manual
a. Advance Representative Format: 17 Printed One Side
Copy Revisions: No
Delivery: 60 days after signing Purchase Agreement
b. Customized Manual Format: 3 Printed One Side
Revisions: Yes
Delivery: On-board each
Aircraft
Format: 18 Printed One Side
Revisions: Yes
Delivery: 30 days after delivery of first Aircraft
c. Digital Performance Format: 2 3.5 inch (1.44MB)
Information (AFM-DPI) IBM Compatible Diskette
Revisions: Yes
Delivery: 180 days prior to delivery of first Aircraft
2. Operations Manual and
Quick Reference Handbook
a. Advance Representative Format: 17 Printed Two Sides
Format: 1 CD-ROM Framemaker
Copy Revisions: No
Delivery: 60 days after signing Purchase Agreement
b. Customized Manual Format: 18 Printed Two Sides
Format: 1 CD-ROM Framemaker
Revisions: Yes
Delivery: 90 days prior to delivery of first Aircraft
3. Weight and Balance Manual
a. Chapter 1 "Control"
i. Advance Representative Format: 7 Printed Two Sides
Copy Revisions: No
Delivery: As soon as practicable
ii. Customized Manual Format: 9 Printed Two Sides
Revisions: Yes
Delivery: 120 days prior to delivery of first Aircraft
b. Chapter 2 "Aircraft Format: 3 Printed One Side
Reports" Revisions: No
Delivery: On board each Aircraft
P.A. No. 1977
126
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 2
Item Description Quantity
---- ----------- --------
4. Dispatch Deviation Guide
a. Advance Representative Copy Format: 2 Printed Two Sides
2 CD-ROM Framemaker
Revisions: No
Delivery: 60 days after signing of Purchase Agreement
b. Customized Dispatch Deviation Guide Format: 14 Printed Two Sides
2 CD-ROM Framemaker
Revisions: Yes
Delivery: As soon as practicable, but no later than 60
days prior to delivery of first Aircraft
5. Flight Crew Training Manual
a. Advance Representative Copy Format: 12 Printed Two Sides
Format: 2 Digital format
Revisions: Yes
Delivery: 60 days after signing of Purchase Agreement
b. Customized Manual Format: 12 Printed Two Sides
Format: 2 Digital format
Revisions: Yes
Delivery: As soon as practicable, but no later than 60
days prior to delivery of first Aircraft
6. Fault Reporting Manual (FRM)
a. Advance Representative Format: 4 Printed Two Sides
Copy Revisions: No
Delivery: 90 days after signing Purchase Agreement
b. Customized Manual Format: 4 Printed Two Sides
Revisions: Yes
Delivery: Concurrent with delivery of first Aircraft
7. Performance Engineer's Manual Format: 5 Printed Two Sides
Revisions: Yes
Delivery: Concurrent with delivery of first Aircraft
8. Jet Transport Format: 5 Printed Two Sides
Performance Methods Revisions: Yes
(Common to other models, Delivery: 90 days prior to delivery of First Aircraft
quantity indicates total
requested)
P.A. No. 1977
127
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 3
Item Description Quantity
---- ----------- --------
9. FMC Supplemental Format: 6 Printed Two Sides
Data Document Revisions: Yes
Delivery: 90 days prior to delivery of first Aircraft
10. Operational Performance
Software (OPS)
a. Inflight and Report Format: ___ 9 Track Magnetic
(INFLT/REPORT)
Software Tape
in ASCII Format
2 3.5 Inch (1.44MB) IBM
Compatible Diskette; Note:
Boeing will use best
reasonable efforts to
provide in the latest
version of IATA SCAP
specifications
___ 3.5 Inch (1.4MB)
Macintosh
Diskette
Revisions: Yes
Delivery: 180 days prior to delivery of first Aircraft
b. Airplane Performance Format: ___ 9 Track Magnetic Tape in
Monitoring (APM/HISTRY) ASCII
Software Format
2 3.5 Inch (1.44MB) IBM
Compatible Diskette
___ 5.25 Inch (1.2MB) IBM
Compatible Diskette; Note:
Boeing will use best
reasonable efforts to
provide in the latest
version of IATA SCAP
specifications
___ 3.5 Inch (1.4MB)
Macintosh
Diskette
Revisions: Yes
Delivery: 120 days prior to delivery of first Aircraft
P.A. No. 1977
128
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 4
Item Description Quantity
---- ----------- --------
c. Takeoff Analysis Software Format: ___ 9 Track Magnetic
Boeing Takeoff Module (BTM) Tape in ASCII
Format
3 3.5 Inch 1.44MB) IBM
Compatible
Diskette; Note: Boeing will
use best reasonable efforts
to provide in the latest
version of IATA SCAP
specifications
___ 5.25 Inch (1.2MB) IBM
Compatible Diskette
___ 3.5 Inch (1.4MB) Macintosh
Diskette
Revisions: Yes
Delivery: 180 days prior to delivery of first Aircraft
d. Landing Analysis Software Format: ___ 9 Track Magnetic
Boeing Landing Module (BLM) Tape in ASCII
Format
3 3.5 Inch 1.44MB) IBM Compatible
Diskette; Note: Boeing will
use best reasonable
efforts to provide in the
latest version of IATA
SCAP specifications
___ 5.25 Inch (1.2MB) IBM
Compatible Diskette
___ 3.5 Inch (1.4MB) Macintosh
Diskette
Revisions: Yes
Delivery: 180 days prior to delivery of first Aircraft
e. Climbout Analysis Software Format: 1 3.5 Inch (1.44MB) IBM
compatible diskette; Note: Boeing
will use best reasonable efforts to
provide in the latest version of
IATA SCAP specifications
Revisions: Yes
Delivery: as soon as practicable, but no
later than concurrent with delivery
of first Aircraft
11. ETOPS Guide Vol. III Format: 15 Printed Two Sides
(Operational Guidelines Revisions: No
and Methods) Delivery: 90 days after signing Purchase Agreement
B. MAINTENANCE
1. Aircraft Maintenance Manual
a. Advance Representative Format: 1 Printed
Copy (Check One) 1 Microfilm, 16mm
Master
1 Digital Format
Delivery: 90 days after signing Purchase Agreement
P.A. No. 1977
129
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 5
Item Description Quantity
---- ----------- --------
b. Customized Master
Check if required: X 2 Microfilm, 16mm
Master
Check if required: X 2 Digital Format
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
c. Customized Manual Format: 1 Printed Two Sides
___ Printed One Side
1 Microfilm, 16mm
Master
Revisions: Yes
Delivery: 90 days prior to delivery of first Aircraft
2. Wiring Diagram Manual
a. Advance Representative Format: ___ Printed
Copy 1 Microfilm, 16mm
Duplicate
Revisions: No
Delivery: 90 days after signing Purchase Agreement
b. Customized Master
Check if required: X 1 35mm Aperture
Cards of All
Wiring Diagrams
and Charts
Check if required: X 1 EDP Portion,
16mm
Microfilm Master
Check if required: X 2 Entire Manual,
16mm Microfilm
Master
Check if required: X 2 Digital Format
Revisions: Yes, until 90 days
after delivery of
last Aircraft
Delivery: Concurrent with
delivery of first
Aircraft
P.A. No. 1977
130
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 6
Item Description Quantity
---- ----------- --------
c. Customized Manual Format: 1 Standard Printed Copies of Entire
Manual
___ Standard Printed Copies of all
Sections Except EDP Portion
___ EDP Portion, 16mm Microfilm
Master
1 Entire Manual, 16mm Microfilm
Master
Revisions: Yes, until 90 days after delivery
of last Aircraft
Delivery: Concurrent with delivery of first Aircraft
3. System Schematics Manual
a. Advance Representative Format: 2 Printed
Copy Revisions: No
Delivery: 90 days after signing Purchase Agreement
b. Customized Master
Check if required: X 1 35mm Aperture
Cards of all
Schematics
Check if required: X 2 Digital Format
Revisions: Yes, until 90 days
after delivery of
last Aircraft only
Delivery: Concurrent with
delivery of first
Aircraft
c. Customized Manual Format: 100 Printed Two Sides
Revisions: Yes, until 90 days after delivery
of last Aircraft only
___ Microfilm,
16mm Duplicate
1 Microfilm, 16mm Master
Delivery: Concurrent with delivery of first Aircraft
4. Connector Part Number Format: 4 Printed Two Sides
Options Document Revisions: Yes
Delivery: 90 days prior to delivery of first Aircraft
P.A. No. 1977
131
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 7
Item Description Quantity
---- ----------- --------
5. Structural Repair Manual Format: 1 Printed Two Sides
___ Printed One Side
___ Microfilm,
16mm Duplicate
Check if required: X 2 Microfilm,
16mm Master
Check if required: X 2 Magnetic Tape
___ Text (Print
File Format
___ Illustrations
(CGM Format)
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
6. Component Maintenance/ Format: 15 Printed Two
Overhaul Manual Sides
7 Microfilm,
16mm Duplicate
2 Microfilm,
16mm Master
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
7. Chapter 20 Standard Format: 7 Printed Two
Overhaul Practices Sides
Manual (Common to other 1 Printed One
models, quantity indicates Side
total requested) ___ Microfilm, 16mm Duplicate
Check if required: X 2 Microfilm, 16mm Master
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
8. Chapter 20 Standard Format: ___ Printed Two
Wiring Practices Manual Sides
(Common to other models, 1 Microfilm, 16mm Duplicate
quantity indicates 1 Digital Format
total requested) 1 Microfilm, 16mm Master
Check if required: X Revisions: Yes
Delivery: 90 days prior to delivery of first Aircraft
P.A. No. 1977
132
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 8
Item Description Quantity
---- ----------- --------
9. Nondestructive Test Manual Format: 3 Printed Two
Sides
___ Printed One Side
2 Microfilm,
16mm Duplicate
Check if required: X 2 Microfilm,
16mm Master
Check if required: X 1 Magnetic Tape
___ Text (Print File Format)
___ Illustrations (CGM Format)
Revisions: Yes
Delivery: 90 days prior to delivery of first
Aircraft
10. Service Bulletins Format: 15 Printed Two Sides
___ Digital Format
Revisions: Yes
Delivery: As developed by
Boeing
11. Service Bulletin Index Format: 4 Printed Two Sides
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
12. Corrosion Prevention Manual Format: ___ Printed Two
Sides
___ Printed One
Side
8 Microfilm,
16mm Duplicate
Check if required: X 2 Microfilm,
16mm Master
Check if required: X 1 Magnetic Tape
___ Text (Print
File Format)
___ Illustrations
(CGM Format)
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
P.A. No. 1977
133
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 9
Item Description Quantity
---- ----------- --------
13. Fault Isolation Manual
a. Advance Representative Copy Format: 1 Printed Two Sides
___ Digital Format
Revisions: No
Delivery: 90 days after
signing Purchase
Agreement
b. Customized Manual
Check if required: X Format: 2 Printed Two Sides
40 Microfilm,
16mm Duplicate
Revisions: Yes
Delivery: Concurrent with delivery of first Aircraft
14. Power Plant Buildup Manual Format: 6 Printed Two Sides
1 Printed One Side
___ Microfilm,
16mm Duplicate
Check if required: X 1 Microfilm,
16mm Master
Check if required: X 1 Digital Format
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
15. FMS BITE Manual
a. Advance Representative Copy Format: 1 Printed Two Sides
Revisions: No
Delivery: 90 days after
signing Purchase
Agreement
b. Customized Manual Format: 150 Printed Two Sides
___ Microfilm,16mm
Duplicate
___ Microfilm,
16mm Master
Delivery: 90 days prior to
delivery of first
Aircraft
16. In Service Activities Report Format: 26 Printed Two Sides
Revisions: No
Delivery: Issued Quarterly
P.A. No. 1977
134
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 10
Item Description Quantity
---- ----------- --------
17. All Operator Letter Format: 26 Printed One
or Two Sides
Revisions: Yes
Delivery: As developed by
Boeing
18. Service Letters Format: 26 Printed One
or Two Sides
Revisions: Yes
Delivery: As developed by
Boeing
19. Structural Item Format: 10 Printed One or
Interim Advisory Two Sides
Revisions: Yes
Delivery: As developed by
Boeing
20. Configuration Change Support Data Format: 25 Printed Two Sides
Revisions: Yes
Delivery: 45 days prior to
delivery of affected
Aircraft
21. Maintenance Tips Format: 27 Printed One or
Two Sides
Revisions: Yes
Delivery: As developed by
Boeing
22. Combined Index Format: 6 Printed Two
Sides
___ Digital Format
23. Production Management Database Format: 1 Digital Format
C. MAINTENANCE PLANNING
1. Maintenance Planning Format: 9 Printed Two
Data (MPD) Documents Sides
2 Microfilm, 16mm Duplicate
Revisions: Yes
Delivery: 90 days after
signing Purchase
Agreement
P.A. No. 1977
135
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 11
Item Description Quantity
---- ----------- --------
2. Maintenance Planning Data Format: 2 Digital Format
Tasks Masterfile Revisions: Yes
Delivery: 90 days after
signing Purchase
Agreement
3. Maintenance Task Cards
a. Advance Format: 1 Printed One
Representative Copy Side
Revisions: No
Delivery: 90 days after signing Purchase Agreement
b. Customized Masters
Check if required: X Format: 1 Microfilm,
16mm Master
Check if required: X 2 Digital Format
c. Customized Cards Format: 1 Printed One Side
___ Microfilm,
16mm Duplicate
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
4. Maintenance Inspection Format: 4 Printed Two
Interval Reports Sides
Revisions: Yes
(Common with other models Delivery: 90 days prior to
quantity indicates total delivery of first
requested) Aircraft
5. Maintenance Review Board Report Format: 6 Printed Two Sides
Revisions: Annual
Delivery: 90 days prior to
delivery of first
Aircraft
D. SPARES
1. Illustrated Parts Catalog Format: 1 Digital
(Select one format only) 1(*) Printed Two Sides
___ Printed One Side
___ Microfilm,
16mm Duplicate
Check if required: X 2 Microfilm, 16mm Master
*Revision service only Revisions: Yes, until 90 days after delivery of
last Aircraft only
Delivery: 90 days prior to delivery of first Aircraft
P.A. No. 1977
136
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 12
Item Description Quantity
---- ----------- --------
2. Standards Books Format: ___ Printed Two Sides
(Unless previously provided 30 Microfilm,16mm
pursuant to other Duplicate
agreements, in which case
applicable supplements
will be provided) Revisions: Yes
(Select one format only) Delivery: 90 days prior to
delivery of first
Aircraft
E. FACILITIES AND EQUIPMENT PLANNING
1. Facilities and Equipment Format: 8 Printed Two
Planning documents Sides
Revisions: Yes
Delivery: 90 days after
signing Purchase
Agreement
2. Special Tool and Ground Format: 1 Microfilm, 35mm duplicate
Handling Equipment Drawings in Aperture Card Format
On-line via BOLD as available and as
covered by separate BOLD license
agreement
Delivery: 90 days prior to
delivery of first
Aircraft
3. Special Tool and Ground Format: 1 Printed Two
Handling Equipment Sides
Drawing Index Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
4. Supplementary Tooling Format: 2 Printed Two
Documentation (Common Sides
to other models, Revisions: Yes
quantity indicated Delivery: 90 days prior to delivery of first
total requested) Aircraft
P.A. No. 1977
137
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 13
Item Description Quantity
---- ----------- --------
5. Illustrated Tool and Format: ___ Printed One
Equipment List/Manual Side
2 Printed Two Sides
15 Microfilm, 16mm Duplicate
Check if Required X 2 Microfilm,16mm Master
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
6. Aircraft Recovery Document Format: 10 Printed Two Sides
Revisions: Yes
Delivery: 90 days prior to
delivery of first
Aircraft
7. Airplane Characteristics for Airport Planning Format: 6 Printed Two Sides
Revisions: Yes
Delivery: 90 days prior to delivery of first Aircraft
8. Airplane Rescue and Format: 1 Printed Two
Fire Fighting Document Sides
(Common to other models, Revisions: Yes
quantity indicates Delivery: 90 days prior to delivery of first Aircraft
total required)
9. Engine Ground Handling Document Format: 4 Printed Two Sides
Revisions: Yes
Delivery: 90 days after signing Purchase Agreement
F. Configuration, Maintenance Format: 21 Printed Two Sides
and Procedure for Revisions: Yes
Extended Range Operations Delivery: 90 days prior to delivery of first Aircraft
G. ETOPS Guide Vol. I Format: 21 Printed Two Sides
(Configuration, Maintenance Revisions: No
and Procedures Supplement) Delivery: 90 days after signing Purchase Agreement
H. ETOPS Guide Vol. II Format: 21 Printed Two Sides
(Maintenance Programs Revisions: No
Guidelines) (Common Delivery: 90 days after signing Purchase Agreement
to other models,
quantity indicates
total required)
I. Computer Software Index Format: 1 Printed Two Sides
(Common to other models, Revisions: Yes
quantity indicates Delivery: Concurrent with delivery of first Aircraft
total required)
P.A. No. 1977
138
Attachment A to
Supplemental Exhibit CS1 to
Purchase Agreement No. 1977
Page 14
Item Description Quantity
---- ----------- --------
J. SUPPLIER TECHNICAL DATA
1. Service Bulletins 15
2. Ground Support Equipment 5
Data
3. Provisioning Information 5
4. Component Maintenance/ 15
Overhaul Manuals
5. Component Maintenance/ 5
Overhaul Manuals Index
(Common to other models,
quantity indicates
total required)
6. Publications Index 2
7. Product Support 6
Supplier Directory
(Common to other models,
quantity indicates
total required)
P.A. No. 1977
139
SERVICE LIFE POLICY COMPONENTS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Supplemental Exhibit SLP1 to Purchase Agreement Number 1977
