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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2005.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-2691.
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
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 whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes No X .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 1,000 shares as of July 15, 2005.
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions H(1)(a) and (b) of Form 10-Q.
INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended
June 30, 2005 and 2004
Condensed Consolidated Balance Sheets -- June 30, 2005 and December
31, 2004
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 2005 and 2004
Notes to Condensed Consolidated Financial Statements -- June 30,
2005
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits
SIGNATURE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues
Passenger $4,264 $3,895 $8,106 $7,573
Regional Affiliates 561 505 1,012 925
Cargo 157 155 308 303
Other revenues 314 266 607 523
Total operating revenues 5,296 4,821 10,033 9,324
Expenses
Wages, salaries and benefits 1,528 1,580 3,030 3,101
Aircraft fuel 1,224 848 2,220 1,596
Regional payments to AMR Eagle 510 412 983 805
Other rentals and landing fees 289 270 562 545
Commissions, booking fees and
credit card expense 286 287 557 574
Depreciation and amortization 240 278 485 563
Maintenance, materials and
repairs 210 210 402 406
Aircraft rentals 143 148 286 296
Food service 125 138 248 274
Other operating expenses 588 558 1,151 1,097
Special charges - (31) - (31)
Total operating expenses 5,143 4,698 9,924 9,226
Operating Income 153 123 109 98
Other Income (Expense)
Interest income 28 13 63 27
Interest expense (162) (162) (337) (322)
Interest capitalized 24 19 46 36
Related party interest - net (2) - (4) -
Miscellaneous - net - (6) (7) (34)
(112) (136) (239) (293)
Income (Loss) Before Income Taxes 41 (13) (130) (195)
Income tax - - - -
Net Earnings (Loss) $ 41 $ (13) $ (130) $ (195)
The accompanying notes are an integral part of these financial statements.
-1-
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
June 30, December 31,
2005 2004
Assets
Current Assets
Cash $ 158 $ 117
Short-term investments 3,202 2,787
Restricted cash and short-term investments 492 478
Receivables, net 1,031 821
Inventories, net 445 450
Other current assets 349 233
Total current assets 5,677 4,886
Equipment and Property
Flight equipment, net 12,072 12,304
Other equipment and property, net 2,413 2,365
Purchase deposits for flight equipment 277 277
14,762 14,946
Equipment and Property Under Capital Leases
Flight equipment, net 988 1,016
Other equipment and property, net 85 82
1,073 1,098
Route acquisition costs and airport
operating and gate lease rights, net 1,181 1,194
Other assets 3,296 3,338
$ 25,989 $25,462
Liabilities and Stockholder's Equity (Deficit)
Current Liabilities
Accounts payable $ 1,131 $ 945
Accrued liabilities 1,727 1,853
Air traffic liability 4,007 3,183
Payable to affiliates, net 451 359
Current maturities of long-term debt 498 475
Current obligations under capital leases 141 104
Total current liabilities 7,955 6,919
Long-term debt, less current maturities 8,538 8,787
Obligations under capital leases, less
current obligations 951 1,061
Pension and postretirement benefits 4,755 4,743
Other liabilities, deferred gains and
deferred credits 4,003 4,057
Stockholder's Deficit
Common stock - -
Additional paid-in capital 3,239 3,273
Accumulated other comprehensive loss (716) (772)
Accumulated deficit (2,736) (2,606)
(213) (105)
$ 25,989 $25,462
The accompanying notes are an integral part of these financial
statements.
-2-
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended June 30,
2005 2004
Net Cash Provided by Operating Activities $ 918 $ 577
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (222) (153)
Net increase in short-term investments (415) (677)
Net (increase) decrease in restricted cash
and short-term investments (14) 38
Proceeds from sale of equipment and property 13 26
Other 1 (9)
Net cash used by investing activities (637) (775)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (299) (287)
Proceeds from issuance of long-term debt - 180
Funds transferred from affiliates, net 59 381
Net cash provided (used) by financing
activities (240) 274
Net increase in cash 41 76
Cash at beginning of period 117 118
Cash at end of period $ 158 $ 194
Activities Not Affecting Cash
Capital lease obligations incurred $ 10 $ 10
The accompanying notes are an integral part of these financial
statements.
-3-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. Results of operations for the periods presented herein
are not necessarily indicative of results of operations for the
entire year. American Airlines, Inc. (American or the Company) is a
wholly owned subsidiary of AMR Corporation (AMR). For further
information, refer to the consolidated financial statements and
footnotes thereto included in the American Airlines, Inc. Annual
Report on Form 10-K for the year ended December 31, 2004 (2004 Form
10-K). Certain amounts have been reclassified to conform with the
2005 presentation.
2.The Company accounts for its participation in AMR's 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. 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 amended by Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." The following table
illustrates the effect on net earnings (loss) if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-
based employee compensation (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Net earnings (loss), as reported $ 41 $ (13) $(130) $(195)
Add: Stock-based employee
compensation expense
included in reported net
earnings (loss) 11 5 17 16
Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards (26) (22) (48) (49)
Pro forma net earnings (loss) $ 26 $ (30) $(161) $(228)
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" (SFAS 123(R)). SFAS 123(R) requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based
on their fair values. SFAS 123(R) is effective January 1, 2006 for
AMR and American. Under SFAS 123(R), the Company will recognize
compensation expense for its participation in AMR's stock-based
compensation plans for the portion of outstanding awards for which
service has not yet been rendered, based on the grant-date fair
value of those awards calculated under SFAS 123 for pro forma
disclosures. The Company has not completed its evaluation of the
impact of SFAS 123(R) on its financial statements.
