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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, 2007.
[ ]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. X Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of "accelerated filer" and "large
accelerated filer" in Rule 12b-2 of the Exchange Act. Large
Accelerated Filer Accelerated Filer X Non-accelerated Filer
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 20, 2007.
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, 2007 and 2006
Condensed Consolidated Balance Sheets -- June 30, 2007 and December
31, 2006
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 2007 and 2006
Notes to Condensed Consolidated Financial Statements -- June 30,
2007
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 5. Other Information
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,
2007 2006 2007 2006
Revenues
Passenger $4,673 $4,720 $8,999 $8,964
Regional Affiliates 658 702 1,216 1,271
Cargo 200 206 401 392
Other revenues 322 331 639 659
Total operating revenues 5,853 5,959 11,255 11,286
Expenses
Wages, salaries and benefits 1,496 1,527 3,007 3,103
Aircraft fuel 1,479 1,544 2,754 2,876
Regional payments to AMR Eagle 579 554 1,123 1,086
Other rentals and landing fees 284 300 585 586
Commissions, booking fees and
credit card expense 268 286 517 555
Depreciation and amortization 248 243 490 483
Maintenance, materials and repairs 208 187 403 374
Aircraft rentals 149 144 297 285
Food service 130 128 255 251
Other operating expenses 618 626 1,247 1,215
Total operating expenses 5,459 5,539 10,678 10,814
Operating Income 394 420 577 472
Other Income (Expense)
Interest income 84 67 160 119
Interest expense (182) (200) (369) (401)
Interest capitalized 5 7 14 14
Related party interest - net (21) (11) (41) (17)
Miscellaneous - net (9) (3) (19) (13)
(123) (140) (255) (298)
Income Before Income Taxes 271 280 322 174
Income tax - - - -
Net Earnings $ 271 $ 280 $322 $ 174
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,
2007 2006
Assets
Current Assets
Cash $ 213 $ 120
Short-term investments 5,607 4,527
Restricted cash and short-term investments 470 468
Receivables, net 1,192 957
Inventories, net 485 465
Other current assets 456 213
Total current assets 8,423 6,750
Equipment and Property
Flight equipment, net 11,377 11,524
Other equipment and property, net 2,368 2,343
Purchase deposits for flight equipment 177 177
13,922 14,044
Equipment and Property Under Capital Leases
Flight equipment, net 726 765
Other equipment and property, net 88 99
814 864
Route acquisition costs and airport operating
and gate lease rights, net 1,148 1,143
Other assets 2,869 3,049
$ 27,176 $25,850
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,278 $ 987
Accrued liabilities 1,966 2,164
Air traffic liability 4,607 3,782
Payable to affiliates, net 1,583 1,071
Current maturities of long-term debt 946 1,012
Current obligations under capital leases 123 101
Total current liabilities 10,503 9,117
Long-term debt, less current maturities 7,315 7,787
Obligations under capital leases, less
current obligations 730 824
Pension and postretirement benefits 5,341 5,340
Other liabilities, deferred gains and
deferred credits 3,809 3,848
Stockholders' Equity (Deficit)
Common stock - -
Additional paid-in capital 3,817 3,667
Accumulated other comprehensive loss (1,327) (1,399)
Accumulated deficit (3,012) (3,334)
(522) (1,066)
$ 27,176 $25,850
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,
2007 2006
Net Cash Provided by Operating Activities $1,534 $1,452
Cash Flow from Investing Activities:
Capital expenditures (337) (238)
Net increase in short-term investments (1,080) (1,299)
Net increase in restricted cash and
short-term investments (2) (15)
Proceeds from sale of equipment and property 20 9
Other 4 (6)
Net cash used by investing activities (1,395) (1,549)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (610) (380)
Reimbursement from construction reserve account 59 75
Funds transferred from affiliates, net 505 433
Net cash provided (used) by financing
activities (46) 128
Net increase in cash 93 31
Cash at beginning of period 120 133
Cash at end of period $ 213 $ 164
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). The condensed consolidated financial
statements also include the accounts of variable interest entities for
which the Company is the primary beneficiary. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the American Airlines, Inc. Annual Report on Form 10-K/A
for the year ended December 31, 2006 (2006 Form 10-K).
2.In March 2007, American announced its intent to pull forward the
delivery of 47 737-800 aircraft that American had previously
committed to acquire in 2013 through 2016. On June 28, 2007,
American announced that it had accelerated the delivery of six of
these aircraft into the first half of 2009. Any decisions to
accelerate additional deliveries will depend on a number of
factors, including future economic industry conditions and the
financial conditions of the Company. As of June 30, 2007, the
Company had commitments to acquire nine Boeing 737-800s in 2009 and
an aggregate of 38 Boeing 737-800s and seven Boeing 777-200ERs in
2013 through 2016. Future payments for all aircraft, including the
estimated amounts for price escalation, are currently estimated to
be approximately $2.8 billion, with the majority occurring in 2011
through 2016. However, if the Company commits to accelerating the
delivery dates of a significant number of aircraft in the future, a
significant portion of the $2.8 billion commitment will be
accelerated into earlier periods, including 2008 and 2009. The
obligation in 2008 and 2009 for the nine aircraft already pulled
forward is approximately $250 million. This amount is net of
purchase deposits currently held by the manufacturer.
3.Accumulated depreciation of owned equipment and property at June 30,
2007 and December 31, 2006 was $10.3 billion and $10.0 billion,
respectively. Accumulated amortization of equipment and property
under capital leases was $1.1 billion at both June 30, 2007 and
December 31, 2006.
4.In April 2007, the United States and the European Union approved
an "open skies" air services agreement that provides airlines from the
United States and E.U. member states open access to each other's
markets, with freedom of pricing and unlimited rights to fly beyond
the United States and beyond each E.U. member state. The provisions
of the agreement will take effect on March 30, 2008. Under the
agreement, every U.S. and E.U. airline is authorized to operate
between airports in the United States and London's Heathrow Airport.
Only three airlines besides American were previously allowed to
provide that Heathrow service. The agreement will result in the
Company facing increased competition in serving Heathrow as additional
carriers are able to obtain necessary slots and terminal facilities.
However, the Company believes that American and the other carriers who
currently have existing authorities and the related slots and
facilities will continue to hold a significant advantage after the
advent of open skies. The Company has recorded route acquisition
costs (including international routes and slots) of $846 million as of
June 30, 2007, including a significant amount related to operations at
Heathrow. The Company considers these assets indefinite life assets
under Statement of Financial Accounting Standard No. 142 "Goodwill and
Other Intangibles" and as a result they are not amortized but instead
are tested for impairment annually or more frequently if events or
changes in circumstances indicate that the asset might be impaired.
The Company completed an impairment analysis on the Heathrow routes
(including slots) effective March 31, 2007 and concluded that no
impairment exists. The Company believes its estimates and assumptions
are reasonable, however, the market for LHR slots is still developing
and only a limited number of comparable transactions have occurred to
date. The Company will continue to evaluate future transactions
involving purchases of slots at LHR and the potential impact of those
transactions on the value of the Company's routes and slots.
-4-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5.On January 1, 2007, the Company adopted Financial Accounting
Standards Board Interpretation No. 48 "Accounting for Uncertainty in
Income Taxes" (FIN 48). FIN 48 prescribes a recognition threshold
that a tax position is required to meet before being recognized in the
financial statements and provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition issues.
The Company has an unrecognized tax benefit of approximately $38
million which did not change significantly during the six months
ended June 30, 2007. The application of FIN 48 would have resulted
in an immaterial change in retained earnings, except that it was
fully offset by the application of a valuation allowance. In
addition, future changes in the unrecognized tax benefit will have
no impact on the effective tax rate due to the existence of the
valuation allowance. Accrued interest on tax positions is recorded
as a component of interest expense but is not significant at June
30, 2007. The Company does not reasonably estimate that the
unrecognized tax benefit will change significantly within the next
twelve months.
The Company files its tax returns as prescribed by the tax laws of
the jurisdictions in which it operates. The Company is currently
under audit by the Internal Revenue Service for its 2001 through
2003 tax years with an anticipated closing date in 2008. The
Company's 2004 and 2005 tax years are still subject to examination.
Various state and foreign jurisdiction tax years remain open to
examination as well, though the Company believes any additional
assessment will be immaterial to its consolidated financial
statements.
As discussed in Note 8 to the consolidated financial statements in
the 2006 Form 10-K, the Company has a valuation allowance against
the full amount of its net deferred tax asset. The Company
provides a valuation allowance against deferred tax assets when it
is more likely than not that some portion, or all of its deferred
tax assets, will not be realized. The Company's deferred tax asset
valuation allowance decreased approximately $69 million during the
six months ended June 30, 2007 to $1.7 billion as of June 30, 2007,
including the impact of comprehensive income for the six months
ended June 30, 2007, changes described above from applying FIN 48
and certain other adjustments.
Under special IRS rules (the "Section 382 Limitation"), cumulative
stock purchases by material shareholders exceeding 50% during a 3-
year period can potentially limit a company's future use of net
operating losses (NOL's). Such limitation is currently increased
by "built-in gains", as provided by current guidance. The Company
is not currently subject to the "Section 382 Limitation", and if it
were triggered in a future period, under current tax rules, is not
expected to significantly impact the recorded value or timing of
utilization of AMR's NOL's.
Various taxes and fees assessed on the sale of tickets to end
customers are collected by the Company as an agent and remitted to
taxing authorities. These taxes and fees have been presented on a
net basis in the accompanying consolidated statement of operations
and recorded as a liability until remitted to the appropriate
taxing authority.
-5-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6.As of June 30, 2007, American had issued guarantees covering
approximately $1.1 billion of AMR's unsecured debt. In addition, as
of June 30, 2007, AMR and American had issued guarantees covering
approximately $368 million of AMR Eagle's secured debt.
On March 30, 2007, American paid in full the principal balance of
its senior secured revolving credit facility. As of June 30, 2007,
the $442 million term loan facility under the same bank credit
facility was still outstanding and the $275 million balance of the
revolving credit facility remains available to American through
maturity. The revolving credit facility amortizes at a rate of $10
million quarterly through December 17, 2007. American's
obligations under the credit facility are guaranteed by AMR.
