e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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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
of
incorporation or organization)
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(IRS Employer
Identification Number)
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4333 Amon
Carter Blvd.
Fort Worth, Texas 76155
(Address
of principal executive offices, including zip
code)
(817) 963-1234
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, $1 par value per share
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New York Stock Exchange
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9.00% Debentures due 2016
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New York Stock Exchange
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7.875% Public Income Notes due 2039
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. þ Yes o No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes þ No
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 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). o Yes þ No
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 30, 2010, was
approximately $2.3 billion. As of February 9, 2011,
333,435,431 shares of the registrants common stock
were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III of this
Form 10-K
incorporates by reference certain information from the Proxy
Statement for the Annual Meeting of Stockholders to be held
May 18, 2011.
PART I
AMR Corporation (AMR or the Company) was incorporated in October
1982. Virtually all of AMRs operations fall within the
airline industry. AMRs principal subsidiary, American
Airlines, Inc. (American), was founded in 1934. At the end of
2010, American provided scheduled jet service to approximately
160 destinations throughout North America, the Caribbean, Latin
America, Europe and Asia.
AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned
subsidiary of AMR, owns two regional airlines which do business
as American Eagle American Eagle
Airlines, Inc. and Executive Airlines, Inc. (collectively, the
American
Eagle®
carriers). American also contracts with an independently owned
regional airline, which does business as
AmericanConnection (the
AmericanConnection®
carrier).
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 flights and pays AMR Eagle a fee for each
flight. The capacity purchase agreement reflects what the
Company 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 and aircraft ownership. As of December 31,
2010, AMR Eagle operated approximately 1,500 daily departures,
offering scheduled passenger service to over 175 destinations in
North America, Mexico and the Caribbean. On a separate company
basis, AMR Eagle reported $2.3 billion in revenue in 2010.
However, this historical financial information is not indicative
of what AMR Eagles future revenues might be if AMR Eagle
were a stand-alone entity.
American, AMR Eagle and the
AmericanConnection®
airline serve more than 250 cities in approximately
50 countries with, on average, 3,400 daily flights. The
combined network fleet numbers approximately 900 aircraft.
American Airlines is also a founding member of
oneworld®
alliance, which enables member airlines to offer their customers
more services and benefits than any member airline can provide
individually. These services include a broader route network,
opportunities to earn and redeem frequent flyer miles across the
combined oneworld network and more airport lounges.
Together, oneworld members serve 750 destinations in
approximately 150 countries, with about 8,500 daily
departures. American is also one of the largest scheduled air
freight carriers in the world, providing a wide range of freight
and mail services to shippers throughout its system onboard
Americans passenger fleet.
Competition
Domestic Air Transportation The domestic
airline industry is fiercely competitive. Currently, any
United States (U.S.) air carrier deemed fit by the
U.S. Department of Transportation (DOT) is free to operate
scheduled passenger service between any two points within the
U.S. and its possessions. Most major air carriers have
developed
hub-and-spoke
systems and schedule patterns in an effort to maximize the
revenue potential of their service. American operates in five
primary domestic markets: Dallas/Fort Worth (DFW), Chicago
OHare, Miami, New York City and Los Angeles.
The American
Eagle®
carriers increase the number of markets the Company serves by
providing connections at Americans primary markets. The
AmericanConnection®
carrier currently provides connecting service to American
through Chicago OHare. Americans competitors also
own or have marketing agreements with regional carriers which
provide similar services at their major hubs and other locations.
On most of its domestic non-stop routes, the Company faces
competing service from at least one, and sometimes more than
one, domestic airline including: AirTran Airways (Air Tran),
Alaska Airlines (Alaska), Continental Airlines (Continental),
Delta Air Lines (including Northwest Airlines) (Delta), Frontier
Airlines, JetBlue Airways (JetBlue), Hawaiian Airlines,
Southwest Airlines (Southwest), Spirit Airlines, United Airlines
(United), US Airways, Virgin America Airlines and their
affiliated regional carriers. Competition is even greater
between cities that require a connection, where the major
airlines compete via their respective hubs. In addition, the
Company faces competition on some of its connecting routes from
carriers operating
point-to-point
service on such
1
routes. The Company also competes with all-cargo and charter
carriers and, particularly on shorter segments, ground and rail
transportation. On all of its routes, pricing decisions are
affected, in large part, by the need to meet competition from
other airlines.
American commenced commercial collaboration in New York and
Boston with JetBlue during 2010. Americans agreement with
JetBlue provides customers with interline service in
non-overlapping markets, letting customers connect between 15 of
Americans international destinations from New York and
Boston and 26 domestic cities flown by JetBlue. Further,
American expanded its relationship with JetBlue so that
AAdvantage members and members of JetBlues customer
loyalty program will be able to earn AAdvantage miles or JetBlue
points, respectively, when they fly on American and JetBlue
cooperative interline routes.
Most of the Companys largest domestic competitors and
several smaller carriers have reorganized under the protection
of Chapter 11 of the U.S. Bankruptcy Code
(Chapter 11) in recent years. It is possible that in
the future one or more of the Companys competitors may
seek to reorganize in or out of Chapter 11. Successful
reorganizations present the Company with competitors with
significantly lower operating costs derived from renegotiated
labor, supply and financing contracts.
International Air Transportation In addition
to its extensive domestic service, the Company provides
international service to the Caribbean, Canada, Latin America,
Europe and Asia. The Companys operating revenues from
foreign operations (flights serving international destinations)
were approximately 40 percent of the Companys total
operating revenues in each of the three years 2010, 2009, and
2008. Additional information about the Companys foreign
operations is included in Note 14 to the consolidated
financial statements.
In providing international air transportation, the Company
competes with foreign investor-owned carriers, foreign
state-owned carriers and U.S. airlines that have been
granted authority to provide scheduled passenger and cargo
service between the U.S. and various overseas locations. In
general, carriers that have the greatest ability to seamlessly
connect passengers to and from markets beyond the nonstop city
pair have a competitive advantage. In some cases, however,
foreign governments limit U.S. air carriers rights to
carry passengers beyond designated gateway cities in foreign
countries. To improve access to each others markets,
various U.S. and foreign air carriers including
American have established marketing relationships
with other airlines and rail companies. American currently has
marketing relationships with Air Berlin, Air Pacific, Air Tahiti
Nui, Alaska Airlines, British Airways, Cape Air, Cathay Pacific,
China Eastern Airlines, Dragonair, Deutsche Bahn German Rail, EL
AL, Etihad Airways, EVA Air, Finnair, GOL, Gulf Air, Hawaiian
Airlines, Iberia, Japan Airlines (JAL), Jet Airways, JetStar
Airways, LAN (includes LAN Airlines, LAN Argentina, LAN Ecuador
and LAN Peru), Malév Hungarian Airlines, Niki Airlines,
Qantas Airways, Royal Jordanian, S7 Airlines, and Vietnam
Airlines.