3.As of June 30, 2005, the Company had commitments to acquire two
Boeing 777-200ERs in 2006 and an aggregate of 47 Boeing 737-800s and
seven Boeing 777-200ERs in 2013 through 2016. Future payments for all
aircraft, including the estimated amounts for price escalation, will
approximate $101 million in 2006 and an aggregate of approximately
$2.8 billion in 2011 through 2016.
-4-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In 2003, the Company reached concessionary agreements with certain
lessors. Certain of these agreements provide that the Company's
obligations under the related leases will revert to the original
terms if certain events occur prior to December 31, 2005,
including: (i) an event of default under the related lease (which
generally occurs only if a payment default occurs); (ii) an event
of loss with respect to the related aircraft; (iii) rejection by
the Company of the lease under the provisions of Chapter 11 of the
U.S. Bankruptcy Code; or (iv) the Company's filing for bankruptcy
under Chapter 7 of the U.S. Bankruptcy Code. If any one of these
events were to occur, the Company would be responsible for
approximately $113 million in additional operating lease payments
and $119 million in additional payments related to capital leases
as of June 30, 2005. These amounts will decrease by approximately
$3 million prior to the expiration of the provision on December 31,
2005. These amounts are being accounted for as contingent rentals
and will only be recognized if they become payable.
4.Accumulated depreciation of owned equipment and property at June
30, 2005 and December 31, 2004 was $9.1 billion and $8.8 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 30, 2005 and December 31, 2004 was $1.0
billion and $984 million, respectively.
Effective January 1, 2005, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its
estimate of the depreciable lives of its Boeing 737-800, Boeing 757-
200 and McDonnell Douglas MD-80 aircraft from 25 to 30 years. As a
result of this change, Depreciation and amortization expense was
reduced by approximately $27 million and $54 million, respectively,
for the three and six months ended June 30, 2005.
5.As discussed in Note 8 to the consolidated financial statements
in the 2004 Form 10-K, the Company has a valuation allowance against
the full amount of its net deferred tax asset. The Company's deferred
tax asset valuation allowance increased $21 million during the six
months ended June 30, 2005 to $1.3 billion as of June 30, 2005. As a
result of historical and current losses, the Company did not provide
for a net tax benefit associated with its loss in the six month period
ended June 30, 2005.
6.As of June 30, 2005, American has issued guarantees covering
approximately $1.3 billion of AMR's unsecured debt. In addition,
as of June 30, 2005, AMR and American have issued guarantees
covering approximately $447 million of American Eagle Airlines,
Inc. secured debt.
-5-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7.The following tables provide the components of net periodic
benefit cost for the three and six months ended June 30, 2005 and
2004 (in millions):
Pension Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Components of net periodic
benefit cost
Service cost $ 93 $ 90 $ 185 $ 179
Interest cost 153 141 305 283
Expected return on assets (164) (142) (329) (284)
Amortization of:
Prior service cost 4 3 8 7
Unrecognized net loss 13 15 26 29
Net periodic benefit cost $ 99 $ 107 $ 195 $ 214
Other Postretirement Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Components of net periodic
benefit cost
Service cost $ 19 $ 19 $ 37 $ 38
Interest cost 49 50 99 101
Expected return on assets (4) (3) (7) (6)
Amortization of:
Prior service cost (3) (2) (5) (5)
Unrecognized net loss 1 2 1 4
Net periodic benefit cost $ 62 $ 66 $ 125 $ 132
The Company expects to contribute approximately $310 million to its
defined benefit pension plans in 2005. This estimate reflects the
provisions of the Pension Funding Equity Act of 2004, which
deferred (to 2006 and later years) a portion of the minimum
required contributions that would have been due for the 2004 and
2005 plan years. Of the $310 million the Company expects to
contribute this year, the Company contributed $213 million during
the six months ended June 30, 2005.
-6-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8.As a result of the events of September 11, 2001, the depressed
revenue environment, high fuel prices and the Company's
restructuring activities, the Company has recorded a number of
special charges during the last few years. The following table
summarizes the changes since December 31, 2004 in the accruals for
these charges (in millions):
Aircraft Facility Employee
Charges Exit Costs Charges Total
Remaining accrual at
December 31, 2004 $ 126 $ 26 $ 35 $ 187
Payments (10) (3) (31) (44)
Remaining accrual at
June 30, 2005 $ 116 $ 23 $ 4 $ 143
Cash outlays related to these accruals, as of June 30, 2005, for
aircraft charges, facility exit costs and employee charges will
occur through 2014, 2018 and 2005, respectively.
9.The Company includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting,
changes in minimum pension liabilities and unrealized gains and losses
on available-for-sale securities in comprehensive income (loss). For
the three months ended June 30, 2005 and 2004, comprehensive income
(loss) was $52 million and ($14) million, respectively, and for the
six months ended June 30, 2005 and 2004, comprehensive loss was $74
million and $213 million, respectively. The difference between net
earnings (loss) and comprehensive income (loss) for the three and six
months ended June 30, 2005 and 2004 is due primarily to the accounting
for the Company's derivative financial instruments.