7.On January 16, 2007, the AMR Board of Directors approved the
amendment and restatement of the 2005-2007 Performance Share Plan for
Officers and Key Employees and the 2005 Deferred Share Award Agreement
to permit settlement in a combination of cash and/or stock. However,
the amendments did not impact the fair value of the awards. As a
result, certain awards under these plans have been accounted for as
equity awards since that date and the Company reclassified $113
million from Accrued liabilities to Additional paid-in-capital in
accordance with Statement of Financial Accounting Standard No. 123
(revised 2004), "Share-Based Payment".
On January 26, 2007, AMR completed a public offering of 13 million
shares of its common stock. The Company realized $497 million from
the sale of equity. The proceeds from the transaction were
transferred to American.
-6-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8.The following tables provide the components of net periodic
benefit cost for the three and six months ended June 30, 2007 and 2006
(in millions):
Pension Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Components of net periodic
benefit cost
Service cost $ 93 $ 100 $ 185 $ 199
Interest cost 168 160 336 321
Expected return on assets (187) (167) (374) (335)
Amortization of:
Prior service cost 4 4 8 8
Unrecognized net loss 6 20 13 40
Net periodic benefit cost $ 84 $ 117 $ 168 $ 233
Other Postretirement Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Components of net periodic
benefit cost
Service cost $ 18 $ 20 $ 35 $ 38
Interest cost 49 49 96 96
Expected return on assets (5) (4) (9) (8)
Amortization of:
Prior service cost (3) (3) (7) (5)
Unrecognized net (gain) loss (2) - (4) 1
Net periodic benefit cost $ 57 $ 62 $ 111 $ 122
The Company expects to contribute approximately $364 million to its
defined benefit pension plans in 2007. The Company's estimates of
its defined benefit pension plan contributions reflect the
provisions of the Pension Funding Equity Act of 2004 and the
Pension Protection Act of 2006. Of the $364 million the Company
expects to contribute to its defined benefit pension plans in 2007,
the Company contributed $180 million during the six months ended
June 30, 2007 and contributed $86 million on July 13, 2007.
-7-
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
9.As a result of the revenue environment, high fuel prices and the
Company's restructuring activities, the Company has recorded a
number of charges during the last few years. The following table
summarizes the components of these changes and the remaining
accruals for these charges (in millions):
Aircraft Facility
Charges Exit Costs Total
Remaining accrual
at December 31, 2006 $ 126 $ 19 $ 145
Payments (8) - (8)
Remaining accrual
at June 30, 2007 $ 118 $ 19 $ 137
Cash outlays related to the accruals for aircraft charges and
facility exit costs will occur through 2017 and 2018, respectively.
10.The Company includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting and
unrealized gains and losses on available-for-sale securities in
comprehensive income. For the three months ended June 30, 2007 and
2006, comprehensive income was $271 million and $291 million,
respectively, and for the six months ended June 30, 2007 and 2006,
comprehensive income was $394 million and $205 million, respectively.
The difference between net earnings and comprehensive income for the
three and six months ended June 30, 2007 and 2006 is due primarily to
the accounting for the Company's derivative financial instruments.
Ineffectiveness is inherent in hedging jet fuel with derivative
positions based in crude oil or other crude oil related
commodities. As required by Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and
Hedging Activities", the Company assesses, both at the inception of
each hedge and on an on-going basis, whether the derivatives that
are used in its hedging transactions are highly effective in
offsetting changes in cash flows of the hedged items. In doing so,
the Company uses a regression model to determine the correlation of
the change in prices of the commodities used to hedge jet fuel
(e.g. NYMEX Heating oil) to the change in the price of jet fuel.
The Company also monitors the actual dollar offset of the hedges'
market values as compared to hypothetical jet fuel hedges. The
fuel hedge contracts are generally deemed to be "highly effective"
if the R-squared is greater than 80 percent and the dollar offset
correlation is within 80 percent to 125 percent. The Company
discontinues hedge accounting prospectively if it determines that a
derivative is no longer expected to be highly effective as a hedge
or if it decides to discontinue the hedging relationship.
11.On July 3, 2007, American entered into an agreement to sell
all of its shares in ARINC Incorporated. Upon closing, which is
expected to occur prior to October 31, 2007, American expects to
receive proceeds of approximately $194 million and to record a gain
on the sale of approximately $140 million. The closing of the
transaction is subject to the satisfaction of a number of
conditions, many of which are beyond American's control, and no
assurance can be given that such closing will occur.
-8-
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," "may," "will," "should," and similar expressions are
intended to identify forward-looking statements. Similarly, statements
that describe our objectives, plans or goals are 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: the materially weakened financial condition of the
Company, resulting from its significant losses in recent years; the
ability of the Company to generate additional revenues and reduce its
costs; changes in economic and other conditions beyond the Company's
control, and the volatile results of the Company's operations; the
Company's substantial indebtedness and other obligations; the ability
of the Company to satisfy existing financial or other covenants in
certain of its credit agreements; continued high and volatile fuel
prices and further increases in the price of fuel, and the
availability of fuel; the fiercely and increasingly competitive
business environment faced by the Company; industry consolidation,
competition with reorganized and reorganizing carriers; low fare
levels by historical standards and the Company's reduced pricing
power; the Company's potential need to raise additional funds and its
ability to do so on acceptable terms; changes in the Company's
corporate or business strategy; government regulation of the Company's
business; conflicts overseas or terrorist attacks; uncertainties with
respect to the Company's international operations; outbreaks of a
disease (such as SARS or avian flu) that affects travel behavior;
labor costs that are higher than the Company's competitors;
uncertainties with respect to the Company's relationships with
unionized and other employee work groups; increased insurance costs
and potential reductions of available insurance coverage; the
Company's ability to retain key management personnel; potential
failures or disruptions of the Company's computer, communications or
other technology systems; changes in the price of the Company's common
stock; and the ability of the Company to reach acceptable agreements
with third parties. Additional information concerning these and other
factors is contained in the Company's Securities and Exchange
Commission filings, including but not limited to the Company's 2006
Form 10-K (see in particular Item 1A "Risk Factors" in the 2006 Form
10-K).
Overview
The Company recorded net earnings of $271 million in the second
quarter of 2007 compared to $280 million in the same period last year.
The Company's second quarter 2007 results were impacted by an
improvement in unit revenues (passenger revenue per available seat
mile) and by fuel prices that remain high by historical standards. In
addition, a significant number of weather related events impacted the
Company's second quarter results and the Company estimates these
disruptions decreased scheduled mainline departures for the second
quarter of 2007 by approximately 2.1 percent and reduced the Company's
revenue by approximately $40 million during the quarter.
-9-
Mainline passenger unit revenues increased 3.6 percent for the second
quarter due to a 1.0 point load factor increase and a 2.3 percent
increase in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2006. Although load factor
performance and passenger yield showed year-over-year improvement,
passenger yield remains low by historical standards. The Company
believes this is the result of excess industry capacity and its
reduced pricing power resulting from a number of factors, including
greater cost sensitivity on the part of travelers (especially
business travelers), increased competition from LCC's and pricing
transparency resulting from the use of the internet.
The Company's ability to become consistently profitable and its
ability to continue to fund its obligations on an ongoing basis will
depend on a number of factors, many of which are largely beyond the
Company's control. Certain 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 1A (on pages 11-17) in the 2006 Form 10-K. In addition, four of
the Company's largest domestic competitors have filed for bankruptcy
in the last several years and have used this process to significantly
reduce contractual labor and other costs. In order to remain
competitive and to improve its financial condition, the Company must
continue to take steps to generate additional revenues and to reduce
its costs. Although the Company has a number of initiatives underway
to address its cost and revenue challenges, the ultimate success of
these initiatives is not known at this time and cannot be assured.
-10-
LIQUIDITY AND CAPITAL RESOURCES
Significant Indebtedness and Future Financing
The Company remains heavily indebted and has significant obligations
(including substantial pension funding obligations), as described more
fully under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 2006 Form 10-K. As of the
date of this Form 10-Q, 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. However, to maintain sufficient liquidity as
the Company continues to implement its restructuring and cost
reduction initiatives, and because the Company has significant debt,
lease and other obligations in the next several years, as well as
ongoing pension funding obligations, the Company may need access to
additional funding. The Company continues to evaluate the economic
benefits and other aspects of replacing some of the older aircraft in
its fleet prior to 2013 and also continues to evaluate the appropriate
mix of aircraft in its fleet. The Company's possible financing
sources primarily include: (i) a limited amount of additional secured
aircraft debt or sale-leaseback transactions involving owned aircraft
(a very large majority of the Company's owned aircraft, including
virtually all of the Company's Section 1110-eligible aircraft, are
encumbered); (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) issuance of equity and/or equity-like
securities. However, the availability and level of these financing
sources cannot be assured, particularly in light of the Company's
recent financial results, substantial indebtedness, current credit
ratings, high fuel prices and the financial difficulties that have
been experienced in the airline industry. The inability of the Company
to obtain additional funding on acceptable terms would have a material
adverse impact on the ability of the Company to sustain its operations
over the long-term.
The Company's substantial indebtedness and other obligations could
have important consequences. For example, they 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 and other
obligations, thereby reducing the funds available for other purposes;
(iii) make the Company more vulnerable to economic downturns; (iv)
limit the Company's 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
American has a secured bank credit facility which consists of a $275
million revolving credit facility, with a final maturity on June 17,
2009, and a fully drawn $442 million term loan facility, with a final
maturity on December 17, 2010 (the Revolving Facility and the Term
Loan Facility, respectively, and collectively, the Credit Facility).
On March 30, 2007, American paid in full the principal balance of the
Revolving Facility and as of June 30, 2007, it remained undrawn.
American's obligations under the Credit Facility are guaranteed by
AMR.
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 $1.25
billion for each quarterly period through the life of the Credit
Facility. 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 1.30 to 1.00 for the four
quarter period ending June 30, 2007, and will increase gradually for
each four quarter period ending on each fiscal quarter thereafter
until it reaches 1.50 to 1.00 for the four quarter period ending June
30, 2009. AMR and American were in compliance with the Liquidity
Covenant and the EBITDAR covenant as of June 30, 2007 and expect to be
able to continue to comply with these covenants. However, given fuel
prices that are high by historical standards and the volatility of
fuel prices and revenues, it is difficult to assess whether AMR and
American will, in fact, be able to continue to comply with these
covenants, 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 and otherwise have a
material adverse impact on the Company.
