UNITED STATES
                        Washington, DC  20549
                              FORM 10-Q

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarter ended:   March 31, 1994

[   ]  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 of                           (IRS Employer
incorporation or organization)                             Identification No.)

     FORT WORTH, TEXAS                                      76155
(Address of principal executive offices)                 (Zip Code)
Registrant's telephone number, including area code: (817) 963-1234 (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 APPLICABLE ONLY TO CORPORATE ISSUERS: 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 outstanding as of April 27, 1994 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 H(1)(b) of Form 10-Q. 2 AMERICAN AIRLINES, INC. INDEX
Page Number Part I: FINANCIAL INFORMATION Consolidated Statement of Operations for the three months ended March 31, 1994 and 1993 1 Condensed Consolidated Balance Sheet at March 31, 1994 and December 31, 1993 2 Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 1994 and 1993 3 Notes to Financial Statements 4 Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II: OTHER INFORMATION Item 2. Legal Proceedings 7 Item 6. Exhibits and Reports on Form 8-K 8 Signature 9
3 PART I Item 1. Consolidated Financial Statements
AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENT OF OPERATIONS Three Months Ended March 31, (Unaudited) (in millions) 1994 1993 Revenues Passenger $3,028 $3,127 Cargo 154 150 Other 326 286 Total operating revenues 3,508 3,563 Expenses Wages, salaries and benefits 1,241 1,205 Aircraft fuel 382 461 Commissions to agents 311 322 Depreciation and amortization 289 267 Other rentals and landing fees 193 198 Food service 161 167 Aircraft rentals 157 159 Maintenance materials and repairs 114 145 Other operating expenses 556 554 Total operating expenses 3,404 3,478 Operating Income 104 85 Other Income (Expense) Interest income 1 1 Interest expense (97) (107) Interest capitalized 6 17 Miscellaneous - net (9) (1) (99) (90) Earnings (Loss) Before Income Taxes 5 (5) Provision for income taxes 8 1 Net Loss $ (3) $ (6)
See accompanying notes. -1- 4
AMERICAN AIRLINES, INC. CONDENSED CONSOLIDATED BALANCE SHEET March 31, December 31, (Unaudited) (in millions) 1994 1993 Current Assets Cash $ 68 $ 55 Short-term investments for affiliates 660 514 Receivables, net 928 731 Receivables from affiliates 409 223 Inventories, net 616 606 Other current assets 433 399 Total current assets 3,114 2,528 Equipment and Property (Note 2) Flight equipment, net 9,360 9,192 Purchase deposits for flight equipment 186 313 9,546 9,505 Other equipment and property, net 1,936 1,964 11,482 11,469 Equipment and Property Under Capital Leases (Note 2) Flight equipment, net 1,235 1,188 Other equipment and property, net 171 172 1,406 1,360 Route acquisition costs, net 1,054 1,061 Other assets, net 1,343 1,331 $ 18,399 $ 17,749 Current Liabilities Accounts payable $ 977 $ 857 Payables to affiliates 641 479 Accrued liabilities 1,304 1,281 Air traffic liability 1,588 1,461 Short-term borrowings 400 - Current maturities of long-term debt 64 70 Current obligations under capital leases 101 92 Total current liabilities 5,075 4,240 Long-term debt 1,514 1,453 Long-term debt due to Parent 3,710 4,045 Obligations under capital leases 1,830 1,792 Deferred income taxes 346 338 Other liabilities, deferred gains, deferred credits and postretirement benefits 2,759 2,713 Stockholder's Equity Common stock - - Additional paid-in capital 1,699 1,699 Retained earnings 1,466 1,469 3,165 3,168 $ 18,399 $ 17,749
See accompanying notes. -2- 5
AMERICAN AIRLINES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended March 31, (Unaudited) (in millions) 1994 1993 Net Cash Provided by Operating Activities $ 199 $ 178 Cash Flow from Investing Activities: Capital expenditures (283) (673) Net increase in short-term investments (146) (351) Funds transferred from affiliates for investment, net 146 351 Other, net 3 3 Net cash used for investing activities (280) (670) Cash Flow from Financing Activities: Proceeds from issuance of long-term debt 72 53 Short-term borrowings with maturities of 90 days or less, net of maturities 200 (204) Other short-term borrowings 200 29 Payments on other short-term borrowings - (59) Payments on long-term debt and capital lease obligations (43) (48) Funds transferred (to) from affiliates, net (335) 751 Net cash provided by financing activities 94 522 Net increase (decrease) in cash 13 30 Cash at beginning of period 55 45 Cash at end of period $ 68 $ 75 Cash Payments (Refunds) For: Interest (net of amounts capitalized $ 67 $ 70 Interest on intercompany note to Parent 32 33 Income taxes 1 (96) Financing Activities Not Affecting Cash: Capital lease obligations incurred $ 72 $ - See accompanying notes.
