e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended
March 31, 2011.
o 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 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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75-1825172 |
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(State or other jurisdiction
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(I.R.S. Employer Identification No.) |
of incorporation or organization) |
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4333 Amon Carter Blvd. |
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Fort Worth, Texas
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76155 |
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(Address of principal executive offices)
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(Zip Code) |
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Registrants telephone number, including area code
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(817) 963-1234 |
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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. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting
company in Rule 12-b-2 of the Exchange Act. (Check one):
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þ Large accelerated filer | |
o Accelerated filer | |
o Non-accelerated filer | |
o Smaller reporting company |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes
o No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock, $1 par value 333,461,642 shares as of April 14, 2011.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
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Three Months Ended March 31, |
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2011 |
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2010 |
Revenues |
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Passenger - American Airlines |
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$ |
4,134 |
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$ |
3,831 |
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- Regional Affiliates |
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577 |
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498 |
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Cargo |
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169 |
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154 |
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Other revenues |
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653 |
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585 |
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Total operating revenues |
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5,533 |
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5,068 |
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Expenses |
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Aircraft fuel |
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1,842 |
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1,476 |
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Wages, salaries and benefits |
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1,722 |
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1,703 |
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Other rentals and landing fees |
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352 |
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352 |
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Maintenance, materials and repairs |
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305 |
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351 |
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Depreciation and amortization |
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276 |
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267 |
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Commissions, booking fees and credit card expense |
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256 |
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234 |
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Aircraft rentals |
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160 |
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129 |
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Food service |
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121 |
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115 |
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Other operating expenses |
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731 |
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739 |
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Total operating expenses |
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5,765 |
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5,366 |
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Operating Loss |
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(232 |
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(298 |
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Other Income (Expense) |
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Interest income |
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7 |
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5 |
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Interest expense |
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(200 |
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(209 |
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Interest capitalized |
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7 |
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10 |
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Miscellaneous - net |
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(18 |
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(13 |
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(204 |
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(207 |
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Loss Before Income Taxes |
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(436 |
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(505 |
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Income tax |
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- |
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- |
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Net Loss |
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$ |
(436 |
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$ |
(505 |
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Loss Per Share |
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Basic |
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$ |
(1.31 |
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$ |
(1.52 |
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Diluted |
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$ |
(1.31 |
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$ |
(1.52 |
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The accompanying notes are an integral part of these financial statements. |
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
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March 31, |
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December 31, |
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2011 |
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2010 |
Assets |
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Current Assets |
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Cash |
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$ |
286 |
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$ |
168 |
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Short-term investments |
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5,513 |
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4,328 |
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Restricted cash and short-term investments |
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455 |
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450 |
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Receivables, net |
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922 |
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738 |
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Inventories, net |
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595 |
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594 |
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Fuel derivative contracts |
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693 |
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269 |
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Other current assets |
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361 |
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291 |
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Total current assets |
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8,825 |
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6,838 |
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Equipment and Property |
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Flight equipment, net |
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12,110 |
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12,264 |
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Other equipment and property, net |
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2,142 |
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2,199 |
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Purchase deposits for flight equipment |
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505 |
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375 |
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14,757 |
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14,838 |
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Equipment and Property Under Capital Leases |
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Flight equipment, net |
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311 |
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194 |
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Other equipment and property, net |
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48 |
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50 |
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359 |
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244 |
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International slots and route authorities |
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708 |
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708 |
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Domestic slots and airport operating and
gate lease rights, less accumulated
amortization, net |
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217 |
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224 |
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Other assets |
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2,247 |
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2,236 |
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$ |
27,113 |
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$ |
25,088 |
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-2-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
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March 31, |
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December 31, |
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2011 |
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2010 |
Liabilities and Stockholders Equity (Deficit) |
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Current Liabilities |
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Accounts payable |
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$ |
1,267 |
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$ |
1,156 |
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Accrued liabilities |
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2,334 |
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2,085 |
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Air traffic liability |
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4,290 |
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3,656 |
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Current maturities of long-term debt |
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1,862 |
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1,776 |
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Current obligations under capital leases |
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100 |
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107 |
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Total current liabilities |
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9,853 |
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8,780 |
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Long-term debt, less current maturities |
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9,568 |
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8,756 |
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Obligations under capital leases, less current obligations |
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588 |
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497 |
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Pension and postretirement benefits |
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7,926 |
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7,877 |
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Other liabilities, deferred gains and deferred credits |
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3,127 |
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3,123 |
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Stockholders Equity (Deficit) |
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Preferred stock |
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- |
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- |
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Common stock |
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339 |
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339 |
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Additional paid-in capital |
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4,455 |
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4,445 |
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Treasury stock |
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(367 |
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(367 |
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Accumulated other comprehensive income (loss) |
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(2,333 |
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(2,755 |
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Accumulated deficit |
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(6,043 |
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(5,607 |
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(3,949 |
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(3,945 |
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$ |
27,113 |
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$ |
25,088 |
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The accompanying notes are an integral part of these financial statements.
-3-
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
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Three Months Ended March 31, |
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2011 |
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2010 |
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Net Cash Provided by (used for) Operating Activities |
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$ |
708 |
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$ |
456 |
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Cash Flow from Investing Activities: |
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Capital expenditures |
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(359 |
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(317 |
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Net (increase) decrease in short-term investments |
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(1,190 |
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(111 |
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Proceeds from sale of equipment and property |
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(6 |
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- |
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Net cash used for investing activities |
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(1,555 |
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(428 |
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Cash Flow from Financing Activities: |
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Payments on long-term debt and capital lease obligations |
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(323 |
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(291 |
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Proceeds from: |
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Issuance of debt |
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1,164 |
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137 |
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Sale leaseback transactions |
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125 |
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160 |
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Issuance of common stock, net of issuance costs |
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- |
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1 |
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Other |
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(1 |
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1 |
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Net cash provided by financing activities |
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965 |
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8 |
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Net increase (decrease) in cash |
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118 |
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36 |
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Cash at beginning of period |
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168 |
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153 |
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Cash at end of period |
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$ |
286 |
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$ |
189 |
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The accompanying notes are an integral part of these financial statements.
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation |
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The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with United States (U.S.) generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of
management, these financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position, results of operations and cash
flows for the periods indicated. Results of operations for the periods presented herein are
not necessarily indicative of results of operations for the entire year. The condensed
consolidated financial statements include the accounts of AMR Corporation (AMR or the Company)
and its wholly owned subsidiaries, including (i) its principal subsidiary American Airlines,
Inc. (American) and (ii) its regional airline subsidiary, AMR Eagle Holding Corporation and
its primary subsidiaries, American Eagle Airlines, Inc. and Executive Airlines, Inc.
(collectively, AMR Eagle). 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 included in
AMRs Annual Report on Form 10-K filed on February 16, 2011 (2010 Form 10-K). |
2. Commitment And Contingencies |
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As of March 31, 2011, American had 15 Boeing 737-800 aircraft purchase commitments for the
remainder of 2011 and 28 Boeing 737-800 aircraft purchase commitments in 2012 and, in addition
to those commitments, American had firm commitments for eleven Boeing 737-800 aircraft and
seven Boeing 777-200ER aircraft scheduled to be delivered in 2013 through 2016. During the
first quarter of 2011, the Company amended Purchase Agreement No. 1980 with Boeing and
exercised rights to acquire four Boeing 777-300ER aircraft, including two scheduled for
delivery in 2012 and two scheduled for delivery in 2013. In April 2011, the Company exercised
rights to acquire a fifth Boeing 777-300ER aircraft, which is scheduled for delivery in 2013.
In 2008, American entered into a purchase agreement with Boeing (subject to certain
reconfirmation rights) to acquire 42 Boeing 787-9 aircraft, with the right to acquire an
additional 58 Boeing 787-9 aircraft. The first such Boeing 787-9 aircraft is currently
scheduled to be delivered (subject to certain confirmation rights) in 2014. American has
selected GE Aviation as the exclusive provider of engines for its expected order of Boeing
787-9 aircraft. As of March 31, 2011, AMR Eagle had firm purchase commitments for 3
Bombardier CRJ-700 aircraft scheduled to be delivered in April 2011. |
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As of March 31, 2011, payments for the above purchase commitments under these arrangements will
approximate $886 million in the remainder of 2011, $1.2 billion in 2012, $580 million in 2013,
$290 million in 2014, $169 million in 2015, and $80 million for 2016. These amounts are net of
purchase deposits currently held by the manufacturers. American has granted Boeing a security
interest in Americans purchase deposits with Boeing. The Companys purchase deposits totaled
$505 million at March 31, 2011. |
3. Depreciation And Amortization |
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Accumulated depreciation of owned equipment and property at March 31, 2011 and December 31,
2010 was $11.2 billion and $11.1 billion, respectively. Accumulated amortization of equipment
and property under capital leases at March 31, 2011 and December 31, 2010 was $520 million and
$580 million, respectively. |
4. Valuation Allowance |
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The Company provides a valuation allowance for 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
Companys deferred tax asset valuation allowance remained approximately the same during the
three months ended March 31, 2011 at $3.0 billion as of March 31, 2011, including the impact
of comprehensive income for the three months ended March 31, 2011 and changes from other
adjustments. |
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Under current accounting rules, the Company is required to consider all items (including items
recorded in other comprehensive income) in determining the amount of tax benefit that results
from a loss from continuing operations and that should be allocated to continuing operations.