-11-
Pension Funding Obligation
The Company expects to contribute approximately $364 million to its
defined benefit pension plans in 2007. The Company's estimates of its
defined benefit pension plan contributions reflect the provisions of
the Pension Funding Equity Act of 2004 and the Pension Protection Act
of 2006. Of the $364 million the Company expects to contribute to
its defined benefit pension plans in 2007, the Company contributed
$180 million during the six months ended June 30, 2007 and
contributed $86 million on July 13, 2007.
The U.S Congress is currently considering legislation that would
allow commercial airline pilots to fly until age 65. The Federal
Aviation Administration currently requires commercial pilots to
retire once they reach age 60. The Company has not completed its
evaluation of the impact of the proposed legislation on its financial
statements; however, the proposed legislation could have a material
impact on the Company's valuation of its liability for pension and
postretirement benefits.
Compensation
As described in Note 7 to the condensed consolidated financial
statements, during 2006 and January 2007, the AMR Board of Directors
approved the amendment and restatement of all of the outstanding
performance share plans, the related performance share agreements and
deferred share agreements that required settlement in cash. The plans
were amended to permit settlement in cash and/or stock; however, the
amendments did not impact the fair value of the awards under the
plans. These changes were made in connection with a grievance filed
by the Company's three labor unions which asserted that a cash
settlement may be contrary to a component of the Company's 2003 Annual
Incentive Program agreement with the unions.
American has a profit sharing program that provides variable
compensation that rewards frontline employees when American achieves
certain financial targets. Generally, the profit sharing plan
provides for a profit sharing pool for eligible employees equal to 15
percent of pre-tax income of American in excess of $500 million.
Based on current conditions, the Company's condensed consolidated
financial statements include an accrual for profit sharing. There can
be no assurance that the Company's forecasts will approximate actual
results. Additionally, reductions in the Company's forecasts of
income for 2007 could result in the reversal of a portion or all of
the previously recorded profit sharing expense.
Cash Flow Activity
At June 30, 2007, the Company had $5.8 billion in unrestricted cash
and short-term investments, an increase of $1.2 billion from December
31, 2006, and $275 million available under the Revolving Facility.
Net cash provided by operating activities in the six-month period
ended June 30, 2007 was $1.5 billion, an increase of $82 million over
the same period in 2006 primarily due to the Company's management of
capacity. The Company contributed $180 million to its defined benefit
pension plans in the first six months of 2007 compared to $119
million during the first six months of 2006.
Capital expenditures for the first six months of 2007 were $337
million and primarily included aircraft modifications and the cost of
improvements at New York's John F. Kennedy airport (JFK). A
significant portion of the Company's construction costs at JFK have
been reimbursed through a fund established from a previous financing
transaction.
On January 26, 2007, AMR completed a public offering of 13 million
shares of its common stock. The Company realized $497 million from
the sale of equity. The proceeds from the transaction were
transferred to American.
In the past, the Company has from time to time refinanced, redeemed or
repurchased its debt and taken other steps to reduce its debt or lease
obligations or otherwise improve its balance sheet. Going forward,
depending on market conditions, its cash position or other
considerations, the Company may continue to take such actions.
-12-
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2007 and 2006
Revenues
The Company's revenues decreased approximately $31 million, or 0.3
percent, to $11.3 billion for the six months ended June 30, 2007 from
the same period last year. American's passenger revenues increased
by 0.4 percent, or $35 million, while capacity (ASM) decreased by 3.4
percent. American's passenger load factor increased 0.9 points to
80.9 percent and passenger revenue yield per passenger mile increased
by 2.8 percent to 13.19 cents. This resulted in an increase in
American's passenger RASM of 4.0 percent to 10.67 cents. Following is
additional information regarding American's domestic and
international RASM and capacity based on geographic areas defined by
the Department of Transportation (DOT):
Six Months Ended June 30, 2007
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
DOT Domestic 10.56 1.5% 53.9 (3.9)%
International 10.87 8.5 30.4 (2.7)
DOT Latin America 11.23 7.0 15.0 0.5
DOT Atlantic 10.70 6.1 12.0 (1.8)
DOT Pacific 9.86 22.8 3.4 (17.4)
The Company's Regional Affiliates include two wholly owned
subsidiaries, American Eagle Airlines, Inc. and Executive Airlines,
Inc. (collectively, AMR Eagle), and two independent carriers with
which American has capacity purchase agreements, Trans States
Airlines, Inc. (Trans States) and Chautauqua Airlines, Inc.
(Chautauqua).
Regional Affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, decreased $55 million, or 4.3 percent, to $1.2 billion as a
result of decreased capacity, load factors and passenger yield.
Regional Affiliates' traffic decreased 1.7 percent to 4.9 billion
revenue passenger miles (RPMs) and capacity decreased 0.6 percent to
6.7 billion ASMs, resulting in a 0.9 point decrease in the passenger
load factor to 73.0 percent.
-13-
Operating Expenses
The Company's total operating expenses decreased 1.3 percent, or $136
million, to $10.7 billion for the six months ended June 30, 2007
compared to the same period in 2006. American's mainline operating
expenses per ASM in the six months ended June 30, 2007 increased 1.8
percent compared to the same period in 2006 to 11.03 cents. These
increases are due primarily to a significant number of weather related
cancellations in 2007.
(in millions) Six Months
Ended Change Percentage
Operating Expenses June 30, 2007 from 2006 Change
Wages, salaries and benefits $ 3,007 $ (96) (3.1)%
Aircraft fuel 2,754 (122) (4.2)
Regional payments to AMR Eagle 1,123 37 3.4
Other rentals and landing fees 585 (1) (0.2)
Commissions, booking fees
and credit card expense 517 (38) (6.8)
Depreciation and amortization 490 7 1.4
Maintenance, materials and
repairs 403 29 7.8
Aircraft rentals 297 12 4.2
Food service 255 4 1.6
Other operating expenses 1,247 32 2.6
Total operating expenses $ 10,678 $(136) (1.3)%
Other Income (Expense)
Interest income increased $41 million in the six months ended June 30,
2007 compared to the same period in 2006 due primarily to an increase
in short-term investment balances. Interest expense decreased $32
million as a result of a decrease in the Company's long-term debt
balance.
Income Tax
The Company did not record a net tax provision associated with its
second quarter 2007 and 2006 earnings due to the Company providing a
valuation allowance, as discussed in Note 5 to the condensed
consolidated financial statements.
-14-
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, 2007 and 2006 (in millions):
Six Months Ended
June 30,
2007 2006
Revenues:
Regional Affiliates $1,216 $1,271
Other 49 50
$1,265 $1,321
Expenses:
Payments to Regional $1,222 $1,184
Affiliates
Other incurred expenses 156 159
$1,378 $1,343
In addition, passengers connecting to American's flights from American
Connection and AMR Eagle flights generated passenger revenues for
American flights of $878 million and $867 million for the six months
ended June 30, 2007 and 2006, respectively, which are included in
Revenues - Passenger in the consolidated statements of operations.
Outlook
The Company currently expects third quarter 2007 mainline unit cost to
increase approximately 2.4 percent year over year. Full year 2007
mainline unit costs are expected to increase approximately 2.3 percent
versus 2006.
Capacity for American's mainline jet operations is expected to decline
more than 2.4 percent in the third quarter of 2007 compared to the
third quarter of 2006. Mainline capacity is expected to decline
approximately 2.1 percent in the full year 2007 compared to 2006.
-15-
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 2006 Form 10-K. The
change in market risk for aircraft fuel is discussed below for
informational purposes due to the sensitivity of the Company's
financial results to changes in fuel prices.
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, 2007 cost per gallon of fuel. Based on
projected 2007 and 2008 fuel usage through June 30, 2008, such an
increase would result in an increase to aircraft fuel expense of
approximately $483 million in the twelve months ended June 30, 2008,
inclusive of the impact of fuel hedge instruments outstanding at June
30, 2007. Comparatively, based on projected 2007 fuel usage, such an
increase would have resulted in an increase to aircraft fuel expense
of approximately $478 million in the twelve months ended December 31,
2007, inclusive of the impact of fuel hedge instruments outstanding at
December 31, 2006. The change in market risk is primarily due to the
increase in fuel prices.
Ineffectiveness is inherent in hedging jet fuel with derivative
positions based in crude oil or other crude oil related commodities.
As required by Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities", the
Company assesses, both at the inception of each hedge and on an on-
going basis, whether the derivatives that are used in its hedging
transactions are highly effective in offsetting changes in cash flows
of the hedged items. In doing so, the Company uses a regression model
to determine the correlation of the change in prices of the
commodities used to hedge jet fuel (e.g. NYMEX Heating oil) to the
change in the price of jet fuel. The Company also monitors the actual
dollar offset of the hedges' market values as compared to hypothetical
jet fuel hedges. The fuel hedge contracts are generally deemed to be
"highly effective" if the R-squared is greater than 80 percent and the
dollar offset correlation is within 80 percent to 125 percent. The
Company discontinues hedge accounting prospectively if it determines
that a derivative is no longer expected to be highly effective as a
hedge or if it decides to discontinue the hedging relationship.
As of June 30, 2007, the Company had effective hedges, primarily
collars, covering approximately 31 percent of its estimated remaining
2007 fuel requirements and an insignificant amount of its estimated
fuel requirements thereafter. The consumption hedged for the
remainder of 2007 is capped at an average price of approximately $62
per barrel of crude oil. A deterioration of the Company's financial
position could negatively affect the Company's ability to hedge fuel
in the future.
-16-
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, 2007. 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, 2007. During the
quarter ending on June 30, 2007, 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.
-17-
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, American, AMR Eagle,
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.
The plaintiffs sought 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. On February 24, 2005,
the court decertified the class. The claims against Airlines
Reporting Corporation have been dismissed, and in September 2005, the
Court granted Summary Judgment in favor of the Company and all other
defendants. Plaintiffs have filed an appeal to the United States
Court of Appeals for the Ninth Circuit. 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 a material 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, other
airline defendants, and in one case against certain airline defendants
and Orbitz LLC. The cases, 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 (71 agencies) were consolidated for pre-trial purposes in the
United States District Court for the Northern District of Ohio,
Eastern Division. 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. On September 23,
2005, the Fausky plaintiffs dismissed their claims with prejudice. On
September 14, 2006, the court dismissed with prejudice 28 of the Swope
plaintiffs. American continues to vigorously defend these lawsuits.