P.A. No. 1977
SLP1
140
SERVICE LIFE POLICY COMPONENTS
relating to
BOEING MODEL 737 AIRCRAFT
This is the listing of SLP Components for the Aircraft which relate to Part 3,
"Boeing Service Life Policy" of the Product Assurance Document, and is a part
of Purchase Agreement No. 1977
1. Wing.
(a) Upper and lower skins including fixed leading edge and
trailing edge skins and panels [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.] and stiffeners.
(b) Wing spar webs, chords and stiffeners.
(c) Inspar wing ribs.
(d) Inspar splice plates and fittings.
(e) Main landing gear support structure.
(f) Wing center section floor beams, lower beams and
spanwise beams, but not the seat tracks attached to
floor beams.
(g) Engine strut support fittings attached directly to wing
primary structure.
(h) Wing-to-body structural attachments.
(i) Support structure in the wing for spoilers and spoiler
actuators; for aileron hinges and reaction links; and
for leading edge devices and trailing edge flaps.
(j) Trailing edge flap tracks and carriages.
(k) Fixed attachment and actuator support structure for
aileron, leading edge device and trailing edge flap
internal.
P.A. No. 1977
SLP1-1
141
2. Body.
(a) External surface skins and doublers, longitudinal
stiffeners, longerons and circumferential rings and
frames between the forward pressure bulkhead and the
vertical stabilizer rear spar bulkhead and structural
support and enclosure for the auxiliary power unit but
excluding all system components and related
installation and connecting devices, insulation,
lining, and decorative panels and related installation
and connecting devices.
(b) Window and windshield structure but excluding the
windows and windshields.
(c) Fixed attachment structure of the passenger doors,
cargo doors and emergency exits, excluding door
mechanisms and movable hinge components. Sills and
frames around the body openings for the passenger
doors, cargo doors and emergency exits, excluding scuff
plates and pressure seals.
(d) Nose wheel well structure, including the wheel well
walls, pressure deck, bulkheads, and gear support
structure.
(e) Main gear wheel well structure including pressure deck
and landing gear beam support structure.
(f) Floor beams and support posts in the control cab and
passenger cabin area, but excluding seat tracks.
(g) Forward and aft pressure bulkheads.
(h) Keel structure between the wing front spar bulkhead and
the main gear wheel well aft bulkhead including
splices.
(i) Wing front and rear spar support bulkheads, and
vertical and horizontal stabilizer front and rear spar
support bulkheads including terminal fittings but
excluding all system components and related
installation and connecting devices, insulation,
lining, decorative panels and related installation and
connecting devices.
(j) Support structure in the body for the stabilizer pivot
and stabilizer screw.
3. Vertical Stabilizer.
(a) External skins between front and rear spars.
P.A. No. 1977
SLP1-2
142
(b) Front, rear and auxiliary spar chords, webs and
stiffeners and attachment fittings.
(c) Inspar ribs.
(d) Rudder hinges and supporting ribs, excluding bearings.
(e) Support structure in the vertical stabilizer for rudder
hinges, reaction links and actuators.
(f) Support structure for rudder internal, fixed attachment
and actuator.
4. Horizontal Stabilizer.
(a) External skins between front and rear spars.
(b) Front and rear spar chords, webs and stiffeners.
(c) Inspar ribs.
(d) Stabilizer center section including hinge and screw
support structure.
(e) Support structure in the horizontal stabilizer for the
elevator hinges, reaction links and actuators.
(f) Support structure for elevator internal, fixed
attachment and actuator.
5. Engine Strut.
(a) Strut external surface skin and doublers and
stiffeners.
(b) Internal strut chords, frames and bulkheads.
(c) Strut to wing fittings and diagonal brace.
(d) Engine mount support fittings attached directly to
strut structure and including the engine-mounted
support fittings.
6. Main Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder, including axles.
P.A. No. 1977
SLP1-3
143
(c) Upper and lower side struts, including spindles,
universals and reaction links.
(d) Drag strut.
(e) Bell crank.
(f) Orifice support tube.
(g) Trunnion link.
(h) Downlock links including spindles and universals.
(i) Torsion links.
(j) Actuator beam, support link and beam arm.
7. Nose Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder, including axles.
(c) Orifice support tube.
(d) Upper and lower drag strut, including lock links.
(e) Steering plates and steering collars.
(f) Torsion links.
NOTE: The Service Life Policy does not cover any bearings, bolts,
bushings, clamps, brackets, actuating mechanisms or latching
mechanisms used in or on the SLP Components.
P.A. No. 1977
SLP1-4
144
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Supplemental Exhibit EE1 to Purchase Agreement Number 1977
P.A. No. 1977
EE1
145
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
relating to
BOEING MODEL 737-823 AIRCRAFT
1. ENGINE ESCALATION. No separate Engine escalation methodology is
defined for the 737-823 Aircraft. Pursuant to the AGTA, the Engine Prices for
these Aircraft are included in and will be escalated in the same manner as the
airframe.
2. ENGINE WARRANTY AND PRODUCT SUPPORT PLAN. Boeing has obtained from
CFM International, Inc. (or CFM International, S.A., as the case may be) (CFM)
the right to extend to Customer the provisions of CFM's warranty as set forth
below (herein referred to as the "Warranty"); subject, however, to Customer's
acceptance of the conditions set forth herein. Accordingly, Boeing hereby
extends to Customer and Customer hereby accepts the provisions of CFM's
Warranty as hereinafter set forth, and such Warranty shall apply to all CFM56-7
type Engines (including all Modules and Parts thereof) installed in the
Aircraft at the time of delivery or purchased from Boeing by Customer for
support of the Aircraft except that, if Customer and CFM have executed, or
hereafter execute, a General Terms Agreement or other agreement for the support
of the Engines then the terms of that agreement shall be substituted for and
supersede the provisions of Sections 2.1 through 2.10 below, and Sections 2.1
through 2.10 below shall be of no force or effect and neither Boeing nor CFM
shall have any obligation arising therefrom. In consideration for Boeing's
extension of the CFM Warranty to Customer, Customer hereby releases and
discharges Boeing from any and all claims, obligations and liabilities
whatsoever arising out of the purchase or use of such CFM56-7 type Engines and
Customer hereby waives, releases and renounces all its rights in all such
claims, obligations and liabilities. In addition, Customer hereby releases and
discharges CFM from any and all claims, obligations and liabilities whatsoever
arising out of the purchase or use of such CFM56-7 type Engines except as
otherwise expressly assumed by CFM in such CFM Warranty, General Terms
Agreement or other agreement for the support of the engines between Customer
and CFM and Customer hereby waives, releases and renounces all its rights in
all such claims, obligations and liabilities.
2.1 Title. CFM warrants that at the date of delivery, CFM
has legal title to and good and lawful right to sell its CFM56-7 type Engine
and Products and furthermore warrants that such title is free and clear of all
claims, liens and encumbrances of any nature whatsoever.
P.A. No. 1977
EE1-1
146
2.2 Patents.
2.2.1 CFM shall handle all claims and defend any
suit or proceeding brought against Customer insofar as based on a claim that
any product or part furnished under this Purchase Agreement constitutes an
infringement of any patent of the United States, and shall pay all damages and
costs awarded therein against Customer. This Section shall not apply to any
product or any part manufactured to Customer's design or to the aircraft
manufacturer's design. As to such product or part, CFM assumes no liability
for patent infringement.
2.2.2 CFM's liability hereunder is conditioned
upon Customer promptly notifying CFM in writing and giving CFM authority,
information and assistance (at CFM's expense) for the defense of any suit. In
case said equipment or part is held in such suit to constitute infringement and
the use of said equipment or part is enjoined, CFM shall expeditiously, at its
own expense and at its option, either (i) procure for Customer the rights to
continue using said product or part; (ii) replace the same with a satisfactory
and noninfringing product or part; or (iii) modify the same so it becomes
satisfactory and noninfringing. The foregoing shall constitute the sole remedy
of Customer and the sole liability of CFM for patent infringement.
2.2.3 The above provisions also apply to products
which are the same as those covered by this Purchase Agreement and are
delivered to Customer as part of the installed equipment on CFM56-7 powered
Aircraft.
2.3 Initial Warranty. CFM warrants that CFM56-7 Engine
products will conform to CFM's applicable specifications and will be free from
defects in material and workmanship prior to Customer's initial use of such
products.
2.4 Warranty Pass-On.
2.4.1 If requested by Customer and agreed to by
CFM in writing, CFM will extend warranty support for Engines sold by Customer
to commercial airline operators, or to other aircraft operators. Such warranty
support will be limited to the New Engine Warranty, New Parts Warranty,
Ultimate Life Warranty and Campaign Change Warranty and will require such
operator(s) to agree in writing to be bound by and comply with all the terms
and conditions, including the limitations, applicable to such warranties.
2.4.2 Any warranties set forth herein shall not
be transferable to a third party, merging company or an acquiring entity of
Customer.
2.4.3 In the event Customer is merged with, or
acquired by, another aircraft operator which has a general terms agreement with
CFM, the Warranties as set forth herein shall apply to the Engines, Modules,
and Parts.
P.A. No. 1977
EE1-2
147
2.5 New Engine Warranty.
2.5.1 CFM warrants each new Engine and Module
against Failure for the initial 3000 Flight Hours as follows:
(i) Parts Credit Allowance will be
granted for any Failed Parts.
(ii) Labor Allowance for
disassembly, reassembly, test and Parts repair of any new Engine Part will be
granted for replacement of Failed Parts.
(iii) Such Parts Credit Allowance,
test and Labor Allowance will be: 100% from new to 2500 Flight Hours and
decreasing pro rata from 100% at 2500 Flight Hours to zero percent at 3000
Flight Hours.
2.5.2 As an alternative to the above allowances,
CFM shall, upon request of Customer:
(i) Arrange to have the failed
Engines and Modules repaired, as appropriate, at a facility designated by CFM
at no charge to Customer for the first 2500 Flight Hours and at a charge to
Customer increasing pro rata from zero percent of CFM's repair cost at 2500
Flight Hours to 100% of such CFM repair costs at 3000 Flight Hours.
(ii) Transportation to and from the
designated facility shall be at Customer's expense.
2.6 New Parts Warranty. In addition to the warranty
granted for new Engines and new Modules, CFM warrants Engine and Module Parts
as follows:
2.6.1 During the first 1000 Flight Hours for such
Parts and Expendable Parts, CFM will grant 100% Parts Credit Allowance or Labor
Allowance for repair labor for failed Parts.
2.6.2 CFM will grant a pro rata Parts Credit
Allowance for Scrapped Parts decreasing from 100% at 1000 Flight Hours Part
Time to zero percent at the applicable hours designated in Table 1.
P.A. No. 1977
EE1-3
148
2.7 Ultimate Life Warranty.
2.7.1 CFM warrants Ultimate Life limits on the
following Parts:
(i) Fan and Compressor Disks/Drums
(ii) Fan and Compressor Shafts
(iii) Compressor Discharge Pressure
Seal (CDP)
(iv) Turbine Disks
(v) HPT Forward and Stub Shaft
(vi) LPT Driving Cone
(vii) LPT Shaft and Stub Shaft
2.7.2 CFM will grant a pro rata Parts Credit
Allowance decreasing from 100% when new to zero percent at 25,000 Flight Hours
or 15,000 Flight Cycles, whichever comes earlier. Credit will be granted only
when such Parts are permanently removed from service by a CFM or a U.S. and/or
French Government imposed Ultimate Life limitation of less than 25,000 Flight
Hours or 15,000 Flight Cycles.
2.8 Campaign Change Warranty.
2.8.1 A campaign change will be declared by CFM
when a new Part design introduction, Part modification, Part Inspection, or
premature replacement of an Engine or Module is required by a mandatory time
compliance CFM Service Bulletin or FAA Airworthiness Directive. Campaign
change may also be declared for CFM Service Bulletins requesting new Part
introduction no later than the next Engine or Module shop visit. CFM will
grant following Parts Credit Allowances:
Engines and Modules
(i) 100% for Parts in inventory or
removed from service when new or with 2500 Flight Hours or less total Part
Time.
(ii) 50% for Parts in inventory or
removed from service with over 2500 Flight Hours since new, regardless of
warranty status.
2.8.2 Labor Allowance - CFM will grant 100% Labor
Allowance for disassembly, reassembly, modification, testing, or Inspection of
CFM supplied Engines, Modules, or Parts therefor when such action is required
to comply with a mandatory time compliance CFM Service Bulletin or FAA
Airworthiness Directive. A Labor Allowance will be granted by CFM for other
CFM issued Service Bulletins if so specified in such Service Bulletins.
P.A. No. 1977
EE1-4
149
2.8.3 Life Controlled Rotating Parts retired by
Ultimate Life limits including FAA and/or DGAC Airworthiness Directive, are
excluded from Campaign Change Warranty.
2.9 Limitations. THE PROVISIONS SET FORTH HEREIN ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES WHETHER WRITTEN, ORAL OR
IMPLIED. THERE ARE NO IMPLIED WARRANTIES OF FITNESS OR MERCHANTABILITY. SAID
PROVISIONS SET FORTH THE MAXIMUM LIABILITY OF CFM WITH RESPECT TO CLAIMS OF ANY
KIND, INCLUDING NEGLIGENCE, ARISING OUT OF MANUFACTURE, SALE, POSSESSION, USE
OR HANDLING OF THE PRODUCTS OR PARTS THEREOF OR THEREFOR, AND IN NO EVENT SHALL
CFM'S LIABILITY TO CUSTOMER EXCEED THE PURCHASE PRICE OF THE PRODUCT GIVING
RISE TO CUSTOMER'S CLAIM OR INCLUDE INCIDENTAL OR CONSEQUENTIAL DAMAGES.