10.American classifies certain receivables from its parent and
affiliates against Additional paid-in-capital. As of June 30,
2005, the company classified a $168 million receivable from its
parent against Additional paid-in-capital on the accompanying
condensed consolidated balance sheet. Comparatively, as of
December 31, 2004, the Company classified a $134 million receivable
from its parent against Additional paid-in-capital on the
accompanying condensed consolidated balance sheet.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Information
Statements in this report 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," "indicates," "believes," "forecast," "guidance,"
"outlook" and similar expressions are intended to identify forward-
looking statements. Forward-looking statements include, without
limitation, the Company's expectations concerning operations and
financial conditions, including changes in capacity, revenues and
costs, future financing plans and needs, overall economic conditions,
plans and objectives for future operations, and the impact on the
Company of its results of operations in recent years and the
sufficiency of its financial resources to absorb that impact. Other
forward-looking statements include statements which do not relate
solely to historical facts, such as, without limitation, statements
which discuss the possible future effects of current known trends or
uncertainties or which indicate that the future effects of known
trends or uncertainties cannot be predicted, guaranteed or assured.
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 the Company's actual results to differ materially from the
Company's 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: changes in economic, business and financial conditions;
the Company's substantial indebtedness; continued high fuel prices and
the availability of fuel; further increases in the price of fuel; the
impact of events in Iraq; conflicts in the Middle East or elsewhere;
the highly competitive business environment faced by the Company,
characterized by increasing pricing transparency and competition from
low cost carriers and financially distressed carriers; historically
low fare levels and fare simplification initiatives (both of which
could result in a further deterioration of the revenue environment);
the ability of the Company to reduce its costs further without
adversely affecting operational performance and service levels;
uncertainties with respect to the Company's international operations;
changes in the Company's business strategy; actions by U.S. or foreign
government agencies; the possible occurrence of additional terrorist
attacks; another outbreak of a disease (such as SARS) that affects
travel behavior; uncertainties with respect to the Company's
relationships with unionized and other employee work groups; the
inability of the Company to satisfy existing financial or other
covenants in certain of its credit agreements; the availability and
terms of future financing; the ability of the Company to reach
acceptable agreements with third parties; and increased insurance
costs and potential reductions of available insurance coverage.
Additional information concerning these and other factors is contained
in the Company's Securities and Exchange Commission filings, including
but not limited to the 2004 Form 10-K.
Overview
The Company recorded net earnings of $41 million during the second
quarter of 2005 compared to a net loss of $13 million in the same
period last year. The Company's second quarter 2005 results were
impacted by the continuing increase in fuel prices, offset by an
improvement in unit revenues (passenger revenue per available seat
mile) and a $27 million decrease in depreciation expense related to a
change in the depreciable lives of certain aircraft types described in
Note 4 to the Condensed Consolidated Financial Statements.
Fuel price increases resulted in a year-over-year increase of 52.2
cents per gallon for the second quarter. This price increase
negatively impacted fuel expense by $391 million during the quarter
based on fuel consumption of 749 million gallons. Continuing high
fuel prices, additional increases in the price of fuel, and/or
disruptions in the supply of fuel would further adversely affect the
Company's financial condition and its results of operations.
-8-
Mainline passenger unit revenues increased 7.0 percent for the second
quarter due to a 3.8 point load factor increase and a 1.9 percent
increase in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2004. Although load factor performance
continues to show significant year-over-year improvement, passenger
yield remains depressed by historical standards. The Company
believes this depressed passenger yield is due in large part to a
corresponding decline in the Company's pricing power. The Company's
reduced pricing power is the product of several factors, including:
greater cost sensitivity on the part of travelers (particularly
business travelers); greater competition from low-cost carriers and
from carriers that have recently reorganized or are reorganizing,
including under the protection of Chapter 11 of the Bankruptcy Code;
significant increases in overall capacity during 2004 and continuing
into 2005 that exceeded economic growth; and, more recently, fare
simplification efforts by certain carriers. The Company believes that
its reduced pricing power will persist indefinitely and possibly
permanently.
The Company continues to work - under the basic tenets of the
Turnaround Plan - with its unions and employees to identify and
implement additional initiatives designed to increase efficiencies
and revenues and reduce costs. During the second quarter, the
Company's numerous network, product and other initiatives implemented
during the past several years continued to benefit its financial
results. In addition, its employees showed a remarkable ability to
efficiently and courteously handle the record load factors during the
quarter. The Company will continue to work with its labor unions and
employees as its business partners on the need for continuous
improvement under the Turnaround Plan.
The Company's ability to become profitable and its ability to
continue to fund its obligations on an ongoing basis will depend on a
number of factors, some of which are largely beyond the Company's
control. Some of the risk factors that affect the Company's business
and financial results are referred to under "Forward-Looking
Information" above and are discussed in the Risk Factors listed in
Item 7 (on pages 27-30) in the 2004 Form 10-K. As the Company seeks
to improve its financial condition, it must continue to take steps to
generate additional revenues and to significantly reduce its costs.
Although the Company has a number of initiatives underway to address
its cost and revenue challenges, the adequacy and ultimate success of
these initiatives is not known at this time and cannot be assured.
It will be very difficult, absent continued restructuring of its
operations, for the Company to continue to fund its obligations on an
ongoing basis or to become profitable if the overall industry revenue
environment does not improve and fuel prices remain at historically
high levels for an extended period.