-3- 6 Notes to Financial Statements 1. American Airlines, Inc. (American) is a wholly-owned subsidiary of AMR Corporation (AMR). 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. These financial statements and related notes should be read in conjunction with the financial statements and notes contained in American's Annual Report on Form 10-K for the year ended December 31, 1993. 2. Accumulated depreciation of equipment and property at March 31, 1994 and December 31, 1993 was $4.7 billion. Accumulated amortization of equipment and property under capital leases at March 31, 1994 and December 31, 1993 was $733 million and $707 million, respectively. 3. American has renewed a $1.0 billion credit facility which expired in early April 1994 in the amount of $750 million. The renewal extends the term of the facility to 1997 and may require collateralization under certain circumstances. No borrowings were outstanding under this facility at March 31, 1994. -4- 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS American's results were adversely affected by continued fare discounting throughout the airline industry and by the impact of 1994's unusually severe winter. American's yield decreased 1.7 percent while cost per available seat mile for American's passenger division increased 3.1 percent. For the Three Months Ended March 31, 1994 and 1993 American's net loss for the first quarter of 1994 was $3 million. This compares to a net loss of $6 million in the first quarter of 1993. American's operating income was $104 million in the 1994 first quarter compared to $85 million in the 1993 first quarter. American's operating revenues decreased 1.5 percent to $3.51 billion in the 1994 first quarter compared to $3.56 billion in the 1993 quarter. Passenger revenues decreased by 3.2 percent to $3.03 billion from $3.13 billion in 1993. Yield (the average amount one passenger pays to fly one mile) of 13.53 cents decreased by 1.7 percent compared to the same period of 1993. Traffic or revenue passenger miles (RPMs) decreased 1.5 percent to 22.4 billion miles for the quarter ended March 31, 1994. The decrease is primarily due to reductions in capacity. Year over year for the first quarter of 1994, domestic traffic decreased 2.6 percent from 16.5 billion RPMs to 16.1 billion RPMs while domestic capacity decreased 7.0 percent to 26.9 billion miles. International traffic grew a modest 1.1 percent, from 6.2 billion RPMs to 6.3 billion RPMs. The growth was in Latin America, where traffic increased 11.2 percent on a 2.9 percent capacity decrease while in Europe traffic decreased 9.1 percent and capacity decreased 14.0 percent. Cargo revenues increased 2.7 percent to $154 million, driven by a 8.0 percent increase in cargo ton miles partially offset by a 5.1 percent decrease in revenue yield per ton mile. The increase in cargo ton miles is attributable to volume increases in Europe, Latin America and the Pacific combined with a strong domestic cargo system. Other revenues increased 14.0 percent to $326 million primarily driven by increased booking fee revenues of Sabre Travel Information Network resulting from a plethora of fare initiatives by various carriers. -5- 8 RESULTS OF OPERATIONS (CONTINUED) Capacity or available passenger seat miles (ASMs) decreased 6.3 percent to 36.7 billion miles in the first quarter of 1994 primarily as a result of the retirement of 29 DC-10 aircraft and 30 727 aircraft. Operating expenses decreased $74 million, or 2.1 percent, from first quarter 1993 to first quarter 1994. Passenger division cost per ASM increased by 3.1 percent to 8.66 cents. Wages, salaries and benefits rose $36 million, 3.0 percent, due primarily to salary adjustments for existing employees offset by a reduction of approximately 3,400 average equivalent employees or 3.7 percent. Aircraft fuel expense decreased $79 million, 17.1 percent, due to a 9.6 percent decrease in the average price per gallon, combined with an 8.5 percent decrease in gallons consumed. Commissions to agents decreased 3.4 percent to $311 million, due principally to decreases in passenger revenues. Additions to the fleet and the acquisitions of other capital equipment raised depreciation and amortization costs by $22 million, or 8.2 percent. Other rentals and landing fees decreased $5 million, or 2.5 percent, due to decreased volumes of landing fees resulting from capacity reductions. Maintenance materials and repairs decreased $31 million, 21.4 percent due principally to the retirement of older aircraft and increased operational efficiencies. -6- 9 PART II Item 2. Legal Proceedings In December 1992, the U.S. Department of Justice filed an antitrust lawsuit in the U.S. District Court for the District