2.10 Indemnity and Contribution.
2.10.1 IN THE EVENT CUSTOMER ASSERTS A CLAIM AGAINST
A THIRD PARTY FOR DAMAGES OF THE TYPE LIMITED OR EXCLUDED IN LIMITATIONS,
SECTION 2.9 ABOVE, CUSTOMER SHALL INDEMNIFY AND HOLD CFM HARMLESS FROM AND
AGAINST ANY CLAIM BY OR LIABILITY TO SUCH THIRD PARTY FOR CONTRIBUTION OR
INDEMNITY, INCLUDING COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES) INCIDENT
THERETO OR INCIDENT TO ESTABLISHING SUCCESSFULLY THE RIGHT TO INDEMNIFICATION
UNDER THIS PROVISION. THIS INDEMNITY SHALL APPLY WHETHER OR NOT SUCH DAMAGES
WERE OCCASIONED IN WHOLE OR IN PART BY THE FAULT OR NEGLIGENCE OF CFM, WHETHER
ACTIVE, PASSIVE OR IMPUTED.
2.10.2 CUSTOMER SHALL INDEMNIFY AND HOLD CFM
HARMLESS FROM ANY DAMAGE, LOSS, CLAIM, AND LIABILITY OF ANY KIND (INCLUDING
EXPENSES OF LITIGATION AND ATTORNEYS' FEES) FOR PHYSICAL INJURY TO OR DEATH OF
ANY PERSON, OR FOR PROPERTY DAMAGE OF ANY TYPE, ARISING OUT OF THE ALLEGED
DEFECTIVE NATURE OF ANY PRODUCT OR SERVICE FURNISHED UNDER THIS AGREEMENT, TO
THE EXTENT THAT THE PAYMENTS MADE OR REQUIRED TO BE MADE BY CFM EXCEED ITS
ALLOCATED SHARE OF THE TOTAL FAULT OR LEGAL RESPONSIBILITY OF ALL PERSONS
ALLEGED TO HAVE CAUSED SUCH DAMAGE, LOSS, CLAIM, OR LIABILITY BECAUSE OF A
LIMITATION OF LIABILITY ASSERTED BY CUSTOMER OR BECAUSE CUSTOMER DID NOT APPEAR
IN AN ACTION BROUGHT AGAINST CFM. CUSTOMER'S OBLIGATION TO INDEMNIFY CFM
HEREUNDER SHALL BE APPLICABLE AT SUCH TIME AS CFM IS REQUIRED TO MAKE PAYMENT
PURSUANT TO A FINAL JUDGEMENT IN AN ACTION OR PROCEEDING IN
P.A. No. 1977
EE1-5
150
WHICH CFM WAS A PARTY, PERSONALLY APPEARED, AND HAD THE OPPORTUNITY TO DEFEND
ITSELF. THIS INDEMNITY SHALL APPLY WHETHER OR NOT CUSTOMER'S LIABILITY IS
OTHERWISE LIMITED.
3. SEPARATE AGREEMENT. Notwithstanding the terms of Section 2, all of
the terms of Section 2 shall be deemed null and void and of no force or effect
upon written notice to Boeing from Customer that Customer has entered into a
General Terms Agreement or other agreement for the support of the Engines
directly with CFM. Such notice shall specifically reference this Section.
P.A. No. 1977
EE1-6
151
TABLE 1
737X
CFM56 WARRANTY PARTS LIST
FLIGHT HOURS
Flight Hours
2000 3000 4000 6000 8000 12000
---- ---- ---- ---- ---- -----
Fan Rotor/Booster
Blades X
Disk, Drum X
Spinner X
Fan Frame
Casing X
Hub & Struts X
Fairings X
Splitter (Mid Ring) X
Vanes X
Engine Mount X
No. 1 & No. 2 Bearing Support
Bearings X
Shaft X
Support (Case) X
Inlet Gearbox & No. 3 Bearing
Bearings X
Gear X
Case X
Compressor Rotor
Blades X
Disk & Drums X
Shaft X
Compressor Stator
Casing X
Shrouds X
Vanes X
Variable Stator Actuating Rings X
Combustor Diffuser Nozzle (CDN)
Casings X
Combustor Liners X
Fuel Atomizer X
HPT Nozzle X
HPT Nozzle Support X
HPT Shroud X
P.A. No.1977
EE1-7
152
TABLE 1
737X
CFM56 WARRANTY PARTS LIST
(continued)
Flight Hours
2000 3000 4000 6000 8000 12000
---- ---- ---- ---- ---- -----
HPT Rotor
Blades X
Disks X
Shafts X
Retaining Ring X
LP Turbine
Casing X
Vane Assemblies X
Interstage Seals X
Shrouds X
Disks X
Shaft X
Bearings X
Blades X
Turbine Frame
Casing & Struts X
Hub X
Sump X
Accessory & Transfer Gearboxes
Case X
Shafts X
Gears X
Bearings X
Air-Oil Seals X
Controls & Accessories
Engine X
Condition Monitoring Equipment X
P.A. No.1977
EE1-8
153
PURCHASE AGREEMENT NO. 1978
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
DATED AS OF OCTOBER __, 1997
RELATING TO BOEING MODEL 757-223 AIRCRAFT
154
TABLE OF CONTENTS
PAGE
ARTICLES NUMBER
-------- ------
1. Quantity, Model and Description 1
2. Delivery Schedule 1
3. Price 1
4. Payment 2
5. Miscellaneous 2
TABLE
-----
1. Aircraft Delivery, Description, Price and Advance Payments
EXHIBITS
--------
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
C. Defined Terms
SUPPLEMENTAL EXHIBITS
- ---------------------
BFE1. BFE Variables
CS1. Customer Support Variables
SLP1. Service Life Policy Components
EE1. Engine Escalation, Engine Warranty and Patent Indemnity
P.A. No. 1978
i
155
LETTER AGREEMENTS
Letter Agreement No. 6-1162-AKP-070 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-071 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-072 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-073 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-088 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-089 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-090 Aircraft Performance Guarantees
P.A. No. 1978
ii
156
Letter Agreement No. 6-1162-AKP-091 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-092 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-093 Escalation Sharing
Letter Agreement No. 6-1162-AKP-094 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-095 Price Adjustment on Rolls Royce Engines
Letter Agreement No. 6-1162-AKP-097 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-117 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
P.A. No. 1978
iii
157
Purchase Agreement No. 1978
between
The Boeing Company
and
American Airlines, Inc.
------------------------------
This Purchase Agreement No. 1978 dated as of October __, 1997
between The Boeing Company and American Airlines, Inc. relating to the purchase
and sale of Model 757-223 Aircraft hereby expressly incorporates by reference
all of the terms and conditions of the AGTA.
Article 1. Quantity, Model and Description.
Boeing will manufacture and sell to Customer, and Customer
will purchase, the Aircraft conforming to the Detail Specification, all in
accordance with the terms of this Purchase Agreement. The quantity of Aircraft
is specified in the Table 1 attached hereto and made a part hereof for all
purposes.
Article 2. Delivery Schedule.
The Scheduled Delivery Months of the Aircraft are as listed in
the attached Table 1.
Article 3. Price.
3.1 Basic Price. The Aircraft Basic Price (in 1995
dollars and subject to escalation in accordance with the applicable provisions
of the Purchase Agreement) for each Aircraft is listed in Table 1.
3.2 Advance Payment Base Price. The Advance Payment Base
Price for each Aircraft is listed in Table 1.
3.3 Aircraft and Advance Payment Price Components. The
components of the Aircraft Basic Price and the calculation of the Advance
Payment Base Prices for the Aircraft are listed in Table 1.
P.A. No. 1978
1
158
Article 4. Payment.
4.1 Deposit. Boeing acknowledges receipt of a Deposit in
the amount of $100,000 for each
Aircraft.
4.2 Advance Payments. Customer will make Advance Payments
to Boeing in the amount of 30% of the Advance Payment Base Price of each
Aircraft in accordance with the payment schedule set forth in the attached Table
1, beginning with a payment of 1%, less the Deposit, on the date of full
execution of this Purchase Agreement. Additional Advance Payments for each
Aircraft are due on the first business day of the months and in the amounts
listed in the attached Table 1.
4.3 Advanced Payments Due. For any Aircraft whose
Scheduled Delivery Month is less than 24 months from the date of this Purchase
Agreement, the total amount of Advance Payments due upon the date of full
execution of this Purchase Agreement will include all Advance Payments which are
or were due on or before that date in accordance with the Advance Payment
schedule set forth in the attached Table 1.
4.4 Payment of Balance. Customer will pay the balance of
the Aircraft Price of each Aircraft, less the total amount of Advance Payments
and Deposits received by Boeing for such Aircraft, at delivery in accordance
with the terms and conditions of the Purchase Agreement.
Article 5. Miscellaneous.
5.1 Aircraft Information Table. Table 1 contains and
consolidates information contained in Articles 1, 2 and 3 of this Purchase
Agreement with respect to (i) quantity of Aircraft, (ii) applicable Detail
Specification, (iii) Scheduled Delivery Months, (iv) Aircraft Basic Price, (v)
applicable escalation factors, (vi) Advance Payment Base Prices, and (vii)
Advance Payments and their schedules.
5.2 Aircraft Configuration. Exhibit A to this Purchase
Agreement contains the configuration information for the Aircraft including the
Detail Specification and Optional Features.
5.3 Aircraft Delivery Requirements and Responsibilities.
Exhibit B to this Purchase Agreement contains certain documentation and approval
responsibilities of Customer and Boeing.
5.4 Defined Terms. Exhibit C to this Purchase Agreement
contains certain defined terms used in the AGTA or elsewhere in this Purchase
Agreement. All capitalized terms used in this Purchase Agreement but not
otherwise defined shall have the meaning set forth in Exhibit C to this Purchase
Agreement or elsewhere in such Purchase Agreement.
P.A. No. 1978
2
159
5.5 BFE Variables. Supplemental Exhibit BFE1 to this
Purchase Agreement contains vendor selection dates, on-dock dates and other
variables applicable to the Aircraft pursuant to the BFE Provisions Document.
5.6 Customer Support Variables. Supplemental Exhibit CS1
to this Purchase Agreement contains the variable information applicable to goods
and services furnished by Boeing in support of the Aircraft pursuant to the
Customer Support Document.
5.7 SLP Components. Supplemental Exhibit SLP1 to this
Purchase Agreement lists the airframe, landing gear and other components covered
by the Service Life Policy for the Aircraft as defined in Part 3 of the Product
Assurance Document.
5.8 Engine Escalation Variables. Supplemental Exhibit EE1
to this Purchase Agreement contains the applicable escalation formula, warranty,
and the patent indemnity for the Engines.
5.9 Negotiated Agreement; Entire Agreement. This Purchase
Agreement including, without limitation, the provisions of Article 8 of the AGTA
relating to indemnification and insurance, and Section 11 of Part 2 of the
Product Assurance Document relating to DISCLAIMER AND RELEASE and EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES has been the subject of discussion and
negotiation and is understood by the parties. The Aircraft Price and other
agreements of the parties stated in this Purchase Agreement were arrived at in
consideration of such provisions. This Purchase Agreement contains the entire
agreement between the parties and supersedes all previous proposals,
understandings, commitments or representations whatsoever, oral or written, and
may be changed only in writing signed by authorized representatives of the
parties.
* * * * * * * * * * * * * * * *
DATED AS OF THE DATE FIRST ABOVE WRITTEN
AMERICAN AIRLINES, INC. THE BOEING COMPANY
By By
------------------------------- -------------------------------
Its Its
------------------------------ ------------------------------
P.A. No. 1978
3
160
TABLE 1 TO
PURCHASE AGREEMENT NO. 1978
757-223 AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
P.A. No. 1978
Page 1 of 1
161
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit A to Purchase Agreement Number 1978
P.A. No. 1978
A
162
AIRCRAFT CONFIGURATION
Dated October ____, 1997
relating to
BOEING MODEL 757-223 AIRCRAFT
The configuration of the Aircraft is described in Detail Specification
D6-44010-75, Revision S, dated March 29, 1996, as amended to incorporate the
applicable specification language which reflects the changes listed below,
including the effects of such changes on the Manufacturer's Empty Weight (MEW)
and Operating Empty Weight (OEW). The current revision of the above Detail
Specification D6-44010-75 will be further revised under future change orders to
reflect the effects of additional changes and features as may be selected by
Customer concurrent with, or subsequent to, execution of this Purchase
Agreement.
P.A. No. 1978
A-1
163
Price
per A/P
1995$
CR/Title (8 A/P)
- --------------------------------------------------------------------------------
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.]
P.A. No. 1978
A-2
164
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit B to Purchase Agreement Number 1978
P.A. No. 1978
B
165
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 757-223 AIRCRAFT
Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of Customer's
Aircraft that are critical to making the delivery of each Aircraft a positive
experience for both parties. This Exhibit B documents those responsibilities and
indicates recommended completion deadlines for the actions to be accomplished.
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of
the Scheduled Delivery Month of each Aircraft with respect to obtaining certain
government issued documentation.
1.1 Registration Documents.
Not later than 6 months prior to delivery of each Aircraft,
Customer will notify Boeing of the registration number to be painted on the side
of the Aircraft. In addition, and not later than 3 months prior to delivery of
each Aircraft, Customer will, by letter to the regulatory authority having
jurisdiction, authorize the temporary use of such registration number by Boeing
during the pre-delivery testing of the Aircraft. Customer is responsible for
furnishing any temporary or permanent registration certificates required by any
Governmental Authority having jurisdiction to be displayed aboard the Aircraft
after delivery.
1.2 Certificate of Sanitary Construction.
Boeing will obtain from the United States Public Health
Service prior to delivery of each Aircraft a United States Certificate of
Sanitary Construction for the Aircraft being delivered. The certificate will be
delivered to Customer at delivery of each Aircraft, and Customer will display
such certificate (or a written statement of the location of the original
certificate) aboard each Aircraft after delivery to Customer.
P.A. No. 1978
B-1
166
2. INSURANCE CERTIFICATES.
Insurance certificate requirements are defined in Article 8 of the
AGTA.
3. FLYAWAY CONFIGURATION AND FERRY FLIGHT INFORMATION.
3.1 Flyaway Configuration Notice.
Not later than 14 days prior to delivery of the Aircraft,
Customer will provide to Boeing a configuration letter stating the requested
flyaway configuration of the Aircraft for its ferry flight. This configuration
letter should include:
(i) the name of the company which is to furnish fuel for
the ferry flight and any scheduled post-delivery flight training, the method of
payment for such fuel, and fuel load for the ferry flight;
(ii) the cargo to be loaded and where it is to be stowed
on board the Aircraft and address where cargo is to be shipped after flyaway;
and
(iii) any BFE equipment to be removed prior to flyaway and
returned to Boeing BFE stores for installation on Customer's subsequent
Aircraft.
The information contained in such configuration letter may be
changed from time to time by the mutual consent of Boeing and Customer.
3.2 Ferry Flight Information.
Customer will provide to Boeing at least 24 hours prior to
delivery of each Aircraft:
(i) a complete list of names and citizenship of each crew
member and non-revenue passenger who will be aboard the ferry flight; and
(ii) a complete ferry flight itinerary.
4. DELIVERY ACTIONS BY BOEING.
4.1 Schedule of Inspections. Subsequent to the Boeing production
flight test, all FAA, Boeing, Customer and, if required, U.S. Customs Bureau
inspections will be scheduled by Boeing for completion prior to delivery of the
Aircraft. Customer will be informed of such schedules with as much advance
notice as practicable.