American is also a founding member of the oneworld
alliance, which includes British Airways, Cathay Pacific,
Finnair, LAN Airlines, Iberia, Qantas, JAL, Malév
Hungarian, Mexicana, Royal Jordanian and S7 Airlines.
S7 Airlines, which is Russias largest domestic
airline, joined the oneworld alliance in November 2010.
Kingfisher, Indias leading domestic airline, is scheduled
to join the alliance in 2011 and Air Berlin, the 5th largest
airline in Europe, is scheduled to join in 2012. The
oneworld alliance links the networks of the member
carriers to enhance customer service and smooth connections to
the destinations served by the alliance, including linking the
carriers frequent flyer programs and access to the
carriers airport lounge facilities.
In July 2010, American obtained clearance from the European
Commission (EC) and approval by the DOT for antitrust immunity
(ATI) for its cooperation with British Airways, Iberia, Finnair
and Royal Jordanian. This approval enables American, British
Airways and Iberia, through a joint business agreement (JBA), to
cooperate on flights between North America and most countries in
Europe, and allows pooling and sharing of certain revenues and
costs, expanded codesharing, enhanced frequent flyer program
reciprocity, and cooperation in other areas. American began
implementation of the JBA with British Airways and Iberia and
expanded cooperation with Finnair and Royal Jordanian in October
2010.
In February 2010, American and JAL entered into a JBA which will
enhance their scope of cooperation on routes between North
America and Asia through adjustments to their respective
networks, flight schedules, and other business activities. This,
in turn, will allow both carriers to better complement each
others operations and to develop and offer competitive
products and quality service to their customers. In the fourth
quarter of 2010,
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American and JAL received approval for ATI on certain routes
between North America and Asia from the DOT and the Ministry of
Land Infrastructure, Transport and Tourism of Japan (MLIT).
Implementation of the JBA is subject to successful negotiation
of certain detailed financial and commercial arrangements and
other approvals. American expects to begin implementing the JBA
with JAL in 2011.
Price Competition The airline industry is
characterized by substantial and intense price competition. Fare
discounting by competitors has historically had a negative
effect on the Companys financial results because the
Company is generally required to match competitors fares,
as failing to match would provide even less revenue due to
customers price sensitivity.
There are a number of low-cost carriers (LCCs) in the domestic
market and the Company competes with LCCs over a very large part
of its network. Several major airlines, including the Company,
have implemented efforts to lower their costs since lower cost
structures enable airlines to offer lower fares. In addition,
several air carriers have reorganized in recent years under
Chapter 11, including United, Delta and US Airways. These
cost reduction efforts and bankruptcy reorganizations have
allowed carriers to decrease operating costs. In the past, lower
cost structures have generally resulted in fare reductions. If
fare reductions by the Company are not offset by increases in
passenger traffic, changes in the mix of traffic that improve
yields
and/or cost
reductions, the Companys operating results will be
negatively impacted.
Regulation
General The Airline Deregulation Act of 1978,
as amended, eliminated most domestic economic regulation of
passenger and freight transportation. However, DOT and the
Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers. DOT maintains
jurisdiction over the approval of international codeshare
agreements, international route authorities, certain consumer
protection and competition matters, such as advertising, denied
boarding compensation and baggage liability.
The FAA regulates flying operations generally, including
establishing standards for personnel, aircraft and certain
security measures. As part of that oversight, the FAA has
implemented a number of requirements that the Company has
incorporated and is incorporating into its maintenance programs.
The Company is progressing toward the completion of over 500
airworthiness directives, a number of which require the Company
to perform significant maintenance work and to incur additional
expenses. Based on its current implementation schedule, the
Company expects to be in compliance with the applicable
requirements within the required time periods. DOT and DOJ have
jurisdiction over airline antitrust matters. The
U.S. Postal Service has jurisdiction over certain aspects
of the transportation of mail and related services. Labor
relations in the air transportation industry are regulated under
the Railway Labor Act, which vests in the National Mediation
Board (NMB) certain functions with respect to disputes between
airlines and labor unions relating to union representation and
collective bargaining agreements. In addition, as a result of
heightened levels of concern regarding data privacy, the Company
is subject to an increasing number of domestic and foreign laws
regarding the privacy and security of passenger and employee
data.
In December 2009, the DOT issued a new rule intended to enhance
air passenger protections. The new rule, which went into effect
in April 2010, created new areas of regulation in passenger
protection, including a requirement that certain carriers,
including American, adopt contingency plans for lengthy tarmac
delays at most U.S. airports. A carriers failure to
meet certain service performance criteria under the rule could
subject it to substantial civil penalties.
On September 10, 2010, the FAA introduced a Notice of
Proposed Rulemaking (NPRM) to change for all carriers
certificated under Part 121 of the Federal Aviation
Regulations, including American and the AMR Eagle carriers, the
required amount and timing of rest periods for pilots between
work assignments, modifying duty and rest requirements based on
the time of day, number of scheduled segments, flight types,
time zones and other factors. The Company and other carriers are
seeking clarification with the FAA of certain provisions of the
proposed rule changes to determine if the new requirements could
have a material adverse impact on the Company. If these
regulations were promulgated in their current form, we believe
they could have a material adverse impact on the Company.
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International International air
transportation is subject to extensive government regulation.
The Companys operating authority in international markets
is subject to aviation agreements between the U.S. and the
respective countries or governmental authorities (such as the
European Union), and in some cases, fares and schedules require
the approval of DOT
and/or the
relevant foreign governments. Moreover, alliances with
international carriers may be subject to the jurisdiction and
regulations of various foreign agencies. Bilateral and
multilateral agreements among the U.S. and various foreign
governments of countries served by the Company are periodically
subject to renegotiation. Changes in U.S. or foreign
government aviation policies could result in the alteration or
termination of such agreements, diminish the value of route
authorities, or otherwise adversely affect the Companys
international operations. In addition, at some foreign airports,
an air carrier needs slots (landing and take-off authorizations)
before the air carrier can introduce new service or increase
existing service. The availability of such slots is not assured
and the inability of the Company to obtain and retain needed
slots could therefore inhibit its efforts to compete in certain
international markets.
