SEC Filing | American Airlines

1 ================================================================================ 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, 2000. [ ]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 jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 4333 Amon Carter Blvd. Fort Worth, Texas 76155 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (817) 963-1234 -------------- 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 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 25, 2000 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. ================================================================================

2 INDEX AMERICAN AIRLINES, INC. Part I: FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations -- Three and six months ended June 30, 2000 and 1999 Condensed Consolidated Balance Sheets -- June 30, 2000 and December 31, 1999 Condensed Consolidated Statements of Cash Flows -- Six months ended June 30, 2000 and 1999 Notes to Condensed Consolidated Financial Statements -- June 30, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk Part II: OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURE

3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In millions, except per share amounts) - -------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- REVENUES Passenger $ 4,186 $ 3,751 $ 7,956 $ 7,071 Cargo 177 162 343 305 Other 247 264 513 510 ---------- ---------- ---------- ---------- Total operating revenues 4,610 4,177 8,812 7,886 EXPENSES Wages, salaries and benefits 1,570 1,466 3,084 2,849 Aircraft fuel 539 395 1,066 731 Depreciation and amortization 261 240 517 466 Commissions to agents 256 279 498 551 Other rentals and landing fees 237 222 453 433 Maintenance, materials and repairs 224 180 446 398 Food service 197 183 379 348 Aircraft rentals 140 148 280 298 Other operating expenses 715 700 1,432 1,421 ---------- ---------- ---------- ---------- Total operating expenses 4,139 3,813 8,155 7,495 ---------- ---------- ---------- ---------- OPERATING INCOME 471 364 657 391 OTHER INCOME (EXPENSE) Interest income 34 11 64 29 Interest expense (69) (52) (139) (103) Interest capitalized 33 27 69 58 Related party interest - net 1 14 6 25 Miscellaneous - net 54 (7) 48 24 ---------- ---------- ---------- ---------- 53 (7) 48 33 ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 524 357 705 424 Income tax provision 200 141 276 173 ---------- ---------- ---------- ---------- NET EARNINGS $ 324 $ 216 $ 429 $ 251 ========== ========== ========== ========== The accompanying notes are an integral part of these financial statements. -1-

4 AMERICAN AIRLINES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) - -------------------------------------------------------------------------------- June 30, December 31, 2000 1999 ------------ ------------ ASSETS CURRENT ASSETS Cash $ 127 $ 72 Short-term investments 2,205 1,645 Receivables, net 1,420 1,124 Receivable from affiliates, net 355 651 Inventories, net 609 616 Deferred income taxes 597 597 Other current assets 206 176 ------------ ------------ Total current assets 5,519 4,881 EQUIPMENT AND PROPERTY Flight equipment, net 11,081 9,916 Other equipment and property, net 1,470 1,383 Purchase deposits for flight equipment 1,382 1,495 ------------ ------------ 13,933 12,794 EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES Flight equipment, net 1,573 1,623 Other equipment and property, net 98 98 ------------ ------------ 1,671 1,721 Route acquisition costs, net 872 887 Other assets, net 1,432 1,436 ------------ ------------ $ 23,427 $ 21,719 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,206 $ 991 Accrued liabilities 1,959 1,790 Air traffic liability 2,977 2,255 Current maturities of long-term debt 113 61 Current obligations under capital leases 222 210 ------------ ------------ Total current liabilities 6,477 5,307 Long-term debt, less current maturities 2,252 2,231 Obligations under capital leases, less current obligations 1,292 1,414 Deferred income taxes 1,715 1,581 Other liabilities, deferred gains, deferred credits and postretirement benefits 4,110 4,036 STOCKHOLDERS' EQUITY Common stock -- -- Additional paid-in capital 1,836 1,840 Accumulated other comprehensive income (2) (2) Retained earnings 5,747 5,312 ------------ ------------ 7,581 7,150 ------------ ------------ $ 23,427 $ 21,719 ============ ============ The accompanying notes are an integral part of these financial statements -2-