P.A. No. 1978
B-2
167
4.2 Schedule of Demonstration Flights. All FAA and Customer
demonstration flights will be scheduled by Boeing for completion prior to
delivery of the Aircraft. Boeing will provide to Customer at least 14 days prior
written notice of the date, time, and location of such flight. Boeing will
notify Customer in writing of any changes to such date, time, and location.
4.3 Schedule for Customer's Flight Crew. Boeing will inform
Customer of the date that a flight crew is required for acceptance routines
associated with delivery of the Aircraft.
4.4 Fuel Provided by Boeing. Boeing will provide to Customer,
without charge, 1,600 U.S. gallons of fuel and full capacity of engine oil at
the time of delivery or prior to the ferry flight of the Aircraft.
4.5 Flight Crew and Passenger Consumables. Boeing will provide a
sufficient supply of food, potable water, coat hangers, towels, toilet tissue,
garbage bags, drinking cups and soap for the first segment of the ferry flight
for the Aircraft.
4.6 Delivery Papers, Documents and Data. Boeing will have
available at the time of delivery of the Aircraft all delivery papers, documents
and data for execution and delivery. Boeing will pre-position in Oklahoma City,
Oklahoma, for filing with the FAA at the time of delivery of the Aircraft an
executed original Form 8050-2, Aircraft Bill of Sale, for the sale to Customer
and any additional executed forms of such bill of sale for any transfers of
title to the Aircraft from any of Boeing's sales subsidiary so that following
recordation of such bill(s) of sale, Customer will have good and marketable
title to the Aircraft.
4.7 Delegation of Authority. Boeing will present a certified copy
of a Resolution of Boeing's Board of Directors, designating and authorizing
certain persons to act on its behalf in connection with delivery of the Aircraft
including the person executing the transfer of title documents.
4.8 Standard Airworthiness Certificate. Boeing will provide at
delivery of each Aircraft the Standard Airworthiness Certificate in accordance
with Article 3 of the AGTA.
P.A. No. 1978
B-3
168
5. DELIVERY ACTIONS BY CUSTOMER.
5.1 Aircraft Radio Station License. At delivery Customer will
provide a copy of its Aircraft Radio Station License (or a written statement of
the location of the original license) to be placed on board the Aircraft
following delivery.
5.2. Aircraft Flight Log. At delivery Customer will provide the
Aircraft Flight Log for the Aircraft.
5.3 Delegation of Authority. Customer will present to Boeing at
delivery of the Aircraft an original or certified copy of Customer's Delegation
of Authority designating and authorizing certain persons to act on its behalf in
connection with delivery of the specified Aircraft.
P.A. No. 1978
B-3
169
PURCHASE AGREEMENT DEFINITIONS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit C to Purchase Agreement Number 1978
P.A. No. 1978
C
170
PURCHASE AGREEMENT DEFINITIONS
Dated October ____, 1997
relating to
BOEING MODEL 757-223 AIRCRAFT
I. Definitions.
The following terms, when used in capitalized form in this Purchase Agreement,
including the AGTA and any exhibits, schedules, attachments, supplements,
amendments and letter agreements to this Purchase Agreement, have the following
meanings:
"Advance Payments" means the payments made by Customer in advance of
delivery with respect of an Aircraft pursuant to Section 4.2 of the Purchase
Agreement.
"Advance Payment Base Price" has the meaning set forth in Section 2.1.6
of the AGTA.
"Affiliate", with respect to a specified Person, means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control"
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AGTA" has the meaning set forth in the recital of the Aircraft General
Terms Agreement of even date herewith between Boeing and Customer.
"Aircraft" means any or all, as the context requires, of the Boeing
Model 757-223 aircraft described in Table 1 to the Purchase Agreement, together
with the Engines and Parts that are incorporated or installed in or attached to
such aircraft.
"Aircraft Basic Price" has the meaning set forth in Section 2.1.4 of
the AGTA.
"Aircraft Price" has the meaning set forth in Section 2.1.7 of the
AGTA.
P.A. No. 1978
C-1
171
"Aircraft Software" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Airframe Escalation Adjustment Document" has the meaning set forth in
Section 2.1.5 of the AGTA.
"Airframe Price" has the meaning set forth in Section 2.1.1 of the
AGTA.
"ATA" has the meaning set forth in Section 1 to Part 3 of the Customer
Support Document.
"Authorized Agent" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Average Direct Hourly Labor Rate" has the meaning set forth in Part 1
of the Product Assurance Document.
"BFE Provisions Document" means the Buyer Furnished Equipment
Provisions Document attached to the AGTA as Exhibit A.
"Boeing" has the meaning set forth in the recital of the AGTA.
"Boeing Product" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Buyer Furnished Equipment" or "BFE" has the meaning set forth in
Section 1.2 of the AGTA.
"Correct" or "Correction" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Corrected Boeing Product" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Customer" has the meaning set forth in the recital of the AGTA.
"Customer Support Document" means the Customer Support Document
attached to the AGTA as Exhibit B.
"Deposit" means the deposit made by Customer in respect of an Aircraft
pursuant to Section 4.1 of the Purchase Agreement.
"Detail Specification" means the Detail Specification identified in
Exhibit A to the Purchase Agreement, as the same is amended from time to time by
Boeing and Customer pursuant to Article 4 of the AGTA.
"Development Changes" has the meaning set forth in Section 4.2 of the
AGTA.
P.A. No. 1978
C-2
172
"Direct Labor" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Direct Materials" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Documents" has the meaning set forth in Section 4.6 of Part 3 to the
Customer Support Document.
"Engine" means each of the two engines installed on an Aircraft and
identified in Table 1 to the Purchase Agreement, together with any and all Parts
incorporated or installed in or attached to each such engine.
"Engine Price" has the meaning set forth in Section 2.1.3 of the AGTA.
"Engine Price Adjustment" means the adjustment to the Engine Price
determined in accordance with the formula set forth in Supplemental Exhibit EE1
to the Purchase Agreement.
"Engine Supplier" means the manufacturer of the Engine.
"Escalation Adjustment" has the meaning set forth in Section 2.1.5 of
the AGTA.
"Excusable Delay" has the meaning set forth in Section 7.1 of the AGTA.
"FAA" means the Federal Aviation Administration of the United States of
America and any agency or instrumentality of the United States government
succeeding to its functions.
"Failed Component" has the meaning set forth in Section 1 of Part 3 to
the Product Assurance Document.
"Failure" has the meaning set forth in Section 1 of Part 3 to the
Product Assurance Document.
"Federal Aviation Regulations" means the regulations promulgated by the
FAA from time to time and any official interpretations thereof.
"Field Services" has the meaning set forth in Section 1 of Part 2 to
the Customer Support Document.
"Governmental Authority" means any federal, state, county, local or
foreign governmental entity or municipality or subdivision thereof or any
authority, arbitrator,
P.A. No. 1978
C-3
173
department, commission, board, bureau, body, agency, court or other agency or
instrumentality thereof.
"Governmental Regulations" means: (1) the Type Certificate for the
Aircraft; (2) any other certification, license or approval issued or required
for the Aircraft by the FAA or any other Governmental Authority having
jurisdiction over Boeing or the Aircraft; (3) any other law, rule, order or
regulation of the United States Government or any agency or instrumentality
thereof, having jurisdiction over the Aircraft or Boeing; (4) all regulations
and official interpretations of the certification, license, or approval
requirements described in (1), (2) and (3) above; and (5) all airworthiness
directives issued by the FAA.
"Interface Problem" has the meaning set forth in Section 1 of Part 5 of
the Product Assurance Document.
"Manufacturer Change" has the meaning set forth in Section 3.2.1 of the
AGTA.
"Operator Changes" has the meaning set forth in Section 3.3.1 of the
AGTA.
"Optional Features" means those Parts identified as optional features
in the Detail Specification.
"Optional Features Prices" has the meaning set forth in Section 2.1.2
of the AGTA.
"Parts" means any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, and other equipment or property of
whatever nature incorporated or installed in or attached to an Aircraft upon
delivery or otherwise pursuant to the Purchase Agreement.
"Performance Guarantees" has the meaning set forth in Section 5.4 of
the AGTA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Policy" has the meaning set forth in Section 1 of Part 3 of the
Product Assurance Document.
"Product Assurance Document" means the Product Assurance Document
attached to the AGTA as Exhibit C.
P.A. No. 1978
C-4
174
"Proprietary Information" has the meaning set forth in Section 1 of
Part 5 to the Customer Support Document.
"Proprietary Materials" has the meaning set forth in Section 1 of Part
5 to the Customer Support Document.
"Purchase Agreement" means Purchase Agreement No. 1978, of even date
herewith, between Boeing and Customer for the purchase of the Aircraft,
including, without limitation, the AGTA and any exhibits, schedules,
attachments, supplements, amendments and letter agreements to such Purchase
Agreement.
"Scheduled Delivery Month" means, with respect to an Aircraft, the
scheduled month and year of delivery for such Aircraft as set forth in Section 2
of the Purchase Agreement.
"Seller Furnished Equipment" or "SFE" means those Parts incorporated or
installed in, or attached to, the Aircraft by Boeing and designated as "seller
furnished equipment."
"Seller Purchased Equipment" or "SPE" means those Parts incorporated or
installed in, or attached to, the Aircraft by Boeing and designated as "seller
purchased equipment."
"Standard Airworthiness Certificate" means a standard airworthiness
certificate for transport category aircraft applicable to an Aircraft issued by
the FAA pursuant to Part 21 of the Federal Aviation Regulations (or any
successor regulations).
"SLP Component" has the meaning set forth in Section 1 of Part 3 of
Product Assurance Document.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
"Suppliers" has the meaning set forth in Section 1 of Part 4 of the
Product Assurance Document.
"Supplier Product" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Taxes" has the meaning set forth in Section 2.2 of the AGTA.
"Type Certificate" means a type certificate for transport category
aircraft issued by the FAA pursuant to Part 21 of the Federal Aviation
Regulations or any successor regulation.
P.A. No. 1978
C-5
175
"Warranty Inspections" has the meaning set forth in Part 1 of the
Product Assurance Document.
II. Interpretive Provisions.
When reference is made to an article, section, attachment, exhibit, schedule or
supplement of the "AGTA" or a "Purchase Agreement" without further reference to
a particular letter agreement, attachment, exhibit, schedule or supplement
thereto, such reference shall be deemed to be a reference to the main text of
the AGTA or such Purchase Agreement, respectively.
P.A. No. 1978
C-6
176
SUPPLEMENTAL EXHIBIT BFE1
TO
PURCHASE AGREEMENT NO. 1978
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
BUYER FURNISHED EQUIPMENT (BFE) VARIABLES
MODEL 757-223
This Exhibit Supplement contains vendor selection dates, on-dock dates and other
variables applicable to the Aircraft.
1. Supplier Selection.
Customer has selected and notified Boeing of the supplier for the seats
and galley system.
2. On-dock Dates.
Boeing has provided to Customer a BFE Requirements On-Dock/Inventory
Document (BFE Document) setting forth the items, quantities, on-dock dates and
shipping instructions relating to the in sequence installation of BFE, which may
be periodically revised. In the future, Boeing may submit an electronically
transmitted BFE Report (which may be periodically revised) setting forth the
items, quantities, on-dock dates and shipping instructions relating to the in
sequence installation of BFE and such BFE Report will be deemed to be a BFE
Document.
P.A. No. 1978
BFE1-1
177
SUPPLEMENTAL EXHIBIT CS1
TO
PURCHASE AGREEMENT NO. 1978
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
757 CUSTOMER SUPPORT VARIABLES
This outline summarizes Boeing's Customer support program to assist Customer in
the introduction and economical long term operation of its Boeing aircraft. This
program generally includes the following:
1. Maintenance Training.
1.1 Maintenance Training Minor Model Differences Course, if
required, covering operational, structural or systems differences between
Customer's newly-purchased Aircraft and an aircraft of the same model currently
operated by Customer; 1 class of 15 students;
1.2 Training materials, if applicable, will be provided to each
student. In addition, one set of training materials as used in Boeing's training
program, including visual aids, text and graphics will be provided for use in
Customer's own training program.
2. Flight Training.
Boeing will provide, if required, one classroom course to acquaint up
to 15 students with operational, systems and performance differences between
Customer's newly-purchased Aircraft and an aircraft of the same model currently
operated by Customer. Any training materials used in Flight Training, if
required, will be provided for use in Customer's own training program.
P.A. No. 1978
CS1-1
178
3. Exchange of Training Entitlements.
If Customer chooses not to receive all or any portion of the training
entitlements pursuant to Sections 1 and 2, the value of such unused training
entitlements may be exchanged for training in support of another model of
aircraft purchased from Boeing; provided, that the aggregate value of training
provided by Boeing shall not exceed the value of the training entitlements in
Sections 1 and 2.
4. Planning Assistance.
4.1 Maintenance and Ground Operations. Upon request, Boeing will
provide planning assistance regarding Minor Model Differences requirements for
facilities, tools and equipment.
4.2 Spares. Boeing will revise, as applicable, the customized
Recommended Spares Parts List (RSPL) and Illustrated Parts Catalog (IPC).
5. Technical Data and Documents.
Boeing will revise, as applicable, technical data and documents
provided with previously delivered aircraft.
P.A. No. 1978
CS1-2
179
SERVICE LIFE POLICY COMPONENTS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Supplemental Exhibit SLP1 to Purchase Agreement Number 1978
P.A. No. 1978
SLP1
180
SERVICE LIFE POLICY COMPONENTS
relating to
BOEING MODEL 757 AIRCRAFT
This is the listing of SLP Components for the Aircraft which relate to Part 3,
"Boeing Service Life Policy" of the Product Assurance Document, and is a part of
Purchase Agreement No. 1978.
1. Wing.
(a) Upper and lower skins including fixed leading edge and
trailing edge skins and panels [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.], and stiffeners.
(b) Wing spar webs, chords, and stiffeners.
(c) Inspar wing ribs.
(d) Inspar splice plates and fittings.
(e) Main landing gear support structure.
(f) Wing center section lower beams, spanwise beams and
floor beams, but not the seat tracks attached to the
beams.
(g) Wing-to-body structural attachments.
(h) Engine strut support fittings attached directly to wing
primary structure.
(i) Support structure in the wing for spoilers and spoiler
actuators; for aileron hinges and reaction links; and
for leading edge devices and trailing edge flaps.
(j) Trailing edge flap tracks and carriages.
(k) Fixed attachment and actuator support structure
aileron, leading edge device and trailing edge flap
internal.
P.A. No. 1978
SLP1-1
181
2. Body.
(a) External surface skins and doublers, longitudinal
stiffeners, longerons and circumferential rings and
frames between the forward pressure bulkhead and the
vertical stabilizer rear spar bulkhead, and structural
support and enclosure for the auxiliary power unit but
excluding all system components and related
installation and connecting devices, insulation,
lining, and decorative panels and related installation
and connecting devices.
(b) Window and windshield structure but excluding the
windows and windshields.
(c) Fixed attachment structure of the passenger doors,
cargo doors and emergency exits, excluding door
mechanisms and movable hinge components. Sills and
frames around the body openings for the passenger
doors, cargo doors and emergency exits, excluding scuff
plates and pressure seals.
(d) Nose wheel well structure, including the wheel well
walls, pressure deck, forward and aft bulkheads, and
the gear support structure.
(e) Main gear wheel well structure including pressure deck,
bulkheads and landing gear beam support structure.
(f) Floor beams and support posts in the control cab and
passenger cabin area, but excluding seat tracks.
(g) Forward and aft pressure bulkheads.
(h) Keel structure between the wing front spar bulkhead and
the main gear wheel well aft bulkhead, including
splices.
(i) Wing front and rear spar support bulkheads, and
vertical and horizontal stabilizer front and rear spar
support bulkheads including terminal fittings but
excluding all system components and related
installation and connecting devices, insulation,
lining, decorative panels, and related installation and
connecting devices.