The Company generally does not record any such tax benefit allocation in interim reporting
periods as the Company concluded the potential benefit is not considered realizable because the
change in the pension liability, a material component of other comprehensive income, is
determined annually. Thus, any such interim tax benefit allocation may subsequently be subject
to reversal. |
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Long-Term Debt |
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Long-term debt consisted of (in millions): |
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March 31, |
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December 31, |
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2011 |
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2010 |
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Secured variable and fixed rate indebtedness due through 2021
(effective rates from 1.00% - 13.00% at March 31, 2011) |
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$ |
5,005 |
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$ |
5,114 |
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Enhanced equipment trust certificates due through 2021
(rates from 5.10% - 12.00% at March 31, 2011) |
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2,040 |
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2,002 |
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6.00% - 8.50% special facility revenue bonds due through 2036 |
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1,641 |
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1,641 |
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7.50% senior secured notes due 2016 |
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1,000 |
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- |
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AAdvantage Miles advance purchase (net of discount of $110
million) (effective rate 8.3%) |
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890 |
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890 |
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6.25% senior convertible notes due 2014 |
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|
460 |
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|
460 |
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9.0% - 10.20% debentures due through 2021 |
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|
214 |
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|
214 |
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7.88% - 10.55% notes due through 2039 |
|
|
180 |
|
|
|
211 |
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11,430 |
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|
10,532 |
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Less current maturities |
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1,862 |
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|
1,776 |
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|
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|
|
|
|
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Long-term debt, less current maturities |
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$ |
9,568 |
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$ |
8,756 |
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The Companys future long-term debt and operating lease payments have changed as its ordered
aircraft are delivered and such deliveries have been financed. As of March 31, 2011, maturities
of long-term debt (including sinking fund requirements) for the next five years are: remainder
of 2011 $2.1 billion, 2012 $1.8 billion, 2013
$1.0 billion, 2014 $1.4 billion, and
2015 $726 million. The 2011 amount includes approximately $600 million that was refinanced
in January 2011 as described below and thus is excluded from current maturities. Future minimum
lease payments required under operating leases that have initial or remaining non-cancelable
lease terms in excess of a year as of March 31, 2011, were: remainder of 2011 $860 million,
2012 $1.1 billion, 2013 $973 million, 2014 $831 million, 2015 $672 million, and 2016
and beyond $6.0 billion. |
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As of March 31, 2011, AMR had issued guarantees covering approximately $1.6 billion of
Americans tax-exempt bond debt (and interest thereon) and $1.5 billion of Americans secured
debt (and interest thereon). American had issued guarantees covering approximately $854 million
of AMRs unsecured debt (and interest thereon). In addition, as of March 31, 2011, AMR and
American had issued guarantees covering approximately $193 million of AMR Eagles secured debt
(and interest thereon) and AMR has issued additional guarantees covering $2.1 billion of AMR
Eagles secured debt (and interest thereon). AMR also guarantees $135 million of Americans
leases of certain Super ATR aircraft, which are subleased to AMR Eagle. |
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On January 25, 2011, American closed on a $657 million offering of Class A and Class B Pass
Through Trust Certificates (the Certificates). The equipment notes expected to be held by each
pass through trust will be issued for each of (a) 15 Boeing 737-823 aircraft delivered new to
American from 1999 to 2001, (b) six Boeing 757-223 aircraft delivered new to American in 1999
and 2001, (c) two Boeing 767-323ER aircraft delivered new to American in 1999 and (d) seven
Boeing 777-223ER aircraft delivered new to American from 1999 to 2000. At closing, 27 of the
aircraft were encumbered by either private mortgages or by liens to secure debt incurred in
connection with the issuance of enhanced equipment trust certificates in 2001, all of which
mature in 2011. As a result, the proceeds from the sale of the Certificates of each trust will
initially be held in escrow with a depositary, pending the financing of each aircraft under an
indenture relating to the Certificates. Interest of 5.25% and 7.00% per annum on the issued and
outstanding Series A equipment notes and Series B equipment notes, respectively, will be payable
semiannually on January 31 and July 31 of each year, commencing on July 31, 2011, and principal
on such equipment notes is scheduled for payment on January 31 and July 31 of certain years,
commencing on July 31, 2011. The payment obligations of American under the equipment notes will
be fully and unconditionally guaranteed by AMR Corporation. |
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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Approximately $47 million of the proceeds from sale of the Certificates were received by American as of March 31,
2011, in exchange for equipment notes secured by three 737-823 aircraft. Approximately $483
million, $24 million, and $103 million from the sale of
Certificates are expected to be received in the
second, third, and fourth quarter of 2011, respectively. |
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|
In March 2011, American issued $1 billion aggregate principal amount of senior secured notes due
2016 (the Senior Secured Notes) guaranteed by the Company. The Senior Secured Notes bear
interest at a rate of 7.50% per annum, payable semi-annually on March 15 and September 15 of
each year, beginning September 15, 2011. As is customary for financings of this nature, the
indebtedness evidenced by the Senior Secured Notes may be accelerated upon the occurrence of
events of default under the related indenture.
The Senior Secured Notes are senior secured obligations of American and unconditionally
guaranteed on an unsecured basis by the Company. Subject to certain limitations and exceptions,
the Senior Secured Notes are secured by certain of Americans landing and takeoff slots on
routes between the United States and Londons Heathrow Airport and between the United States and
certain Asia airports, and airport gate leaseholds utilized in connection with these routes. |
|
|
American, at its option, may redeem some or all of the Senior Secured Notes at any time on or
after March 15, 2013, at specified redemption prices, plus accrued and unpaid interest, if any.
In addition, at any time prior to March 15, 2013, American, at its option, may redeem some or
all of the Senior Secured Notes at a redemption price equal to 100% of their principal amount
plus a make-whole premium and accrued and unpaid interest, if any. In addition, at any time
prior to March 15, 2014, American, at its option, may redeem (1) up to 35% of the aggregate
principal amount of the Senior Secured Notes with the proceeds of certain equity offerings at a
redemption price of 107.5% of their principal amount, plus accrued and unpaid interest, if any,
and (2) during any 12-month period, up to 10% of the original aggregate principal amount of the
Senior Secured Notes at a redemption price of 103% of their principal amount, plus accrued and
unpaid interest, if any. If American sells certain assets or if a change of control (as
defined in the indenture) occurs, American must offer to repurchase the Senior Secured Notes at
prices specified in the indenture. |
|
|
The indenture for the Senior Secured Notes includes covenants that, among other things, limit
the ability of the Company and its subsidiaries to merge,
consolidate, sell assets, incur additional indebtedness,
issue preferred stock, make investments and pay dividends. In addition, if American fails to
maintain a collateral ratio of 1.5 to 1.0, American must pay additional interest on the notes at
the rate of 2% per annum until the collateral coverage ratio equals at least 1.5 to 1.0. |
|
|
In 2010, American and Japan Airlines (JAL) entered into a Joint Business Agreement (JBA) to
enhance their scope of cooperation on routes between North America and Asia through adjustments
to their respective networks, flight schedules, and other business activities. American and JAL
began implementing the JBA on April 1, 2011. |
|
|
American and JAL entered into a Revenue Sharing Agreement, effective April 1, 2011, as envisaged
by the JBA. The agreement provides for shared revenues, expanded codesharing, enhanced frequent
flyer program reciprocity, and cooperation in other areas. Under this agreement, American has
also given JAL a guarantee of certain minimum incremental revenue resulting from the successful
operation of the joint business for the first three years following implementation of the JBA,
subject to certain terms and conditions. The amount required to be paid by the Company under
the guarantee will not exceed $100 million in any of such years. Due to various uncertainties,
including uncertainties as a result of the earthquake and tsunami that impacted Japan in March
2011, the Company is still evaluating the fair value of the guarantee, which will be recorded
upon the effective date. The amount, if any, that the Company may ultimately be required to pay
under the guarantee is not estimable at this time. |
|
|
Almost all of the Companys aircraft assets (including aircraft eligible for the benefits of
Section 1110 of the U.S. Bankruptcy Code) are encumbered. |
-7-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Fair Value Disclosures |
|
The Company utilizes the market approach to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant information generated by
market transactions involving identical or comparable assets or liabilities. The Companys
short-term investments classified as Level 2 primarily utilize broker quotes in a non-active
market for valuation of these securities. The Companys fuel derivative contracts, which
consist primarily of heating oil option and collar contracts, are valued using energy and
commodity market data which is derived by combining raw inputs with quantitative models and
processes to generate forward curves and volatilities. No changes in valuation techniques or
inputs occurred during the three months ended March 31, 2011. |
|
|
Assets and liabilities measured at fair value on a recurring basis are summarized below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Fair
Value Measurements as of March 31, 2011 |
|
|
Description |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments 1, 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
651 |
|
|
$ |
651 |
|
|
$ |
- |
|
|
$ |
- |
|
Government agency investments |
|
|
577 |
|
|
|
- |
|
|
|
577 |
|
|
|
- |
|
Repurchase investments |
|
|
1,488 |
|
|
|
- |
|
|
|
1,488 |
|
|
|
- |
|
Corporate obligations |
|
|
884 |
|
|
|
- |
|
|
|
884 |
|
|
|
- |
|
Bank notes / Certificates of deposit / Time deposits |
|
|
1,913 |
|
|
|
- |
|
|
|
1,913 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,513 |
|
|
|
651 |
|
|
|
4,862 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and short-term investments 1 |
|
|
455 |
|
|
|
455 |
|
|
|
- |
|
|
|
- |
|
Fuel derivative contracts 1 |
|
|
693 |
|
|
|
- |
|
|
|
693 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,661 |
|
|
$ |
1,106 |
|
|
$ |
5,555 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
1 Unrealized gains or losses on short-term investments, restricted cash and
short-term investments and derivatives qualifying for hedge accounting are recorded in
Accumulated other comprehensive income (loss) (OCI) at each measurement date. |
|
|
2 The majority of the Companys short-term investments mature in one year or less
except for $412 million of Bank notes/Certificates of deposit/Time deposits, $577 million of
U.S. Government agency investments and $512 million of Corporate obligations which have maturity
dates exceeding one year. |
|
|
No significant transfers between Level 1 and Level 2 occurred during the three months ended
March 31, 2011. The Companys policy regarding the recording of transfers between levels is to
reflect any such transfers at the end of the reporting period. |
|
|
The fair values of the Companys long-term debt were estimated using quoted market prices where
available. For long-term debt not actively traded, fair values were estimated using discounted
cash flow analyses, based on the Companys current estimated incremental borrowing rates for
similar types of borrowing arrangements. |
-8-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
The carrying value and estimated fair values of the Companys long-term debt, including current
maturities, were (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Value |
|
Value |
|
Value |
|
Value |
Secured variable and fixed rate
indebtedness |
|
$ |
5,005 |
|
|
$ |
4,835 |
|
|
$ |
5,114 |
|
|
$ |
4,562 |
|
Enhanced equipment trust certificates |
|
|
2,040 |
|
|
|
2,143 |
|
|
|
2,002 |
|
|
|
2,127 |
|
6.0% - 8.5%
special facility revenue bonds |
|
|
1,641 |
|
|
|
1,629 |
|
|
|
1,641 |
|
|
|
1,657 |
|
7.50% senior secured notes |
|
|
1,000 |
|
|
|
989 |
|
|
|
- |
|
|
|
- |
|
AAdvantage Miles advance purchase |
|
|
890 |
|
|
|
905 |
|
|
|
890 |
|
|
|
903 |
|
4.50% - 6.25% senior convertible
notes |
|
|
460 |
|
|
|
477 |
|
|
|
460 |
|
|
|
526 |
|
9.0% - 10.20% debentures |
|
|
214 |
|
|
|
207 |
|
|
|
214 |
|
|
|
207 |
|
7.88% - 10.55% notes |
|
|
180 |
|
|
|
174 |
|
|
|
211 |
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,430 |
|
|
$ |
11,359 |
|
|
$ |
10,532 |
|
|
$ |
10,191 |
|
|
|
|
|
|
|
|
|
|
7. Pension And Other Postretirement Benefits |
|
The following tables provide the components of net periodic benefit cost for the three
months ended March 31, 2011 and 2010 (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Pension Benefits |
|
Retiree Medical and Other |
|
|
|
|
Benefits |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic
benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
95 |
|
|
$ |
93 |
|
|
$ |
15 |
|
|
$ |
15 |
|
Interest cost |
|
|
190 |
|
|
|
185 |
|
|
|
44 |
|
|
|
42 |
|
Expected return on assets |
|
|
(163 |
) |
|
|
(149 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
4 |
|
|
|
4 |
|
|
|
(7 |
) |
|
|
(5 |
) |
Unrecognized net loss |
|
|
37 |
|
|
|
37 |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
163 |
|
|
$ |
170 |
|
|
$ |
45 |
|
|
$ |
46 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company is required to make minimum contributions to its defined benefit pension plans under
the minimum funding requirements of the Employee Retirement Income Security Act (ERISA), the
Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, and the Pension Relief
Act (Relief Act) of 2010. Under the Relief Act, the Companys estimates its 2011 minimum
required contribution to its defined benefit pension plans to be approximately $520 million.