OTHER INFORMATION
Significant Indebtedness and Future Financing
The Company remains heavily indebted and has significant obligations
(including substantial pension funding obligations) due in 2005 and
thereafter, as described more fully under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the 2004 Form 10-K. The Company believes it should
have sufficient liquidity to fund its operations for the foreseeable
future, including repayment of debt and capital leases, capital
expenditures and other contractual obligations. Nonetheless, to
maintain sufficient liquidity as the Company continues to implement
its restructuring and cost reduction initiatives, the Company will
need access to additional funding. The Company's possible financing
sources primarily include: (i) a limited amount of additional secured
aircraft debt (a very large majority of the Company's owned aircraft,
including virtually all of the Company's Section 1110-eligible
aircraft, are encumbered) or sale-leaseback transactions involving
owned aircraft; (ii) debt secured by new aircraft deliveries; (iii)
debt secured by other assets; (iv) securitization of future operating
receipts; (v) the sale or monetization of certain assets; (vi)
unsecured debt; and (vii) equity and/or equity-like securities.
However, the availability and level of these financing sources cannot
be assured, particularly in light of American's reduced credit
ratings, high fuel prices, the historically weak fare environment and
the financial difficulties being experienced in the airline industry.
The inability of the Company to obtain additional funding would have a
material negative impact on the ability of the Company to sustain its
operations over the long-term.
-9-
The Company's substantial indebtedness could have important
consequences. For example, it could: (i) limit the Company's ability
to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes, or
adversely affect the terms on which such financing could be obtained;
(ii) require the Company to dedicate a substantial portion of its cash
flow from operations to payments on its indebtedness, thereby reducing
the funds available for other purposes; (iii) make the Company more
vulnerable to economic downturns; (iv) limit its ability to withstand
competitive pressures and reduce its flexibility in responding to
changing business and economic conditions; and (v) limit the Company's
flexibility in planning for, or reacting to, changes in its business
and the industry in which it operates.
Credit Facility Covenants
The Company has a credit facility (the Credit Facility) consisting of
a fully drawn $570 million senior secured revolving credit facility
with a final maturity on June 17, 2009 and a fully drawn $248.5
million term loan facility with a final maturity on December 17, 2010.
The Credit Facility contains a covenant (the Liquidity Covenant)
requiring American to maintain, as defined, unrestricted cash,
unencumbered short term investments and amounts available for drawing
under committed revolving credit facilities of not less than $1.5
billion for each quarterly period through September 30, 2005 and $1.25
billion for each quarterly period thereafter. The Company was in
compliance with the Liquidity Covenant as of June 30, 2005 and expects
to be able to continue to comply with this covenant. In addition, the
Credit Facility contains a covenant (the EBITDAR Covenant) requiring
AMR to maintain a ratio of cash flow (defined as consolidated net
income, before interest expense (less capitalized interest), income
taxes, depreciation and amortization and rentals, adjusted for certain
gains or losses and non-cash items) to fixed charges (comprising
interest expense (less capitalized interest) and rentals). The
required ratio was 0.85 to 1.00 for the four quarter period ending
June 30, 2005 and will increase gradually to 1.50 to 1.00 for the four
quarter period ending March 31, 2008 and for each four quarter period
ending on each fiscal quarter thereafter. AMR was in compliance with
the EBITDAR covenant as of June 30, 2005 and expects to be able to
continue to comply with this covenant in the near term.
Given the historically high price of fuel and the volatility of fuel
prices and revenues, it is difficult to assess whether AMR and
American will be able to continue to comply with the Liquidity
Covenant and in particular the EBITDAR Covenant, and there are no
assurances that AMR and American will be able to do so. Failure to
comply with these covenants would result in a default under the Credit
Facility which - - if the Company did not take steps to obtain a
waiver of, or otherwise mitigate, the default - - could result in a
default under a significant amount of the Company's other debt and
lease obligations.
Pension Funding Obligation
The Company expects to contribute approximately $310 million to its
defined benefit pension plans in 2005. This estimate reflects the
provisions of the Pension Funding Equity Act of 2004. Due to
uncertainties regarding significant assumptions involved in
estimating future required contributions to its defined benefit
pension plans, such as interest rate levels, the amount and timing of
asset returns, and the impact of proposed legislation (discussed
further below), the Company is not able to reasonably estimate its
future required contributions beyond 2005. However, based on the
current regulatory environment and market conditions, the Company
expects that its 2006 minimum required contributions will exceed its
2005 expected contributions. Of the $310 million the Company expects
to contribute to its defined benefit pension plans in 2005, the
Company contributed $213 million during the first six months of 2005.
Various defined benefit pension reform proposals are currently under
consideration by the Government, which could have a significant - -
positive or negative - - impact on the Company's future required
pension contributions. The likely outcome of these proposals is
currently unclear.
-10-
Cash Flow Activity
At June 30, 2005, American had $3.4 billion in unrestricted cash and
short-term investments, an increase of $456 million from December 31,
2004. Net cash provided by operating activities in the six-month
period ended June 30, 2005 was $918 million, an increase of $341
million over the same period in 2004. The increase was primarily the
result of an increase in the Air traffic liability due to a modest
improvement in the revenue environment, offset to a certain degree by
the $213 million pension contribution. Capital expenditures for the
first six months of 2005 were $222 million and included the cost of
improvements at New York's John F. Kennedy airport.
On July 1, 2005, American completed the re-marketing of $198 million
of DFW-FIC Series 2000A Unsecured Revenue Refunding Bonds in three
subseries which mature May 1, 2029. Certain municipalities originally
issued these special facility revenue bonds primarily to improve
airport facilities that are leased by American and accounted for as
operating leases. They were acquired by American in 2003 under a
mandatory tender provision; thus, American received the proceeds from
the remarketing in July and recorded the obligation in Other
liabilities, deferred gains and deferred credits.