In April 2007, the U.S. and the EU approved an open skies
air services agreement that provides airlines from the
U.S. and EU member states open access to each others
markets, with freedom of pricing and unlimited rights to fly
beyond the U.S. and any airport in the EU including
Londons Heathrow Airport. The provisions of the agreement
took effect on March 30, 2008. Under the agreement, every
U.S. and EU airline is authorized to operate between
airports in the U.S. and Heathrow. Notwithstanding the open
skies agreement, Heathrow is a slot-controlled airport. The
agreement has resulted in the Company facing increased
competition in serving Heathrow. The Company is also facing
competition in other European markets. In March 2010, the EU and
the U.S. committed to the extension of the open
skies air services agreement. The extension of this
agreement reinforces the relationship between the EU and the
U.S. and furthers the cause of aviation liberalization. See
Item 1A, Risk Factors, and Note 11 to the consolidated
financial statements for additional information.
In December 2009, the U.S. and Japan reached a tentative
open skies air services agreement that provides airlines from
the U.S. and Japan open access to each others
markets. The tentative agreement was signed by U.S. and
Japanese representatives on October 25, 2010. The open
skies agreement enables carriers of the two parties to operate
between any two airports in the U.S. and Japan as well as
fly to points beyond the two countries without restriction.
The U.S. and Colombia reached an open skies aviation pact
in November 2010 that will remove restrictions between the two
countries by the end of 2012. The proposed deal, which still
needs to be finalized, will remove existing restrictions on the
number of flights that can be operated between the countries.
Also in 2010, the U.S. and Brazil entered into an open
skies aviation services agreement that will provide for a
phase-in of open skies by October 2015. The agreement
immediately removes restrictions on pricing and on the routes
between each country that can be served by U.S. and
Brazilian scheduled and charter airlines.
Security In November 2001, the Aviation and
Transportation Security Act (ATSA) was enacted in the
U.S. The ATSA created a new government agency, the
Transportation Security Administration (TSA), which is part of
the Department of Homeland Security and is responsible for
aviation security. The ATSA mandates that the TSA provide for
the screening of all passengers and property, including
U.S. mail, cargo, carry-on and checked baggage, and other
articles that will be carried aboard a passenger aircraft. The
ATSA also provides for security in flight decks of aircraft and
requires federal air marshals to be present on certain flights.
Effective February 1, 2002, the ATSA imposed a $2.50 per
enplanement security service fee, which is being collected by
the air carriers and submitted to the government to pay for
these enhanced security measures. Additionally, air carriers are
annually required to submit to the government an amount equal to
what the air carriers paid for screening passengers and property
in 2000. In recent years, the government has sought to increase
both of these fees under spending proposals for the Department
of Homeland Security. American and other carriers have announced
their opposition to these proposals as there is no assurance
that any increase in fees could be passed on to customers.
Airline Fares Airlines are permitted to
establish their own domestic fares without governmental
regulation. DOT maintains authority over certain international
fares, rates and charges, but applies this authority on a
limited basis. In addition, international fares and rates are
sometimes subject to the jurisdiction of the governments of the
foreign countries which the Company serves. While air carriers
are required to file and adhere to international fare
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and rate tariffs, substantial commissions, fare overrides and
discounts to travel agents, brokers and wholesalers characterize
many international markets.
Airport Access Operations at four major
domestic airports and certain foreign airports served by the
Company are regulated by governmental entities through
allocations of slots or similar regulatory
mechanisms which limit the rights of carriers to conduct
operations at those airports. Each slot represents the
authorization to land at or take off from the particular airport
during a specified time period.
In the U.S., the FAA currently regulates the allocation of
slots, slot exemptions, operating authorizations, or similar
capacity allocation mechanisms at Reagan National in
Washington, D.C., LaGuardia and JFK in New York, and
Newark. The Companys operations at these airports
generally require the allocation of slots or analogous
regulatory authorities. Similarly, the Companys operations
at Tokyos Narita Airport, Londons Heathrow Airport
and other international airports are regulated by local slot
coordinators pursuant to the International Air Transport
Associations Worldwide Scheduling Guidelines and
applicable local law. The Company currently has sufficient slots
or analogous authorizations to operate its existing flights, and
it has generally been able to obtain the rights to expand its
operations and to change its schedules. There is no assurance,
however, that the Company will be able to do so in the future
because, among other reasons, such allocations are subject to
changes in governmental policies.
In 2006, the Wright Amendment Reform Act of 2006 (the Act)
became law. The Act is based on an agreement by the cities of
Dallas and Fort Worth, Texas, DFW International Airport,
Southwest, and the Company to modify the Wright Amendment, which
authorizes certain flight operations at Dallas Love Field within
defined geographic areas. Among other things, the Act eventually
eliminates domestic geographic restrictions on operations while
limiting the maximum number of gates at Love Field. The Company
believes the Act is a pragmatic resolution of the issues related
to the Wright Amendment and the use of Love Field.
Environmental Matters The Company is subject
to various laws and government regulations concerning
environmental matters and employee safety and health in the
U.S. and other countries. U.S. federal laws that have
a particular impact on the Company include the Airport Noise and
Capacity Act of 1990 (ANCA), the Clean Air Act, the Resource
Conservation and Recovery Act, the Clean Water Act, the Safe
Drinking Water Act, and the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA or the
Superfund Act). Certain operations of the Company concerning
employee safety and health matters are also subject to the
oversight of the Occupational Safety and Health Administration
(OSHA). The U.S. Environmental Protection Agency (EPA),
OSHA, and other federal agencies have been authorized to
promulgate regulations that have an impact on the Companys
operations. In addition to these federal activities, various
states have been delegated certain authorities under the
aforementioned federal statutes. Many state and local
governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to or
stricter than federal requirements.
The ANCA recognizes the rights of airport operators with noise
problems to implement local noise abatement programs so long as
they do not interfere unreasonably with interstate or foreign
commerce or the national air transportation system. Authorities
in several cities have promulgated aircraft noise reduction
programs, including the imposition of nighttime curfews. The
ANCA generally requires FAA approval of local noise restrictions
on aircraft. While the Company has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to
date, the Companys operations could be adversely affected
if locally-imposed regulations become more restrictive or
widespread.
Many aspects of the Companys operations are subject to
increasingly stringent environmental regulations. Concerns about
climate change and greenhouse gas emissions, in particular, may
result in the imposition of additional legislation or
regulation. For example, the EU recently approved measures that
impose emissions limits on airlines with operations to, from or
within the EU as part of an emissions trading system beginning
in 2012. The Company is continuing to assess the potential costs
of the EU measures. Such legislative or regulatory action by the
U.S., state or foreign governments currently or in the future
may adversely affect the Companys business and financial
results. See Item 1A, Risk Factors, for additional
information.