The Company contributed $89 million to its defined benefit pension plans during the first
quarter of 2011 and $99 million on April 15, 2011. |
-9-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Reorganization Charges |
|
As a result of the revenue environment, high fuel prices and the Companys restructuring
activities, including its capacity reductions, the Company has recorded a number of charges
during the last few years. In 2008 and 2009, the Company announced capacity reductions due to
unprecedented high fuel costs at that time and the other challenges facing the industry. In
connection with these capacity reductions, the Company incurred special charges related to
aircraft and certain other charges. |
|
|
|
The following table summarizes the components of the Companys special charges, the remaining
accruals for these charges and the capacity reduction related charges (in millions) as of March
31, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft |
|
Facility |
|
|
|
|
|
|
Charges |
|
Exit Costs |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at
December 31, 2010 |
|
$ |
59 |
|
|
$ |
27 |
|
|
$ |
86 |
|
Capacity reduction
charges |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Non-cash charges |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
Payments |
|
|
(15 |
) |
|
|
(1 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
Remaining accrual at
March 31,
2011 |
|
$ |
43 |
|
|
$ |
26 |
|
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash outlays related to the accruals for aircraft charges and facility exit costs will occur
through 2017 and 2018, respectively. |
|
9. Derivative And Financial Instruments |
|
As part of the Companys 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. The Company does not hold or issue derivative financial instruments for trading
purposes. As of March 31, 2011, the Company had fuel derivative contracts outstanding
covering 29 million barrels of jet fuel that will be settled over the next 21 months. A
deterioration of the Companys liquidity and financial position may negatively affect the
Companys ability to hedge fuel in the future. |
|
|
|
For the quarters ended March 31, 2011 and 2010, the Company recognized a decrease and an
increase of approximately $101 million and $50 million, respectively, in fuel expense on the
accompanying consolidated statements of operations related to its fuel hedging agreements,
including the ineffective portion of the hedges. The net fair value of the Companys fuel
hedging agreements at March 31, 2011 and December 31, 2010, representing the amount the
Company would receive upon termination of the agreements (net of settled contract assets),
totaled $623 million and $257 million, respectively. |
-10-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
The impact of cash flow hedges on the Companys consolidated financial statements is depicted
below (in millions): |
|
|
|
Fair Value of Aircraft Fuel Derivative Instruments (all cash flow hedges) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives as of |
|
Liability Derivatives as of |
March 31, 2011 |
|
December 31, 2010 |
|
March 31, 2011 |
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
Location |
|
Value |
|
Location |
|
Value |
|
Location |
|
Value |
|
Location |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel derivative contracts |
|
$ |
693 |
|
|
Fuel derivative contracts |
|
$ |
269 |
|
|
Fuel derivative liability |
|
$ |
- |
|
|
Accrued liabilities |
|
$ |
- |
|
|
|
Effect of Aircraft Fuel Derivative Instruments on Statements of Operations (all cash flow hedges) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
|
Amount of Gain |
|
|
|
|
|
Amount of Gain |
(Loss) Recognized |
|
Location of Gain |
|
(Loss) Reclassified |
|
Location of Gain |
|
(Loss) Recognized |
in OCI on |
|
(Loss) Reclassified |
|
from Accumulated |
|
(Loss) Recognized |
|
in Income on |
Derivative1 as of |
|
from Accumulated |
|
OCI into Income 1 as |
|
in Income on |
|
Derivative 2 as of |
March 31, |
|
OCI into Income 1 |
|
of March 31, |
|
Derivative 2 |
|
March 31, |
2011 |
|
2010 |
|
|
|
2011 |
|
2010 |
|
|
|
|
|
2011 |
|
2010 |
|
|
$ |
475 |
|
|
$ |
4 |
|
|
Aircraft Fuel |
|
$ |
98 |
|
|
$ |
(51 |
) |
|
Aircraft Fuel |
|
$ |
3 |
|
|
$ |
1 |
|
|
|
1 Effective portion of gain (loss)
2 Ineffective portion of gain (loss) |
|
|
The Company is also exposed to credit losses in the event of non-performance by counterparties
to these financial instruments, and although no assurances can be given, the Company does not
expect any counterparty to fail to meet its obligations. The credit exposure related to these
financial instruments is represented by the fair value of contracts with a positive fair value
at the reporting date, reduced by the effects of master netting agreements. To manage credit
risks, the Company selects counterparties based on credit ratings, limits its exposure to a
single counterparty under defined guidelines, and monitors the market position of the program
and its relative market position with each counterparty. The Company also maintains
industry-standard security agreements with a number of its counterparties which may require the
Company or the counterparty to post collateral if the value of selected instruments exceeds
specified mark-to-market thresholds or upon certain changes in credit ratings. |
|
|
As of March 31, 2011,
the Company had received cash collateral of $388 million which is included in
short-term investments. |
|
|
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 month periods ended March 31, 2011 and 2010,
comprehensive income (loss) was $(14) million and $(416) million, respectively. The difference
between net earnings (loss) and comprehensive income (loss) for the three month periods ended
March 31, 2011 and 2010 is due primarily to the accounting for the Companys derivative
financial instruments and the actuarial loss on the pension benefit obligation of the Companys
pension plans. |
-11-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Earnings (Loss) Per Share |
|
The following table sets forth the computations of basic and diluted earnings (loss) per
share (in millions, except per share data): |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
Numerator: |
|
|
|
|
|
|
|
|
Net loss numerator for diluted loss
per share |
|
$ |
(436 |
) |
|
$ |
(505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic loss per share
weighted average shares |
|
|
333 |
|
|
|
333 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Senior convertible notes |
|
|
- |
|
|
|
- |
|
Employee options and shares |
|
|
- |
|
|
|
- |
|
Assumed treasury shares repurchased |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dilutive potential common shares |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share
weighted average shares |
|
|
333 |
|
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
|
$ |
(1.31 |
) |
|
$ |
(1.52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share |
|
$ |
(1.31 |
) |
|
$ |
(1.52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following were excluded from the calculation: |
|
|
|
|
|
|
|
|
Senior
convertible notes, employee stock options and
deferred stock because inclusion would be
anti-dilutive |
|
|
57 |
|
|
|
58 |
|
Employee stock options because the options
exercise prices were greater than the average
market price of shares |
|
|
10 |
|
|
|
10 |
|
-12-
Item 2. Managements 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 Companys expectations or beliefs concerning future events.
When used in this document and in documents incorporated herein by reference, the words expects,
estimates, plans, anticipates, indicates, believes, forecast, guidance, outlook,
may, will, should, seeks, targets and similar expressions are intended to identify
forward-looking statements. Similarly, statements that describe the Companys objectives, plans or
goals, or actions the Company may take in the future, are forward-looking statements.
Forward-looking statements include, without limitation, the Companys expectations concerning
operations and financial conditions, including changes in capacity, revenues, and costs; future
financing plans and needs; the amounts of its unencumbered assets and other sources of liquidity;
fleet plans; overall economic and industry conditions; plans and objectives for future operations;
regulatory approvals and actions; 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.