(j) Support structure in the body for the stabilizer pivot
and stabilizer screw.
3. Vertical Stabilizer.
(a) External skins between front and rear spars.
P.A. No. 1978
SLP1-2
182
(b) Front, rear and auxiliary spar chords, webs, and
stiffeners, and attachment fittings between vertical
stabilizer and body.
(c) Inspar ribs.
(d) Support structure in the vertical stabilizer for rudder
hinges, reaction links and actuator.
(e) Support structure for rudder internal, fixed attachment
and actuator.
(f) Rudder hinges and supporting ribs, excluding bearings.
4. Horizontal Stabilizer.
(a) External skins between front and rear spars.
(b) Front, rear and auxiliary spar chords, webs, and
stiffeners.
(c) Inspar ribs.
(d) Stabilizer center splice fittings, pivot and screw
support structure.
(e) Support structure in the horizontal stabilizer for the
elevator hinges, reaction links and actuators.
(f) Support structure for elevator internal, fixed
attachment and actuator.
5. Engine Strut.
(a) Strut external surface skin and doublers and
stiffeners.
(b) Internal strut chords, frames and bulkheads.
(c) Strut to wing fittings and diagonal brace.
(d) Engine mount support fittings attached directly to
strut structure.
(e) For Aircraft equipped with Pratt & Whitney engines
only, the engine mounted support fittings.
6. Main Landing Gear.
(a) Outer cylinder.
P.A. No. 1978
SLP1-3
183
(b) Inner cylinder.
(c) Upper and lower side struts, including spindles and
universals.
(d) Drag strut.
(e) Side strut reaction link.
(f) Side strut support link.
(g) Downlock links including spindles and universals.
(h) Orifice plate.
(i) Trunnion link.
(j) Truck beam.
(k) Axles.
(l) Torsion links.
(m) Stabilizer link.
7. Nose Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder.
(c) Upper and lower drag strut, including lock links.
(d) Axles.
(e) Torsion links.
(f) Steering plates and steering collar.
(g) Orifice plate.
NOTE: The Service Life Policy does not cover any bearings, bolts,
bushings, clamps, brackets, actuating mechanisms or latching
mechanisms used in or on the SLP Components.
P.A. No. 1978
SLP1-4
184
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Supplemental Exhibit EE1 to Purchase Agreement Number 1978
P.A. No. 1978
EE1-1
185
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
relating to
BOEING MODEL 757 AIRCRAFT
1. ENGINE ESCALATION.
(a) The Aircraft Basic Price of each Aircraft set forth in Table 1 of the
Purchase Agreement includes an aggregate price for Rolls Royce RB211 series
Engines and all accessories, equipment and parts therefor provided by the Engine
Supplier. The adjustment in Engine Price applicable to each Aircraft ("Engine
Price Adjustment" herein) will be determined at the time of Aircraft delivery in
accordance with the following formula:
Pa = (Po + F) (AA + BB + CC) - Po
(b) The following definitions will apply herein:
Pa = Engine Price Adjustment
Po = The Engine Price as set forth in Table 1 of the Purchase
Agreement.
F = 0.005 (N) (Po). Where N = the calendar year of
scheduled Engine delivery, minus 1995. For purposes of
this calculation, Engine delivery is assumed to be 2
months prior to the Scheduled Delivery Month of the
Aircraft.
AA = .60 x L
-------
$17.273
BB = .30 x M
-------
122.90
CC = .10 x E
-------
77.70
In determining the value of AA, BB and CC, the ratios of L divided by $17.273, M
divided by 122.90 and E divided by 77.70 will each be expressed as a decimal
which will not be rounded, but the value resulting from multiplying such ratios
by the respective constants (.60, .30 and .10) will be expressed as a decimal
and rounded to the nearest ten-thousandth.
P.A. No. 1978
EE1-2
186
L = The arithmetic average of the Average Hourly Earnings for the
15th, 14th and 13th months prior to the Scheduled Delivery
Month of the Aircraft. Such arithmetic average will be
expressed as a decimal and rounded to the nearest thousandth.
$17.273 = Average Hourly Earnings - SIC 3724 for the average of April,
May and June 1994.
M = The arithmetic average of the Producer Price Indices - Code 10
(Base Year 1982 = 100) for the 15th, 14th and 13th months
prior to the Scheduled Delivery Month of the Aircraft. Such
arithmetic average will be expressed as a decimal and rounded
to the nearest hundredth.
122.90 = Producer Price Index - Code 10 for the average of April, May
and June 1994.
E = The arithmetic average of the Producer Price Indices - Code 5
(Base Year 1982 = 100) for the 15th, 14th and 13th months
prior to the Scheduled Delivery Month of the Aircraft. Such
arithmetic average will be expressed as a decimal and rounded
to the nearest hundredth.
77.70 = Producer Price Index - Code 5 for the average of April, May
and June 1994.
The Engine Price Adjustment will not be made if it would result in a decrease in
the Engine Price.
The Average Hourly Earnings and Producer Price Indices referred to above are
defined below:
(i) Average Hourly Earnings. SIC 3724 of the Industry Group
"Hourly Earnings of Aircraft Engines and Engine Parts Production Workers"
published by the Bureau of Labor Statistics, U.S. Department of Labor.
(ii) Producer Price Index. Code 10 for the Commodities Group "Metals
and Metal Products" published by the Bureau of Labor Statistics, U.S. Department
of Labor.
(iii) Producer Price Index. Code 5 for the Commodities Group "Fuels
and Related Products and Power" published by the Bureau of Labor Statistics,
U.S. Department of Labor.
The values of the Average Hourly Earnings and Producer Price Indices used in
determining the Engine Price Adjustment will be those published by the Bureau of
Labor
P.A. No. 1978
EE1-3
187
Statistics, U.S. Department of Labor as of a date 30 days prior to the
Scheduled Delivery Month of the Aircraft. Such values will be considered final
and no Engine Price Adjustment will be made after Aircraft delivery for any
subsequent changes in published values.
NOTE: Any rounding of a number, as required under this Supplemental Exhibit
EE1 with respect to escalation of the Engine Price, will be
accomplished as follows: if the first digit of the portion to be
dropped from the number to be rounded is five or greater, the preceding
digit will be raised to the next higher number.
2. ENGINE WARRANTY AND PRODUCT SUPPORT PLAN.
The warranty and product support plan for the Engines shall be
negotiated directly between Customer and Rolls-Royce plc.
P.A. No. 1978
EE1-4
188
PURCHASE AGREEMENT NO. 1979
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
DATED AS OF OCTOBER __, 1997
RELATING TO BOEING MODEL 767-323ER AIRCRAFT
189
TABLE OF CONTENTS
PAGE
ARTICLES NUMBER
-------- ------
1. Quantity, Model and Description 1
2. Delivery Schedule 1
3. Price 1
4. Payment 2
5. Miscellaneous 2
TABLE
-----
1. Aircraft Delivery, Description, Price and Advance Payments
EXHIBITS
--------
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
C. Defined Terms
SUPPLEMENTAL EXHIBITS
- ---------------------
BFE1. BFE Variables
CS1. Customer Support Variables
SLP1. Service Life Policy Components
EE1. Engine Escalation, Engine Warranty and Patent Indemnity
P.A. No. 1979 i
190
LETTER AGREEMENTS
- -----------------
Letter Agreement No. 6-1162-AKP-070 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-071 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-072 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-073 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-099 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-100 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-101 Aircraft Performance Guarantees
P.A. No. 1979 ii
191
Letter Agreement No. 6-1162-AKP-102 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-103 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-104 Escalation Sharing
Letter Agreement No. 6-1162-AKP-105 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-106 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-117 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
P.A. No. 1979 iii
192
Purchase Agreement No. 1979
between
The Boeing Company
and
American Airlines, Inc.
------------------------------
This Purchase Agreement No. 1979 dated as of October __, 1997
between The Boeing Company and American Airlines, Inc. relating to the purchase
and sale of Model 767-323ER Aircraft hereby expressly incorporates by reference
all of the terms and conditions of the AGTA.
Article 1. Quantity, Model and Description.
Boeing will manufacture and sell to Customer, and Customer
will purchase, the Aircraft conforming to the Detail Specification, all in
accordance with the terms of this Purchase Agreement. The quantity of Aircraft
is specified in the Table 1 attached hereto and made a part hereof for all
purposes.
Article 2. Delivery Schedule.
The Scheduled Delivery Months of the Aircraft are as listed in
the attached
Table 1.
Article 3. Price.
3.1 Basic Price. The Aircraft Basic Price (in 1995
dollars and subject to escalation in accordance with the applicable provisions
of the Purchase Agreement) for each Aircraft is listed in Table 1.
3.2 Advance Payment Base Price. The Advance Payment Base
Price for each Aircraft is listed in Table 1.
3.3 Aircraft and Advance Payment Price Components. The
components of the Aircraft Basic Price and the calculation of the Advance
Payment Base Prices for the Aircraft are listed in Table 1.
P.A. No. 1979 1
193
Article 4. Payment.
4.1 Deposit. Boeing acknowledges receipt of a Deposit in
the amount of $125,000 for each Aircraft.
4.2 Advance Payments. Customer will make Advance Payments
to Boeing in the amount of 30% of the Advance Payment Base Price of each
Aircraft in accordance with the payment schedule set forth in the attached Table
1, beginning with a payment of 1%, less the Deposit, on the date of full
execution of this Purchase Agreement. Additional Advance Payments for each
Aircraft are due on the first business day of the months and in the amounts
listed in the attached Table 1.
4.3 Advance Payments Due. For any Aircraft whose
Scheduled Delivery Month is less than 24 months from the date of this Purchase
Agreement, the total amount of Advance Payments due upon the date of full
execution of this Purchase Agreement will include all Advance Payments which are
or were due on or before that date in accordance with the Advance Payment
schedule set forth in the attached Table 1.
4.4 Payment of Balance. Customer will pay the balance of
the Aircraft Price of each Aircraft, less the total amount of Advance Payments
and Deposits received by Boeing for such Aircraft, at delivery in accordance
with the terms and conditions of the Purchase Agreement.
Article 5. Miscellaneous.
5.1 Aircraft Information Table. Table 1 contains and
consolidates information contained in Articles 1, 2 and 3 of this Purchase
Agreement with respect to (i) quantity of Aircraft, (ii) applicable Detail
Specification, (iii) Scheduled Delivery Months, (iv) Aircraft Basic Price, (v)
applicable escalation factors, (vi) Advance Payment Base Prices, and (vii)
Advance Payments and their schedules.
5.2 Aircraft Configuration. Exhibit A to this Purchase
Agreement contains the configuration information for the Aircraft including the
Detail Specification and Optional Features.
5.3 Aircraft Delivery Requirements and Responsibilities.
Exhibit B to this Purchase Agreement contains certain documentation and approval
responsibilities of Customer and Boeing.
5.4 Defined Terms. Exhibit C to this Purchase Agreement
contains certain defined terms used in the AGTA or elsewhere in this Purchase
Agreement. All capitalized terms used in this Purchase Agreement but not
otherwise defined shall have the meaning set forth in Exhibit C to this Purchase
Agreement or elsewhere in such Purchase Agreement.
P.A. No. 1979 2
194
5.5 BFE Variables. Supplemental Exhibit BFE1 to this
Purchase Agreement contains vendor selection dates, on-dock dates and other
variables applicable to the Aircraft pursuant to the BFE Provisions Document.
5.6 Customer Support Variables. Supplemental Exhibit CS1
to this Purchase Agreement contains the variable information applicable to goods
and services furnished by Boeing in support of the Aircraft pursuant to the
Customer Support Document.
5.7 SLP Components. Supplemental Exhibit SLP1 to this
Purchase Agreement lists the airframe, landing gear and other components covered
by the Service Life Policy for the Aircraft as defined in Part 3 of the Product
Assurance Document.
5.8 Engine Escalation Variables. Supplemental Exhibit EE1
to this Purchase Agreement contains the applicable escalation formula, warranty,
and patent indemnity for the Engines.
5.9 Negotiated Agreement; Entire Agreement. This Purchase
Agreement including, without limitation, the provisions of Article 8 of the AGTA
relating to indemnification and insurance, and Section 11 of Part 2 of the
Product Assurance Document relating to DISCLAIMER AND RELEASE and EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES has been the subject of discussion and
negotiation and is understood by the parties. The Aircraft Price and other
agreements of the parties stated in this Purchase Agreement were arrived at in
consideration of such provisions. This Purchase Agreement contains the entire
agreement between the parties and supersedes all previous proposals,
understandings, commitments or representations whatsoever, oral or written, and
may be changed only in writing signed by authorized representatives of the
parties.
* * * * * * * * * * * * * * * *
DATED AS OF THE DATE FIRST ABOVE WRITTEN
AMERICAN AIRLINES, INC. THE BOEING COMPANY
By By
------------------------------- -------------------------------
Its Its
------------------------------ ------------------------------
P.A. No. 1979 3
195
TABLE 1 TO
PURCHASE AGREEMENT NO. 1979
767-323ER AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
P.A. No. 1979 Page 1 of 1
196
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit A to Purchase Agreement Number 1979
P.A. No. 1979 A
197
AIRCRAFT CONFIGURATION
Dated October __, 1997
relating to
BOEING MODEL 767-323ER AIRCRAFT
The configuration of the Aircraft is described in Detail Specification
D6T10330AAL, Revision 7, dated September 30, 1994, as amended to incorporate the
applicable specification language which reflects the changes listed below,
including the effects of such changes on the Manufacturer's Empty Weight (MEW)
and Operating Empty Weight (OEW). The current revision of the above Detail
Specification D6T10330AAL will be further revised under future change orders to
reflect the effects of additional changes and features as may be selected by
Customer concurrent with, or subsequent to, execution of this Purchase
Agreement.
P.A. No. 1979 A-1
198
Price
per A/P
1995$
CR/Title (8 A/P)
- --------------------------------------------------------------------------------
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.]
P.A. No. 1979 A-2
199
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit B to Purchase Agreement Number 1979
P.A. No. 1979 B
200
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 767-323ER AIRCRAFT
Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of Customer's
Aircraft that are critical to making the delivery of each Aircraft a positive
experience for both parties. This Exhibit B documents those responsibilities and
indicates recommended completion deadlines for the actions to be accomplished.
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of
the Scheduled Delivery Month of each Aircraft with respect to obtaining certain
government issued documentation.
1.1 Registration Documents.
Not later than 6 months prior to delivery of each Aircraft,
Customer will notify Boeing of the registration number to be painted on the side
of the Aircraft. In addition, and not later than 3 months prior to delivery of
each Aircraft, Customer will, by letter to the regulatory authority having
jurisdiction, authorize the temporary use of such registration number by Boeing
during the pre-delivery testing of the Aircraft. Customer is responsible for
furnishing any temporary or permanent registration certificates required by any
Governmental Authority having jurisdiction to be displayed aboard the Aircraft
after delivery.
1.2 Certificate of Sanitary Construction.
Boeing will obtain from the United States Public Health
Service prior to delivery of each Aircraft a United States Certificate of
Sanitary Construction for the Aircraft being delivered. The certificate will be
delivered to Customer at delivery of each Aircraft, and Customer will display
such certificate (or a written statement of the location of the original
certificate) aboard each Aircraft after delivery to Customer.
P.A. No. 1979 B-1
201
2. INSURANCE CERTIFICATES.
Insurance certificate requirements are defined in Article 8 of the
AGTA.