5 AMERICAN AIRLINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) - -------------------------------------------------------------------------------- Six Months Ended June 30, ------------------------------ 2000 1999 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,829 $ 604 CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures, including net change in purchase deposits for flight equipment (1,686) (1,786) Net decrease (increase) in short-term investments (560) 271 Acquisitions and other investments (15) (44) Proceeds from sale of equipment and property 132 40 Proceeds from sale of other investments 94 31 ------------ ------------ Net cash used for investing activities (2,035) (1,488) CASH FLOW FROM FINANCING ACTIVITIES: Payments on long-term debt and capital lease obligations (137) (98) Proceeds from issuance of long-term debt 102 612 Sale-leaseback transactions -- 54 Funds transferred from affiliates, net 296 275 ------------ ------------ Net cash provided by financing activities 261 843 Net increase (decrease) in cash 55 (41) Cash at beginning of period 72 85 ------------ ------------ Cash at end of period $ 127 $ 44 ============ ============ ACTIVITIES NOT AFFECTING CASH: Capital lease obligations incurred $ -- $ 54 The accompanying notes are an integral part of these financial statements. -3-

6 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. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the American Airlines, Inc. (American or the Company) Annual Report on Form 10-K for the year ended December 31, 1999. Certain amounts from 1999 have been reclassified to conform with the 2000 presentation. 2. Accumulated depreciation of owned equipment and property at June 30, 2000 and December 31, 1999, was $7.3 billion and $7.0 billion, respectively. Accumulated amortization of equipment and property under capital leases at June 30, 2000 and December 31, 1999, was $1.2 billion and $1.1 billion, respectively. 3. As discussed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, the Miami International Airport Authority is currently remediating various environmental conditions at Miami International Airport (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. In addition, the Company is subject to environmental issues at various other airport and non-airport locations. Management believes, after considering a number of factors, that the ultimate disposition of these environmental issues is not expected to materially affect the Company's consolidated financial position, results of operations, or cash flows. Amounts recorded for environmental issues are based on the Company's current assessments of the ultimate outcome and, accordingly, could increase or decrease as these assessments change. 4. As of June 30, 2000, the Company had commitments to acquire the following aircraft: 69 Boeing 737-800s, 20 Boeing 757-200s and 15 Boeing 777-200IGWs. Deliveries of these aircraft will extend through 2004. Payments for these aircraft will approximate $850 million during the remainder of 2000, $1.6 billion in 2001, $500 million in 2002 and an aggregate of approximately $300 million in 2003 and 2004. 5. During 1999, the Company entered into an agreement with priceline.com Incorporated (priceline) whereby ticket inventory provided by the Company may be sold through priceline's e-commerce system. In conjunction with this agreement, the Company received warrants to purchase approximately 5.5 million shares of priceline common stock. In the second quarter of 2000, the Company sold these warrants for proceeds of approximately $94 million, and recorded a pre-tax gain of $57 million ($36 million after-tax), which is included in Miscellaneous - net on the consolidated statements of operations. 6. In connection with a secondary offering by Equant N.V. in February 1999, the Company sold approximately 433,000 depository certificates for proceeds of $31 million. The Company recorded a pre-tax gain of $31 million ($19 million after-tax) as a result of this transaction which is included in Miscellaneous - net on the consolidated statements of operations. -4-