The environmental laws to which the Company is subject include
those related to responsibility for potential soil and
groundwater contamination. The Company is conducting
investigation and remediation activities to address soil and
groundwater conditions at several sites, including airports and
maintenance bases. The Company
5
anticipates that the ongoing costs of such activities will be
immaterial. The Company has also been named as a potentially
responsible party (PRP) at certain Superfund sites. The
Companys alleged volumetric contributions at such sites
are small in comparison to total contributions of all PRPs and
the Company expects that any future payments of its share of
costs at such sites will be immaterial.
Labor
The airline business is labor intensive. Wages, salaries and
benefits represented approximately 31 percent of the
Companys consolidated operating expenses for the year
ended December 31, 2010. The average full-time equivalent
number of employees of the Companys subsidiaries for the
year ended December 31, 2010 was 78,250.
The majority of these employees are represented by labor unions
and covered by collective bargaining agreements. Relations with
such labor organizations are governed by the Railway Labor Act
(RLA). Under this act, the collective bargaining agreements
among the Companys subsidiaries and these organizations
generally do not expire but instead become amendable as of a
stated date. If either party wishes to modify the terms of any
such agreement, it must notify the other party in the manner
prescribed under the RLA and as agreed to by the parties. Under
the RLA, after receipt of such notice, the parties must meet for
direct negotiations, and if no agreement is reached, either
party may request the NMB to appoint a federal mediator. The RLA
prescribes no set timetable for the direct negotiation and
mediation process. It is not unusual for those processes to last
for many months, and even for several years. If no agreement is
reached in mediation, the NMB in its discretion may declare at
some time that an impasse exists, and if an impasse is declared,
the NMB proffers binding arbitration to the parties. Either
party may decline to submit to arbitration. If arbitration is
rejected by either party, a
30-day
cooling off period commences. During that period (or
after), a Presidential Emergency Board (PEB) may be established,
which examines the parties positions and recommends a
solution. The PEB process lasts for 30 days and is followed
by another cooling off period of 30 days. At
the end of a cooling off period, unless an agreement
is reached or action is taken by Congress, the labor
organization may exercise self-help, such as a
strike, and the airline may resort to its own
self-help, including the imposition of any or all of
its proposed amendments and the hiring of new employees to
replace any striking workers.
In April 2003, American reached agreements (the Labor
Agreements) with its three major unions: the Allied Pilots
Association (the APA) which represents Americans pilots,
the Transport Workers Union of America
(AFL-CIO)
(the TWU), which represents seven different employee groups, and
the Association of Professional Flight Attendants (the APFA),
which represents Americans flight attendants. The Labor
Agreements substantially moderated the labor costs associated
with the employees represented by the unions. In conjunction
with the Labor Agreements, American also implemented various
changes in the pay plans and benefits for non-unionized
personnel, including officers and other management (the
Management Reductions). The Labor Agreements became amendable in
2008 (although the parties agreed that they could begin the
negotiations process as early as 2006).
In 2006, American and the APA commenced negotiations under the
RLA. In April of 2008, following a request by the APA, a
mediator was appointed by the NMB. The parties have been in
mediated negotiations since that time. The APA has filed a
number of grievances, lawsuits and complaints, most of which
American believes are part of a corporate campaign related to
the unions labor agreement negotiations with American.
While American is vigorously defending these claims, and has
achieved favorable outcomes in many of them, a number still are
ongoing and unfavorable outcomes of one or more of them could
require American to incur additional costs, change the way it
conducts some parts of its business, or otherwise adversely
affect the Company.
Also in 2006, American and the TWU commenced negotiations with
respect only to dispatchers, one of the seven groups at American
represented by the TWU. Subsequently, following a request by the
parties, a mediator was appointed by the NMB for the dispatcher
negotiations. Thereafter, in November 2007, American and the TWU
commenced negotiations under the RLA with respect to the other
employee groups represented by the TWU. Direct negotiations
between American and the TWU employees with respect to those
other groups continued until December 2008, at which time the
parties jointly filed with the NMB for mediation with respect to
the fleet service, stores, ground school instructors, and
simulator technician groups of employees. The NMB appointed a
mediator soon thereafter. Then, in February 2009, following a
request by the TWU, a mediator was appointed by the NMB
6
with respect to the mechanics and the technical specialists. The
Company negotiated tentative agreements with several workgroups
within the TWU, including the Maintenance Control Technician
group, the Material Logistics Specialists group and the Mechanic
and Related group. Agreements with the TWU groups are subject to
ratification by the relevant membership of TWU, and while the
Maintenance Control Technician group ratified their agreement,
the Material Logistics Specialists group and the Mechanic and
Related group tentative agreements were not ratified. Mediated
negotiations with the TWU with respect to those groups continue.
American and the APFA commenced negotiations in the first half
of 2008. Direct negotiations between the parties continued until
December 2008, at which time the parties jointly filed an
application to the NMB asking that a mediator be appointed. The
NMB appointed a mediator soon thereafter. Since that time, the
parties have been conducting mediated negotiations as scheduled
by the NMB.
The Air Line Pilots Association (ALPA), which represents
American Eagle pilots, reached agreement with American Eagle
effective September 1, 1997, to have all of the pilots of
the American
Eagle®
carriers (currently American Eagle Airlines, Inc. and Executive
Airlines, Inc.) covered by a single contract. This agreement
lasts until January 1, 2013. The agreement provided to the
parties the right to seek limited changes in 2000, 2004 and
2008. If the parties were unable to agree on the limited
changes, the agreement provided that any issues would be
resolved by interest arbitration, without the exercise of
self-help (such as a strike). ALPA and American Eagle negotiated
a tentative agreement in 2000, but that agreement failed in
ratification. Thereafter, the parties participated in interest
arbitration. The interest arbitration panel determined the
limited changes that should be made and these changes were
appropriately effected. In 2004 and in 2008, the parties
successfully negotiated limited changes. The pilot agreement is
amendable January 1, 2013; however, the parties have agreed
that contract openers may be exchanged 120 days prior to
that date.
The Association of Flight Attendants (AFA) represents the flight
attendants of the American Eagle carriers. The current agreement
between the American Eagle carriers and the AFA became amendable
on October 27, 2009. The parties are in direct negotiations.