3. FLYAWAY CONFIGURATION AND FERRY FLIGHT INFORMATION.
3.1 Flyaway Configuration Notice.
Not later than 14 days prior to delivery of the Aircraft,
Customer will provide to Boeing a configuration letter stating the requested
flyaway configuration of the Aircraft for its ferry flight. This configuration
letter should include:
(i) the name of the company which is to furnish fuel for
the ferry flight and any scheduled post-delivery flight training, the method of
payment for such fuel, and fuel load for the ferry flight;
(ii) the cargo to be loaded and where it is to be stowed
on board the Aircraft and address where cargo is to be shipped after flyaway;
and
(iii) any BFE equipment to be removed prior to flyaway and
returned to Boeing BFE stores for installation on Customer's subsequent
Aircraft.
The information contained in such configuration letter may be
changed from time to time by the mutual consent of Boeing and Customer.
3.2 Ferry Flight Information.
Customer will provide to Boeing at least 24 hours prior to
delivery of each Aircraft:
(i) a complete list of names and citizenship of each crew
member and non-revenue passenger who will be aboard the ferry flight; and
(ii) a complete ferry flight itinerary.
4. DELIVERY ACTIONS BY BOEING.
4.1 Schedule of Inspections. Subsequent to the Boeing production
flight test, all FAA, Boeing, Customer and, if required, U.S. Customs Bureau
inspections will be scheduled by Boeing for completion prior to delivery of the
Aircraft. Customer will be informed of such schedules with as much advance
notice as practicable.
P.A. No. 1979 B-2
202
4.2 Schedule of Demonstration Flights. All FAA and Customer
demonstration flights will be scheduled by Boeing for completion prior to
delivery of the Aircraft. Boeing will provide to Customer at least 14 days prior
written notice of the date, time, and location of such flight. Boeing will
notify Customer in writing of any changes to such date, time, and location.
4.3 Schedule for Customer's Flight Crew. Boeing will inform
Customer of the date that a flight crew is required for acceptance routines
associated with delivery of the Aircraft.
4.4 Fuel Provided by Boeing. Boeing will provide to Customer,
without charge, 2,000 U.S. gallons of fuel and full capacity of engine oil at
the time of delivery or prior to the ferry flight of the Aircraft.
4.5 Flight Crew and Passenger Consumables. Boeing will provide a
sufficient supply of food, potable water, coat hangers, towels, toilet tissue,
garbage bags, drinking cups and soap for the first segment of the ferry flight
for the Aircraft.
4.6 Delivery Papers, Documents and Data. Boeing will have
available at the time of delivery of the Aircraft all delivery papers, documents
and data for execution and delivery. Boeing will pre-position in Oklahoma City,
Oklahoma, for filing with the FAA at the time of delivery of the Aircraft an
executed original Form 8050-2, Aircraft Bill of Sale, for the sale to Customer
and any additional executed forms of such bill of sale for any transfers of
title to the Aircraft from any of Boeing's sales subsidiary so that following
recordation of such bill(s) of sale, Customer will have good and marketable
title to the Aircraft.
4.7 Delegation of Authority. Boeing will present a certified copy
of a Resolution of Boeing's Board of Directors, designating and authorizing
certain persons to act on its behalf in connection with delivery of the Aircraft
including the person executing the transfer of title documents.
4.8 Standard Airworthiness Certificate. Boeing will provide at
delivery of each Aircraft the Standard Airworthiness Certificate in accordance
with Article 3 of the AGTA.
P.A. No. 1979 B-3
203
5. DELIVERY ACTIONS BY CUSTOMER.
5.1 Aircraft Radio Station License. At delivery Customer will
provide a copy of its Aircraft Radio Station License (or a written statement of
the location of the original license) to be placed on board the Aircraft
following delivery.
5.2 Aircraft Flight Log. At delivery Customer will provide the
Aircraft Flight Log for the Aircraft.
5.3 Delegation of Authority. Customer will present to Boeing at
delivery of the Aircraft an original or certified copy of Customer's Delegation
of Authority designating and authorizing certain persons to act on its behalf in
connection with delivery of the specified Aircraft.
P.A. No. 1979 B-4
204
PURCHASE AGREEMENT DEFINITIONS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit C to Purchase Agreement Number 1979
P.A. No. 1979 C
205
PURCHASE AGREEMENT DEFINITIONS
Dated October , 1997
relating to
BOEING MODEL 767-323ER AIRCRAFT
I. Definitions.
The following terms, when used in capitalized form in this Purchase Agreement,
including the AGTA and any exhibits, schedules, attachments, supplements,
amendments and letter agreements to this Purchase Agreement, have the following
meanings:
"Advance Payments" means the payments made by Customer in advance of
delivery with respect of an Aircraft pursuant to Section 4.2 of the Purchase
Agreement.
"Advance Payment Base Price" has the meaning set forth in Section 2.1.6
of the AGTA.
"Affiliate", with respect to a specified Person, means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control"
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AGTA" has the meaning set forth in the recital of the Aircraft General
Terms Agreement of even date herewith between Boeing and Customer.
"Aircraft" means any or all, as the context requires, of the Boeing
Model 767-323ER aircraft described in Table 1 to the Purchase Agreement,
together with the Engines and Parts that are incorporated or installed in or
attached to such aircraft.
"Aircraft Basic Price" has the meaning set forth in Section 2.1.4 of
the AGTA.
"Aircraft Software" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Aircraft Price" has the meaning set forth in Section 2.1.7 of the
AGTA.
P.A. No. 1979 C-1
206
"Airframe Escalation Adjustment Document" has the meaning set forth in
Section 2.1.5 of the AGTA.
"Airframe Price" has the meaning set forth in Section 2.1.1 of the
AGTA.
"ATA" has the meaning set forth in Section 1 to Part 3 of the Customer
Support Document.
"Authorized Agent" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Average Direct Hourly Labor Rate" has the meaning set forth in Part 1
of the Product Assurance Document.
"Buyer Furnished Equipment" or "BFE" has the meaning set forth in
Section 1.2 of the AGTA.
"BFE Provisions Document" means the Buyer Furnished Equipment
Provisions Document attached to the AGTA as Exhibit A.
"Boeing" has the meaning set forth in the recital of the AGTA.
"Boeing Product" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Correct" or "Correction" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Corrected Boeing Product" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Customer" has the meaning set forth in the recital of the AGTA.
"Customer Support Document" means the Customer Support Document
attached to the AGTA as Exhibit B.
"Deposit" means the deposit made by Customer in respect of an Aircraft
pursuant to Section 4.1 of the Purchase Agreement.
"Detail Specification" means the Detail Specification identified in
Exhibit A to the Purchase Agreement, as the same is amended from time to time by
Boeing and Customer pursuant to Article 4 of the AGTA.
"Documents" has the meaning set forth in Section 4.6 of Part 3 to the
Customer Support Document.
P.A. No. 1979 C-2
207
"Development Changes" has the meaning set forth in Section 4.2 of the
AGTA.
"Direct Labor" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Direct Materials" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Engine" means each of the two engines installed on an Aircraft and
identified in Table 1 to the Purchase Agreement, together with any and all Parts
incorporated or installed in or attached to each such engine.
"Engine Price" has the meaning set forth in Section 2.1.3 of the AGTA.
"Engine Price Adjustment" means the adjustment to the Engine Price
determined in accordance with the formula set forth in Supplemental Exhibit EE1
to the Purchase Agreement.
"Engine Supplier" means the manufacturer of the Engine.
"Escalation Adjustment" has the meaning set forth in Section 2.1.5 of
the AGTA.
"Excusable Delay" has the meaning set forth in Section 7.1 of the AGTA.
"FAA" means the Federal Aviation Administration of the United States of
America and any agency or instrumentality of the United States government
succeeding to its functions.
"Failed Component" has the meaning set forth in Section 1 of Part 3 to
the Product Assurance Document.
"Failure" has the meaning set forth in Section 1 of Part 3 to the
Product Assurance Document.
"Federal Aviation Regulations" means the regulations promulgated by the
FAA from time to time and any official interpretations thereof.
"Field Services" has the meaning set forth in Section 1 of Part 2 to
the Customer Support Document.
"Governmental Authority" means any federal, state, county, local or
foreign governmental entity or municipality or subdivision thereof or any
authority, arbitrator,
P.A. No. 1979 C-3
208
department, commission, board, bureau, body, agency, court or other agency or
instrumentality thereof.
"Governmental Regulations" means: (1) the Type Certificate for the
Aircraft; (2) any other certification, license or approval issued or required
for the Aircraft by the FAA or any other Governmental Authority having
jurisdiction over Boeing or the Aircraft; (3) any other law, rule, order or
regulation of the United States Government or any agency or instrumentality
thereof, having jurisdiction over the Aircraft or Boeing; (4) all regulations
and official interpretations of the certification, license, or approval
requirements described in (1), (2) and (3) above; and (5) all airworthiness
directives issued by the FAA.
"Interface Problem" has the meaning set forth in Section 1 of Part 5 of
the Product Assurance Document.
"Manufacturer Change" has the meaning set forth in Section 3.2.1 of the
AGTA.
"Operator Changes" has the meaning set forth in Section 3.3.1 of the
AGTA.
"Optional Features" means those Parts identified as optional features
in the Detail Specification.
"Optional Features Prices" has the meaning set forth in Section 2.1.2
of the AGTA.
"Parts" means any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, and other equipment or property of
whatever nature incorporated or installed in or attached to an Aircraft upon
delivery or otherwise pursuant to the Purchase Agreement.
"Performance Guarantees" has the meaning set forth in Section 5.4 of
the AGTA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Policy" has the meaning set forth in Section 1 of Part 3 of the
Product Assurance Document.
"Product Assurance Document" means the Product Assurance Document
attached to the AGTA as Exhibit C.
P.A. No. 1979 C-4
209
"Proprietary Information" has the meaning set forth in Section 1 of
Part 5 to the Customer Support Document.
"Proprietary Materials" has the meaning set forth in Section 1 of Part
5 to the Customer Support Document.
"Purchase Agreement" means Purchase Agreement No. 1979, of even date
herewith, between Boeing and Customer for the purchase of the Aircraft,
including, without limitation, the AGTA and any exhibits, schedules,
attachments, supplements, amendments and letter agreements to such Purchase
Agreement.
"Scheduled Delivery Month" means, with respect to an Aircraft, the
scheduled month and year of delivery for such Aircraft as set forth in Section 2
of the Purchase Agreement.
"Seller Furnished Equipment" or "SFE" means those Parts incorporated or
installed in, or attached to, the Aircraft by Boeing and designated as "seller
furnished equipment."
"Seller Purchased Equipment" or "SPE" means those Parts incorporated or
installed in, or attached to, the Aircraft by Boeing and designated as "seller
purchased equipment."
"Standard Airworthiness Certificate" means a standard airworthiness
certificate for transport category aircraft applicable to an Aircraft issued by
the FAA pursuant to Part 21 of the Federal Aviation Regulations (or any
successor regulations).
"SLP Component" has the meaning set forth in Section 1 of Part 3 of
Product Assurance Document.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
"Suppliers" has the meaning set forth in Section 1 of Part 4 of the
Product Assurance Document.
"Supplier Product" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Taxes" has the meaning set forth in Section 2.2 of the AGTA.
"Type Certificate" means a type certificate for transport category
aircraft issued by the FAA pursuant to Part 21 of the Federal Aviation
Regulations or any successor regulation.
P.A. No. 1979 C-5
210
"Warranty Inspections" has the meaning set forth in Part 1 of the
Product Assurance Document.
II. Interpretive Provisions.
When reference is made to an article, section, attachment, exhibit, schedule or
supplement of the "AGTA" or a "Purchase Agreement" without further reference to
a particular letter agreement, attachment, exhibit, schedule or supplement
thereto, such reference shall be deemed to be a reference to the main text of
the AGTA or such Purchase Agreement, respectively.
P.A. No. 1979 C-6
211
SUPPLEMENTAL EXHIBIT BFE1
TO
PURCHASE AGREEMENT NO. 1979
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
BUYER FURNISHED EQUIPMENT (BFE) VARIABLES
MODEL 767-323ER
This Exhibit Supplement contains vendor selection dates, on-dock dates and other
variables applicable to the Aircraft.
1. Supplier Selection.
Customer has selected and notified Boeing of the supplier for the
galley system.
2. On-dock Dates.
Boeing has provided to Customer a BFE Requirements On-Dock/Inventory
Document (BFE Document) setting forth the items, quantities, on-dock dates and
shipping instructions relating to the in sequence installation of BFE, which may
be periodically revised. In the future, Boeing may submit an electronically
transmitted BFE Report (which may be periodically revised) setting forth the
items, quantities, on-dock dates and shipping instructions relating to the in
sequence installation of BFE and such BFE Report will be deemed to be a BFE
Document.
P.A. No. 1979 BFE1-1
212
SUPPLEMENTAL EXHIBIT CS1
TO
PURCHASE AGREEMENT NO. 1979
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
767 CUSTOMER SUPPORT VARIABLES
This outline summarizes Boeing's Customer support program to assist Customer in
the introduction and economical long term operation of its Boeing aircraft. This
program generally includes the following:
1. Maintenance Training.
1.1 Maintenance Training Minor Model Differences Course, if
required, covering operational, structural or systems differences between
Customer's newly-purchased Aircraft and an aircraft of the same model currently
operated by Customer; 1 class of 15 students;
1.2 Training materials, if applicable, will be provided to each
student. In addition, one set of training materials as used in Boeing's training
program, including visual aids, text and graphics will be provided for use in
Customer's own training program.
2. Flight Training.
Boeing will provide, if required, one classroom course to acquaint up
to 15 students with operational, systems and performance differences between
Customer's newly-purchased Aircraft and an aircraft of the same model currently
operated by Customer. Any training materials used in Flight Training, if
required, will be provided for use in Customer's own training program.
P.A. No. 1979 CS1-1
213
3. Exchange of Training Entitlements.
If Customer chooses not to receive all or any portion of the training
entitlements pursuant to Sections 1 and 2, the value of such unused training
entitlements may be exchanged for training provided by Boeing and/or an
Affiliate in support of another model of aircraft purchased from Boeing;
provided, that the aggregate value of training provided by Boeing shall not
exceed the value of the training entitlements in Sections 1 and 2.
4. Planning Assistance.
4.1 Maintenance and Ground Operations. Upon request, Boeing will
provide planning assistance regarding Minor Model Differences requirements for
facilities, tools and equipment.
4.2 Spares. Boeing will revise, as applicable, the customized
Recommended Spares Parts List (RSPL) and Illustrated Parts Catalog (IPC).
5. Technical Data and Documents.
Boeing will revise, as applicable, technical data and documents
provided with previously delivered aircraft.
P.A. No. 1979 CS1-2
214
SERVICE LIFE POLICY COMPONENTS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Supplemental Exhibit SLP1 to Purchase Agreement Number 1979
P.A. No. 1979 SLP1
215
SERVICE LIFE POLICY COMPONENTS
relating to
BOEING MODEL 767 AIRCRAFT
This is the listing of SLP Components for the Aircraft which relate to Part 3,
"Boeing Service Life Policy" of the Product Assurance Document, and is a part of
Purchase Agreement No. 1979.
1. Wing.
(a) Upper and lower skins including fixed leading edge and
trailing edge skins and panels [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.], and stiffeners.
(b) Wing spar webs, chords and stiffeners.
(c) Inspar wing ribs.
(d) Inspar splice plates and fittings.
(e) Main landing gear support structure.
(f) Wing center section lower beams, spanwise beams and
floor beams, but not the seat tracks attached to the
beams.
(g) Wing-to-body structural attachments.
(h) Engine strut support fittings attached directly to wing
primary structure.
(i) Support structure in the wing for spoilers and spoiler
actuators; for aileron hinges and reaction links; and
for leading edge devices and trailing edge flaps.
(j) Leading edge device and trailing edge flap support
system.