Guidance given in this report regarding capacity, fuel consumption, fuel prices, fuel hedging
and unit costs are forward-looking statements. Forward-looking statements are subject to a number
of factors that could cause the Companys actual results to differ materially from the Companys
expectations.
The following factors, in addition
to other possible factors not listed, could cause the Companys 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; weak demand for air travel and lower investment asset returns resulting
from the severe global economic downturn; the Companys need to raise substantial additional funds and its
ability to do so on acceptable terms; the potential requirement for the Company to maintain reserves under its
credit card processing agreements, which could materially adversely impact the Companys liquidity; the ability of
the Company to generate additional revenues and reduce its costs; continued high and volatile fuel prices and
further increases in the price of fuel, and the availability of fuel; the resolution of pending litigation with certain
global distribution systems and business discussions with certain on-line travel agents; the Companys substantial
indebtedness and other obligations; the ability of the Company to satisfy certain covenants and conditions in
certain of its financing and other agreements; changes in economic and other conditions beyond the Companys
control, and the volatile results of the Companys operations; the fiercely and increasingly competitive business
environment faced by the Company; potential industry consolidation and alliance changes; competition with
reorganized carriers; low fare levels by historical standards and the Companys reduced pricing power; changes in
the Companys corporate or business strategy; extensive government regulation of the Companys business;
conflicts overseas or terrorist attacks; uncertainties with respect to the Companys international operations;
outbreaks of a disease (such as SARS, avian flu or the H1N1 virus) that affects travel behavior; labor costs that
are higher than those of the Companys competitors; uncertainties with respect to the Companys relationships
with unionized and other employee work groups; increased insurance costs and potential reductions of available
insurance coverage; the Companys ability to retain key management personnel; potential failures or disruptions
of the Companys computer, communications or other technology systems; losses and adverse publicity resulting
from any accident involving the Companys aircraft; interruptions or disruptions in service at one or more of the
Companys primary market airports; the heavy taxation of the airline industry; and changes in the price of the
Companys common stock.
The Risk Factors contained in the Companys Securities and Exchange Commission
filings, including the 2010 Form 10-K, could cause the Companys actual results to differ
materially from historical results and from those expressed in forward-looking statements.
Recent Events
The Company continued its strategy outlined in FlightPlan 2020 by implementing its plans for the
JBA with JAL. On April 1, 2011, American and JAL launched the JBA to enhance their scope of
cooperation on routes between North America and Asia through adjustments to their respective
networks, flight schedules, and other business activities.
American and JAL entered into a Revenue Sharing Agreement, effective April 1, 2011, as envisaged by
the JBA. The agreement provides for shared revenues, expanded codesharing, enhanced frequent flyer
program reciprocity, and cooperation in other areas. Under this agreement, American has also given
JAL a guarantee of certain minimum incremental revenue resulting from the successful operation of
the joint business for the first three years following implementation of the JBA, subject to
certain terms and conditions. The Companys guarantee will not exceed $100 million in any of such
years. Due to various uncertainties, including uncertainties as a result of the earthquake and
tsunami that impacted Japan in March 2011, the Company is still evaluating the fair value of the
guarantee, which will be recorded upon the effective date. The amount, if any, that the Company
may ultimately be required to pay under the guarantee is not estimable at this time.
The Company and its subsidiaries closed on $1.7 billion of financing in the first quarter, thereby
strengthening its liquidity position. (See Significant Indebtedness and Future Financings under
Liquidity and Capital Resources).
-13-
In June 2010, AMR reiterated its intent to evaluate the possible divestiture of AMR Eagle, its
whollyowned regional carrier. AMR continues to evaluate both the desirability and the form of a
divestiture, which may include a spin-off to AMR shareholders, a sale to a third party, or some
other form of separation. The AMR Eagle fleet is operated to feed passenger traffic to American
pursuant to a capacity purchase agreement between American and AMR Eagle under which American
receives all passenger revenue from AMR Eagle flights and pays AMR Eagle a fee for each flight.
The capacity purchase agreement reflects what AMR believes are current market rates received by
other regional carriers for similar flying. Amounts paid to AMR Eagle under the capacity purchase
agreement are available to pay for various operating expenses of AMR Eagle, such as crew expenses,
maintenance, aircraft ownership (including the debt service on the loans made to finance the AMR
Eagle fleet of jet aircraft), and aircraft lease payments for the AMR Eagle fleet of turboprop
aircraft. Any divestiture of AMR Eagle could involve the restructuring of some or all of AMR
Eagles assets and liabilities, and the assumption of certain of AMR Eagles liabilities by
American. If AMR were to decide to pursue a divestiture of AMR Eagle, no
prediction can be made as to whether any such divestiture would be completed, and the completion of
any divestiture transaction and its timing would depend upon a number of factors, including general
economic, industry and financial market conditions, as well as the ultimate form and structure of
the divestiture. In addition, no prediction can be made as to the potential impacts on AMR or
American of any divestiture of AMR Eagle due to, among others, uncertainties regarding the form and
structure of any divestiture, the potential restructuring of assets and liabilities, and the nature
and scope of any resulting amendments to the capacity purchase agreement between American and AMR
Eagle.
Contingencies
The Company has certain contingencies resulting from litigation and claims incident to the ordinary
course of business. Management believes, after considering a number of factors, including (but not
limited to) the information currently available, the views of legal counsel, the nature of
contingencies to which the Company is subject and prior experience, that the ultimate disposition
of the litigation (except as noted in Legal Proceedings in Part II, Item 1) and claims will not
materially affect the Companys consolidated financial position or results of operations. When
appropriate, the Company accrues for these contingencies based on its assessments of the likely
outcomes of the related matters. The amounts of these contingencies could increase or decrease in
the near term, based on revisions to those assessments.
GDS Discussion
Over the past several years, American has been developing a direct connection technology, designed
to distribute its fare content and bookings capability directly to travel agents in order to
achieve greater efficiencies, cost savings, and technological advances in the distribution of the
Companys services. Historically, approximately 60% of Americans bookings are booked through
travel agencies, which typically use one or more global distribution systems, or GDSs, to view fare
content from American and other industry participants. American is currently in litigation with
two of the GDSs, Sabre and Travelport, and has held discussions with two large online travel
agencies, Orbitz and Expedia, related to Americans efforts to implement its direct connection
technology.
On November 5, 2010, Travelport, the GDS used by Orbitz, filed a lawsuit against American seeking a
ruling that a notice of termination delivered by American to Orbitz breached Americans content
distribution agreement with Travelport. Subsequently, on December 3, 2010, Travelport doubled the
booking fees it charges American for some international point-of-sale bookings through Travelport.
In response to Travelports price increases, the Company sought to recoup some of its costs through
a surcharge imposed on agencies using Travelports high cost GDS. Travelport improperly
incorporated this surcharge into the American fares displayed by its system. American believes
that these actions violated the terms of our agreement and filed counterclaims against Travelport.
There can be no assurance as to the outcome of the lawsuit filed by Travelport or on our
counterclaims. We are vigorously pursuing our counterclaims and rights in the litigation.
On December 21, 2010, American terminated its agreement with Orbitz. Prior to termination of such
agreement, approximately 3% of Americans passenger revenue, on an annualized basis, was generated
from bookings made via Orbitz.
On January 5, 2011, Sabre made it more difficult for travel agents to find Americans fares on the
Sabre system display and doubled the fees it charges American for bookings through its GDS. Sabre
also terminated portions of its GDS agreements with American, effective July 2011. This
termination, if valid, would entitle Sabre to make it more difficult for travel agents to find
Americans fares through its GDS and materially increase the fees it charges American for bookings
through its GDS, as well as allowing Sabre to terminate its GDS agreements with American entirely
in August 2011. Sabre alleges that our contract allowed it to take these actions in response to
statements that American made in the press concerning our direct connection technology. Sabre is
the largest non-direct source of Americans bookings. In 2010, over $7 billion of Americans
passenger revenues were generated from bookings made through the Sabre GDS. In response to Sabres
actions, on January 10, 2011, American filed a lawsuit against Sabre in Texas state court on
several grounds. The court temporarily enjoined Sabre from biasing or making it more difficult
to find Americans fares on the Sabre GDS, and set a preliminary injunction hearing for February
14, 2011.
-14-
On January 23, 2011, American and Sabre entered into a Stand Down Agreement that
suspended the litigation until June 1, 2011 and vacated the February 14 hearing date. During this
period, Sabre agreed (1) not to take any actions to bias the display of Americans services; (2) to
return to the pricing in effect on January 4, 2011; and (3) withdraw its notice of termination of
certain parts of the agreement. We can give no assurances that we will resolve our disputes with
Sabre or prevail in a temporary injunction hearing should such a hearing become necessary after the
Stand Down Agreement with Sabre expires on June 1, 2011. The failure to resolve these issues or
prevail in a subsequent hearing could have a material adverse impact on our level of bookings,
business and results of operations.
On December 31, 2010, Americans agreement with Expedia expired, and Expedia discontinued selling
American tickets on its website. Prior to expiration of that agreement, approximately 5.4% of
Americans passenger revenue, on an annualized basis, was booked through Expedia. On April 4,
2011, American and Expedia entered into a memorandum of understanding (MOU) allowing the companies
to resume doing business together. Access to fares and schedule information of American was
restored on Expedia. Pursuant to the MOU, Expedia said it plans to access Americans fares,
schedules, and customized travel products and services via Americans direct connect link by using
aggregation technology provided by a GDS. The parties agreed to negotiate in good faith towards a
definitive agreement, but there can be no assurance as to a final agreement being reached.
On April 12, 2011, the Company filed an antitrust lawsuit against Travelport and Orbitz in Federal
District Court for the Northern District of Texas. The lawsuit alleges that Travelport has engaged
in anticompetitive practices to preserve its monopoly power over Americans ability to distribute
its products through Travelport subscribers. The lawsuit further alleges that these actions have
prevented American from employing new competing technologies and has allowed Travelport to continue
to charge American supracompetitive fees. The lawsuit seeks both injunctive relief and money
damages. American intends to vigorously pursue these claims, but there can be no assurance of the
outcome.