7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 American recorded NET EARNINGS for the six months ended June 30, 2000 of $429 million. This compares to net earnings of $251 million for the six months ended June 30, 1999. American's OPERATING INCOME of $657 million increased $266 million compared to the same period in 1999. The Company's 2000 results include an after-tax gain of approximately $36 million related to the sale of the Company's warrants to purchase 5.5 million shares of priceline.com Incorporated (priceline) common stock. The Company's 1999 results include a labor disagreement that disrupted the Company's operations and negatively impacted the Company's 1999 net earnings by an estimated $140 million. This was partially offset by the after-tax gain related to the sale of a portion of American's holdings in Equant, N.V. (Equant) of approximately $19 million. American's PASSENGER REVENUES increased by 12.5 percent, or $885 million. American's YIELD of 13.84 cents increased by 6.1 percent compared to the same period in 1999. Domestic yields increased 5.8 percent from the first six months of 1999. International yields increased 7.1 percent, reflecting an increase of 16.9 percent, 8.6 percent and 4.8 percent in Pacific, Europe and Latin American yields, respectively. The increase in revenues was due primarily to a strong U.S. economy, which led to strong demand for air travel both domestically and internationally, and a favorable pricing climate. In addition, the first quarter of 1999 includes a schedule disruption which impacted the Company's operations. American's traffic or REVENUE PASSENGER MILES (RPMs) increased 6.0 percent to 57.4 billion miles for the six months ended June 30, 2000. American's capacity or AVAILABLE SEAT MILES (ASMs) increased 2.6 percent to 80.1 billion miles in the first six months of 2000. American's domestic traffic increased 4.8 percent on capacity growth of 1.1 percent and international traffic increased 8.9 percent on capacity increases of 6.0 percent. The increase in domestic capacity was due primarily to the addition of new aircraft, mostly offset by the Company's "More Room Throughout Coach" initiative. The increase in international traffic was driven by a 16.2 percent increase in traffic to the Pacific on capacity growth of 5.2 percent, an 11.0 percent increase in traffic to Europe on a capacity increase of 9.9 percent and a 5.6 percent increase in traffic to Latin America on capacity growth of 3.2 percent. Cargo REVENUES increased $38 million, or 12.5 percent, due primarily to a fuel surcharge implemented in February 2000 and the Company's increase in cargo capacity from the addition of new aircraft in late 1999 and 2000. The Company's OPERATING EXPENSES increased 8.8 percent, or $660 million. American's cost per ASM increased by 6.8 percent to 10.10 cents. WAGES, SALARIES AND BENEFITS increased $235 million, or 8.2 percent, primarily due 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 and an increase in the provision for profit-sharing. AIRCRAFT FUEL expense increased 45.8 percent, or $335 million, due to a 40.4 percent increase in American's average price per gallon and a 4.0 percent increase in American's fuel consumption. The increase in fuel expense is net of gains of approximately $220 million recognized during the six months ended June 30, 2000 relating to the Company's fuel hedging program. DEPRECIATION AND AMORTIZATION expense increased $51 million, or 10.9 percent, due primarily to the addition of new aircraft. COMMISSIONS TO AGENTS decreased 9.6 percent, or $53 million, despite an increase of approximately 12.5 percent in passenger revenues, due primarily to the benefit from the international base commission structure change implemented in October 1999 and a decrease in commissionable transactions. MAINTENANCE, MATERIALS AND REPAIRS expense increased 12.1 percent, or $48 million, due primarily to an increase in airframe and engine maintenance volumes at American's maintenance bases and an approximate $17 million one-time credit the Company received in the second quarter of 1999. -5-