(k) Fixed attachment and actuator support structure for
aileron, leading edge device and trailing edge flap
internal.
P.A. No. 1979 SLP1-1
216
2. Body.
(a) External surface skins and doublers, longitudinal
stiffeners, longerons and circumferential rings and
frames between the forward pressure bulkhead and the
vertical stabilizer rear spar bulkhead, and structural
support and enclosure for the auxiliary power unit but
excluding all system components and related
installation and connecting devices, insulation,
lining, and decorative panels and related installation
and connecting devices.
(b) Window and windshield structure but excluding the
windows and windshields.
(c) Fixed attachment structure of the passenger doors,
cargo doors and emergency exits excluding door
mechanisms and movable hinge components. Sills and
frames around the body openings for the passenger
doors, cargo doors and emergency exits, excluding scuff
plates and pressure seals.
(d) Nose wheel well structure, including the wheel well
walls, pressure deck, forward and aft bulkheads, and
the gear support structure.
(e) Main gear wheel well structure including pressure deck,
bulkheads and landing gear beam support structure.
(f) Floor beams and support posts in the control cab and
passenger cabin area, but excluding seat tracks.
(g) Forward and aft pressure bulkheads.
(h) Keel structure between the wing front spar bulkhead and
the main gear wheel well aft bulkhead, including
splices.
(i) Wing front and rear spar support bulkheads, and
vertical and horizontal stabilizer front and rear spar
support bulkheads including terminal fittings but
excluding all system components and related
installation and connecting devices, insulation,
lining, and decorative panels and related installation
and connecting devices.
(j) Support structure in the body for the stabilizer pivot
and stabilizer screw.
P.A. No. 1979 SLP1-2
217
3. Vertical Stabilizer.
(a) External skins between front and rear spars including
splices.
(b) Front, rear and auxiliary spar chords, webs and
stiffeners, and attachment fittings between vertical
stabilizer and body.
(c) Inspar ribs.
(d) Support structure in the vertical stabilizer for rudder
hinges, reaction links and actuators.
(e) Support structure for rudder internal, fixed attachment
and actuator.
(f) Rudder hinges and supporting ribs, excluding bearings.
4. Horizontal Stabilizer.
(a) External skins between front and rear spars.
(b) Front, rear and auxiliary spar chords, webs and
stiffeners.
(c) Inspar ribs.
(d) Stabilizer center section and fittings splicing to
outboard stabilizer including pivot and screw support
structure.
(e) Support structure in the horizontal stabilizer for the
elevator hinges, reaction links and actuators.
(f) Support structure for elevator internal, fixed
attachment and actuator.
5. Engine Strut.
(a) Strut external surface skin and doublers and
stiffeners.
(b) Internal strut chords, frames and bulkheads.
(c) Strut to wing fittings and diagonal brace.
(d) Engine mount support fittings attached directly to
strut structure.
(e) For Aircraft equipped with General Electric or Pratt &
Whitney engines only, the engine mounted support
fittings.
P.A. No. 1979 SLP1-3
218
6. Main Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder.
(c) Upper and lower side strut, including spindles and
universals.
(d) Upper and lower drag strut, including spindles and
universals.
(e) Orifice support tube.
(f) Downlock links, including spindles and universals
(g) Torsion links.
(h) Bogie beam.
(i) Axles.
7. Nose Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder, including axles.
(c) Orifice support tube.
(d) Upper and lower drag strut, including lock links.
(e) Steering plates and steering collar.
(f) Torsion links.
(g) Actuator support beam and hanger.
NOTE: The Service Life Policy does not cover any bearings, bolts,
bushings, clamps, brackets, actuating mechanisms or latching
mechanisms used in or on the SLP Components.
P.A. No. 1979 SLP1-4
219
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Supplemental Exhibit EE1 to Purchase Agreement Number 1979
P.A. No. 1979 EE1
220
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
relating to
BOEING MODEL 767-323ER AIRCRAFT
1. ENGINE ESCALATION.
(a) The Aircraft Basic Price of each Aircraft set forth in
Table 1 of the Purchase Agreement includes an aggregate price for General
Electric Model CF6-80C2 Engines and all accessories, equipment and parts
provided by the Engine Supplier. The adjustment in the Engine Price applicable
to each Aircraft (Engine Price Adjustment) will be determined at the time of
Aircraft delivery in accordance with the following formula:
Pe = (Pb x CPI ) - Pb
-----
CPIb
(b) The following definitions will apply herein:
Pe = Engine Price Adjustment
Pb = Engine Price (per Aircraft), as set forth in Table 1 of
the Purchase Agreement.
CPI = The Composite Price Index as determined in accordance
with the formula below, utilizing values published by
the U.S. Department of Labor Statistics, where base
year 1982 =100.
CPI = L +C + M + E
L = The Labor Index will be equal to 30% of 100 times the
quotient of the "Hourly Earnings of Aircraft Engines
and Engine Parts Production Workers" SIC 3724 for the
ninth month preceding the Scheduled Delivery Month of
the Aircraft divided by the 12 month average of such
SIC 3724 for the year 1982. Such quotient will be
expressed as a decimal and rounded to the nearest
thousandth. The Labor Index shall be expressed as a
decimal and rounded to the nearest hundredth.
P.A. No. 1979 EE1-1
221
C = The Industrial Commodities Index will be equal to 30%
of the Producer Price Index for "all commodities other
than Farm and Foods," Code 3-15, for the ninth month
preceding the Scheduled Delivery Month. The Industrial
Commodities Index will be expressed as a decimal and
rounded to the nearest hundredth.
M = The Metals and Metal Products Index will be equal to
30% of the Producer Price Index for "Metals and Metal
Products," Code 10, for the ninth month preceding the
Scheduled Delivery Month. The Metals and Metal Products
Index will be expressed as a decimal and rounded to the
nearest hundredth.
E = The Fuel Index will be equal to 10% of the Producer
Price Index for "Fuel and Related Products and Power,"
Code 5, for the ninth month preceding the Scheduled
Delivery Month. The Fuel Index will be expressed as a
decimal and rounded to the nearest hundredth.
CPI(b) = The Base Year Index as set forth in Table 1 of the
Purchase Agreement.
The factor (CPI divided by CPI(b)) by which the Engine Price is to
be multiplied will be expressed as a decimal and rounded to the nearest
thousandth.
The Engine Price Adjustment will not be made if it would result in
a decrease in the Engine Price.
(c) The values of the Average Hourly Earnings and Producer
Price Indices used in determining the Engine Price Adjustment will be those
published for the specified month as of a date 30 days prior to the Scheduled
Delivery Month of the Aircraft. Such values will be considered final and no
increase or decrease in the Engine Price Adjustment will be made after Aircraft
delivery for any subsequent changes in published Index values.
(d) If the U.S. Department of Labor, Bureau of Labor
Statistics (i) substantially revises the methodology used for determination of
any index value referred to in subsection (b) above (in contrast to benchmark
adjustments or other corrections of previously published data) or (ii)
discontinues publication of any such index value, General Electric Company (GE),
Boeing and Customer (to the extent such parties may lawfully do so), will
jointly select a substitute for the revised or discontinued data; such
substitute data to lead in application to the same adjustment result, insofar as
possible, as would have been achieved by continuing the use of the original
index value as it may have fluctuated had it not been revised or discontinued.
Appropriate revision of the Engine Price Adjustment formula shall be made to
accomplish such result. However, if after the delivery of the Aircraft, the
Bureau of Labor Statistics should resume releasing the applicable index without
a revision in methodology for the month needed to
P.A. No. 1979 EE1-2
222
determine the Engine Price Adjustment, such index will be used to determine any
increase or decrease in the Engine Price Adjustment from that determined at the
time of delivery of the Aircraft.
(e) If escalation provisions are made non-enforceable or
otherwise rendered void by any agency of the United States Government, GE,
Boeing and Customer agree, to the extent they may lawfully do so, to equitably
adjust the Engine Price of any affected Engine to reflect an allowance for
increases in labor, material and fuel costs that have occurred from the period
represented by the applicable CPI to the ninth month preceding the Scheduled
Delivery Month of the applicable Aircraft.
NOTE: Any rounding of a number, as required under this Supplemental
Exhibit EE1 with respect to escalation of the Engine Price, will be
accomplished as follows: if the first digit of the portion to be
dropped from the number to be rounded is five or greater, the
preceding digit will be raised to the next higher number.
2. ENGINE WARRANTY AND PRODUCT SUPPORT PLAN.
The warranty and product support plan for the Engines shall be
negotiated directly between Customer and GE.
P.A. No. 1979 EE1-3
223
PURCHASE AGREEMENT NO. 1980
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
DATED AS OF OCTOBER __, 1997
RELATING TO BOEING MODEL 777-223IGW AIRCRAFT
224
TABLE OF CONTENTS
PAGE
ARTICLES NUMBER
-------- ------
1. Quantity, Model and Description 1
2. Delivery Schedule 1
3. Price 1
4. Payment 2
5. Miscellaneous 2
TABLE
1. Aircraft Delivery, Description, Price and Advance Payments
EXHIBITS
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
C. Defined Terms
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
SLP1. Service Life Policy Components
EE1-A. Engine Escalation, Engine Warranty and Patent Indemnity
for GE90 Engines
EE1-B. Engine Escalation, Engine Warranty and Patent Indemnity
for RB211 Engines
i
P.A. No. 1980
225
LETTER AGREEMENTS
Letter Agreement No. 6-1162-AKP-070 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-071 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-072 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-073 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-109 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-110 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-111 Aircraft Performance Guarantees
ii
P.A. No. 1980
226
Letter Agreement No. 6-1162-AKP-112 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-113 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-114 Installation of Cabin Systems Equipment
Letter Agreement No. 6-1162-AKP-115 Component and System Reliability Commitments
Letter Agreement No. 6-1162-AKP-116 Price Adjustment on Rolls-Royce Engines
Letter Agreement No. 6-1162-AKP-117 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
Letter Agreement No. 6-1162-AKP-118 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.]
iii
P.A. No. 1980
227
Purchase Agreement No. 1980
between
The Boeing Company
and
American Airlines, Inc.
-----------------------------------
This Purchase Agreement No. 1980 dated as of October __, 1997
between The Boeing Company and American Airlines, Inc. relating to the
purchase and sale of Model 777-223IGW Aircraft hereby expressly incorporates by
reference all of the terms and conditions of the AGTA.
Article 1. Quantity, Model and Description.
Boeing will manufacture and sell to Customer, and Customer
will purchase, the Aircraft conforming to the Detail Specification, all in
accordance with the terms of this Purchase Agreement. The quantity of Aircraft
is specified in the Table 1 attached hereto and made a part hereof for all
purposes.
Article 2. Delivery Schedule.
The Scheduled Delivery Months of the Aircraft are as listed in
the attached Table 1.
Article 3. Price.
3.1 Basic Price. The Aircraft Basic Price (in 1995
dollars and subject to escalation in accordance with the applicable provisions
of the Purchase Agreement) for each Aircraft is listed in Table 1.
3.2 Advance Payment Base Price. The Advance Payment Base
Price for each Aircraft is listed in Table 1.
3.3 Aircraft and Advance Payment Price Components. The
components of the Aircraft Basic Price and the calculation of the Advance
Payment Base Prices for the Aircraft are listed in Table 1.
1
P.A. No. 1980
228
Article 4. Payment.
4.1 Deposit. Boeing acknowledges receipt of a Deposit in
the amount of $175,000 for each Aircraft.
4.2 Advance Payments. Customer will make Advance
Payments to Boeing in the amount of 35% of the Advance Payment Base Price of
each Aircraft in accordance with the payment schedule set forth in the attached
Table 1, beginning with a payment of 1%, less the Deposit, on the date of full
execution of this Purchase Agreement. Additional Advance Payments for each
Aircraft are due on the first business day of the months and in the amounts
listed in the attached Table 1.
4.3 Advance Payments Due. For any Aircraft whose
Scheduled Delivery Month is less than 24 months from the date of this Purchase
Agreement, the total amount of Advance Payments due upon the date of full
execution of this Purchase Agreement will include all Advance Payments which
are or were due on or before that date in accordance with the Advance Payment
schedule set forth in the attached Table 1.
4.4 Payment of Balance. Customer will pay the balance of
the Aircraft Price of each Aircraft, less the total amount of Advance Payments
and Deposits received by Boeing for such Aircraft, at delivery in accordance
with the terms and conditions of the Purchase Agreement.
Article 5. Miscellaneous.
5.1 Aircraft Information Table. Table 1 contains and
consolidates information contained in Articles 1, 2 and 3 of this Purchase
Agreement with respect to (i) quantity of Aircraft, (ii) applicable Detail
Specification, (iii) Scheduled Delivery Months, (iv) Aircraft Basic Price, (v)
applicable escalation factors, (vi) Advance Payment Base Prices, and (vii)
Advance Payments and their schedules.
5.2 Aircraft Configuration. Exhibit A to this Purchase
Agreement contains the configuration information for the Aircraft including the
Detail Specification and Optional Features.
5.3 Aircraft Delivery Requirements and Responsibilities.
Exhibit B to this Purchase Agreement contains certain documentation and
approval responsibilities of Customer and Boeing.
5.4 Defined Terms. Exhibit C to this Purchase Agreement
contains certain defined terms used in the AGTA or elsewhere in this Purchase
Agreement. All capitalized terms used in this Purchase Agreement but not
otherwise defined shall have the meaning set forth in Exhibit C to this
Purchase Agreement or elsewhere in this Purchase Agreement.
2
P.A. No. 1980
229
5.5 BFE Variables. Supplemental Exhibit BFE1 to this
Purchase Agreement contains vendor selection dates, on-dock dates and other
variables applicable to the Aircraft pursuant to the BFE Provisions Document.
5.6 Customer Support Variables. Supplemental Exhibit CS1
to this Purchase Agreement contains the variable information applicable to
goods and services furnished by Boeing in support of the Aircraft pursuant to
the Customer Support Document.
5.7 SLP Components. Supplemental Exhibit SLP1 to this
Purchase Agreement lists the airframe, landing gear and other components
covered by the Service Life Policy for the Aircraft as defined in Part 3 of the
Product Assurance Document.
5.8 Engine Escalation Variables. Supplemental Exhibits
EE1-A and EE1-B to this Purchase Agreement contain the applicable escalation
formula, warranty, and patent indemnity for GE90 and RB211 Engines,
respectively.
5.9 Negotiated Agreement; Entire Agreement. This
Purchase Agreement including, without limitation, the provisions of Article 8
of the AGTA relating to indemnification and insurance, and Section 11 of Part 2
of the Product Assurance Document relating to DISCLAIMER AND RELEASE and
EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES has been the subject of discussion
and negotiation and is understood by the parties. The Aircraft Price and other
agreements of the parties stated in this Purchase Agreement were arrived at in
consideration of such provisions. This Purchase Agreement contains the entire
agreement between the parties and supersedes all previous proposals,
understandings, commitments or representations whatsoever, oral or written, and
may be changed only in writing signed by authorized representatives of the
parties.