The other union employees at the American Eagle carriers are
covered by separate agreements with the TWU. The agreements
between the American Eagle carriers and the TWU were amendable
beginning on October 1, 2007, and the parties commenced
negotiations. In January 2009, an application for mediation was
filed with the NMB and a mediator was appointed to assist the
parties. In January 2010, American Eagle and the TWU reached a
tentative agreement with respect to aircraft maintenance
technicians and fleet service clerks for 24 months,
effective the date of signing. The mechanics ratified the
tentative agreement in March of 2010. The fleet service clerks
failed to ratify the January 2010 tentative agreement. A second
tentative agreement was reached with the TWU with respect to the
fleet service clerks in June of 2010; that tentative agreement
also was not ratified. Mediation with the TWU concerning
American Eagles dispatchers and fleet services clerks
continues.
Fuel
The Companys operations and financial results are
significantly affected by the availability and price of jet
fuel. The Companys fuel costs and consumption for the
years 2008 through 2010 were:
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Percent of
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Gallons
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Average Cost
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AMRs Operating
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Year
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Consumed
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Total Cost
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per Gallon
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Expenses
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(In millions)
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(In millions)
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(In dollars)
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2008
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2,971
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$
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9,014
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$
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3.034
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35.1
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2009
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2,762
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5,553
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2.010
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26.5
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2010
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2,764
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6,400
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2.316
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29.3
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The impact of fuel price changes on the Company and its
competitors depends on various factors, including hedging
strategies. The Company has a fuel hedging program in which it
enters into jet fuel and heating oil hedging contracts to dampen
the impact of the volatility of jet fuel prices. The Company
does not take a view on the direction of fuel prices; instead,
the Company layers in fuel hedges on a systematic basis. As a
result, the impact on the Company from its fuel hedging program
can be very different from the impact of fuel hedging on the
Companys competitors who follow a different hedging
philosophy. Depending on movements in the price of fuel, the
Companys fuel hedging program can result in gains or
losses on its fuel hedges.
7
During 2010, 2009 and 2008, the Companys fuel hedging
program increased (decreased) the Companys fuel expense by
approximately $142 million, $651 million and
($380) million, respectively. As of January 2011, the
Company had cash flow hedges, with option contracts, primarily
heating oil collars and call options, covering approximately
35 percent of its estimated 2011 fuel requirements. The
consumption hedged for 2011 by cash flow hedges is capped at an
average price of approximately $2.52 per gallon of jet fuel, and
the Companys collars have an average floor price of
approximately $1.92 per gallon of jet fuel (both the capped and
floor price exclude taxes and transportation costs). A
deterioration of the Companys financial position could
negatively affect the Companys ability to hedge fuel in
the future. See the Risk Factors under Item 1A for
additional information regarding fuel.
Additional information regarding the Companys fuel program
is also included in Item 7(A) Quantitative and
Qualitative Disclosures about Market Risk, Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations and in Note 7 to
the consolidated financial statements.
Frequent
Flyer Program
American established the
AAdvantage®
frequent flyer program (AAdvantage) to develop passenger loyalty
by offering awards to travelers for their continued patronage.
The Company believes that the AAdvantage program is one of its
competitive strengths. AAdvantage benefits from a growing base
of approximately 67 million members with desirable
demographics who have demonstrated a strong willingness to
collect AAdvantage miles over other loyalty program incentives
and are generally disposed to adjusting their purchasing
behavior in order to earn additional AAdvantage miles.
AAdvantage members earn mileage credits by flying on American,
American Eagle, and the
AmericanConnection®
carrier or by using services of other participants in the
AAdvantage program. Mileage credits can be redeemed for free,
discounted or upgraded travel on American, American Eagle or
other participating airlines, or for other awards. Once a member
accrues sufficient mileage for an award, the member may book
award travel. Most travel awards are subject to capacity
controlled seating. A members mileage credit does not
expire as long as that member has any type of qualifying
activity at least once every 18 months.
American sells mileage credits and related services to other
participants in the AAdvantage program. There are over 1,000
program participants, including a leading credit card issuer,
hotels, car rental companies and other products and services
companies in the AAdvantage program. The Company believes that
program participants benefit from the sustained purchasing
behavior of AAdvantage members, which translates into a
recurring stream of revenues for AAdvantage. Under its
agreements with AAdvantage members and program participants, the
Company reserves the right to change the AAdvantage program at
any time without notice, and may end the program with six months
notice. As of December 31, 2010, AAdvantage had
approximately 67 million total members, and
587 billion outstanding award miles. During 2010,
AAdvantage issued approximately 185 billion miles, of which
approximately 62% were sold to program participants. See
Critical Accounting Policies and Estimates under
Item 7 for more information on AAdvantage.
Cargo
American Airlines Cargo, a division of American Airlines, Inc.,
provides over 90 million pounds of weekly cargo lift
capacity to major cities in the United States, Europe, Canada,
Mexico, the Caribbean, Latin America and Asia. Americans
cargo network is one of the largest air cargo networks in the
world, with facilities and interline connections available
across the globe. During 2010, American Airlines Cargo accounted
for approximately 3.0% of the Companys operating revenues
by generating $672 million in freight and mail revenue, an
increase of 16.3% versus 2009.
Other
revenues
Other revenues, which approximate 10.8% of total revenues,
includes revenue from the marketing services related to the sale
of mileage credits in the AAdvantage program as discussed above,
membership fees and related revenue from the Companys
Admirals Club operations, and other miscellaneous service
revenue, including administrative service charges and baggage
handling fees. Other revenues have been increasing as the
Company unbundles its services and charges for ancillary
services.
8
Other
Matters
Seasonality and Other Factors The
Companys results of operations for any interim period are
not necessarily indicative of those for the entire year since
the air transportation business is subject to seasonal
fluctuations. Higher demand for air travel has traditionally
resulted in more favorable operating and financial results for
the second and third quarters of the year than for the first and
fourth quarters. Fears of terrorism or war, fare initiatives,
fluctuations in fuel prices, labor actions, weather, natural
disasters, outbreaks of disease, and other factors could impact
this seasonal pattern. Unaudited quarterly financial data for
the two-year period ended December 31, 2010 is included in
Note 15 to the consolidated financial statements. In
addition, the results of operations in the air transportation
business have also significantly fluctuated in the past in
response to general economic conditions.
Insurance The Company carries insurance for
public liability, passenger liability, property damage and
all-risk coverage for damage to its aircraft. As a result of the
terrorist attacks of September 11, 2001 (the Terrorist
Attacks), aviation insurers significantly reduced the amount of
insurance coverage available to commercial air carriers for
liability to persons other than employees or passengers for
claims resulting from acts of terrorism, war or similar events
(war-risk coverage). At the same time, these insurers
significantly increased the premiums for aviation insurance in
general. While the price of commercial insurance has declined
since the period immediately after the Terrorist Attacks, in the
event commercial insurance carriers further reduce the amount of
insurance coverage available to the Company, or significantly
increase its cost, the Company would be adversely affected.