While the Company believes that some of the bookings through Orbitz, Travelport, Expedia and Sabre
have transitioned or will transition to other distribution channels, such as other travel agencies,
metasearch sites and Americans AA.com web site, it is not possible at this time to estimate what
the ultimate impact would be to the Companys business if the Company is unsuccessful in resolving
one or more of these matters. If as a result of these matters it becomes more difficult for the
Companys customers to find and book flights on American, the Company could be put at a competitive
disadvantage and this may result in fewer bookings. If the Company is unable to sell American
inventory through any or all of these channels, the Companys level of bookings, business and
results of operations could be materially adversely affected. The Company also believes the
actions taken by Travelport and Sabre described above are not permitted by the applicable
contracts. The Company intends to vigorously pursue the Companys claims and defenses in the
lawsuits described above, but there can be no assurance of the outcome of any such lawsuit.
Financial Highlights
The Company recorded a consolidated net loss of $436 million in the first quarter of 2011 compared
to a net loss of $505 million in the same period last year. The Companys consolidated net loss
reflects an improvement in a global economy; which led to higher operating revenues, largely offset
by significant year-over-year increases in fuel prices as well as extreme weather events in the
first 45 days of 2011. Consolidated passenger revenue increased
by $382 million to $4.7 billion
for the first quarter of 2011 compared to the same period last year. Cargo and other revenues
increased by $83 million to $822 million for the first quarter of 2011 compared to the same period
last year. Mainline passenger unit revenues increased 5.0 percent in the first quarter of 2011 due
to a 6.2 percent increase in passenger yield compared to the first quarter of 2010. This also
reflects a decrease in load factor of approximately 0.8 points compared to the first quarter of
2010. Since deregulation in 1978, the Companys passenger yield has increased 89 percent, while
the Consumer Price Index (CPI), as measured by the U.S. Department of Labor Bureau of Labor
Statistics, has grown by over 225 percent. The Company believes this is the result of a fragmented
industry with numerous competitors and excess capacity, increased low cost carrier competition,
increased price competition due to the internet, and other factors. The Company believes increases
in passenger yield will continue to significantly lag CPI indefinitely.
The increase in total operating revenue was largely offset by significantly higher year-over-year
fuel prices. Fuel prices increased dramatically during the first quarter of 2011 and remain high
and extremely volatile. The Company paid an average of $2.76 per gallon in the first quarter of
2011 compared to an average of $2.23 per gallon in the first quarter of 2010, including the effects
of hedging. As a result, fuel expense, taking into account the impact of fuel hedging, increased
$366 million to $1.8 billion for the first quarter of 2011 compared to the same period last year.
Hedging gains reduced fuel expense by approximately $101 million.
-15-
In addition, during the first quarter of 2011, several events transpired which adversely impacted
system operations, including extreme weather events in January and February, a catastrophic
earthquake and tsunami in Japan, and a fire at Miami International Airport impacting Americans
aircraft fueling capabilities at the airport. These events, combined
with the effect of the Companys
efforts to improve distribution of our products, (as
described under the GDS discussion above), resulted in reduced revenue in the first quarter.
As a part of the first quarter 2011 net loss, the Company also incurred approximately $31 million
in non-recurring non-cash charges related to certain sale/leaseback transactions. The first
quarter of 2010 net loss reflects a $53 million charge related to devaluation of the Venezuelan
currency.
The Companys ability to become 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 Companys
control. Certain risk factors that affect the Companys business and financial results are
discussed in the Risk Factors listed in Item 1A of the 2010 Form 10-K.
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, some of these
initiatives involve changes to the Companys business which it may be unable to implement. It has
become increasingly difficult to identify and implement significant revenue enhancement and cost
savings initiatives. The adequacy and ultimate success of the Companys initiatives to generate
additional revenues and reduce costs cannot be assured. Moreover, whether the Companys initiatives
will be adequate or successful depends in large measure on factors beyond its control, notably the
overall industry environment, including passenger demand, yield and industry capacity growth, and
fuel prices. It will be very difficult for the Company to continue to fund its obligations on an
ongoing basis, and to return to profitability, if the overall industry revenue environment does not
continue to improve or if fuel prices were to increase and persist for an extended period at high
levels.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Short-Term Investments and Restricted Assets
At March 31, 2011, the Company had $5.8 billion in unrestricted cash and short-term investments and
$455 million in restricted cash and short-term investments, both at fair value, versus $4.5 billion
in unrestricted cash and short-term investments and $450 million in restricted cash and short-term
investments at December 31, 2010.
The Companys unrestricted short-term investment portfolio consists of a variety of what the
Company believes are highly liquid, lower risk instruments including money market funds, government
agency investments, repurchase investments, short-term obligations, corporate obligations, bank
notes, certificates of deposit and time deposits. AMRs objectives for its investment portfolio
are (1) the safety of principal, (2) liquidity maintenance, (3) yield maximization, and (4) the
full investment of all available funds. The Companys risk management policy further emphasizes
superior credit quality (primarily based on short-term ratings by nationally recognized statistical
rating organizations) in selecting and maintaining investments in its portfolio and enforces limits
on the proportion of funds invested with one issuer, one industry, or one type of instrument. The
Company regularly assesses the market risks of its portfolio, and believes that its established
policies and business practices adequately limit those risks. As a result, the Company does not
anticipate any material adverse impact from these risks.
-16-
Significant Indebtedness and Future Financing
Indebtedness is a significant risk to the Company as discussed more fully in the Risk Factors
included under Item 1A of the 2010 Form 10-K. During the last five years and through March 31,
2011, the Company raised substantial financing to fund operating losses, capital commitments
(mainly for aircraft and ground properties), debt maturities, employee pension obligations and to
bolster its liquidity. As of the date of this Form 10-Q, the Company believes that it should have
sufficient liquidity to fund its operations, including repayment of debt and capital leases,
capital expenditures and other contractual obligations; however, there can be no assurances to that
effect.
In addition, the Company has financing commitments covering all aircraft scheduled to be delivered
to the Company in 2011 and 2012 except for the two Boeing 777-300ER aircraft recently ordered.
Such financing commitments are subject to certain terms and conditions, including in some instances
a condition that the Company have at least a certain minimum amount of liquidity.
On January 25, 2011, American closed on a $657 million offering of Class A and Class B Pass Through
Trust Certificates (the Certificates). The equipment notes expected to be held by each pass
through trust will be issued for each of (a) 15 Boeing 737-823 aircraft delivered new to American
from 1999 to 2001, (b) six Boeing 757-223 aircraft delivered new to American in 1999 and 2001, (c)
two Boeing 767-323ER aircraft delivered new to American in 1999 and (d) seven Boeing 777-223ER
aircraft delivered new to American from 1999 to 2000. At closing, 27 of the aircraft were
encumbered by either private mortgages or by liens to secure debt incurred in connection with the
issuance of enhanced equipment trust certificates in 2001, all of which mature in 2011. As a
result, the proceeds from the sale of the Certificates of each trust will initially be held in
escrow with a depositary, pending the financing of each aircraft under an indenture relating to the
Certificates. Interest of 5.25% and 7.00% per annum on the issued and outstanding Series A
equipment notes and Series B equipment notes, respectively, will be payable semiannually on January
31 and July 31 of each year, commencing on July 31, 2011, and principal on such equipment notes is
scheduled for payment on January 31 and July 31 of certain years, commencing on July 31, 2011. The
payment obligations of American under the equipment notes will be fully and unconditionally
guaranteed by AMR Corporation. Approximately $47 million of the proceeds from sale of the
Certificates were received by American as of March 31, 2011, in exchange for equipment notes
secured by three 737-823 aircraft. Approximately $483 million, $24 million, and $103 million from
the sale of Certificates are
expected to be received in the second, third, and fourth quarter of 2011,
respectively.
In March 2011, American issued $1 billion aggregate principal amount of senior secured notes due
2016 (the Senior Secured Notes) guaranteed by the Company. The Senior Secured Notes bear interest
at a rate of 7.50% per annum, payable semi-annually on March 15 and September 15 of each year,
beginning September 15, 2011. The indebtedness evidenced by the Senior Secured Notes may be
accelerated upon the occurrence of events of default under the related indenture which are
customary for financings of this nature. The Senior Secured Notes are senior secured obligations of
American and unconditionally guaranteed on an unsecured basis by the Company. Subject to certain
limitations and exceptions, the Senior Secured Notes are secured by certain of Americans landing
and takeoff slots on routes between the United States and Londons Heathrow Airport and between the
United States and certain Asia airports, and airport gate leaseholds utilized in connection with
these routes.
American, at its option, may redeem some or all of the Senior Secured Notes at any time on or after
March 15, 2013, at specified redemption prices, plus accrued and unpaid interest, if any. In
addition, at any time prior to March 15, 2013, American, at its option, may redeem some or all of
the Senior Secured Notes at a redemption price equal to 100% of their principal amount plus a
make-whole premium and accrued and unpaid interest, if any. In addition, at any time prior to
March 15, 2014, American, at its option, may redeem (1) up to 35% of the aggregate principal amount
of the Senior Secured Notes with the proceeds of certain equity offerings at a redemption price of
107.5% of their principal amount, plus accrued and unpaid interest, if any, and (2) during any
12-month period, up to 10% of the original aggregate principal amount of the Senior Secured Notes
at a redemption price of 103% of their principal amount, plus accrued and unpaid interest, if any.
If American sells certain assets or if a change of control (as defined in the indenture) occurs,
American must offer to repurchase the Senior Secured Notes at prices specified in the indenture.