8 RESULTS OF OPERATIONS (CONTINUED) INTEREST INCOME increased approximately $35 million due primarily to higher investment balances. INTEREST EXPENSE increased approximately $36 million, or 35.0 percent, due to an increase in long-term debt. INTEREST CAPITALIZED increased 19.0 percent, or $11 million, due to an increase in purchase deposits for flight equipment. RELATED PARTY INTEREST - NET decreased approximately $19 million due primarily to lower affiliate intercompany balances with American. MISCELLANEOUS - NET increased approximately $24 million due primarily to the gain on sale of the Company's warrants to purchase 5.5 million shares of priceline common stock in the second quarter of 2000, which resulted in a $57 million gain. In the second quarter of 1999, the Company recorded an approximate $31 million gain on the sale of a portion of the Company's interest in Equant. OTHER INFORMATION AIRCRAFT COMMITMENTS As of June 30, 2000, the Company had commitments to acquire the following aircraft: 69 Boeing 737-800s, 20 Boeing 757-200s and 15 Boeing 777-200IGWs. Deliveries of these aircraft will extend through 2004. Payments for these aircraft will approximate $850 million during the remainder of 2000, $1.6 billion in 2001, $500 million in 2002 and an aggregate of approximately $300 million in 2003 and 2004. The Company expects to fund its remaining 2000 capital expenditures from the Company's existing cash and short-term investments, internally generated cash, and new financing depending upon capital market conditions and the Company's evolving view of its long-term needs. 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. Congress enacted the Wright Amendment to prevent the federal government from acting inconsistent with this agreement. 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 some 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 contended 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 Dallas has an obligation to do so. American joined in this litigation. On October 15, 1998, the state district court granted summary judgment in favor of American and Fort Worth. On May 25, 2000, the Fort Worth Court of Appeals overturned the district court order and concluded that the Bond Ordinance was preempted by federal law. American and Fort Worth filed motions asking the Fort Worth Court of Appeals to reconsider its decision. In the same lawsuit, DFW filed claims alleging that irrespective of whether the Bond Ordinance was enforceable, the DFW Use Agreement prohibited American and other DFW signatory airlines from moving any interstate operations to Love Field. Dallas filed a separate declaratory judgment action in the United States District Court for the Northern District of Texas, Dallas Division, seeking to have the court declare that, as a matter of law, the 1997 Amendment precludes the City of Dallas from exercising any restrictions on operations at Love Field. Further, in May 1998, Continental Airlines and Continental Express filed a lawsuit in Dallas federal court seeking a judicial declaration that the Bond Ordinance cannot be enforced to prevent them from operating flights from Love Field to Cleveland using regional jets. These two federal court lawsuits were consolidated and stayed. -6-

9 In December 1998, the Department of Transportation (DOT) issued an order on the federal law questions concerning the Bond Ordinance, local proprietary powers, DFW's Use Agreement with DFW carriers such as American, and the Wright and 1997 Amendments, and concluded that the Bond Ordinance was preempted by federal law and was therefore not enforceable. The DOT also found that the DFW Use Agreement did not preclude American from conducting interstate operations at Love Field. Fort Worth, American and DFW appealed the DOT's order to the Fifth Circuit Court of Appeals, and on February 1, 2000, the Fifth Circuit affirmed the DOT's order in all respects. American, Fort Worth and DFW each filed petitions for writ of certiorari with the United States Supreme Court, which were denied on June 29, 2000. Shortly thereafter, American, Fort Worth and DFW dismissed all remaining motions and claims in the Texas state court litigation. Consequently, litigation over the right to provide scheduled passenger operations at Love Field on aircraft with fewer than 57 seats to destinations beyond the Wright Amendment perimeter has ended. In January 2000, the Department of Justice, at the behest of the DOT, filed a lawsuit in the United States District Court for the Northern District of Texas, Dallas Division, against Fort Worth and American seeking to enforce the DOT's order and to prevent any party from interfering with any carrier operating under that order. On May 1, 2000, American commenced service from Love Field to Chicago and Los Angeles using terminal space leased from Continental Express on a short-term basis. American has further announced that it will offer service from Love Field to New York's LaGuardia airport commencing August 31, 2000. American is seeking long-term facilities at Love Field from the City of Dallas for its Love Field operations. As a result of the foregoing, an increase in operations at Love Field and/or the inability of American to obtain adequate facilities to compete effectively at Love Field could adversely impact American's business. INDUSTRY CONSOLIDATION Two competitors of the Company, UAL Corporation and US Airways Group, Inc., recently announced that they have entered into a definitive merger agreement. If that merger were to be consummated or other significant consolidation were to occur in the airline industry, conditions and competition in the industry could be significantly altered. If the Company were involved in a business combination with a competitor, the financial condition and prospects of the resulting corporation could be materially different from those of the Company. -7-

10 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 report, the words "expects," "plans," "anticipates," and similar expressions are intended to identify forward-looking statements. 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. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, included but not limited to the Form 10-K for the year ended December 31, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 Annual Report on Form 10-K for the year ended December 31, 1999. -8-