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. There can be no assurance that comparable war-risk
coverage will be available in the commercial market. If the
Company is unable to obtain adequate war-risk coverage at
commercially reasonable rates, the Company would be adversely
affected.
Other Government Matters In time of war or
during a national emergency or defense oriented situation,
American and other air carriers can be required to provide
airlift services to the Air Mobility Command under the Civil
Reserve Air Fleet program. In the event the Company has to
provide a substantial number of aircraft and crew to the Air
Mobility Command, its operations could be adversely impacted.
Available Information The Company makes its
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 available free of charge under the Investor Relations page
on its website, www.aa.com, as soon as reasonably
practicable after such reports are electronically filed with the
Securities and Exchange Commission. In addition, the
Companys code of ethics (called the Standards of Business
Conduct), which applies to all employees of the Company,
including the Companys Chief Executive Officer (CEO),
Chief Financial Officer (CFO) and Controller, is posted under
the Investor Relations page on its website, www.aa.com.
The Company intends to disclose any amendments to the code of
ethics, or waivers of the code of ethics on behalf of the CEO,
CFO or Controller, under the Investor Relations page on the
Companys website, www.aa.com. The charters for the
AMR Board of Directors standing committees (the Audit,
Compensation, Diversity and Nominating/Corporate Governance
Committees), as well as the Board of Directors Governance
Policies (the Governance Policies), are likewise available on
the Companys website, www.aa.com. Information on
the Companys website is not incorporated into or otherwise
made a part of this Report.
9
Our ability to become profitable and our ability to continue to
fund our obligations on an ongoing basis will depend on a number
of risk factors, many of which are largely beyond our control.
As a
result of significant losses in recent years, our financial
condition has been materially weakened.
We incurred significant losses in recent years, which has
materially weakened our financial condition. We lost
$893 million in 2005, $781 million in 2004,
$1.2 billion in 2003, $3.5 billion in 2002 and
$1.8 billion in 2001. Although we earned a profit of
$456 million in 2007 and $189 million in 2006, we lost
$2.1 billion in 2008 (which included a $1.2 billion
impairment charge), and, primarily as a result of very weak
demand for air travel driven by the severe downturn in the
global economy, we lost $1.5 billion in 2009 and
$471 million in 2010. Because of our weakened financial
condition, we are vulnerable both to the impact of unexpected
events (such as terrorist attacks) and to deterioration of the
operating environment (such as a significant increase in jet
fuel prices or significant increased competition).
The
severe global economic downturn resulted in very weak demand for
air travel and lower investment asset returns, which has had and
could continue to have a significant negative impact on
us.
Although demand for air travel has improved as the global
economy continues to recover from the recent severe downturn,
demand continues to be weak by historical standards. We began to
experience weakening demand late in 2008, and this weakness
continued into 2010. We reduced capacity in 2008, and in the
first half of 2009 we announced additional reductions to our
capacity plan. In connection with these capacity reductions, the
Company incurred special charges related to aircraft, employee
reductions and certain other charges. Demand for air travel may
weaken if the global economy does not continue to recover. No
assurance can be given that capacity adjustments or other steps
we may take in response to changes in demand will be successful.
Capacity reductions or other steps might result in additional
special charges in the future. Further, other carriers may make
capacity adjustments which may reduce the expected benefits of
any steps we may take to respond to changes in demand.
Industry-wide capacity may increase to the extent the economy
continues to recover from the global recession. If industry
capacity increases, and if consumer demand does not continue to
pace those increases, we, and the airline industry as a whole,
could be negatively impacted.
The economic downturn has resulted in broadly lower investment
asset returns and values. Our pension assets suffered a material
decrease in value in 2008 related to broader stock market
declines, which resulted in higher pension expense in 2009 and
2010 and will result in higher pension expense and higher
required contributions in future years. In addition, under
certain circumstances, we may be required to maintain cash
reserves under our credit card processing agreements and to post
cash collateral on fuel hedging contracts. These issues
individually or collectively may have a material adverse impact
on our liquidity. Also, disruptions in the capital markets and
other sources of funding may make it impossible for us to obtain
necessary additional funding or make the cost of that funding
prohibitive.
We
face numerous challenges as we seek to maintain sufficient
liquidity, and we will need to raise substantial additional
funds. We may not be able to raise those funds, or to do so on
acceptable terms.
In the next several years, we have significant debt, lease and
other obligations, including significant pension funding
obligations. We also expect to make substantial capital
expenditures during that time. For example, in 2011, we will be
required to make approximately $2.5 billion of principal
payments on long-term debt and capital leases, and we expect to
spend approximately $1.6 billion on capital expenditures,
including aircraft commitments. In addition, in 2011, we are
required to contribute approximately $520 million to our
pension plans. Moreover, the global economic downturn, rising
fuel prices, the potential obligation to post reserves under
credit card processing agreements and the potential obligation
to post cash collateral on fuel hedging contracts, among other
things, have negatively impacted, and may in the future
negatively impact, our liquidity. To meet our commitments and to
maintain sufficient liquidity as we continue to implement our
revenue enhancement and cost reduction initiatives, we will need
continued access to substantial additional funding. Moreover,
while we have arranged financings that, subject to certain terms
and conditions (including, in the case of financing arrangements
covering a significant
10
number of aircraft, a condition that, at the time of borrowing,
we have a certain amount of unrestricted cash and short term
investments), cover all of our aircraft delivery commitments
through 2011, we will continue to need to raise substantial
additional funds to meet our commitments.
Our ability to obtain future financing is limited by the value
of our unencumbered assets. Almost all of our aircraft assets
(including aircraft eligible for the benefits of
Section 1110) are encumbered as a result of financing
activity in recent years. This financing activity has
significantly reduced the quantity of our assets which could be
used as collateral in future financing. Also, the market value
of our aircraft assets has declined in recent years, and may
continue to decline. In addition, many of the other financing
sources traditionally available to us may be difficult to
access, and no assurance can be given as to the amount of
financing available to us.
Since the terrorist attacks of September 11, 2001 (the
Terrorist Attacks), our credit ratings have been
lowered to significantly below investment grade. These
reductions have increased our borrowing costs and otherwise
adversely affected borrowing terms, and limited borrowing
options. Additional reductions in our credit ratings might have
other effects on us, such as further increasing borrowing or
other costs or further restricting our ability to raise funds.