A final adverse court decision awarding substantial money damages or
placing material restrictions on the Company's distribution practices
would have a material adverse impact on the Company.
-18-
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, 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.
On July 12, 2004, a consolidated class action complaint, that was
subsequently amended on November 30, 2004, was filed against American
and the Association of Professional Flight Attendants (APFA), the
union which represents the American'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 American 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 APFA and
American relating to the RPA and the ratification vote on the RPA by
individual APFA members, including: violation of the Labor Management
Reporting and Disclosure Act (LMRDA) and the APFA's Constitution and
By-laws, violation by the APFA of its duty of fair representation to
its members, violation by American of provisions of the Railway Labor
Act (RLA) 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). On
March 28, 2006, the district court dismissed all of various state law
claims against American, all but one of the LMRDA claims against the
APFA, and the claimed violations of RICO. This left the claimed
violations of the RLA and the duty of fair representation against
American and the APFA (as well as one LMRDA claim and one claim
against the APFA of a breach of its constitution). By letter dated
February 9, 2007, plaintiffs' counsel informed counsel for the
defendants that plaintiffs do not intend to pursue the LMRDA claim
against APFA further. Although the Company believes the case against
it is without merit and both American and the APFA are vigorously
defending the lawsuit, a final adverse court decision invalidating the
RPA and awarding substantial money damages would have a material
adverse impact on the Company.
-19-
On February 14, 2006, the Antitrust Division of the United States
Department of Justice (the "DOJ") served the Company with a grand jury
subpoena as part of an ongoing investigation into possible criminal
violations of the antitrust laws by certain domestic and foreign air
cargo carriers. At this time, the Company does not believe it is a
target of the DOJ investigation. The New Zealand Commerce Commission
notified the Company on February 17, 2006 that it is also
investigating whether the Company and certain other cargo carriers
entered into agreements relating to fuel surcharges, security
surcharges, war risk surcharges, and customs clearance surcharges. On
February 22, 2006, the Company received a letter from the Swiss
Competition Commission informing the Company that it too is
investigating whether the Company and certain other cargo carriers
entered into agreements relating to fuel surcharges, security
surcharges, war risk surcharges, and customs clearance surcharges. On
December 19, 2006 and June 12, 2007, the Company received requests for
information from the European Commission, seeking information
regarding the Company's corporate structure, revenue and pricing
announcements for air cargo shipments to and from the European Union.
On January 23, 2007, the Brazilian competition authorities, as part of
an ongoing investigation, conducted an unannounced search of the
Company's cargo facilities in Sao Paulo, Brazil. The Brazilian
authorities are investigating whether the Company and certain other
foreign and domestic air carriers violated Brazilian competition laws
by illegally conspiring to set fuel surcharges on cargo shipments. On
June 27, 2007, the Company received a request for information from the
Australian Competition and Consumer Commission seeking information
regarding fuel surcharges imposed by the Company on cargo shipments to
and from Australia and regarding the structure of the Company's cargo
operations. The Company intends to cooperate fully with these
investigations and inquiries. In the event that these or other
investigations uncover violations of the U.S. antitrust laws or the
competition laws of some other jurisdiction, such findings and related
legal proceedings could have a material adverse impact on the Company.
Approximately 44 purported class action lawsuits have been filed in
the U.S. against the Company and certain foreign and domestic air
carriers alleging that the defendants violated U.S. antitrust laws by
illegally conspiring to set prices and surcharges on cargo shipments.
These cases, along with other purported class action lawsuits in which
the Company was not named, were consolidated in the United States
District Court for the Eastern District of New York as In re Air Cargo
Shipping Services Antitrust Litigation, 06-MD-1775 on June 20, 2006.
Plaintiffs are seeking trebled money damages and injunctive relief.
The Company has not been named as a defendant in the consolidated
complaint filed by the plaintiffs. However, the plaintiffs have not
released any claims that they may have against the Company, and the
Company may later be added as a defendant in the litigation. If the
Company is sued on these claims, it will vigorously defend the suit,
but any adverse judgment could have a material adverse impact on the
Company. Also, on January 23, 2007, the Company was served with a
purported class action complaint filed against the Company, American,
and certain foreign and domestic air carriers in the Supreme Court of
British Columbia in Canada (McKay v. Ace Aviation Holdings, et al.).
The plaintiff alleges that the defendants violated Canadian
competition laws by illegally conspiring to set prices and surcharges
on cargo shipments. The complaint seeks compensatory and punitive
damages under Canadian law. On June 22, 2007, the plaintiffs agreed
to dismiss their claims against the Company. The dismissal is without
prejudice, and the Company could be brought back into the litigation
at a future date. If litigation is recommenced against the Company in
the Canadian courts, the Company will vigorously defend itself;
however, any adverse judgment could have a material adverse impact on
the Company.
On June 20, 2006, the DOJ served the Company with a grand jury
subpoena as part of an ongoing investigation into possible criminal
violations of the antitrust laws by certain domestic and foreign
passenger carriers. At this time, the Company does not believe it is a
target of the DOJ investigation. The Company intends to cooperate
fully with this investigation. In the event that this or other
investigations uncover violations of the U.S. antitrust laws or the
competition laws of some other jurisdiction, such findings and related
legal proceedings could have a material adverse impact on the Company.
Approximately 52 purported class action lawsuits have been filed in
the U.S. against the Company and certain foreign and domestic air
carriers alleging that the defendants violated U.S. antitrust laws by
illegally conspiring to set prices and surcharges for passenger
transportation. These cases, along with other purported class action
lawsuits in which the Company was not named, were consolidated in the
United States District Court for the Northern District of California
as In re International Air Transportation Surcharge Antitrust
Litigation, M 06-01793 on October 25, 2006. On July 9, 2007, the
Company was named as a defendant in the consolidated complaint.
Plaintiffs are seeking trebled money damages and injunctive relief.
American will vigorously defend these lawsuits; however, any adverse
judgment could have a material adverse impact on the Company.
American is defending a lawsuit (Love Terminal Partners, L.P. et al.
v. The City of Dallas, Texas et al.) filed on July 17, 2006 in the
United States District Court in Dallas. The suit was brought by two
lessees of facilities at Dallas Love Field Airport against American,
the cities of Fort Worth and Dallas, Southwest Airlines, Inc., and the
Dallas/Fort Worth International Airport Board. The suit alleges that
an agreement by and between the five defendants with respect to Dallas
Love Field violates Sections 1 and 2 of the Sherman Act. Plaintiffs
seek injunctive relief and compensatory and statutory damages.
American will vigorously defend this lawsuit; however, any adverse
judgment could have a material adverse impact on the Company.
-20-
On August 21, 2006, a patent infringement lawsuit was filed against
American and American Beacon Advisors, Inc. (a wholly-owned subsidiary
of the Company), in the United States District Court for the Eastern
District of Texas (Ronald A. Katz Technology Licensing, L.P. v.
American Airlines, Inc., et al.). This case has been consolidated in
the Central District of California for pre-trial purposes with
numerous other cases brought by the plaintiff against other
defendants. The plaintiff alleges that American and American Beacon
infringe a number of the plaintiff's patents, each of which relates to
automated telephone call processing systems. The plaintiff is seeking
past and future royalties, 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 automated telephone call system operations
would have a material adverse impact on the Company.
American is defending a lawsuit (Kelley Kivilaan v. American Airlines,
Inc.), filed on September 16, 2004 in the United States District Court
for the Middle District of Tennessee. The suit was brought by a
flight attendant who seeks to represent a purported class of current
and former flight attendants. The suit alleges that several of the
Company's medical benefits plans discriminate against females on the
basis of their gender in not providing coverage in all circumstances
for prescription contraceptives. Plaintiff seeks injunctive relief
and monetary damages. A motion for class certification has been
filed, but the case has not yet been certified as a class action.
American will vigorously defend this lawsuit; however, any adverse
judgment could have a material adverse impact on the Company.
-21-
Item 5. Other Information
As discussed in the Company's Proxy Statement, the Compensation
Committee of the Company's Board of Directors conducts annually a
comprehensive review of compensation for the executive officers of the
Company and American with independent compensation consultants engaged
by the Committee. At the July 2007 meetings of the Compensation
Committee and the Board, the following compensation initiatives were
approved (effective July 23, 2007):
- Grants of stock-settled stock appreciation rights pursuant to the
form of Stock Appreciation Right Agreement ("SAR Agreement"), attached
as Exhibit 10.1 to this Form 10-Q. An attachment to the form SAR
Agreement notes the stock-settled stock appreciation right grants to
the executive officers, effective July 23, 2007.
- Grants of deferred shares pursuant to the form of Deferred Share
Award Agreement for 2007 ("Deferred Share Agreement"). The form of
the Deferred Share Agreement is attached as Exhibit 10.2 to this Form
10-Q, and an attachment to the form Deferred Share Agreement notes the
deferred share grants to the executive officers, effective July 23, 2007.
- Grants of performance shares pursuant to the form of Performance
Share Agreement ("Performance Share Agreement") under the 2007 - 2009
Performance Share Plan for Officers and Key Employees ("Performance Share
Plan"). The form of the Performance Share Agreement and Performance Share
Plan are attached as Exhibit 10.3 to this Form 10-Q, and an attachment to
the form Performance Share Agreement notes the performance share grants
to the executive officers, effective July 23, 2007.
- A grant of 58,000 career performance shares (effective July 23,
2007) pursuant to the terms of the Career Performance Shares, Deferred
Stock Award Agreement between the Company and Gerard J. Arpey, dated
as of July 25, 2005. The form of this agreement is attached as
Exhibit 10.6 to the Company's report on Form 10-Q for the quarterly
period ended June 30, 2005.
Item 6. Exhibits
The following exhibits are included herein:
10.1 Form of Stock Appreciation Right Agreement under the 1998 Long
Term Incentive Plan, as Amended (with awards to executive officers
noted)
10.2 Form of 2007 Deferred Share Award Agreement (with awards to
executive officers noted)
10.3 Form of Performance Share Agreement under the 2007 - 2009
Performance Share Plan for Officers and Key Employees and the
2007 - 2009 Performance Share Plan for Officers and Key Employees
(with awards to executive officers noted)
12 Computation of ratio of earnings to fixed charges for the three
and six months ended June 30, 2007 and 2006.
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).