11 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In connection with its frequent flyer program, American was sued in several purported class action cases currently pending in the Circuit Court of Cook County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v. American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and attorneys' fees claiming that a change made to American's AAdvantage program in May 1988, which limited the number of seats available to participants travelling on certain awards, breached American's agreement with its AAdvantage members. (Although the Wolens complaint originally asserted several state law claims, only the plaintiffs' breach of contract claim remains after the U.S. Supreme Court ruled that the Airline Deregulation Act preempted the other claims). In Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs also seek money damages and attorneys' fees claiming that the February 1995 increase in the award mileage required to claim a certain AAdvantage travel award breached the agreement between American and its AAdvantage members. On June 23, 1998, the court certified the Gutterman case as a class action. In February 2000, American and the Wolens and Gutterman plaintiffs reached a settlement of both lawsuits. Pursuant to the agreement, American and the plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs agreed to ask the court to certify a Wolens class of AAdvantage members who had at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In addition, American and the Gutterman plaintiffs agreed to ask the court to decertify the existing Gutterman class and to certify a new Gutterman class of AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000 AAdvantage miles for certain AAdvantage awards and/or (b) had between 4,700 and 24,999 unredeemed miles in his or her account that were earned in 1992 or 1993. Depending upon certain factors, Wolens and Gutterman class members will be entitled to receive certificates entitling them to mileage off certain AAdvantage awards or dollars off certain American fares. As part of the settlement, American agreed to pay the Wolens and Gutterman plaintiffs' attorneys and the cost of administering the settlement, which amounts were accrued as of December 31, 1999. In consideration for the relief provided in the settlement agreement, Wolens and Gutterman class members will release American from all claims arising from any changes that American has made to the AAdvantage program and reaffirming American's right to make changes to the AAdvantage program in the future. On May 2, 2000, the court preliminarily approved the settlement and authorized sending notice of the settlement to class members. Before the settlement can become effective, the court must give final approval of the settlement agreement after providing any objectors an opportunity to be heard. On August 7, 1998, a purported class action was filed against American Airlines in state court in Travis County, Texas (Boon Ins. Agency v. American Airlines, Inc., et al.) claiming that the $75 reissuance fee for changes to non-refundable tickets is an unenforceable liquidated damages clause and seeking a refund of the fee on behalf of passengers who paid it, as well as interest and attorneys' fees. On September 23, 1998, Continental, Delta, and America West were added as defendants to the lawsuit. On February 2, 1999, prior to any discovery being taken and a class being certified, the court granted the defendants' motion for summary judgment holding that plaintiff's claims are preempted by the Airline Deregulation Act. Plaintiff has filed an appeal of the dismissal of the lawsuit. On March 30, 2000, the Texas Court of Appeals in Austin affirmed the granting of defendants' motion for summary judgment. The plaintiff is seeking review by the Supreme Court of Texas. American is vigorously defending all claims against it. -9-