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2005 and 2004
Revenues
The Company's revenues increased approximately $709 million, or 7.6
percent, to $10.0 billion for the six months ended June 30, 2005 from
the same period last year. American's passenger revenues increased
by 7.0 percent, or $533 million, on a capacity (ASM) increase of 1.5
percent. American's passenger load factor increased 4.0 points to
77.5 percent while passenger revenue yield per passenger mile
remained constant at 11.90 cents. This resulted in an increase in
American's passenger revenue per available seat mile (RASM) of 5.4
percent to 9.22 cents. Following is additional information regarding
American's domestic and international RASM and capacity:
Six Months Ended June 30, 2005
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 9.18 6.0% 57.7 (2.9)%
International 9.31 4.2 30.2 11.0
Latin America 9.20 2.4 15.4 11.1
Europe 9.77 8.9 11.5 7.0
Pacific 8.23 (4.2) 3.3 27.8
Regional affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $87 million, or 9.4 percent, to $1.0 billion as a
result of increased capacity and load factors. Regional affiliates'
traffic increased 23.7 percent to 4.2 billion RPMs, while capacity
increased 19.7 percent to 6.1 billion ASMs, resulting in a 2.3 point
increase in the passenger load factor to 68.6 percent.
Cargo revenues increased 1.7 percent, or $5 million, due to a 0.9
percent increase in cargo ton miles in addition to a 0.9 percent
increase in cargo revenue yield per ton mile.
-11-
Operating Expenses
The Company's total operating expenses increased 7.6 percent, or $698
million, to $9.9 billion for the six months ended June 30, 2005
compared to the same period in 2004. American's mainline operating
expenses per ASM in the six months ended June 30, 2005 increased 4.5
percent compared to the same period in 2004 to 9.92 cents. These
increases are due primarily to a 41.4 percent increase in American's
price per gallon of fuel in the first half of 2005 relative to the
same period in 2004, including the impact of a $55 million fuel excise
tax refund received in March 2005.
(in millions) Six Months
Ended Change Percentage
Operating Expenses June 30, 2005 from 2004 Change
Wages, salaries and benefits $ 3,030 $ (71) (2.3)%
Aircraft fuel 2,220 624 39.1 (a)
Regional payments to AMR Eagle 983 178 22.1 (b)
Other rentals and landing fees 562 17 3.1
Commissions, booking fees
and credit card expense 557 (17) (3.0)
Depreciation and amortization 485 (78) (13.9) (c)
Maintenance, materials and
repairs 402 (4) (1.0)
Aircraft rentals 286 (10) (3.4)
Food service 248 (26) (9.5)
Other operating expenses 1,151 54 4.9
Special charges - 31 NM (d)
Total operating expenses $ 9,924 $ 698 7.6%
(a)Aircraft fuel expense increased primarily due to a 41.4 percent
increase in American's price per gallon of fuel (including the benefit
of a $55 million fuel excise tax refund received in March 2005 and the
impact of fuel hedging) offset by a 1.7 percent decrease in American's
fuel consumption.
(b)Regional payment to AMR Eagle increased primarily as a result of
increased capacity and fuel costs.
(c)Depreciation and amortization expense decreased primarily due to
a change in the estimate of the depreciable lives of the Company's
Boeing 737-800, Boeing 757-200 and McDonnell Douglas MD-80 aircraft
from 25 to 30 years, which decreased depreciation and amortization
expense by approximately $54 million in the six months ended June 30,
2005.
(d)Special charges for 2004 included the reversal of reserves
previously established for (i) aircraft return costs of $20 million
and (ii) employee severance of $11 million.
Other Income (Expense)
Other income (expense), historically a net expense, decreased $54
million due primarily to the following: Interest income increased $36
million due primarily to a $14 million interest refund related to the
fuel excise tax refund discussed above and increases in interest rates
and short-term investments. Interest expense increased $15 million
due primarily to increases in variable interest rates. Miscellaneous-
net decreased $27 million, due primarily to the accrual during the
first quarter of 2004 of a $23 million award rendered by an
independent arbitrator and relating to a grievance filed by the Allied
Pilots Association.
Income Tax
The Company did not record a net tax benefit associated with its
losses for the six months ended June 30, 2005 and 2004 due to the
Company providing a valuation allowance, as discussed in Note 5 to the
condensed consolidated financial statements.
-12-
Regional Affiliates
The following table summarizes the combined capacity purchase activity
for the American Connection carriers and AMR Eagle for the six months
ended June 30, 2005 and 2004 (in millions):
Six Months Ended
June 30,
2005 2004
Revenues:
Regional Affiliates $1,012 $ 925
Other 43 38
$1,055 $ 963
Expenses:
Regional Affiliates $1,073 $ 887
Other incurred expenses 137 117
$1,210 $1,004
In addition, passengers connecting to American's flights from American
Connection and AMR Eagle flights generated passenger revenues for
American flights of $744 million and $683 for the six months ended
June 30, 2005 and 2004, respectively, which are included in Revenues -
Passenger in the consolidated statements of operations.
Outlook
The Company currently expects third quarter 2005 mainline unit costs
to be approximately 10.37 cents and full year 2005 mainline unit costs
to be approximately 10.20 cents, including the impact of the $55
million fuel excise tax refund received in March 2005.