-22-
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 24, 2007 BY: /s/ Thomas W. Horton
Thomas W. Horton
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
-23-
STOCK APPRECIATION RIGHT AGREEMENT
STOCK APPRECIATION RIGHT AGREEMENT (this "Agreement")
is granted effective as of July 23, 2007, by AMR
Corporation, a Delaware corporation (the "Corporation"), to
[FIRST NAME LAST NAME], employee number [EMPLOYEE NUMBER],
an employee of the Corporation or one of its Subsidiaries or
Affiliates (the "Grantee").
W I T N E S S E T H:
WHEREAS, the stockholders of the Corporation approved
the AMR Corporation 1998 Long Term Incentive Plan at the
Corporation's annual meeting held on May 20, 1998 (such
plan, as may be amended from time to time, to be referenced
the "1998 Plan");
WHEREAS, the 1998 Plan provides for the grant of stock
appreciation rights in respect of shares of the
Corporation's Common Stock (as later defined) to those
individuals selected by the Compensation Committee of the
Board (as later defined) or, in lieu thereof, the Board of
Directors of the Corporation (the "Board"); and
WHEREAS, the Board has determined that it is to the
advantage and interest of the Corporation to grant the stock
appreciation right provided for herein to the Grantee as an
incentive for Grantee to remain in the employ of the
Corporation or one of its Subsidiaries or Affiliates, and to
provide Grantee an incentive to increase the value of the
Corporation's Common Stock, $1 par value (the "Common
Stock").
NOW, THEREFORE:
1. Stock Appreciation Right Grant. The Corporation hereby
grants to the Grantee effective the date of this Agreement
(the "Grant Date") a stock appreciation right, subject to
the terms and conditions hereinafter set forth, in respect
of an aggregate of [NUMBER] shares of Common Stock. The
base price ("Base Price") of each such stock appreciation
right is $28.59 per share (which is the Fair Market
Value of the Common Stock on the date hereof). The stock
appreciation right granted hereby is exercisable in
approximately equal installments on and after the following
dates and with respect to the following number of shares of
Common Stock:
Exercisable On and After Aggregate Number of Shares
First Anniversary of Grant Date 20% of total award
Second Anniversary of Grant Date 40% of total award
Third Anniversary of Grant Date 60% of total award
Fourth Anniversary of Grant Date 80% of total award
Fifth Anniversary of Grant Date 100% of total award
provided, that in no event shall this stock appreciation
right be exercisable in whole or in part ten years from the
Grant Date. The right to exercise this stock appreciation
right and to purchase the number of shares comprising each
such installment shall be cumulative, and once such right
has become exercisable it may be exercised in whole at any
time and in part from time to time until the date of
termination of the Grantee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other
provision hereof, this stock appreciation right shall not be
exercised if at such time such exercise or the delivery of
certificates representing shares of Common Stock purchased
pursuant hereto shall constitute a violation of any rule of
the Corporation, any provision of any applicable federal or
state statute, rule or regulation, or any rule or regulation
of any securities exchange on which the Common Stock may be
listed.
3. Exercise. This stock appreciation right may be
exercised with respect to all or any part of the shares of
Common Stock then subject to such exercise in accordance
with Section 1 pursuant to whatever procedures may be
adopted from time to time by the Corporation. Upon the
exercise of this stock appreciation right, in whole or in
part, the Grantee shall be entitled to receive from the
Corporation a number of shares of Common Stock equal in
value to the excess of the Fair Market Value (on the date of
exercise) of one share of Common Stock over the Base Price,
multiplied by the number of shares in respect of which the
stock appreciation right is being exercised. The number of
shares to be issued shall be calculated on the basis of the
Fair Market Value of the shares on the date of exercise,
with any fractional share being payable in cash based on the
Fair Market Value on the date of exercise. Notwithstanding
the foregoing, the Committee may elect, at any time and from
time to time, in lieu of issuing all or any portion of the
shares of Common Stock otherwise issuable upon any exercise
of any portion of this stock appreciation right, to pay the
Grantee an amount in cash or other marketable property of a
value equivalent to the aggregate Fair Market Value on the
date of exercise of the number of shares of Common Stock
that the Committee is electing to settle in cash or other
marketable property. Additionally, notwithstanding anything
to the contrary contained in this Agreement, (i) any
obligation of the Corporation to pay or distribute any
shares under this Agreement is subject to and conditioned
upon the Corporation having sufficient stock in the 1998
Plan or another shareholder-approved equity compensation
plan to satisfy all payments or distributions under this
Agreement and the 1998 Plan, and (ii) any obligation of the
Corporation to pay or distribute cash or any other property
under this Agreement is subject to and conditioned upon the
Corporation having the right to do so without violating the
terms of any covenant or agreement of the Corporation or any
of its Subsidiaries. The amount of such cash, property,
and/or shares of Common Stock shall be reduced by the
aggregate amount of federal, state and local income taxes
and payroll taxes that are required to be withheld in
connection with the payment of such cash, property, and/or
shares of Common Stock.
4. Termination of Stock Appreciation Right. This stock
appreciation right shall terminate and may no longer be
exercised if (i) the Grantee ceases to be an employee of the
Corporation or one of its Subsidiaries or Affiliates; (ii)
the Grantee becomes an employee of a Subsidiary that is not
wholly owned, directly or indirectly, by the Corporation; or
(iii) the Grantee takes a leave of absence without
reinstatement rights, unless otherwise agreed in writing
between the Corporation (or one of its Subsidiaries or
Affiliates) and the Grantee; except that
(a) If the Grantee's employment by the Corporation (or
any Subsidiary or Affiliate) terminates by reason of
death, the vesting of the stock appreciation right will
be accelerated and the stock appreciation right will
remain exercisable until its expiration;
(b) If the Grantee's employment by the Corporation (or
any Subsidiary or Affiliate) terminates by reason of
Disability, the stock appreciation right will continue
to vest in accordance with its terms and may be
exercised until its expiration; provided, however, that
if the Grantee dies after such Disability the vesting
of the stock appreciation right will be accelerated and
the stock appreciation right will remain exercisable
until its expiration;
(c) Subject to Section 7(c), if the Grantee's
employment by the Corporation (or any Subsidiary or
Affiliate) terminates by reason of Normal or Early
Retirement, the stock appreciation right will continue
to vest in accordance with its terms and may be
exercised until its expiration; provided, however, that
if the Grantee dies after Retirement the vesting of the
stock appreciation right will be accelerated and the
stock appreciation right will remain exercisable until
its expiration;
(d) If the Grantee's employment by the Corporation (or
any Subsidiary or Affiliate) is involuntarily
terminated by the Corporation or a Subsidiary or
Affiliate (as the case may be) without Cause, the stock
appreciation right may thereafter be exercised, to the
extent it was exercisable at the time of termination,
for a period of three months from the date of such
termination of employment or until the stated term of
such stock appreciation right, whichever period is
shorter; and
(e) In the event of a Change in Control or a Potential
Change in Control of the Corporation, this stock
appreciation right shall become exercisable in
accordance with the 1998 Plan, or its successor.
5. Adjustments in Common Stock. In the event of a stock
dividend, stock split, merger, consolidation, re-
organization, re-capitalization or other change in the
corporate structure of the Corporation, appropriate
adjustments shall be made by the Board in the number of
shares, class or classes of securities and the base price
per share applicable in respect to the stock appreciation
rights subject to this Agreement.
6. Non-Transferability of Stock Appreciation Right.
Unless the Board shall permit (on such terms and conditions
as it shall establish), a stock appreciation right may not
be transferred except by will or the laws of descent and
distribution to the extent provided herein. During the
lifetime of the Grantee this stock appreciation right may be
exercised only by him or her (unless otherwise determined by
the Board).
7. Miscellaneous.
(a) This stock appreciation right (i) shall be binding
upon and inure to the benefit of any successor of the
Corporation, (ii) shall be governed by the laws of the State
of Texas, and any applicable laws of the United States, and
(iii) may not be amended without the written consent of both
the Corporation and the Grantee. Notwithstanding the
foregoing, this Agreement may be amended from time to time
without the written consent of the Grantee pursuant to
Section 10 below and as permitted by the 1998 Plan (or its
successor). No contract or right of employment shall be
implied by this stock appreciation right.
(b) If this stock appreciation right is assumed or a
new stock appreciation right is substituted therefor in
any corporate reorganization (including, but not
limited to, any transaction of the type referred to in
Section 424(a) of the Internal Revenue Code of 1986, as
amended (the "Code")), employment by such assuming or
substituting corporation or by a parent corporation or
a subsidiary thereof shall be considered for all
purposes of this stock appreciation right to be
employment by the Corporation.
(c) In the event the Grantee's employment is
terminated by reason of Early or Normal Retirement and
the Grantee subsequently is employed by a competitor of
the Corporation, the Corporation reserves the right,
upon notice to the Grantee, to declare the stock
appreciation right forfeited and of no further
validity.
(d) In consideration of the Grantee's privilege to
participate in the 1998 Plan and to receive this stock
appreciation right award, the Grantee agrees: (i) not
to disclose any trade secrets of, or other confidential
or restricted information of the Corporation or any of
its Subsidiaries to any unauthorized party; (ii) not to
make any unauthorized use of such trade secrets or
confidential or restricted information during or after
his or her employment with any Subsidiary of the
Corporation; and (iii) not to solicit any then current
employees of any Subsidiary of the Corporation to join
the employee at his or her new place of employment
after such employment has terminated. The failure by
the employee to abide by the foregoing obligations
shall result in his or her award being forfeited in its
entirety.
(e) To the extent the stock appreciation right award
is forfeited, any and all rights of the Grantee under
this Agreement shall cease and terminate with respect
to such forfeited award, or portion thereof, without
any further obligation on the part of the Corporation.
8. Securities Law Requirements. Notwithstanding any
provision in the Agreement to the contrary, the Corporation
shall not be required to issue shares upon the exercise of
this stock appreciation right during such period that the
Corporation reasonably anticipates that issuing the shares
will violate federal securities laws or other applicable
law. The Corporation may require the Grantee to furnish to
the Corporation, prior to the issuance of any shares in
connection with the exercise of this stock appreciation
right, an agreement, in such form as the Corporation may
from time to time deem appropriate, in which the Grantee
represents that the shares acquired by him or her upon such
exercise are being acquired for investment and not with a
view to the sale or distribution thereof.