12 PART II ITEM 1. LEGAL PROCEEDINGS (CONTINUED) On May 20, 1999, several class action lawsuits filed against the Allied Pilots Association (APA) seeking compensation for passengers and cargo shippers adversely affected by a labor disagreement that disrupted operations in February 1999 were consolidated in the United States District Court for the Northern District of Texas, Dallas Division (In re Allied Pilots Association Class Action Litigation). Plaintiffs are not seeking to hold American independently liable. Instead, Plaintiffs named American as a defendant because American has a $45.5 million judgment against the APA. APA filed cross claims against American in one of the cases now consolidated in the Northern District of Texas alleging that American must indemnify pilots who put themselves on the sick list. APA also filed a motion to dismiss all claims against it. A United States District Court Magistrate recommended that the court dismiss all the claims in the lawsuit, concluding that certain claims are preempted by federal law and that certain other claims should be brought in state court, rather than federal court. The Magistrate's recommendations are pending before the court. On July 24, 2000, American announced that it had reached a tentative agreement with the APA that would modify the existing labor contract between American and the APA which, if approved by the APA membership, will resolve among other issues American's $45.5 million judgment against the APA. If this agreement is approved, it may impact claims against American in this litigation. In the meanwhile, American is vigorously defending all claims against it. 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 American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3) violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). The as yet uncertified class includes all travel agencies who have been or will be required to pay monies to American for debit memos for fare rules violations from July 26, 1995 to the present. 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. Defendants' motion to dismiss all claims is pending. American intends to vigorously defend the lawsuit. On May 13, 1999, the United States (through the Antitrust Division of the Department of Justice) sued AMR Corporation, American Airlines, Inc., and AMR Eagle Holding Corporation in federal court in Wichita, Kansas. The lawsuit alleges that American unlawfully monopolized or attempted to monopolize airline passenger service to and from Dallas/Fort Worth International Airport (DFW) by increasing service when new competitors began flying to DFW, and by matching these new competitors' fares. The Department of Justice seeks to enjoin American from engaging in the alleged improper conduct and to impose restraints on American to remedy the alleged effects of its past conduct. American intends to defend the lawsuit vigorously. Between May 14, 1999 and June 7, 1999, seven class action lawsuits were filed against AMR Corporation, American Airlines, Inc., and AMR Eagle Holding Corporation in the United States District Court in Wichita, Kansas seeking treble damages under federal and state antitrust laws, as well as injunctive relief and attorneys' fees. (King v. AMR Corp., et al.; Smith v. AMR Corp., et al.; Team Electric v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier v. AMR Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR Corp., et al.). Collectively, these lawsuits allege that American unlawfully monopolized or attempted to monopolize airline passenger service to and from DFW by increasing service when new competitors began flying to DFW, and by matching these new competitors' fares. Two of the suits (Smith and Wright) also allege that American unlawfully monopolized or attempted to monopolize airline passenger service to and from DFW by offering discounted fares to corporate purchasers, by offering a frequent flyer program, by imposing certain conditions on the use and availability of certain fares, and by offering override commissions to travel agents. The suits propose to certify several classes of consumers, the broadest of which is all persons who purchased tickets for air travel on American into or out of DFW since 1995 to the present. On November 10, 1999, the District Court stayed all of these actions pending developments in the case brought by the Department of Justice. As a result, to date no class has been certified. American intends to defend these lawsuits vigorously. -10-

13 PART II ITEM 1. LEGAL PROCEEDINGS (CONTINUED) On March 1, 2000, American was served with a federal grand jury subpoena calling for American to produce documents relating to de-icing operations at DFW since 1992. American is not able at this time to determine either the full scope of the grand jury's investigation or American's role in the investigation. American intends to fully cooperate with the government's investigation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are included herein: 12 Computation of ratio of earnings to fixed charges for the three and six months ended June 30, 2000 and 1999. 27 Financial Data Schedule -11-

14 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 28, 2000 BY: /s/ Thomas W. Horton --------------------- Thomas W. Horton Senior Vice President - Finance and Chief Financial Officer -12-

15 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ ----------- 12 Computation of ratio of earnings to fixed charges for the three and six months ended June 30, 2000 and 1999. 27 Financial Data Schedule

1 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, --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Earnings: Earnings before income taxes $ 524 $ 357 $ 705 $ 424 Add: Total fixed charges (per below) 270 249 534 495 Less: Interest capitalized 33 27 69 58 -------- -------- -------- -------- Total earnings $ 761 $ 579 $ 1,170 $ 861 ======== ======== ======== ======== Fixed charges: Interest, including interest capitalized $ 69 $ 52 $ 139 $ 103 Portion of rental expense representative of the interest factor 201 197 394 392 Amortization of debt expense -- -- 1 -- -------- -------- -------- -------- Total fixed charges $ 270 $ 249 $ 534 $ 495 ======== ======== ======== ======== Ratio of earnings to fixed charges 2.82 2.33 2.19 1.74 ======== ======== ======== ========

5 0000004515 AMERICAN AIRLINES, INC. 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 127 2,205 1,458 38 609 5,519 24,070 8,466 23,427 6,477 2,365 0 0 1,836 5,745 23,427 0 8,812 0 8,155 0 0 139 705 276 429 0 0 0 429 0 0