* * * * * * * * * * * * * * * *
DATED AS OF THE DATE FIRST ABOVE WRITTEN
AMERICAN AIRLINES, INC. THE BOEING COMPANY
By By
-------------------------- --------------------------
Its Its
-------------------------- --------------------------
3
P.A. No. 1980
230
TABLE 1-1 TO
PURCHASE AGREEMENT NO. 1980
777-223IGW AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS
(GE ENGINES)
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
Page 1 of 1
P.A. No. 1980
231
TABLE 1-2 TO
PURCHASE AGREEMENT NO. 1980
777-223IGW AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS
(ROLLS ROYCE ENGINES)
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
P.A. No. 1980 Page 1 of 1
232
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit A to Purchase Agreement Number 1980
P.A. No. 1980 Page 1 of 1
A-1
233
AIRCRAFT CONFIGURATION
Dated October __________, 1997
relating to
BOEING MODEL 777-223IGW AIRCRAFT
The configuration of the Aircraft is described in Detail Specification
D019W004-AAL-1B, dated of even date herewith. The Detail Specification
consists of Boeing Standard Detail Specification D019W004, Revision A, dated
February 29, 1996, as amended to incorporate the applicable specification
language which reflects the changes to such specification to be included herein
when identified, including the effects of such changes on the Manufacturer's
Empty Weight (MEW) and Operating Empty Weight (OEW). The current revision of
the above Detail Specification D019W004-AAL-1B may be further revised under
future change orders to reflect the effects of additional changes and features
as may be selected by Customer concurrent with, or subsequent to, execution of
this Purchase Agreement.
A-1
P.A. No. 1980
234
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit B to Purchase Agreement Number 1980
B
P.A. No. 1980
235
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 777-223IGW AIRCRAFT
Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of Customer's
Aircraft that are critical to making the delivery of each Aircraft a positive
experience for both parties. This Exhibit B documents those responsibilities
and indicates recommended completion deadlines for the actions to be
accomplished.
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of
the Scheduled Delivery Month of each Aircraft with respect to obtaining certain
government issued documentation.
1.1 Registration Documents.
Not later than 6 months prior to delivery of each
Aircraft, Customer will notify Boeing of the registration number to be painted
on the side of the Aircraft. In addition, and not later than 3 months prior to
delivery of each Aircraft, Customer will, by letter to the regulatory authority
having jurisdiction, authorize the temporary use of such registration number by
Boeing during the pre-delivery testing of the Aircraft. Customer is
responsible for furnishing any temporary or permanent registration certificates
required by any Governmental Authority having jurisdiction to be displayed
aboard the Aircraft after delivery.
1.2 Certificate of Sanitary Construction.
Boeing will obtain from the United States Public Health
Service prior to delivery of each Aircraft a United States Certificate of
Sanitary Construction for the Aircraft being delivered. The certificate will
be delivered to Customer at delivery of each Aircraft, and Customer will
display such certificate (or a written statement of the location of the
original certificate) aboard each Aircraft after delivery to Customer.
B-1
P.A. No. 1980
236
2. INSURANCE CERTIFICATES.
Insurance certificate requirements are defined in Article 8 of the
AGTA.
3. FLYAWAY CONFIGURATION AND FERRY FLIGHT INFORMATION.
3.1 Flyaway Configuration Notice.
Not later than 14 days prior to delivery of the Aircraft,
Customer will provide to Boeing a configuration letter stating the requested
flyaway configuration of the Aircraft for its ferry flight. This configuration
letter should include:
(i) the name of the company which is to furnish fuel
for the ferry flight and any scheduled post-delivery flight training, the method
of payment for such fuel, and fuel load for the ferry flight;
(ii) the cargo to be loaded and where it is to be
stowed on board the Aircraft and address where cargo is to be shipped after
flyaway; and
(iii) any BFE equipment to be removed prior to flyaway
and returned to Boeing BFE stores for installation on Customer's subsequent
Aircraft.
The information contained in such configuration letter may
be changed from time to time by the mutual consent of Boeing and Customer.
3.2 Ferry Flight Information.
Customer will provide to Boeing at least 24 hours prior to
delivery of each Aircraft:
(i) a complete list of names and citizenship of each
crew member and non-revenue passenger who will be aboard the ferry flight; and
(ii) a complete ferry flight itinerary.
4. DELIVERY ACTIONS BY BOEING.
4.1 Schedule of Inspections. Subsequent to the Boeing
production flight test, all FAA, Boeing, Customer and, if required, U.S.
Customs Bureau inspections will be scheduled by Boeing for completion prior to
delivery of the Aircraft. Customer will be informed of such schedules with as
much advance notice as practicable.
B-2
P.A. No. 1980
237
4.2 Schedule of Demonstration Flights. All FAA and
Customer demonstration flights will be scheduled by Boeing for completion prior
to delivery of the Aircraft. Boeing will provide to Customer at least 14 days
prior written notice of the date, time, and location of such flight. Boeing
will notify Customer in writing of any changes to such date, time, and
location.
4.3 Schedule for Customer's Flight Crew. Boeing will
inform Customer of the date that a flight crew is required for acceptance
routines associated with delivery of the Aircraft.
4.4 Fuel Provided by Boeing. Boeing will provide to
Customer, without charge, 3,000 U.S. gallons of fuel and full capacity of
engine oil at the time of delivery or prior to the ferry flight of the
Aircraft.
4.5 Flight Crew and Passenger Consumables. Boeing will
provide a sufficient supply of food, potable water, coat hangers, towels,
toilet tissue, garbage bags, drinking cups and soap for the first segment of
the ferry flight for the Aircraft.
4.6 Delivery Papers, Documents and Data. Boeing will have
available at the time of delivery of the Aircraft all delivery papers,
documents and data for execution and delivery. Boeing will pre-position in
Oklahoma City, Oklahoma, for filing with the FAA at the time of delivery of the
Aircraft an executed original Form 8050-2, Aircraft Bill of Sale, for the sale
to Customer and any additional executed forms of such bill of sale for any
transfers of title to the Aircraft from any of Boeing's sales subsidiary so
that following recordation of such bill(s) of sale, Customer will have good and
marketable title to the Aircraft.
4.7 Delegation of Authority. Boeing will present a
certified copy of a Resolution of Boeing's Board of Directors, designating and
authorizing certain persons to act on its behalf in connection with delivery of
the Aircraft including the person executing the transfer of title documents.
4.8 Standard Airworthiness Certificate. Boeing will
provide at delivery of each Aircraft the Standard Airworthiness Certificate in
accordance with Article 3 of the AGTA.
B-3
P.A. No. 1980
238
5. DELIVERY ACTIONS BY CUSTOMER.
5.1 Aircraft Radio Station License. At delivery Customer
will provide a copy of its Aircraft Radio Station License (or a written
statement of the location of the original license) to be placed on board the
Aircraft following delivery.
5.2 Aircraft Flight Log. At delivery Customer will provide
the Aircraft Flight Log for the Aircraft.
5.3 Delegation of Authority. Customer will present to
Boeing at delivery of the Aircraft an original or certified copy of Customer's
Delegation of Authority designating and authorizing certain persons to act on
its behalf in connection with delivery of the specified Aircraft.
B-4
P.A. No. 1980
239
PURCHASE AGREEMENT DEFINITIONS
between
THE BOEING COMPANY
and
AMERICAN AIRLINES, INC.
Exhibit C to Purchase Agreement Number 1980
C
P.A. No. 1980
240
PURCHASE AGREEMENT DEFINITIONS
Dated October ______, 1997
relating to
BOEING MODEL 777-223IGW AIRCRAFT
I. Definitions.
The following terms, when used in capitalized form in this Purchase Agreement,
including the AGTA and any exhibits, schedules, attachments, supplements,
amendments and letter agreements to this Purchase Agreement, have the following
meanings:
"Advance Payments" means the payments made by Customer in advance
of delivery with respect of an Aircraft pursuant to Section 4.2 of the Purchase
Agreement.
"Advance Payment Base Price" has the meaning set forth in Section
2.1.6 of the AGTA.
"Affiliate", with respect to a specified Person, means any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For the purposes of this definition,
"control" when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGTA" has the meaning set forth in the recital of the Aircraft
General Terms Agreement of even date herewith between Boeing and Customer.
"Aircraft" means any or all, as the context requires, of the
Boeing Model 777-223IGW aircraft described in Table 1 to the Purchase
Agreement, together with the Engines and Parts that are incorporated or
installed in or attached to such aircraft.
"Aircraft Basic Price" has the meaning set forth in Section 2.1.4
of the AGTA.
"Aircraft Software" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Aircraft Price" has the meaning set forth in Section 2.1.7 of the
AGTA.
C-1
P.A. No. 1980
241
"Airframe Escalation Adjustment Document" has the meaning set forth
in Section 2.1.5 of the AGTA.
"Airframe Price" has the meaning set forth in Section 2.1.1 of the
AGTA.
"ATA" has the meaning set forth in Section 1 to Part 3 of the
Customer Support Document.
"Authorized Agent" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Average Direct Hourly Labor Rate" has the meaning set forth in
Part 1 of the Product Assurance Document.
"BFE Provisions Document" means the Buyer Furnished Equipment
Provisions Document attached to the AGTA as Exhibit A.
"Boeing" has the meaning set forth in the recital of the AGTA.
"Boeing Product" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Buyer Furnished Equipment" or "BFE" has the meaning set forth in
Section 1.2 of the AGTA.
"Correct" or "Correction" has the meaning set forth in Part 1 of
the Product Assurance Document.
"Corrected Boeing Product" has the meaning set forth in Part 1 of
the Product Assurance Document.
"Customer" has the meaning set forth in the recital of the AGTA.
"Customer Support Document" means the Customer Support Document
attached to the AGTA as Exhibit B.
"Deposit" means the deposit made by Customer in respect of an
Aircraft pursuant to Section 4.1 of the Purchase Agreement.
"Detail Specification" means the Detail Specification identified in
Exhibit A to the Purchase Agreement, as the same is amended from time to time
by Boeing and Customer pursuant to Article 4 of the AGTA.
"Development Changes" has the meaning set forth in Section 4.2 of
the AGTA.
C-2
P.A. No. 1980
242
"Direct Labor" has the meaning set forth in Part 1 of the Product
Assurance Document.
"Direct Materials" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Documents" has the meaning set forth in Section 4.6 of Part 3 to
the Customer Support Document.
"Engine" means each of the two engines installed on the Aircraft
and identified in either (subject to Customer selection) Table 1-1 or Table 1-2
to the Purchase Agreement, together with any and all Parts incorporated or
installed in or attached to each such engine.
"Engine Price" has the meaning set forth in Section 2.1.3 of the
AGTA.
"Engine Price Adjustment" means the adjustment to the Engine Price
determined in accordance with the formula set forth in Supplemental Exhibit EE1
to the Purchase Agreement.
"Engine Supplier" means the manufacturer of the Engine.
"Escalation Adjustment" has the meaning set forth in Section 2.1.5
of the AGTA.
"Excusable Delay" has the meaning set forth in Section 7.1 of the
AGTA.
"FAA" means the Federal Aviation Administration of the United
States of America and any agency or instrumentality of the United States
government succeeding to its functions.
"Failed Component" has the meaning set forth in Section 1 of Part 3
to the Product Assurance Document.
"Failure" has the meaning set forth in Section 1 of Part 3 to the
Product Assurance Document.
"Federal Aviation Regulations" means the regulations promulgated by
the FAA from time to time and any official interpretations thereof.
"Field Services" has the meaning set forth in Section 1 of Part 2
to the Customer Support Document.
C-3
P.A. No. 1980
243
"Governmental Authority" means any federal, state, county, local or
foreign governmental entity or municipality or subdivision thereof or any
authority, arbitrator, department, commission, board, bureau, body, agency,
court or other agency or instrumentality thereof.
"Governmental Regulations" means: (1) the Type Certificate for the
Aircraft; (2) any other certification, license or approval issued or required
for the Aircraft by the FAA or any other Governmental Authority having
jurisdiction over Boeing or the Aircraft; (3) any other law, rule, order or
regulation of the United States Government or any agency or instrumentality
thereof, having jurisdiction over the Aircraft or Boeing; (4) all regulations
and official interpretations of the certification, license, or approval
requirements described in (1), (2) and (3) above; and (5) all airworthiness
directives issued by the FAA.
"Interface Problem" has the meaning set forth in Section 1 of Part
5 of the Product Assurance Document.
"Manufacturer Change" has the meaning set forth in Section 3.2.1 of
the AGTA.
"Operator Changes" has the meaning set forth in Section 3.3.1 of
the AGTA.
"Optional Features" means those Parts identified as optional
features in the Detail Specification.
"Optional Features Prices" has the meaning set forth in Section
2.1.2 of the AGTA.
"Parts" means any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, and other equipment or property of
whatever nature incorporated or installed in or attached to an Aircraft upon
delivery or otherwise pursuant to the Purchase Agreement.
"Performance Guarantees" has the meaning set forth in Section 5.4
of the AGTA.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Policy" has the meaning set forth in Section 1 of Part 3 of the
Product Assurance Document.
"Product Assurance Document" means the Product Assurance Document
attached to the AGTA as Exhibit C.
C-4
P.A. No. 1980
244
"Proprietary Information" has the meaning set forth in Section 1 of
Part 5 to the Customer Support Document.
"Proprietary Materials" has the meaning set forth in Section 1 of
Part 5 to the Customer Support Document.
"Purchase Agreement" means Purchase Agreement No. 1980, of even
date herewith, between Boeing and Customer for the purchase of the Aircraft,
including, without limitation, the AGTA and any exhibits, schedules,
attachments, supplements, amendments and letter agreements to such Purchase
Agreement.
"Scheduled Delivery Month" means, with respect to an Aircraft, the
scheduled month and year of delivery for such Aircraft as set forth in Section
2 of the Purchase Agreement.
"Seller Furnished Equipment" or "SFE" means those Parts
incorporated or installed in, or attached to, the Aircraft by Boeing and
designated as "seller furnished equipment."
"Seller Purchased Equipment" or "SPE" means those Parts
incorporated or installed in, or attached to, the Aircraft by Boeing and
designated as "seller purchased equipment."
"SLP Component" has the meaning set forth in Section 1 of Part 3 of
Product Assurance Document.
"Standard Airworthiness Certificate" means a standard airworthiness
certificate for transport category aircraft applicable to an Aircraft issued by
the FAA pursuant to Part 21 of the Federal Aviation Regulations (or any
successor regulations).
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]
"Supplier Product" has the meaning set forth in Part 1 of the
Product Assurance Document.
"Suppliers" has the meaning set forth in Section 1 of Part 4 of the
Product Assurance Document.
"Taxes" has the meaning set forth in Section 2.2 of the AGTA.
C-5
P.A. No. 1980
245
"Type Certificate" means a type certificate for transport category
aircraft issued by the FAA pursuant to Part 21 of the Federal Aviation
Regulations or any successor regulation.
"Warranty Inspections" has the meaning set forth in Part 1 of the
Product Assurance Document.
II. Interpretive Provisions.
When reference is made to an article, section, attachment, exhibit, schedule or
supplement of the "AGTA" or a "Purchase Agreement" without further reference to
a particular letter agreement, attachment, exhibit, schedule or supplement
thereto, such reference shall be deemed to be a reference to the main text of
the AGTA or such Purchase Agreement, respectively.
C-6
P.A. No. 1980
246
SUPPLEMENTAL EXHIBIT BFE1
TO
PURCHASE AGREEMENT NO. 1980
BETWEEN
THE BOEING COMPANY
AND
AMERICAN AIRLINES, INC.
Buyer Furnished Equipment (BFE) Variables
Model 777-223IGW
This Exhibit Supplement contains vendor selection dates, on-dock dates and
other variables applicable to the Aircraft.
1. Supplier Selection.
Customer has selected and notified Boeing of the suppliers for the
seats, galley systems and video/cabin management systems.
2. On-dock Dates.
On or before April 1, 1998, Boeing will provide to Customer a BFE
Requirements On-Dock/Inventory Document (BFE Document) or an electronically
transmitted BFE Report which may be periodically revised, setting forth the
items, quantities, on-dock dates and shipping instructions relating to the in
sequence installation of BFE. For planning purposes, a preliminary BFE on-dock
schedule for the first Aircraft is set forth below:
- -------------------------------------------------------------------
Delivery
Month & Year Seats Galleys Electronics Furnishings
- -------------------------------------------------------------------