of Columbia under Section 1 of the Sherman Act against several airlines, including the Company, alleging price fixing based upon the industry's exchange of fare information through the Airline Tariff Publishing Company. In March 1994, the Company and the remaining defendants in the case agreed to settle the lawsuit without admitting liability by entering into a stipulated final judgment that prohibits or restricts certain pricing practices including the announcement of fare increases before their effective date. The proposed final judgment is subject to approval by the Court following a public notice and comment period prescribed by statute. The Company does not anticipate a material financial impact from the settlement or compliance with the stipulated judgment. Private class action claims with similar allegations were settled by the Company and other airlines which became final in March 1993. Prior to the private class action settlement becoming final, the Company and several other airlines voluntarily altered certain pricing practices at issue in the lawsuits to avoid exposure to additional claims. American has been sued in two class action cases that have been consolidated in the Circuit Court of Cook County, Illinois, in connection with certain changes made to American's AAdvantage frequent flyer program in May, 1988. (Wolens, et al v. American Airlines, Inc., No. 88 CH 7554, and Tucker v. American Airlines, Inc., No. 89 CH 199.) In both cases, the plaintiffs seek to represent all persons who joined the AAdvantage program before May 1988. The complaints allege that, on that date, American implemented changes that limited the number of seats available to participants traveling on certain awards and established holiday blackout dates during which no AAdvantage seats would be available for certain awards. The plaintiffs allege that these changes breached American's contracts with AAdvantage members and were in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act). Plaintiffs seek money damages of an unspecified sum, punitive damages, costs, attorneys fees and an injunction preventing the Company from making any future changes that would reduce the value of AAdvantage benefits. American moved to dismiss both complaints, asserting that the claims are preempted by the Federal Aviation Act and barred by the Commerce Clause of the U.S. Constitution. The trial court denied American's preemption motions, but certified its decision for interlocutory appeal. In December 1990, the Illinois Appellate Court held that plaintiffs' claims for an injunction are preempted by the Federal Aviation Act, but that plaintiffs' claims for money damages could proceed. On March 12, 1992, the Illinois Supreme Court affirmed the decision of the Appellate Court. American sought a writ of certiorari from the U.S. Supreme Court; and on October 5, 1992, that Court vacated the decision of the Illinois Supreme Court and remanded the cases for reconsideration in light of the U.S. Supreme Court's decision in Morales v. TWA, et al, which interpreted the preemption provisions of the Federal Aviation Act very broadly. On December 16, 1993, the Illinois Supreme Court rendered its decision on remand, holding that plaintiffs' claims seeking an injunction were preempted, but that identical claims for compensatory and punitive damages were not preempted. On February 8, 1994, American filed petition for a writ of certiorari in the U.S. Supreme Court. The Illinois Supreme Court granted American's motion to stay the state court proceeding pending disposition of American's petition in the U.S. Supreme Court. On April 4, 1994 the U.S. Supreme Court granted American's writ of certiorari. AMR and American are vigorously defending all of the above claims. -7- 10 PART II
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report: Part I - Exhibit 12:Computation of ratio of earnings to fixed charges for the three months ended March 31, 1994 and 1993. (b) Reports on Form 8-K: None
-8- 11 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. BY: /s/ Michael J. Durham Michael J. Durham Senior Vice President and Chief Financial Officer DATE: April 28, 1994 -9- 12 PART I - EXHIBIT 12 AMERICAN AIRLINES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended March 31, 1994 1993 (in millions of dollars) Earnings: Earnings (loss) before income taxes $ 5 $ (5) Add: Total fixed charges (per below) 244 255 Less: Interest capitalized 6 17 Total earnings $ 243 $ 233 Fixed charges: Interest $ 97 $ 107 Portion of rental expense representative of the interest factor 146 147 Amortization of debt expene 1 1 Total fixed charges $ 244 $ 255 Ratio of earnings to fixed charges - - Coverage deficiency $ 1 $ 22