9. Stock Appreciation Right Subject to 1998 Plan. This
stock appreciation right shall be subject to all the terms
and provisions of the 1998 Plan (or its successor) and the
Grantee shall abide by and be bound by all rules,
regulations and determinations of the Board now or hereafter
made in connection with the administration of the 1998 Plan
(or its successor). Capitalized terms not otherwise defined
herein shall have the meanings set forth for such terms in
the 1998 Plan (or its successor, as applicable).
10. Section 409A Compliance. This Agreement is intended
to avoid, and not otherwise be subject to, the income
inclusion requirements, interest and penalty taxes of
Section 409A of the Code and the regulations and other
guidance issued thereunder, and this stock appreciation
right award is not intended to constitute a deferral of
compensation within the meaning of Treasury Regulation
1.409A-1(b) or successor guidance thereto. This Agreement
shall be interpreted in a manner consistent with that intent
described above. In addition to amendments permitted by
Section 7(a) above, amendments to this Agreement and/or the
1998 Plan (or its successor) may be made by the Corporation,
without the Grantee's consent, in order to ensure compliance
with Section 409A of the Code and the regulations and other
guidance issued thereunder.
IN WITNESS WHEREOF, this stock appreciation right
agreement is entered into as of the date first above
written.
Grantee AMR Corporation
- --------------------------- ----------------------------
Kenneth W. Wimberly
Corporate Secretary
Grant of SSARS
July 23, 2007
# of
SSARs
Officer Name Granted
G. J. Arpey 75,000
T. W. Horton 34,800
D. P. Garton 34,800
G. F. Kennedy 19,800
W. R. Reding 19,800
DEFERRED SHARE AWARD AGREEMENT
This Deferred Share Award Agreement (the "Agreement")
is effective as of July 23, 2007, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), and
[FIRST NAME LAST NAME], employee number [EMPLOYEE NUMBER]
(the "Employee"), an officer or key employee of one of the
Corporation's Subsidiaries.
WHEREAS, pursuant to the AMR Corporation 1998 Long Term
Incentive Plan, as amended (the "LTIP"), and as adopted by
the Board of Directors of the Corporation (the "Board"), the
Compensation Committee of the Board (the "Committee") has
determined that the Employee is an officer or key employee
and has further determined to make an award of deferred
stock from and pursuant to the LTIP (the "Award") to the
Employee as an inducement for the Employee to remain an
employee of one of the Corporation's Subsidiaries.
NOW, THEREFORE, the Corporation and the Employee hereby
agree as follows:
1. Grant of Award.
Subject to the terms and conditions of this Agreement,
the Employee is hereby granted the Award effective as of
July 23, 2007 (the "Grant Date"), in respect to [NUMBER]
shares of the Corporation's Common Stock (the "Shares").
Subject to the terms and conditions of this Agreement, the
Shares covered by the Award will vest, if at all, in
accordance with Section 2 hereof, on July 23, 2010 (such
date hereby established as the "Vesting Date" of the Award).
2. Distribution of Award.
Distribution with respect to the Award will occur, if
at all, in accordance with the following terms and
conditions:
(a) If the Employee is on the payroll of a Subsidiary
that is wholly-owned, directly or indirectly, by the
Corporation as of the Vesting Date, the Shares covered by
the Award will be paid by the Corporation to the Employee on
or about the Vesting Date.
(b) In the event the Employee's employment with a
Subsidiary of the Corporation is terminated prior to the
Vesting Date due to the Employee's death, Disability (as
defined in Section 409A(a)(2)(C) of the Internal Revenue
Code of 1986, as amended (the "Code")), Retirement or
termination not for Cause (each an "Early Termination"), the
Shares covered by the Award will vest on a pro-rata basis
and will be paid to the Employee (or, in the event of the
Employee's death, the Employee's designated beneficiary for
the purposes of the Award, or in the absence of an effective
beneficiary designation, the Employee's estate). The pro-
rata basis will be a percentage where: (i) the denominator
of which is 36, and (ii) the numerator of which is the
number of months from the Grant Date through the month of
Early Termination, inclusive. The Shares comprising the pro-
rata Award will be paid by the Corporation to the Employee
(or, in the event of the Employee's death, the Employee's
designated beneficiary for the purposes of the Award, or in
the absence of an effective beneficiary designation, the
Employee's estate) on or about the Vesting Date, subject to
Section 2(e) of this Agreement. Notwithstanding the
foregoing, in no event will a payment be provided to the
Employee unless and until the Employee's Retirement or
termination not for Cause constitutes a "separation from
service" for purposes of Treasury Regulation 1.409A-1(h) or
successor guidance thereto.
(c) In the event of a Change in Control of the
Corporation prior to the payment of the Shares subject to
the Award, such payment will be made within 60 days of the
date of the Change in Control. In such event, the Vesting
Date will be the date of the Change in Control. The term
"Change in Control" is defined for purposes of this
Agreement in Section 5.
(d) Notwithstanding the terms of Sections 2(a), 2(b)
and 2(c), the Award will be forfeited in its entirety if
prior to the Vesting Date:
(i) the Employee's employment with a Subsidiary
of the Corporation is terminated for Cause,
or if the Employee terminates such employment
prior to his or her Retirement;
(ii) the Employee becomes an employee of a
Subsidiary that is not wholly-owned, directly
or indirectly, by the Corporation; or
(iii)the Employee takes a leave of absence without
reinstatement rights, unless otherwise agreed in
writing between the Corporation (or a Subsidiary
or Affiliate thereof) and the Employee.
(e) Notwithstanding the third sentence of Section 2(b)
above, if the Employee is a "specified employee" pursuant to
Treasury Regulation 1.409A-1(i) or successor guidance
thereto, any payment on account of his or her Retirement or
termination not for Cause shall be delayed until the earlier
of: (i) the sixth month anniversary of the date of
separation from employment due to Retirement or termination
not for Cause, or (ii) the date of the Employee's death.
(f) To the extent the Shares covered by the Award are
otherwise payable pursuant to this Agreement and except as
otherwise provided herein, such Shares will be paid on the
applicable dates and events specified in herein (each a
"Payment Date"); provided however, in no event shall any
such payment be made later than the 15th day of the third
month of the calendar year immediately following the
calendar year in which the Payment Date occurs.
(g) The amount of the Shares paid hereunder shall be
reduced by the aggregate amount of federal, state, and local
income and payroll taxes that are required to be withheld in
connection with the payment of such Shares.
3. Transfer Restrictions.
Unless otherwise permitted by the Committee, this award
is non-transferable, other than by will or by the laws of
descent and distribution, and may not be assigned, pledged
or hypothecated and will not be subject to execution,
attachment or similar process. Upon any attempt by the
Employee (or the Employee's successor in the interest after
the Employee's death) to effect any such disposition, or
upon the levy of any such process, the Award may immediately
become null and void, at the discretion of the Committee.
4. [Intentionally omitted]
5. Miscellaneous.
This Agreement (a) will be binding upon and inure to
the benefit of any successor of the Corporation, (b) will be
governed by the laws of the State of Texas and any
applicable laws of the United States, and (c) may not be
amended without the written consent of both the Corporation
and the Employee. Notwithstanding the foregoing, this
Agreement may be amended from time to time without the
written consent of the Employee pursuant to Section 7 below
and as permitted by the LTIP (or its successor). No
contract or right of employment will be implied by this
Agreement.
In consideration of the Employee's privilege to receive
the Award under this Agreement, the Employee agrees: (i) not
to disclose any trade secrets of, or other confidential or
restricted information of the Corporation or any of its
Subsidiaries to any unauthorized party; (ii) not to make any
unauthorized use of such trade secrets or confidential or
restricted information during or after his or her employment
with any Subsidiary of the Corporation; and (iii) not to
solicit any then current employees of any Subsidiary of the
Corporation to join the employee at his or her new place of
employment after such employment has terminated. The
failure by the employee to abide by the foregoing
obligations shall result in his or her award being forfeited
in its entirety.
For purposes of Section 2(c), the term "Change in
Control" will mean a "change in ownership" or "change in
effective control" or "change in ownership of the assets" of
the Corporation, as determined pursuant to Treasury
Regulation 1.409A-3(i)(5) or successor guidance thereto.
The Employee shall not have the right to defer any
payment of the Shares covered by the Award. Except as
provided in this Agreement, the Committee and Corporation
will not accelerate the payment of any of the Shares covered
by the Award.
Notwithstanding anything in this Agreement to the
contrary, the Committee may elect, at any time and from time
to time, in lieu of issuing all or any portion of the
Shares, to make substitutions for such Shares, all to the
effect that the Employee will receive cash or other
marketable property of a value equivalent to what the
Employee would have received upon a payment of Shares.
Additionally, notwithstanding anything to the contrary
contained in this Agreement, (i) any obligation of the
Corporation to pay or distribute any shares under this
Agreement is subject to and conditioned upon the Corporation
having sufficient stock in the LTIP or another shareholder-
approved equity compensation plan to satisfy all payments or
distributions under this Agreement and the LTIP, and (ii)
any obligation of the Corporation to pay or distribute cash
or any other property under this Agreement is subject to and
conditioned upon the Corporation having the right to do so
without violating the terms of any covenant or agreement of
the Corporation or any of its Subsidiaries.
To the extent the Award is forfeited, any and all
rights of the Employee under this Agreement shall cease and
terminate with respect to such forfeited Award, or portion
thereof, without any further obligation on the part of the
Corporation.
Capitalized terms not otherwise defined herein shall
have the meanings set forth for such terms in the LTIP (or
its successor).
6. Adjustments in Awards.
In the event of a stock dividend, stock split, merger,
consolidation, re-organization, re-capitalization or other
change in the corporate structure of the Corporation,
appropriate adjustments shall be made by the Board of
Directors to the Award.
7. Section 409A Compliance.
This Agreement is intended to avoid, and not otherwise
be subject to, the income inclusion requirements, interest
and penalty taxes of Section 409A of the Code, and the
regulations and other guidance issued thereunder, and shall
be interpreted in a manner consistent with that intent.
Notwithstanding the foregoing, in the event there is a
failure to comply with Section 409A of the Code, the
Corporation and the Committee shall have the discretion to
accelerate the time of payment of the Shares covered by the
Award, but only to the extent of the amount required to be
included in income as a result of such failure. Amendments
to this Agreement and/or the LTIP (or its successor) may be
made by the Corporation, without the Employee's consent, in
order to ensure compliance with Section 409A of the Code and
the regulations and other guidance issued thereunder.