The indenture for the Senior Secured Notes includes covenants that, among other things, restrict
the ability of the Company and its subsidiaries to merge,
consolidate, sell assets, incur additional indebtedness,
issue preferred stock, make investments and pay dividends. In addition, if American fails to
maintain a collateral ratio of 1.5 to 1.0, American
must pay additional interest on the notes at
the rate of 2% per annum until the collateral coverage ratio equals at least 1.5 to 1.0.
-17-
In the remainder of 2011, the Company is contractually required to make approximately $2.1 billion
of principal payments on long-term debt and approximately $63 million in principal payments on
capital leases, and the Company expects to spend approximately $1.3 billion on capital
expenditures, including aircraft commitments. In addition, the fragile economy, rising fuel
prices, the possibility of being required to post reserves under credit card processing
agreements, and the obligation to post cash collateral on fuel hedging contracts and fund pension
plan contributions, among other things, may in the future negatively impact the Companys
liquidity. To maintain sufficient liquidity, and because the Company has significant debt, lease
and other obligations in the next several years, including commitments to purchase aircraft, as
well as significant pension funding obligations, the Company will need access to substantial
additional funding. An inability to obtain necessary additional funding on acceptable terms would
have a material adverse impact on the Company and on its ability to sustain its operations.
The Companys substantial indebtedness and other obligations have important consequences. For
example, they: (i) limit the Companys ability to obtain additional funding for working capital,
capital expenditures, acquisitions, investments and general corporate purposes, as well as
adversely affect the terms on which such funding 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 and catastrophic external events; and (iv) limit the
Companys ability to withstand competitive pressures and reduce its flexibility in responding to
changing business and economic conditions.
The Companys possible financing sources include refinancing of currently encumbered aircraft as the debt
against them is retired, the issuance of additional secured aircraft debt or sale leaseback transactions
involving newly
acquired aircraft, the issuance of debt secured by other
assets, the sale or monetization of certain assets, the issuance of unsecured debt, and the
issuance of equity or equity-like securities. Currently, almost all of the Companys aircraft
assets (including aircraft eligible for the benefits of Section 1110 of the U.S. Bankruptcy Code)
are encumbered, however borrowing capacity will become available as aircraft become un-encumbered.
Also, the market value of the Companys aircraft assets has declined in recent years, and may continue to
decline. Some of these assets may be difficult to finance, and the availability and level of the
financing sources described above cannot be assured.
As of March 31, 2011, American had 15 Boeing 737-800 aircraft purchase commitments for the
remainder of 2011 and 28 Boeing 737-800 aircraft purchase commitments in 2012 and, in addition to
those commitments, American had firm commitments for eleven Boeing 737-800 aircraft and seven
Boeing 777-200ER aircraft scheduled to be delivered in 2013 through 2016. To provide flexibility
for the future, during the first quarter of 2011, the Company amended Purchase Agreement No. 1980
with Boeing and exercised rights to acquire four Boeing 777-300ER aircraft, including two scheduled
for delivery in 2012 and two scheduled for delivery in 2013. In April 2011, the Company exercised
rights to acquire a fifth Boeing 777-300ER aircraft, which is scheduled for delivery in 2013. As
of March 31, 2011, AMR Eagle had firm purchase commitments for 3 Bombardier CRJ-700 aircraft
scheduled to be delivered in April 2011.
As of March 31, 2011, payments for the purchase commitments will approximate $886 million in the
remainder of 2011, $1.2 billion in 2012, $580 million in 2013, $290 million in 2014, $169 million
in 2015, and $80 million for 2016. These amounts are net of purchase deposits currently held by
the manufacturers.
In 2008, the Company entered into a new purchase agreement with Boeing for the acquisition of 42
firm Boeing 787-9 aircraft and purchase rights to acquire up to 58 additional B787-9 aircraft. Per
the purchase agreement, the first such aircraft was scheduled to be delivered in 2012, and the last
firm aircraft was scheduled to be delivered in 2018 with deliveries of additional aircraft, if any,
scheduled between 2015 and 2020. In July 2010, the Company and Boeing agreed upon a revised
delivery schedule due to the impact of the overall Boeing 787 program delay on Americans delivery
positions. The first aircraft is currently scheduled to be delivered in 2014, and the last firm
aircraft is scheduled to be delivered in 2018 with deliveries of additional aircraft, if any,
scheduled between 2016 and 2021. Additionally, the revised delivery schedule includes terms and
conditions consistent with the original agreement and allows the Company the confirmation rights
described below.
-18-
Under the current 787-9 purchase agreement and supplemental agreement, except as described below,
American will not be obligated to purchase a 787-9 aircraft unless it gives Boeing notice
confirming its election to do so at least 18 months prior to the scheduled delivery date for that
aircraft. If American does not give that notice with respect to an aircraft, the aircraft will no
longer be subject to the 787-9 purchase agreement. These confirmation rights may be exercised
until a specified date (May 1, 2014 under the current agreement) provided that those rights will
terminate earlier if American reaches a collective bargaining agreement with its pilot union that
includes provisions enabling American to utilize the 787-9 to Americans satisfaction in the
operations desired by American,
or if American confirms its election to purchase any of the initial 42 787-9 aircraft. While there
can be no assurances, American expects that it will have reached an agreement as described above
with its pilots union prior to the first notification date. In either of those events, American
would become obligated to purchase all of the initial 42 aircraft then subject to the purchase
agreement. If neither of those events occurs prior to the specified date (May 1, 2014 under the
current agreement) then on that date American may elect to purchase all of the initial 42 aircraft
then subject to the purchase agreement, and if it does not elect to do so, the purchase agreement
will terminate in its entirety.
Credit Ratings
AMRs and Americans credit ratings are significantly below investment grade. Additional
reductions in AMRs or Americans credit ratings could further increase the Companys borrowing or
other costs and further restrict the availability of future financing.
Credit Card Processing and Other Reserves
American has agreements with a number of credit card companies and processors to accept credit
cards for the sale of air travel and other services. Under certain of these agreements, the related
credit card processor may hold back a reserve from Americans credit card receivables following the
occurrence of certain events, including the failure of American to maintain certain levels of
liquidity (as specified in each agreement).
Under such agreements, the amount of the reserve that may be required generally is based on the
processors exposure to the Company under the applicable agreement and, in the case a reserve is
required because of Americans failure to maintain a certain level of liquidity, the amount of such
liquidity. As of March 31, 2011, the Company was not required to maintain any reserve under such
agreements. If circumstances were to occur that would allow the credit card processor to require
the Company to maintain a reserve, the Companys liquidity would be negatively impacted.
Pension Funding Obligation
The Company is required to make minimum contributions to its defined benefit pension plans under
the minimum funding requirements of the Employee Retirement Income Security Act (ERISA), the
Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, and the Pension Relief Act
of 2010 (Relief Act). Under the Relief Act, the Company estimates its 2011 minimum required
contribution to its defined benefit pension plans to be approximately $520 million. The Company
contributed $89 million to its defined benefit pension plans during the first quarter of 2011 and
$99 million on April 15, 2011.
Cash Flow Activity
At March 31, 2011, the Company had $5.8 billion in unrestricted cash and short-term investments,
which is an increase of $1.3 billion from the balance as of December 31, 2010. Net cash provided
by operating activities in the three-month period ended March 31, 2011 was $708 million, which was
comparable to $456 million over the same period in 2010, and which reflects an increase in hedge
collateral held by the Company and increases in current liabilities.
The Company made scheduled debt and capital lease payments of $323 million and invested $359
million in capital expenditures in the first quarter of 2011. Capital expenditures primarily
consisted of new aircraft and certain aircraft modifications.
-19-
Under certain of the Companys derivative contracts, the related counterparties are currently
required to deposit collateral with the Company due to the value of the contracts. As of March 31,
2011, the cash collateral held by the Company from such counterparties was $388 million as compared
to $73 million held by such counterparties as of December 31, 2010. Cash held from counterparties
as of March 31, 2011 is included in short-term
investments. As a result of movements in fuel
prices, the cash collateral amounts held by the Company or the counterparties to such contracts, as
the case may be, can vary significantly.
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 positions and other considerations, the
Company may continue to take such actions.
Certain of the Companys debt financing agreements contain loan to value ratio covenants and
require the Company to periodically appraise the collateral. Pursuant to such agreements, if the
loan to value ratio exceeds a specified threshold, the Company may be required to subject
additional qualifying collateral (which in some cases
may include cash collateral) or, in the alternative, to pay down such financing, in whole or in
part, with premium (if any).
War-Risk Insurance
The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines
through September 30, 2011, covering losses to employees, passengers, third parties and aircraft.
If the U.S. government were to cease providing such insurance in whole or in part, it is likely
that the Company could obtain comparable coverage in the commercial market, but the Company would
incur substantially higher premiums and more restrictive terms, if
such coverage is available at all. If the Company is unable
to obtain adequate war-risk coverage at commercially reasonable rates, the Company would be
adversely affected.
-20-
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2011 and 2010
revenues
The Companys revenues increased approximately $465 million, or 9.2 percent, to $5.5 billion in the
first quarter of 2011 from the same period last year. Americans passenger revenues increased by
7.9 percent, or $303 million, on a 2.7 percent increase in capacity (available seat mile) (ASM).