A number of other factors, including our financial results in
recent years, our substantial indebtedness, the difficult
revenue environment we face, our reduced credit ratings, recent
historically high fuel prices, and the financial difficulties
experienced in the airline industry, adversely affect the
availability and terms of funding for us. In addition, the
global economic downturn resulted in greater volatility, less
liquidity, widening of credit spreads, and substantially more
limited availability of funding. As a result of these and other
factors, although we believe we have or can access sufficient
liquidity to fund our operations and obligations, there can be
no assurances to that effect. An inability to obtain necessary
additional funding on acceptable terms would have a material
adverse impact on us and on our ability to sustain our
operations.
We
could be required to maintain reserves under our credit card
processing agreements, which could materially adversely impact
our liquidity.
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 credit card processors
exposure to the Company under the applicable agreement and, in
the case of a reserve required because of Americans
failure to maintain a certain level of liquidity, the amount of
such liquidity. As of December 31, 2010, 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.
Our
initiatives to generate additional revenues and to reduce our
costs may not be adequate or successful.
As we seek to improve our financial condition, we must continue
to take steps to generate additional revenues and to reduce our
costs. Although we have a number of initiatives underway to
address our cost and revenue challenges, some of these
initiatives involve changes to our business which we may be
unable to implement. In addition, it has become increasingly
difficult to identify and implement significant revenue
enhancement and cost savings initiatives. The adequacy and
ultimate success of our initiatives to generate additional
revenues and reduce our costs cannot be assured. Moreover,
whether our initiatives will be adequate or successful depends
in large measure on factors beyond our control, notably the
overall industry environment, including passenger demand, yield
and industry capacity growth, and fuel prices. It will be very
difficult for us to continue to fund our 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.
11
We may
be adversely affected by increases in fuel prices, and we would
be adversely affected by disruptions in the supply of
fuel.
Our results are very significantly affected by the cost, price
volatility and the availability of jet fuel, which are in turn
affected by a number of factors beyond our control. Due to the
competitive nature of the airline industry, we may not be able
to pass on increased fuel prices to customers by increasing
fares. Although we had some success in raising fares and
imposing fuel surcharges in reaction to high fuel prices, these
fare increases and surcharges did not keep pace with the
extraordinary increases in the price of fuel that occurred in
2007 and 2008. Although fuel prices have abated considerably
from the record high prices recorded in July 2008, they have
steadily increased since the first quarter of 2009 and remain
high and extremely volatile by historical standards.
Furthermore, reduced demand or increased fare competition, or
both, and resulting lower revenues may offset any potential
benefit of any reductions in fuel prices.
While we do not currently anticipate a significant reduction in
fuel availability, dependence on foreign imports of crude oil,
limited refining capacity and the possibility of changes in
government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability
of jet fuel. If there are additional outbreaks of hostilities or
other conflicts in oil producing areas or elsewhere, or a
reduction in refining capacity (due to natural disasters or
weather events, for example), or governmental limits on the
production or sale of jet fuel (including as a consequence of
increased environmental regulation), there could be a reduction
in the supply of jet fuel and significant increases in the cost
of jet fuel. Major reductions in the availability of jet fuel or
significant increases in its cost would have a material adverse
impact on us.
We have a large number of older aircraft in our fleet, and these
aircraft are not as fuel efficient as more recent models of
aircraft. We believe it is imperative that we continue to
execute our fleet renewal plans. However, there will be
significant delays in the deliveries of the Boeing
787-9
aircraft we currently have on order.
Our aviation fuel purchase contracts generally do not provide
meaningful price protection. While we seek to manage the risk of
fuel price increases by using derivative contracts, there can be
no assurance that, at any given time, we will have derivatives
in place to provide any particular level of protection against
increased fuel costs. In addition, a deterioration of our
financial position could negatively affect our ability to enter
into derivative contracts in the future. Moreover, declines in
fuel prices below the levels established in derivative contracts
may require us to post material amounts of cash collateral to
secure the loss positions on such contracts, and if such
contracts close when fuel prices are below the applicable
levels, we would be required to make payments to close such
contracts; these payments would be treated as additional fuel
expense.
We
could be materially adversely affected if we are unable to
resolve favorably our pending litigation with certain Global
Distribution Systems (GDSs) and business discussions with
certain on-line travel agents.
We are currently involved in litigation with certain GDSs and in
business discussions with certain on-line travel agents. An
adverse outcome in any of these matters could have a material
adverse effect on our level of bookings, business and results of
operations. See Managements Discussion and Analysis
of Financial Condition and Results of
Operations GDS Discussion. In addition,
our contracts with the GDSs operated by Sabre, Travelport and
Amadeus expire in 2011. We could be adversely affected if we are
unable to renegotiate contract renewals on acceptable terms.
Our
indebtedness and other obligations are substantial and could
adversely affect our business and liquidity.
We have and will continue to have significant amounts of
indebtedness, obligations to make future payments on aircraft
equipment and property leases, and obligations under aircraft
purchase agreements, as well as a high proportion of debt to
equity capital. We expect to incur substantial additional debt
(including secured debt) and
12
lease obligations in the future. We also have substantial
pension funding obligations. Our substantial indebtedness and
other obligations have important consequences. For example, they:
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limit our ability to obtain additional funding for working
capital, capital expenditures, acquisitions, investments and
general corporate purposes, and adversely affect the terms on
which such funding can be obtained;
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness and other
obligations, thereby reducing the funds available for other
purposes;
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make us more vulnerable to economic downturns and catastrophic
external events; and
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limit our ability to withstand competitive pressures and reduce
our flexibility in responding to changing business and economic
conditions.
|
Our
business is affected by many changing economic and other
conditions beyond our control, and our results of operations
tend to be volatile and fluctuate due to
seasonality.
Our business and our results of operations are affected by many
changing economic and other conditions beyond our control,
including, among others:
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actual or potential changes in international, national, regional
and local economic, business and financial conditions, including
recession, inflation, higher interest rates, wars, terrorist
attacks or political instability;
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changes in consumer preferences, perceptions, spending patterns
or demographic trends;
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changes in the competitive environment due to industry
consolidation, changes in airline alliance affiliations and
other factors;
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actual or potential disruptions to the air traffic control
systems;
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increases in costs of safety, security and environmental
measures;
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outbreaks of diseases that affect travel behavior; and
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weather and natural disasters.