8. Securities Law Requirements.
Notwithstanding any provision in this Agreement to the
contrary, the Corporation shall not be required to make any
distribution of Shares pursuant to this Award during such
period that the Corporation reasonably anticipates that such
distribution will violate federal securities laws or other
applicable law. The Corporation may require the Employee to
furnish to the Corporation, prior to the issuance of any
Shares hereunder, an agreement, in such form as the
Corporation may from time to time deem appropriate, in which
the Employee represents that the Shares acquired by him or
her hereunder are being acquired for investment and not with
a view to the sale or distribution thereof.
IN WITNESS HEREOF, this Agreement is entered into as of
the date first above written.
Employee AMR CORPORATION
_______________________ __________________________
Kenneth W. Wimberly
Corporate Secretary
Grant of Deferred
Shares
July 23, 2007
# of
Deferred
Shares
Officer Granted
Name
G. J. Arpey 20,000
T. W. Horton 7,500
D. P. Garton 10,700
G. F. Kennedy 4,250
W. R. Reding 4,250
2007/2009 PERFORMANCE SHARE AGREEMENT
This 2007/2009 Performance Share Agreement
("Agreement") is effective as of July 23, 2007, by and
between AMR Corporation, a Delaware corporation (the
"Corporation"), and [FIRST NAME LAST NAME], employee number
[EMPLOYEE NUMBER] (the "Employee" or the "Recipient"), an
officer or key employee of one of the Corporation's
Subsidiaries.
WHEREAS, pursuant to the 2007/2009 Performance Share
Plan for Officers and Key Employees (the "Plan"), as adopted
by the Board of Directors of the Corporation (the "Board"),
the Compensation Committee of the Board (the "Committee")
has determined to make an award to the Employee (subject to
the terms of the Plan and this Agreement), as an inducement
for the Employee to remain an employee of one of the
Corporation's Subsidiaries during the time frame of 2007 -
2009 and to retain and motivate such Employee during such
employment.
This Agreement sets forth the terms and conditions
attendant to the Award under the Plan.
1. Grant of Award. Subject to the terms and
conditions of this Agreement, the Plan and the AMR
Corporation 1998 Long Term Incentive Plan, as amended (the
"LTIP"), the Recipient is hereby granted an Award effective
as of July 23, 2007 (the "Grant Date"), in respect to
[NUMBER] of shares of the Corporation's Common Stock
("Common Stock"). The Award shall vest, if at all, in
accordance with Section 2 of this Agreement. On or about
the date the Award vests (if at all), the Recipient will
receive a payment from the Corporation of a combination of
cash and/or Common Stock. The Committee will determine the
amount of the Award to be paid in cash, if any (the "Cash
Award"), and the amount of the Award to be settled in shares
of Common Stock (the "Stock Distribution"). Any such Cash
Award will be paid on or about April 30, 2010 (such Cash
Award will be made pursuant to the Annual Incentive Plan).
The Stock Distribution will be paid on or about April 22,
2010 (such Stock Distribution will be made from shares
available for issuance under the LTIP and/or another
shareholder-approved equity compensation plan). The sum of
the Cash Award and the Stock Distribution will equal the
product of: (a) the Fair Market Value of the Common Stock on
April 21, 2010, and (b) the number of shares of Common Stock
comprising the Award.
2. Vesting and Distribution.
(a) The Award will vest, if at all, in accordance with
Schedule A, attached hereto and made a part of this
Agreement.
(b) In the event the Employee's employment with one of
the Corporation's Subsidiaries is terminated prior to the
end of the measurement period set forth in Schedule A (the
"Measurement Period") due to his or her death, Disability
(as defined in Section 409A(a)(2)(C) of the Internal Revenue
Code of 1986, as amended (the "Code")), Retirement (subject
to the second paragraph of Section 4) or termination not for
Cause (each an "Early Termination"), the Award will vest, if
at all, on a pro-rata basis and will be paid to the Employee
(or, in the event of the Employee's death, the Employee's
designated beneficiary for purposes of the Award, or in the
absence of an effective beneficiary designation, the
Employee's estate). The pro-rata basis will be a percentage
where: (i) the denominator of which is 36, and (ii) the
numerator of which is the number of months from January 1,
2007 through the month of Early Termination, inclusive. The
cash and/or Common Stock subject to this pro-rata Award will
be paid to the Recipient at the same time as Cash Awards and
Stock Distributions under the Plan are paid to then current
employees who have Awards under the Plan, subject to Section
2(f) of this Agreement. Notwithstanding the foregoing, in
no event will a payment be provided to the Employee unless
and until the Employee's Retirement or termination not for
Cause constitutes a "separation from service" for purposes
of Treasury Regulation 1.409A-1(h) or successor guidance
thereto.
(c) In the event the Recipient's employment with one
of the Corporation's Subsidiaries is terminated for Cause,
or if the Recipient terminates such employment with such
Subsidiary prior to his or her Retirement, each occurring
prior to April 21, 2010, the Award shall be forfeited in its
entirety.
(d) If, prior to April 21, 2010, the Recipient becomes an
employee of a Subsidiary that is not wholly-owned, directly
or indirectly, by the Corporation, or if the Recipient
begins a leave of absence without reinstatement rights, then
in each case the Award shall be forfeited in its entirety.
(e) In the event of a Change in Control of the Corporation
prior to the payment of the cash and/or Common Stock subject
to the Award, such payment will be made within 60 days of
the date of the Change in Control. In such event, the
vesting date will be the date of the Change in Control. The
term "Change in Control" is defined for purposes of this
Agreement in Section 7.
(f) Notwithstanding the third sentence of Section 2(b)
above, if the Employee is a "specified employee" pursuant to
Treasury Regulation 1.409A-1(i) or successor guidance
thereto, any payment on account of his or her Retirement or
termination not for Cause shall not be paid until the
earlier of: (i) the sixth month anniversary of the date of
separation from employment due to Retirement or termination
not for Cause or (ii) the date of the Employee's death.
(g) To the extent the Cash Award and/or Stock Distribution
subject to the Award is otherwise payable pursuant to this
Agreement and except as otherwise provided herein, such Cash
Award and/or Stock Distribution will be paid on the
applicable dates and events specified herein (each a
"Payment Date"); provided, however, in no event shall any
such payment be made later than the 15th day of the third
month of the calendar year immediately following the
calendar year in which the Payment Date occurs.
3. Transfer Restrictions. This Award is non-
transferable, other than by will or by the laws of descent
and distribution, and may not otherwise be assigned, pledged
or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the
Recipient (or the Recipient's successor in interest after
the Recipient's death) to effect any such disposition, or
upon the levy of any such process, the Award may immediately
become null and void and of no further validity, at the
discretion of the Committee.
4. Miscellaneous. This Agreement (a) shall be binding upon
and inure to the benefit of any successor of the
Corporation, (b) shall be governed by the laws of the State
of Texas and any applicable laws of the United States, and
(c) may not be amended without the written consent of both
the Corporation and the Employee. Notwithstanding the
foregoing, this Agreement may be amended from time to time
without the written consent of the Employee pursuant to
Section 8 below and as permitted by the Plan or the LTIP (or
its successor). No contract or right of employment shall be
implied by this Agreement.
In the event the Employee's employment is
terminated by reason of Early or Normal Retirement and the
Employee is subsequently employed by a competitor (as
determined in the Board's discretion) of the Corporation or
any of its Subsidiaries prior to the complete payment of the
cash and/or Common Stock subject to the Award, the
Corporation reserves the right, upon notice to the Employee,
to declare the Award forfeited and of no further validity.
In consideration of the Employee's privilege to
participate in the Plan and receive the Award under this
Agreement, the Employee agrees: (i) not to disclose any
trade secrets of, or other confidential or restricted
information of the Corporation or any of its Subsidiaries to
any unauthorized party; (ii) not to make any unauthorized
use of such trade secrets or confidential or restricted
information during or after his or her employment with any
Subsidiary of the Corporation; and (iii) not to solicit any
then current employees of any Subsidiary of the Corporation
to join the employee at his or her new place of employment
after such employment has terminated. The failure by the
employee to abide by the foregoing obligations shall result
in his or her award being forfeited in its entirety.
The Employee shall not have the right to defer any
payment of the Cash Award or the Stock Distribution. Except
as provided in this Agreement, the Committee and Corporation
shall not accelerate the payment of any Cash Award or the
Stock Distribution.
Any Cash Award will be net of applicable
withholding and social security taxes. The Employee will pay
to the Corporation timely any and all such taxes on account
of the Stock Distribution. The failure by the Employee to
pay timely such taxes will result in a withholding from any
and all payments from the Corporation or any Subsidiary to
the Employee in order to satisfy such taxes.
Notwithstanding anything in this Agreement or the
Plan to the contrary, the Committee may elect, at any time
and from time to time, in lieu of issuing all or any portion
of the Common Stock comprising the Stock Distribution, to
make substitutions for such Common Stock, all to the effect
that the employee will receive cash or other marketable
property of a value equivalent to what the Employee would
have received in a Stock Distribution. Additionally,
notwithstanding anything to the contrary contained in this
Agreement or the Plan, (i) any obligation of the Corporation
to pay or distribute any shares under this Agreement or the
Plan is subject to and conditioned upon the Corporation
having sufficient stock in the LTIP or another shareholder-
approved equity compensation plan to satisfy all payments or
distributions under the Plan and the LTIP, and (ii) any
obligation of the Corporation to pay or distribute cash or
any other property under this Agreement or the Plan is
subject to and conditioned upon the Corporation having the
right to do so without violating the terms of any covenant
or agreement of the Corporation or any of its Subsidiaries.
To the extent the Award is forfeited, any and all
rights of the Employee under this Agreement shall cease and
terminate with respect to such forfeited Award, or portion
thereof, without any further obligation on the part of the
Corporation.
5. [Intentionally Omitted]
6. Adjustments in Awards. In the event of a stock
dividend, stock split, merger, consolidation, re-
organization, re-capitalization or other change in the
corporate structure of the Corporation, appropriate
adjustments shall be made by the Board of Directors to the
Award.
7. Incorporation of the Provisions of the Plan and
LTIP. Capitalized terms not otherwise defined herein shall
have the meanings set forth for such terms in the Plan and
the LTIP (or its successor). For purposes of Section 2(e),
the term "Change in Control" will mean a "change in
ownership" or "change in effective control" or "change in
ownership of the assets" of the Corporation, as determined
pursuant to Treasury Regulation 1.409A-3(i)(5) or successor
guidance thereto.