Americans passenger load factor decreased 0.8 points while passenger yield increased by 6.2
percent to 14.18 cents. This resulted in an increase in passenger revenue per available seat mile
(RASM) of 5.0 percent to 10.92 cents. American derived approximately 60 percent of its passenger
revenues from domestic operations and approximately 40 percent from international operations
(flights serving international destinations). Following is additional information regarding
Americans domestic and international RASM and capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011 |
|
|
RASM |
|
Y-O-Y |
|
ASMs |
|
Y-O-Y |
|
|
(cents) |
|
Change |
|
(billions) |
|
Change |
DOT Domestic |
|
|
10.89 |
|
|
|
6.3 |
% |
|
|
22.8 |
|
|
|
(0.2) |
% |
International |
|
|
10.97 |
|
|
|
3.0 |
|
|
|
15.1 |
|
|
|
7.6 |
|
DOT Latin America |
|
|
12.65 |
|
|
|
6.3 |
|
|
|
8.1 |
|
|
|
9.7 |
|
DOT Atlantic |
|
|
9.07 |
|
|
|
(2.4) |
|
|
|
5.0 |
|
|
|
(0.8) |
|
DOT Pacific |
|
|
8.93 |
|
|
|
(2.9) |
|
|
|
2.0 |
|
|
|
23.2 |
|
The Companys Regional Affiliates include two wholly owned subsidiaries, American Eagle Airlines,
Inc. and Executive Airlines, Inc. (collectively, AMR Eagle), and an independent carrier with which
American has a capacity purchase agreement, Chautauqua Airlines, Inc. (Chautauqua).
Regional Affiliates passenger revenues, which are based on industry standard proration agreements
for flights connecting to American flights, increased
$79 million, or 15.9 percent, to $577 million
as a result of higher yield and increased traffic. Regional Affiliates traffic increased 14.6
percent to 2.1 billion revenue passenger miles (RPMs), on a capacity increase of 13.8 percent to
3.2 billion ASMs, resulting in a one-half percent increase in passenger load factor to 67.7
percent.
Cargo revenues increased 10.0 percent, or $15 million, primarily as a result of increased freight
yields and freight traffic. Freight traffic from Latin America was particularly strong.
Other
revenues increased 11.6 percent, or $68 million, to $653 million primarily due to increased
revenue associated with the sale of mileage credits in the AAdvantage frequent flyer program and
increases in certain passenger service charge volumes and fees.
-21-
Operating Expenses
The Companys total operating expenses increased 7.4 percent, or $398 million, to $5.8 billion in
the first quarter of 2011 compared to the same period in 2010. Americans mainline operating
expenses per ASM increased 3.8 percent to 13.40 cents. The increase in operating expense was
largely due to a year-over-year increase in fuel prices from $2.23 per gallon in the first quarter
of 2010 to $2.76 per gallon in the first quarter of 2011, including the impact of fuel hedging.
Fuel expense was the Companys largest single expense category in the first quarter of 2011 and the
price increase resulted in $351 million in incremental year-over-year fuel expense in the first
quarter of 2011 (based on the year-over-year increase in the average price per gallon multiplied by
gallons consumed, inclusive of the impact of fuel hedging). Further increases in fuel prices
and/or disruptions in the supply of fuel would further materially adversely affect the Companys
financial condition and results of operations. The remaining increase in operating expense was
primarily due to revenue related expenses, such as credit card fees and booking fees and
commissions, and increased aircraft rent related to the Companys fleet renewal plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended March |
|
Change |
|
Percentage |
|
|
Operating Expenses |
|
31, 2011 |
|
from 2010 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel |
|
$ |
1,842 |
|
|
$ |
366 |
|
|
|
24.8 |
% |
|
(a) |
Wages, salaries and benefits |
|
|
1,722 |
|
|
|
19 |
|
|
|
1.1 |
|
|
|
Other rentals and landing fees |
|
|
352 |
|
|
|
- |
|
|
|
- |
|
|
|
Depreciation and amortization |
|
|
276 |
|
|
|
9 |
|
|
|
3.4 |
|
|
|
Maintenance, materials and repairs |
|
|
305 |
|
|
|
(46) |
|
|
|
(13.1 |
) |
|
(b) |
Commissions, booking fees and credit
card expense |
|
|
256 |
|
|
|
22 |
|
|
|
9.4 |
|
|
(c) |
Aircraft rentals |
|
|
160 |
|
|
|
31 |
|
|
|
24.0 |
|
|
(d) |
Food service |
|
|
121 |
|
|
|
6 |
|
|
|
5.2 |
|
|
|
Other operating expenses |
|
|
731 |
|
|
|
(8 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
5,765 |
|
|
$ |
399 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Aircraft fuel expense increased primarily due to a 23.6 percent increase in the
Companys price per gallon of fuel (net of the impact of hedging gains of $101
million). |
|
|
(b) |
|
Maintenance, materials and repairs decreased primarily due to timing of repairs in
2010. |
|
|
(c) |
|
Commissions, booking fees and credit card expenses increased due to a 9.2 percent
increase in operating revenues. |
|
|
(d) |
|
Aircraft rental expense increased primarily due to new aircraft deliveries in 2011
and 2010. |
Other Income (Expense)
Other income (expense) consists of interest income and expense, interest capitalized and
miscellaneous - net.
An increase in short-term investment balances caused an increase in interest income of $2.0
million, or 40 percent, to $7 million for the first quarter 2011 compared to the same period last
year. Interest expense decreased $9 million, or 4.3 percent, to $200 million primarily as a
result of decreases in interest rates on the Companys long-term debt balance.
Income Tax
The Company did not record a net tax provision (benefit) associated with its first quarter 2011 or
2010 net loss due to the Company providing a valuation allowance, as discussed in Note 4 to the
condensed consolidated financial statements.
-22-
Operating Statistics
The following table provides statistical information for American and Regional Affiliates for the
three months ended March 31, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
American Airlines, Inc. Mainline Jet Operations |
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
29,165 |
|
|
|
28,700 |
|
Available seat miles (millions) |
|
|
37,850 |
|
|
|
36,846 |
|
Cargo ton miles (millions) |
|
|
439 |
|
|
|
447 |
|
Passenger load factor |
|
|
77.1 |
% |
|
|
77.9 |
% |
Passenger revenue yield per passenger mile (cents) |
|
|
14.18 |
|
|
|
13.35 |
|
Passenger revenue per available seat mile (cents) |
|
|
10.92 |
|
|
|
10.40 |
|
Cargo revenue yield per ton mile (cents) |
|
|
38.50 |
|
|
|
34.37 |
|
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) |
|
|
13.40 |
|
|
|
12.91 |
|
Fuel consumption (gallons, in millions) |
|
|
597 |
|
|
|
598 |
|
Fuel price per gallon (dollars) |
|
|
2.75 |
|
|
|
2.22 |
|
Operating aircraft at period-end |
|
|
615 |
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
Regional Affiliates |
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
2,136 |
|
|
|
1,863 |
|
Available seat miles (millions) |
|
|
3,155 |
|
|
|
2,773 |
|
Passenger load factor |
|
|
67.7 |
% |
|
|
67.2 |
% |
(*) |
|
Excludes $721 million and $629 million of expense incurred related to Regional Affiliates
in 2011 and 2010, respectively. |
|
|
|
|
|
|
|
|
|
|
|
Operating aircraft at March 31, 2011, included: |
|
|
|
|
American Airlines Aircraft |
|
|
|
|
|
AMR Eagle Aircraft |
|
|
|
|
Boeing 737-800 |
|
|
152 |
|
|
Bombardier CRJ-700 |
|
|
44 |
|
Boeing 757-200 |
|
|
124 |
|
|
Embraer 135 |
|
|
39 |
|
Boeing 767-200 Extended Range |
|
|
15 |
|
|
Embraer 140 |
|
|
59 |
|
Boeing 767-300 Extended Range |
|
|
58 |
|
|
Embraer 145 |
|
|
118 |
|
Boeing 777-200 Extended Range |
|
|
47 |
|
|
Super ATR |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
McDonnell Douglas MD-80 |
|
|
219 |
|
|
Total |
|
|
299 |
|
|
|
|
|
|
|
|
Total |
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average aircraft age for Americans and AMR Eagles aircraft is 14.8 years and 9.5 years,
respectively.
Almost all of the Companys owned aircraft are encumbered by liens granted in connection with
financing transactions entered into by the Company.
Of the operating aircraft listed above, 3 owned McDonnell Douglas MD-80 aircraft and 18 owned
Embraer RJ-135 aircraft were in temporary storage as of March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
Owned and leased aircraft not operated by the Company at March 31, 2011, included: |
American Airlines Aircraft |
|
|
|
|
|
AMR Eagle Aircraft |
|
|
|
|
Boeing 737-800 |
|
|
1 |
|
|
Saab 340B |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
Airbus A300-600R |
|
|
10 |
|
|
Total |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
Fokker 100 |
|
|
4 |
|
|
|
|
|
|
|
McDonnell Douglas MD-80 |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-23-
Outlook
The Company currently expects capacity for Americans mainline jet operations to increase by
approximately 2.9% in the second quarter of 2011 versus second quarter 2010. Americans mainline
capacity for the full year 2011 is expected to increase approximately 2.2% from 2010, with domestic
capacity down 0.5% and a 6.2% increase in international capacity.
The Company expects second quarter 2011 mainline unit costs to increase approximately 9.4 percent
to 9.8 percent year over year. The second quarter 2011 unit cost expectations reflect projected
fuel prices.
The Companys results are significantly affected by the price of jet fuel. Fuel prices increased
dramatically during the first quarter of 2011 and remain high and extremely volatile. Based on the
Companys current forecast of full year 2011 jet fuel prices, the Company estimates that its full
year 2011 jet fuel cost per gallon, taking hedging into account, will increase by approximately 33%
over 2010. The Companys hedging approach has been and continues to be systematic and as of April
2011, the Company had cash flow hedges, primarily consisting of heating oil option and collar
contracts, covering approximately 38 percent of its estimated remaining 2011 fuel requirements.
The Company has also implemented a number of initiatives in an effort to offset this anticipated
increase in fuel prices, including fare hikes and reductions in the Companys previously announced
capacity growth. However, intense competition and other factors may limit the Companys ability to
increase fares. Further, the catastrophic events in Japan in the first quarter and the ongoing GDS
related dispute could have an adverse affect on the Company in future periods. In addition,
continued increases in fuel prices may depress overall economic activity, which in turn could
impact demand for air travel. Accordingly, while the Company expects that its operating results,
cash flow and liquidity for the remainder of 2011 will continue to be materially and adversely
impacted by high fuel prices, the magnitude of that adverse impact is subject to considerable
uncertainty, as well as to numerous factors beyond the Companys control.