Capacity for American's mainline jet operations is expected to
increase about 2.7 percent in the third quarter of 2005 compared to
the third quarter of 2004 and about 2.4 percent for the full year 2005
compared to 2004.
-13-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Except as discussed below, there have been no material changes in
market risk from the information provided in Item 7A. Quantitative and
Qualitative Disclosures About Market Risk of the Company's 2004 Form
10-K.
The risk inherent in the Company's fuel related market risk sensitive
instruments and positions is the potential loss arising from adverse
changes in the price of fuel. 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 the Company's exposure to such changes.
Therefore, actual results may differ. The Company does not hold or
issue derivative financial instruments for trading purposes.
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 by using jet fuel, heating oil, and crude oil hedging
contracts. Market risk is estimated as a hypothetical 10 percent
increase in the June 30, 2005 cost per gallon of fuel. Based on
projected 2005 and 2006 fuel usage through June 30, 2006, such an
increase would result in an increase to aircraft fuel expense of
approximately $466 million in the twelve months ended June 30, 2006,
inclusive of the impact of fuel hedge instruments outstanding at June
30, 2005, and assumes the Company's fuel hedging program remains
effective under Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
Comparatively, based on projected 2005 fuel usage, such an increase
would have resulted in an increase to aircraft fuel expense of
approximately $343 million in the twelve months ended December 31,
2005, inclusive of the impact of fuel hedge instruments outstanding at
December 31, 2004. The change in market risk is primarily due to the
increase in fuel prices.
As of June 30, 2005, the Company had hedged an insignificant
percentage of its estimated 2005, 2006 and 2007 fuel requirements with
option contracts.
Item 4. Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the
Exchange Act. This term refers to the controls and procedures of a
company that are designed to ensure that information required to be
disclosed by a company in the reports that it files under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission. An
evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the Company's disclosure controls and procedures as
of June 30, 2005. Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective as of June 30, 2005. During the
quarter ending on June 30, 2005, there was no change in the Company's
internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
-14-
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1999, a class action lawsuit was filed, and in November
1999 an amended complaint was filed, against AMR Corporation, American
Airlines, Inc., AMR Eagle Holding Corporation, Airlines Reporting
Corporation, and the Sabre Group Holdings, Inc. in the United States
District Court for the Central District of California, Western
Division (Westways World Travel, Inc. v. AMR Corp., et al.). The
lawsuit alleges that requiring travel agencies to pay debit memos to
American for violations of American's fare rules (by customers of the
agencies): (1) breaches the Agent Reporting Agreement between American
and AMR Eagle and the plaintiffs; (2) constitutes unjust enrichment;
and (3) violates the Racketeer Influenced and Corrupt Organizations
Act of 1970 (RICO). On July 9, 2003, the court certified a class that
included all travel agencies who have been or will be required to pay
money to American for debit memos for fare rules violations from July
26, 1995 to the present. On February 24, 2005, the court decertified
the class. The remaining two plaintiffs seek to enjoin American from
enforcing the pricing rules in question and to recover the amounts
paid for debit memos, plus treble damages, attorneys' fees, and costs.
The Company is vigorously defending the lawsuit. Although the Company
believes that the litigation is without merit, a final adverse court
decision could impose restrictions on the Company's relationships with
travel agencies, which could have an adverse impact on the Company.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by
travel agents some of whom opted out of a prior class action (now
dismissed) to pursue their claims individually against American
Airlines, Inc., other airline defendants, and in one case against
certain airline defendants and Orbitz LLC. (Tam Travel et. al., v.
Delta Air Lines et. al., in the United States District Court for the
Northern District of California - San Francisco (51 individual
agencies), Paula Fausky d/b/a Timeless Travel v. American Airlines,
et. al, in the United States District Court for the Northern District
of Ohio Eastern Division (29 agencies) and Swope Travel et al. v.
Orbitz et. al. in the United States District Court for the Eastern
District of Texas Beaumont Division (6 agencies)). Collectively,
these lawsuits seek damages and injunctive relief alleging that the
certain airline defendants and Orbitz LLC: (i) conspired to prevent
travel agents from acting as effective competitors in the distribution
of airline tickets to passengers in violation of Section 1 of the
Sherman Act; (ii) conspired to monopolize the distribution of common
carrier air travel between airports in the United States in violation
of Section 2 of the Sherman Act; and that (iii) between 1995 and the
present, the airline defendants conspired to reduce commissions paid
to U.S.-based travel agents in violation of Section 1 of the Sherman
Act. These cases have been consolidated in the United States District
Court for the Northern District of Ohio Eastern Division. American is
vigorously defending these lawsuits. A final adverse court decision
awarding substantial money damages or placing restrictions on the
Company's distribution practices would have an adverse impact on the
Company.
On August 19, 2002, a class action lawsuit seeking monetary damages
was filed, and on May 7, 2003, an amended complaint was filed in the
United States District Court for the Southern District of New York
(Power Travel International, Inc. v. American Airlines, Inc., et al.)
against American, Continental Airlines, Delta Air Lines, United
Airlines, and Northwest Airlines, alleging that American and the other
defendants breached their contracts with the agency and were unjustly
enriched when these carriers at various times reduced their base
commissions to zero. The as yet uncertified class includes all travel
agencies accredited by the Airlines Reporting Corporation "whose base
commissions on airline tickets were unilaterally reduced to zero by"
the defendants. The case is stayed as to United Airlines, since it
filed for bankruptcy. American is vigorously defending the lawsuit.