8. Section 409A Compliance. This Agreement is
intended to avoid, and not otherwise be subject to, the
income inclusion requirements, interest and penalty taxes of
Section 409A of the Code and the regulations and other
guidance issued thereunder, and shall be interpreted in a
manner consistent with that intent. Notwithstanding the
foregoing, in the event there is a failure to comply with
Section 409A of the Code, the Board shall have the
discretion to accelerate the time of payment of a Stock
Distribution or Cash Award, but only to the extent of the
amount required to be included in income as a result of such
failure. In addition to amendments permitted by Section 4
above, amendments to this Agreement, the Plan and/or the
LTIP (or its successor) may be made by the Corporation,
without the Employee's consent, in order to ensure
compliance with Section 409A of the Code and the regulations
and other guidance issued thereunder.
9. Securities Law Requirements. Notwithstanding any
provision in this Agreement or the Plan to the contrary, the
Corporation shall not be required to make any Stock
Distribution pursuant to this Award during such period that
the Corporation reasonably anticipates that such Stock
Distribution will violate federal securities laws or other
applicable law. The Corporation may require the Recipient
to furnish to the Corporation, prior to the issuance of any
shares of Common Stock hereunder, an agreement, in such form
as the Corporation may from time to time deem appropriate,
in which the Recipient represents that the shares acquired
by him or her upon such exercise are being acquired for
investment and not with a view to the sale or distribution
thereof.
IN WITNESS HEREOF, this Performance Share
Agreement is entered into as of the date first above
written.
Employee AMR CORPORATION
_________________________ _____________________
Kenneth W. Wimberly
Corporate Secretary
Schedule A
2007/2009 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2007/2009 Performance Share Plan for
Officers and Key Employees, as amended (the "Plan"), is to
provide greater incentive to officers and key employees of
the subsidiaries and affiliates of AMR Corporation ("AMR" or
the "Corporation") to achieve the highest level of
individual performance and to meet or exceed specified goals
during the time frame 2007 - 2009, which will contribute to
the success of the Corporation.
Definitions
For purposes of the Plan, the following definitions will
control:
"Affiliate" is defined as a subsidiary of AMR or any entity
that is designated by the Committee as a participating
employer under the Plan, provided that AMR directly or
indirectly owns at least 20% of the combined voting power of
all classes of stock of such entity.
"Board" is defined as the Board of Directors of the
Corporation.
"Committee" is defined as the Compensation Committee, or its
successor, of the Board.
"Comparator Group" is defined as the following seven U.S.
based carriers including, Alaska Air Group, Inc., AMR
Corporation, Continental Airlines, Inc., JetBlue Airways
Corporation, Southwest Airlines Co., US Airways Group, Inc.
and UAL Corporation.
"Corporate Objectives" is defined as being the objectives
established by the Committee at the beginning of each fiscal
year during the Measurement Period.
"Daily Closing Stock Price" is defined as the stock price at
the close of trading (4:00 PM EST) of the National Exchange
on which the stock is traded.
"Measurement Period" is defined as the three-year period
beginning January 1, 2007 and ending December 31, 2009.
"National Exchange" is defined as the New York Stock
Exchange (NYSE), the National Association of Securities
Dealers Automated Quotations (NASDAQ), or the American Stock
Exchange (AMEX).
"Total Shareholder Return" or "TSR" is defined as the rate
of return reflecting stock price appreciation plus
reinvestment of dividends over the Measurement Period. The
average Daily Closing Stock Price (adjusted for splits and
dividends) for the three months prior to the beginning and
ending points of the Measurement Period will be used to
smooth out market fluctuations.
Accumulation of Shares
Any distribution under the Plan will be determined by (i)
the Corporation's TSR rank within the Comparator Group
and/or (ii) the Corporation's attainment of the Corporate
Objectives during each year of the Measurement Period and
(iii) the terms and conditions of the award agreement (the
"Agreement") between the Corporation and the employee. The
distribution percentage of shares pursuant to the TSR metric
and based on rank is specified below. In the event that a
carrier (or carriers) in the Comparator Group ceases to
trade on a National Exchange at any point in the Measurement
Period, the following distribution percentage of shares
originally awarded, based on rank and the number of
remaining carriers within the Comparator Group, will be used
accordingly:
Percent of Original Award (Based on Rank)
Number of
Carriers Rank
in
Comparator
Group
7 6 5 4 3 2 1
7 0% 25% 50% 75% 100% 135% 175%
6 - 0% 50% 75% 100% 135% 175%
5 - - 50% 75% 100% 135% 175%
4 - - - 75% 100% 135% 175%
3 - - - - 100% 135% 175%
At the end of each fiscal year during the Measurement
Period, the Committee will determine whether the Corporate
Objectives have been achieved. At the end of the
Measurement Period the Committee will determine the
distribution percentage of an award based upon the TSR
metric and, with respect to senior officer awards, the
Corporate Objectives. The size of the award that may vest
will range from 0% to 175% of the original award.
Administration
The Committee shall have authority to administer and
interpret the Plan and any Agreements thereunder, establish,
amend and rescind administrative rules, approve eligible
participants, and take any other action necessary for the
proper and efficient operation of the Plan and any
Agreements thereunder. The TSR metric will be determined
based on an audit of AMR's TSR rank by the General Auditor
of American Airlines, Inc. A summary of awards under the
Plan shall be provided to the Board at its first regular
meeting following determination of any such awards. The
awards will be paid on or about April 21, 2010, or such date
in 2010 that the award is approved for distribution by the
Committee, but in no event later than March 15, 2011.
The distribution of any shares under this Plan and any
Agreements thereunder is subject to the Corporation having
sufficient shares of stock in a stock plan to make such a
distribution. In the event the Corporation does not have
sufficient shares of stock in such a stock plan for the
distribution contemplated by this Plan, the Committee will
have the authority and discretion to make substitutions for
such shares, all to the effect that the employee will
receive cash or other marketable property of a value
equivalent to what the employee would have received in a
stock distribution. Notwithstanding anything to the
contrary contained in this Plan or any Agreement hereunder,
(i) any obligation of the Corporation to pay or distribute
any shares under this Plan and any Agreement hereunder is
subject to and conditioned upon the Corporation having
sufficient stock in the Corporation's 1998 Long Term
Incentive Plan, as amended (the "LTIP") or another
shareholder-approved equity compensation plan to satisfy all
payments or distributions contemplated by the LTIP, and (ii)
any obligation of the Corporation to pay or distribute cash
or any other property under this Plan or any Agreements
hereunder is subject to and conditioned upon the Corporation
having the right to do so without violating the terms of any
covenant or agreement of the Corporation or any of its
Subsidiaries.
Corporate Objectives will be used as a metric for
determining the distribution of shares only for senior
officers of the Corporation (or a Subsidiary thereof) unless
the Committee determines otherwise.
General
Neither this Plan nor any action taken hereunder shall be
construed as giving any employee or participant the right to
be retained in the employ of the Corporation or any
Subsidiary of the Corporation or to receive any proprietary
interest in the Corporation.
Nothing in the Plan shall be deemed to give any employee any
right, contractually or otherwise, to participate in the
Plan or in any benefits hereunder, other than the right to
receive an award as may have been expressly awarded by the
Committee subject to the terms and conditions of the
Agreement between the Corporation and the employee and the
Plan. Until an employee receives payment of cash and/or
shares subject to his or her award, title to and beneficial
ownership of all benefits described in the Plan and any
Agreement thereunder shall at all times remain with the
Corporation.
In the event of any act of God, war, natural disaster,
aircraft grounding, revocation of operating certificate,
terrorism, strike, lockout, labor dispute, work stoppage,
fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the
control of the Corporation, whether similar or dissimilar
(each a "Force Majeure Event"), which Force Majeure Event
affects the Corporation or its Subsidiaries or its
Affiliates, the Committee, in its sole discretion, may (i)
terminate or (ii) suspend, delay, defer (for such period of
time as the Committee may deem necessary), or substitute any
awards due currently or in the future under the Plan,
including, but not limited to, any awards that have accrued
to the benefit of participants but have not yet been paid,
in any case to the extent permitted under Treasury
Regulation 1.409A-3(d) or successor guidance thereto.
In consideration of the employee's privilege to participate
in the Plan, the employee agrees: (i) not to disclose any
trade secrets of, or other confidential or restricted
information of the Corporation or any of its Subsidiaries to
any unauthorized party; (ii) not to make any unauthorized
use of such trade secrets or confidential or restricted
information during or after his or her employment with any
Subsidiary of the Corporation; and (iii) not to solicit any
then current employees of any Subsidiary of the Corporation
to join the employee at his or her new place of employment
after such employment has terminated. The failure by the
employee to abide by the foregoing obligations shall result
in his or her award being forfeited in its entirety.
The Committee may amend, suspend, or terminate the Plan at
any time.
Grant of Performance
Shares
July 23, 2007
# of
Performance
Shares
Officer Name Granted
G. J. Arpey 95,000
T. W. Horton 52,000
D. P. Garton 52,000
G. F. Kennedy 29,600
W. R. Reding 29,600
Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Six Months
Ended June 30, Ended June 30,
2007 2006 2007 2006
Earnings (loss):
Earnings (loss) before income taxes $271 $280 $ 322 $ 174
Add: Total fixed charges (per below) 418 426 852 845
Less: Interest capitalized 5 7 14 14
Total earnings before income taxes $684 $699 $1,160 $1,005
Fixed charges:
Interest $203 $211 $ 410 $ 418
Portion of rental expense
representative of the interest factor 212 212 436 419
Amortization of debt expense 3 3 6 8
Total fixed charges $418 $426 $ 852 $ 845
Ratio of earnings to fixed charges 1.64 1.64 1.36 1.19
Note:As of June 30, 2007, American has guaranteed approximately
$1.1 billion of AMR's unsecured debt and approximately $368
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 24, 2007 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief
Executive Officer
Exhibit 31.2
I, Thomas W. Horton, 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 24, 2007 /s/ Thomas W. Horton
Thomas W. Horton
Executive 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, 2007
(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 24, 2007 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief
Executive Officer
Date: July 24, 2007 /s/ Thomas W. Horton
Thomas W. Horton
Executive 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.