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May
21,
2009
VIA
EDGAR
David
R. Humphrey,
Accounting Branch Chief
Division
of
Corporate Finance
U.S.
Securities and
Exchange Commission
100
F Street
N.E.
Washington,
DC 20549
Re:
AMR Corporation
Form
10-K filed for the year ended December 31,
2008
Filed
February 19, 2009
File
No. 1-8400
Dear
Mr.
Humphrey:
This
letter sets
forth AMR Corporation’s (AMR or the Company) responses with respect to the
staff’s comment letter dated May 8, 2009 regarding AMR’s Form 10-K for the year
ended December 31, 2008. Both the staff’s comments and AMR’s
responses have been included.
Item
8 –
Financial Statements and Supplementary Data
Notes
to
Consolidated Financial Statements
Note
7 –
Financial Instruments and Risk Management
Fuel
Price Risk
Management
We
note the
disclosure with respect to your estimate that during the next twelve months
you
will reclassify from Accumulated other comprehensive loss into earnings
approximately $711 million in net losses (based on prices as of December 31,
2008) related to your fuel derivative hedges, including losses from terminated
contracts with a bankrupt counterparty and unwound trades. In this
regard, since the terminated contracts and unwound trades transpired during
2008, please tell us what accounting literature you relied upon to arrive at
the
conclusion that you should reclassify these amounts over the next twelve months
instead of during 2008. Additionally, please reconcile your
accounting policy, which indicates that you discontinue hedge accounting if
you
decide to discontinue the hedging relationship, to the accounting you applied
to
terminated contracts and unwound trades.
Response:
As
part of the
Company's risk management program, it uses a variety of financial instruments,
primarily heating oil option and collar contracts, as cash flow hedges to
mitigate commodity price risk. These instruments qualify as cash flow
hedges under Statement of Financial Accounting Standards No. 133 Accounting
for
Derivative Instruments and Hedging Activities” (SFAS 133), and thus, the
derivative instrument portfolio is marked-to-market on a monthly basis with
the
increase or decrease in the value of the portfolio reflected on the balance
sheet as an increase or decrease to the fuel derivative asset or liability,
as
appropriate. The effective portion of the changes in fair value is
recorded in other comprehensive income (OCI), as required by SFAS 133, and
deferred until the underlying forecasted transaction has occurred (the purchase
of jet fuel), while the ineffective portion of these changes is recorded to
fuel
expense. In light of the Company’s hedging levels (currently at
approximately 37% of forecasted fuel usage), the likelihood of the forecasted
transaction not occurring is minimal.
The
$711 million
represents losses deferred in OCI related to our fuel hedging program (based
on
prices as of December 31, 2008) that will be reclassified to earnings as the
forecasted transaction (the purchase of jet fuel) occurs throughout
2009. This amount includes deferred losses on unwound trades and
terminated contracts that transpired during 2008.
First,
in an effort
to cap losses on certain trades, on December 23, 2008 (the measurement date),
the Company entered into new derivative instruments to “effectively” terminate
certain existing instruments that were in a loss position. As of that
measurement date, the Company de-designated the old trades as cash flow hedges
thereby discontinuing hedge accounting prospectively. Changes in the market
value of the old trades and new trades are recorded to other income/expense
until settlement of the instruments.
In
accordance with
paragraphs 31 and 32 of SFAS 133, amounts deferred in OCI for the original
contracts through December 23, 2008 should be reclassed to earnings in the
period in which the forecasted transaction affects earnings. As the
forecasted transaction is still probable of occurring, the amounts have been
deferred in OCI until the underlying jet fuel usage takes place, which will
occur throughout 2009.
Second,
the
bankruptcy of one of our counterparties triggered the termination of the
derivative contracts and therefore we discontinued hedge accounting
prospectively. However, such amounts deferred in OCI related to these
contracts will be reclassed to earnings as the forecasted purchase of jet fuel
is still probable of occurring.
The
Company’s
accounting policy for derivatives states, “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.” This is the accounting applied to both
terminated and unwound contracts in Form 10-K for the fiscal year ended December
31, 2008.
AMR
acknowledges
that the adequacy and accuracy of the disclosures in its filing with the
Commission are the responsibility of the Company. The Company
acknowledges that staff comments or changes to disclosures in response to staff
comments do not foreclose the Commission from taking any action with respect
to
the filing. The Company also acknowledges that staff comments may not
be asserted as a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.
We
appreciate the
staff’s assistance in this process and would be pleased to discuss with you at
your earliest convenience any additional comments the staff may
have.
Very
truly
yours,
/s/
Thomas W.
Horton
Thomas
W.
Horton
Executive
Vice President and Chief
Financial Officer