Although the Company believes that the litigation is without merit, a
final adverse court decision awarding substantial money damages or
forcing the Company to pay agency commissions would have an adverse
impact on the Company.
-15-
Miami-Dade County (the County) is currently investigating and
remediating various environmental conditions at the Miami
International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American and AMR
Eagle have been named as potentially responsible parties (PRPs) for
the contamination at MIA. During the second quarter of 2001, the
County filed a lawsuit against 17 defendants, including American
Airlines, Inc., in an attempt to recover its past and future cleanup
costs (Miami-Dade County, Florida v. Advance Cargo Services, Inc., et
al. in the Florida Circuit Court). The Company is vigorously defending
the lawsuit. In addition to the 17 defendants named in the lawsuit,
243 other agencies and companies were also named as PRPs and
contributors to the contamination. The case is currently stayed while
the parties pursue an alternative dispute resolution process. The
County has proposed draft allocation models for remedial costs for the
Terminal and Tank Farm areas of MIA. While it is anticipated that
American and AMR Eagle will be allocated equitable shares of remedial
costs, the Company does not expect the allocated amounts to have a
material adverse effect on the Company.
Four cases (each being a purported class action) have been filed
against American arising from the disclosure of passenger name records
by a vendor of American. The cases are: Kimmell v. AMR, et al. (U.
S. District Court, Texas), Baldwin v. AMR, et al. (U. S. District
Court, Texas), Rosenberg v. AMR, et al. (U. S. District Court, New
York) and Anapolsky v. AMR, et al. (U.S. District Court, New York).
The Kimmell suit was filed in April 2004. The Baldwin and Rosenberg
cases were filed in May 2004. The Anapolsky suit was filed in
September 2004. The suits allege various causes of action, including
but not limited to, violations of the Electronic Communications
Privacy Act, negligent misrepresentation, breach of contract and
violation of alleged common law rights of privacy. In each case
plaintiffs seek statutory damages of $1000 per passenger, plus
additional unspecified monetary damages. The Court dismissed the
cases but allowed leave to amend, and the Kimmell and Rosenberg cases
have been refiled. The Company is vigorously defending these suits
and believes the suits are without merit. However, a final adverse
court decision awarding a maximum amount of statutory damages would
have an adverse impact on the Company.
American is defending three lawsuits, filed as class actions but not
certified as such, arising from allegedly improper failure to refund
certain governmental taxes and fees collected by the Company upon the
sale of nonrefundable tickets when such tickets are not used for
travel. The suits are: Coleman v. American Airlines, Inc., No.
101106, filed December 31, 2002, pending (on appeal) before the
Supreme Court of Oklahoma. The Coleman Plaintiffs seek actual damages
(not specified) and interest. Hayes v. American Airlines, Inc., No.
04-3231, pending in the United States District Court for the Eastern
District of New York, filed July 2, 2004. The Hayes Plaintiffs seek
unspecified damages, declaratory judgment, costs, attorneys' fees, and
interest. Harrington v. Delta Air Lines, Inc., et. al., No. 04-
12558, pending in the United States District Court for the District of
Massachusetts, filed November 4, 2004. The Harrington plaintiffs seek
unspecified actual damages (trebled), declaratory judgment, injunctive
relief, costs, and attorneys' fees. The suits assert various causes
of action, including breach of contract, conversion, and unjust
enrichment. The Company is vigorously defending the suits and
believes them to be without merit. However, a final adverse court
decision requiring the Company to refund collected taxes and/or fees
could have an adverse impact on the Company.
On March 11, 2004, a patent infringement lawsuit was filed against AMR
Corporation, American Airlines, Inc., AMR Eagle Holding Corporation,
and American Eagle Airlines, Inc. in the United States District Court
for the Eastern District of Texas (IAP Intermodal, L.L.C. v. AMR
Corp., et al.). The case was consolidated with eight similar lawsuits
filed against a number of other unaffiliated airlines, including
Continental, Northwest, British Airways, Air France, Pinnacle
Airlines, Korean Air and Singapore Airlines (as well as various
regional affiliates of the foregoing). The plaintiff alleges that the
airline defendants infringe three patents, each of which relates to a
system of scheduling vehicles based on freight and passenger
transportation requests received from remote computer terminals. The
plaintiff is seeking past and future royalties of over $30 billion
dollars, injunctive relief, costs and attorneys' fees. Although the
Company believes that the plaintiff's claims are without merit and is
vigorously defending the lawsuit, a final adverse court decision
awarding substantial money damages or placing material restrictions on
existing scheduling practices would have an adverse impact on the
Company.
-16-
On July 12, 2004, a consolidated class action complaint, that was
subsequently amended on November 30, 2004, was filed against American
Airlines, Inc. and the Association of Professional Flight Attendants
(APFA), the Union which represents the Company's flight attendants
(Ann M. Marcoux, et al., v. American Airlines Inc., et al. in the
United States District Court for the Eastern District of New York).