Critical Accounting Policies and Estimates
The preparation of the Companys financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. The Company believes its
estimates and assumptions are reasonable; however, actual results and the timing of the recognition
of such amounts could differ from those estimates. The Company has identified the following
critical accounting policies and estimates used by management in the preparation of the Companys
financial statements: long-lived assets, international slot and route authorities, passenger
revenue, frequent flyer program, stock compensation, pensions and retiree medical and other
benefits, income taxes and derivatives. These policies and estimates are described in the 2010
Form 10-K.
-24-
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 Companys 2010 Form 10-K.
The change in market risk for aircraft fuel is discussed below for informational purposes.
The risk inherent in the Companys market risk sensitive instruments and positions is the potential
loss arising from adverse changes in the price of fuel, foreign currency exchange rates and
interest rates as discussed below. 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 Companys 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 Companys earnings are substantially 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 and
heating oil hedging contracts. Market risk is estimated as a hypothetical 10 percent increase in
the March 31, 2011 cost per gallon of fuel. Based on projected fuel usage for the next twelve
months, such an increase would result in an increase to Aircraft fuel expense of approximately $640
million, inclusive of the impact of effective fuel hedge instruments outstanding at March 31, 2011,
and assumes the Companys fuel hedging program remains effective. Such an increase would have
resulted in an increase to projected Aircraft fuel expense of approximately $499 million in the
twelve months ended December 31, 2010, inclusive of the impact of fuel hedge instruments
outstanding at December 31, 2009. As of April 2011, the Company had cash flow hedges, with collars
and options, covering approximately 38 percent of its estimated remaining 2011 fuel requirements.
Comparatively, as of March 31, 2010, the Company had hedged, with collars and options,
approximately 34 percent of its estimated remaining 2010 fuel requirements. The consumption hedged
for the remainder of 2011 by cash flow hedges is capped at an average price of approximately $2.70
per gallon of jet fuel, and the Companys collars have an average floor price of approximately
$2.08 per gallon of jet fuel (both the capped and floor price exclude taxes and transportation
costs). The Companys collars represent approximately 34 percent of its estimated remaining 2011
fuel requirements. A deterioration of the Companys liquidity and financial position could
negatively affect the Companys ability to hedge fuel in the future.
Ineffectiveness is inherent in hedging jet fuel with derivative positions based in crude oil or
other crude oil related commodities. The Company assesses, both at the inception of each hedge and
on an ongoing 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.
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 Companys management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the Companys disclosure controls and procedures as of December 31, 2010. Based on that
evaluation, the Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were effective as of March 31, 2011. During the quarter ending
on March 31, 2011, there was no change in the Companys internal control over financial reporting
that has materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
-25-
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On February 14, 2006, the Antitrust Division of the United States Department of Justice (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 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
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 March 11, 2008, the Company received a request for information from the Swiss
Competition Commission concerning, among other things, the scope and organization of the Companys
activities in Switzerland. On June 27, 2007 and October 31, 2007, the Company received requests
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 Companys cargo operations. On September 1, 2008, the Company
received a request from the Korea Fair Trade Commission seeking information regarding cargo rates
and surcharges and the structure of the Companys activities in Korea. On January 23, 2007, the
Brazilian competition authorities, as part of an ongoing investigation, conducted an unannounced
search of the Companys cargo facilities in Sao Paulo, Brazil. On April 24, 2008, the Brazilian
competition authorities charged the Company with violating Brazilian competition laws. On December
31, 2009, the Brazilian competition authorities made a non-binding recommendation to the Brazilian
competition tribunal that it find the Company in violation of competition laws. The 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. The
Company is vigorously contesting the allegations and the preliminary findings of the Brazilian
competition authorities. On December 19, 2006 and June 12, 2007, the Company received requests for
information from the European Commission seeking information regarding the Companys corporate
structure, and revenue and pricing announcements for air cargo shipments to and from the European
Union. On December 18, 2007, the European Commission issued a Statement of Objection (SO) against
26 airlines, including the Company. The SO alleges that these carriers participated in a
conspiracy to set surcharges on cargo shipments in violation of EU law. On November 12, 2010, the
EU Commission notified the Company that it was closing its proceedings against the Company without
imposing any fine or finding any wrongdoing. The Company intends to cooperate fully with all
pending investigations. In the event that any investigations uncover violations of the U.S.
antitrust laws or the competition laws of some other jurisdiction, or if the Company were named and
found liable in any litigation based on these allegations, such findings and related legal
proceedings could have a material adverse impact on the Company. Forty-five 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. To facilitate a settlement on a class basis, the company agreed to be named in a
separate class action complaint, which was filed on July 26, 2010. The settlement of that
complaint, in which the company does not admit and denies liability, was approved by the court and final judgment was entered
on
April 6, 2011. Approximately 40 members of the class have elected to opt out, thereby preserving
their rights to sue the Company separately. 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.
-26-
On June 20, 2006, 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. On September 4,
2007, the Attorney General of the State of Florida served the Company with a Civil Investigative
Demand as part of its investigation of possible violations of federal and Florida antitrust laws
regarding the pricing of air passenger transportation. 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. On October 25, 2006, 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, Civ. No. 06-1793 (the Passenger MDL). On July 9, 2007, the Company was named as a
defendant in the Passenger MDL. On August 25, 2008, the plaintiffs dismissed their claims against
the Company in this action. On March 13, 2008, and March 14, 2008, an additional purported class
action complaint, Turner v. American Airlines, et al., Civ. No. 08-1444 (N.D. Cal.), was filed
against the Company, alleging that the Company violated U.S. antitrust laws by illegally conspiring
to set prices and surcharges for passenger transportation in Japan and certain European countries,
respectively. The Turner plaintiffs have failed to perfect service against the Company, and it is
unclear whether they intend to pursue their claims. In the event that the Turner plaintiffs pursue
their claims, the Company will vigorously defend these lawsuits, but any adverse judgment in these
actions could have a material adverse impact on the Company.
On August 21, 2006, a patent infringement lawsuit was filed against American and American Beacon
Advisors, Inc. (then 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 infringes a number of the plaintiffs 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. On December 1, 2008, the court dismissed
with prejudice all claims against American Beacon. On May 22, 2009, following its granting of
summary judgment to American based on invalidity and non-infringement, the court dismissed all
claims against American. Plaintiff appealed, and on February 18, 2011, the Federal Circuit Court
of Appeals issued a decision affirming in part and reversing in part and remanding the case back to
the District Court for further proceedings. However, the plaintiff has filed a
petition for a rehearing of the appeal en banc before the Federal Circuit and the parties are currently awaiting a
decision on that petition. Although the Company believes that the plaintiffs
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.
On January 5, 2011, Sabre notified the Company that it was immediately introducing bias against the
display of Americans services in its global distribution system (GDS), as well as substantially
increasing the rates that it would charge the Company for bookings made through the Sabre GDS.
Sabre contended that its agreement with the Company permitted it to take these actions. On January
10, 2011, the Company filed a lawsuit in Tarrant County, Texas State Court against Sabre alleging,
among other claims, that Sabres actions breached its agreement with the Company. That same day,
the Company successfully obtained a temporary restraining order that prohibited Sabre from
continuing to bias the display of Americans services. On January 23, 2011, the Company and Sabre
entered into a Stand-Down Agreement, pursuant to which American agreed to suspend the litigation
against Sabre, and Sabre agreed not to reintroduce biasing against Americans services in its GDS
and to return to the pricing in effect on January 4, 2011. The parties further agreed to enter
into good faith negotiations. The Stand-Down Agreement will remain in effect until June 1, 2011.
In the event that the Stand Down Agreement expires without a new agreement with Sabre, and the
Court does not further enjoin Sabre from introducing bias against Americans services, actions
taken by Sabre could have a material adverse effect on the Company.
On April 12, 2011, the Company filed an antitrust lawsuit against Travelport and Orbitz in Federal
District Court for the Northern District of Texas. The lawsuit alleges that Travelport has engaged
in anticompetitive practices to preserve its monopoly power over Americans ability to distribute
its products through Travelport subscribers. The lawsuit further alleges that these actions have
prevented American from employing new competing technologies and has allowed Travelport to continue
to charge American supracompetitive fees. The lawsuit
seeks both injunctive relief and money
damages. American intends to vigorously pursue these claims, but there can be no assurance of the
outcome of its claims.
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Item 6. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K. Where the amount of securities
authorized to be issued under any of AMRs long-term debt agreements does not exceed 10 percent of
AMRs assets, pursuant to paragraph (b) (4) of Item 601 of Regulation S-K, in lieu of filing such
as an exhibit, AMR hereby agrees to furnish to the Commission upon request a copy of any agreement
with respect to such long-term debt.
The following exhibits are included herein:
10.1 |
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Supplemental Agreement No. 21 to Purchase Agreement No. 1980 by and between American
Airlines, Inc. and The Boeing Company dated as of March 14, 2011.
Portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a confidential treatment request
under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended. |
10.2 |
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Supplemental Agreement No. 22 to Purchase Agreement No. 1980 by and between American
Airlines, Inc. and The Boeing Company dated as of March 31, 2011.
Portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a confidential treatment request
under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended. |
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Computation of ratio of earnings to fixed charges for the three months ended March 31, 2011 and 2010. |
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31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
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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). |
101 |
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The following materials from AMR Corporations Quarterly Report on Form 10-Q for the quarter
ended March 31, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the
Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance
Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed
Consolidated Financial Statements, tagged as blocks of text.* |
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto
are deemed not filed or part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes
of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not
subject to liability under those sections. |
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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.
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AMR CORPORATION |
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Date: April 20, 2011
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BY:
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/s/ Isabella D. Goren |
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Isabella D. Goren |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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