While a class has not yet been certified, the lawsuit seeks on behalf
of all of American's flight attendants or various subclasses to set
aside, and to obtain damages allegedly resulting from, the April 2003
Collective Bargaining Agreement referred to as the Restructuring
Participation Agreement (RPA). The RPA was one of three labor
agreements the Company successfully reached with its unions in order
to avoid filing for bankruptcy in 2003. In a related case (Sherry
Cooper, et al. v. TWA Airlines, LLC, et al., also in the United States
District Court for the Eastern District of New York), the court denied
a preliminary injunction against implementation of the RPA on June 30,
2003. The Marcoux suit alleges various claims against the Union and
American relating to the RPA and the ratification vote on the RPA by
individual Union members, including: violation of the Labor Management
Reporting and Disclosure Act (LMRDA) and the APFA's Constitution and
By-laws, violation by the Union of its duty of fair representation to
its members, violation by the Company of provisions of the Railway
Labor Act through improper coercion of flight attendants into voting
or changing their vote for ratification, and violations of the
Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
Although the Company believes the case against it is without merit and
both the Company and the Union are vigorously defending the lawsuit, a
final adverse court decision invalidating the RPA and awarding
substantial money damages would have an adverse impact on the Company.
-17-
Item 6. Exhibits
The following exhibits are included herein:
10.1 Letter Agreement dated May 5, 2005 between The Boeing Company and
American Airlines, Inc. Portions of this agreement have been omitted
pursuant to a request for confidential treatment filed with the
Securities and Exchange Commission.
12 Computation of ratio of earnings to fixed charges for the three
and six months ended June 30, 2005 and 2004.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32 Certification pursuant to Rule 13a-14(b) and section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code).
-18-
Signature
Pursuant to the requirements 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.
AMERICAN AIRLINES, INC.
Date: July 25, 2005 BY: /s/ James A. Beer
James A. Beer
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-19-
Exhibit 10.1
6-1162-AKP-074R2
American Airlines, Inc.
P.O. Box 619616
Dallas-Fort Worth Airport, Texas 75261-9616
Subject: Business Considerations
Reference: a) Purchase Agreement No. 1977 between
The Boeing Company (Boeing) and American
Airlines, Inc. (Customer) relating to
Model 737-823 Aircraft
b) Letter Agreement No. 6-1162-AKP-074R1,
dated July 17, 1998, Same Subject
This letter agreement (Letter Agreement) is entered into
on the date below and amends and supplements the Reference
(a) Purchase Agreement. Furthermore, this Letter
Agreement cancels and supersedes in full the Reference (b)
Letter Agreement. All capitalized terms used herein but
not otherwise defined in this Letter Agreement shall have
the same meanings assigned thereto in Exhibit C to the
Purchase Agreement or elsewhere in such Purchase
Agreement.
1. Model 737-823
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT].
2. Model 737-723 [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
If Customer purchases one or more Model 737-723
Aircraft pursuant to Letter Agreement No. 6-1162-AKP-075,
then Boeing will [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
3. Model 737-623 [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
If Customer purchases one or more Model 737-623
Aircraft pursuant to Letter Agreement No. 6-1162-AKP-075,
then Boeing will [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
4. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT].
4.1 If Customer purchases one or more Model 737-823
Aircraft after the date of this Letter Agreement,
Boeing shall [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
4.2 If Customer purchases one or more Model 737-723
Aircraft after the date of this Letter Agreement,
Boeing shall [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
4.3 At the execution of this revised Letter
Agreement, Boeing has not [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT].
5. Application [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
Customer will be entitled to [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6. Confidential Treatment.
Customer and Boeing understand that certain
commercial and financial information contained in this
Letter Agreement are considered by Boeing and Customer as
confidential. Customer and Boeing agree that each will
treat this Letter Agreement and the information contained
herein as confidential and will not, without the prior
written consent of the other, disclose this Letter
Agreement or any information contained herein to any other
person or entity, except as provided in this Letter
Agreement or the Purchase Agreement.
Very truly yours,
THE BOEING COMPANY
By [Lyn A. Johnson]
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: May 5 , 2005
AMERICAN AIRLINES, INC.
By [Beverly Goulet]
Its Vice President - Corp. Dev. & Treasurer
Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Earnings (loss):
Earnings (loss) before income
taxes $ 41 $ (13) $(130) $(195)
Add: Total fixed charges (per below) 368 372 751 740
Less: Interest capitalized 24 19 46 36
Total earnings before income taxes $ 385 $ 340 $ 575 $ 509
Fixed charges:
Interest $ 164 $ 162 $ 341 $ 322
Portion of rental expense
representataive of the interest
factor 201 207 405 413
Amortization of debt expense 3 3 5 5
Total fixed charges $ 368 $ 372 $ 751 $ 740
Ratio of earnings to fixed charges 1.05 - - -
Coverage deficiency $ - $ 32 $ 176 $ 231
Note: As of June 30, 2005, American has guaranteed approximately
$1.3 billion of AMR's unsecured debt and approximately $447
million of AMR Eagle's secured debt. The impact of these
unconditional guarantees is not included in the above computation.
Exhibit 31.1
I, Gerard J. Arpey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Airlines, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: July 25, 2005 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief Executive
Officer
Exhibit 31.2
I, James A. Beer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Airlines, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: July 25, 2005 /s/ James A. Beer
James A. Beer
Senior Vice President and Chief Financial
Officer
Exhibit 32
American Airlines, Inc.
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), each of the undersigned officers of American
Airlines, Inc., a Delaware corporation (the Company), does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
(the Form 10-Q) of the Company fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
information contained in the Form 10-Q fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: July 25, 2005 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief Executive
Officer
Date: July 25, 2005 /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
The foregoing certification is being furnished solely pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code) and
is not being filed as part of the Form 10-Q or as a separate
disclosure document.