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As a result, our results of operations tend to be volatile and
subject to rapid and unexpected change. In addition, due to
generally greater demand for air travel during the summer, our
revenues in the second and third quarters of the year tend to be
stronger than revenues in the first and fourth quarters of the
year.
The
airline industry is fiercely competitive and may undergo further
consolidation or changes in industry alliances, and we are
subject to increasing competition.
Service over almost all of our routes is highly competitive and
fares remain at low levels by historical standards. We face
vigorous, and, in some cases, increasing, competition from major
domestic airlines, national, regional, all-cargo and charter
carriers, foreign air carriers, low-cost carriers and,
particularly on shorter segments, ground and rail
transportation. We also face increasing and significant
competition from marketing/operational alliances formed by our
competitors. Competition with foreign air carriers and with such
marketing/operational alliances has been increasing in recent
years in part due to the adoption of liberalized open skies
aviation agreements between the United States and an increasing
number of countries around the world. Moreover, the percentage
of routes on which we compete with carriers having substantially
lower operating costs than ours has grown significantly over
time, and we now compete with low-cost carriers over a very
large part of our network. Our ability to compete effectively
depends in part on our ability to maintain a competitive cost
structure. If we cannot do so, then our business, financial
condition and operating results would be adversely affected.
Certain airline alliances have been, or may in the future be,
granted immunity from antitrust regulations by governmental
authorities for specific areas of cooperation, such as joint
pricing decisions. To the extent alliances formed by the
Companys competitors can undertake activities that are not
available to the Company, the Companys ability to
effectively compete may be hindered.
13
Pricing decisions are significantly affected by competition from
other airlines. Fare discounting by competitors historically has
had a negative effect on our financial results because we must
generally match competitors fares, since failing to match
would result in even less revenue. We have faced increased
competition from carriers with simplified fare structures, which
are generally preferred by travelers. Any fare reduction or fare
simplification initiative may not be offset by increases in
passenger traffic, reduction in cost or changes in the mix of
traffic that would improve yields. Moreover, decisions by our
competitors that increase or reduce overall industry capacity,
or capacity dedicated to a particular domestic or foreign
region, market or route, can have a material impact on related
fare levels.
There have been numerous mergers and acquisitions within the
airline industry and numerous changes in industry alliances.
Southwest Airlines and AirTran Airways announced during 2010
plans to merge, and the recent mergers of United Air Lines, Inc.
with Continental Airlines, Inc. and Delta Airlines with
Northwest Airlines Corporation have resulted in the formation of
larger competitors than the Company with more extensive networks
than the Company. We are seeking to address these competitive
challenges with our cornerstone market and alliance strategies;
however, there can be no assurances as to the level of success
of these strategies.
In the future, there may be additional mergers and acquisitions,
and changes in airline alliances, including those in which the
Company may participate and those that may be undertaken by
others. Any airline industry consolidation or changes in airline
alliances, including oneworld, could substantially alter
the competitive landscape and result in changes in our corporate
or business strategy. We regularly assess and explore the
potential for consolidation in our industry and changes in
airline alliances, our strategic position and ways to enhance
our competitiveness, including the possibilities for our
participation in merger activity. Consolidation involving other
participants in our industry could result in the formation of
one or more airlines with greater financial resources, more
extensive networks,
and/or lower
cost structures than exist currently, which could have a
material adverse effect on our competitive position and
adversely affect our business and results of operations. For
similar reasons, changes in airline alliances could have a
similar impact on us.
In 2008, we entered into a joint business agreement and related
marketing arrangements with British Airways and Iberia,
providing for commercial cooperation on flights between North
America and most countries in Europe, pooling and sharing of
certain revenues and costs, expanded codesharing, enhanced
frequent flyer program reciprocity, and cooperation in other
areas. In July 2010, American obtained clearance from the
European Commission (EC) and approval by the
Department of Transportation (DOT) for
antitrust immunity (ATI) for its planned
cooperation with British Airways, Iberia, Finnair and Royal
Jordanian. Regulatory conditions for ATI approval for the
British Airways, Iberia, Finnair and Royal Jordanian cooperative
agreement include a collective obligation of the Company,
British Airways and Iberia to lease to other carriers up to
seven takeoff and landing slot pairs at London Heathrow airport
and up to three John F. Kennedy airport operational authorities,
depending on market conditions. American began implementation of
the JBA with British Airways and Iberia and expanded cooperation
with Finnair and Royal Jordanian in October 2010. No assurances
can be given as to any arrangements that may ultimately be
implemented or any benefits that we may derive from such
arrangements.
In February 2010, American and JAL announced the decision to
strengthen their relationship. The carriers, both members of the
oneworld alliance, jointly applied to DOT for ATI on
certain routes, and jointly notified the Ministry of Land
Infrastructure, Transport and Tourism of Japan of the proposed
cooperation. As a part of the application, American and JAL
entered into a joint business agreement which will enhance their
scope of cooperation on routes between North America and Asia
through adjustments to their respective networks, flight
schedules, and other business activities. This, in turn, will
allow both carriers to better complement each others
operations and to develop and offer competitive products and
quality service to their customers. In November 2010, American
obtained approval by DOT for ATI for its planned cooperation
with JAL. Implementation of the JBA with JAL is subject to
successful negotiation of certain detailed financial and
commercial arrangements and other approvals. American expects to
begin implementing the JBA with JAL in 2011. No assurances can
be given as to any arrangements that may ultimately be
implemented or any benefits that we may derive from such
arrangements.
Any plans to enter into or expand ATI joint business agreements
or similar arrangements, including implementation of the joint
business agreements referred to above, are subject to various
conditions, including various U.S. and foreign regulatory
approvals, successful negotiation of certain detailed financial
and commercial
14
arrangements, and other approvals. Governmental entities from
which such approvals must be obtained, including DOT and foreign
governmental authorities or entities such as the EU, have
imposed or may impose requirements or limitations as a condition
of granting any such approvals, such as requiring divestiture of
routes, gates, slots or other assets. No assurances can be given
as to any arrangements that may ultimately be implemented or any
benefits we may derive from such arrangements.
We
compete with reorganized carriers, which results in competitive
disadvantages for us.
We must compete with air carriers that have reorganized under
the protection of Chapter 11 of the Bankruptcy Code in
recent years, including United, Delta and U.S. Airways. It
is possible that other significant competitors may seek to
reorganize in or out of Chapter 11.
Successful reorganizations by other carriers present us with
competitors with significantly lower operating costs and
stronger financial positions derived from renegotiated labor,
supply, and financing contracts. These competitive pressures may
limit our ability to adequately price our services, may require
us to further reduce our operating costs, and could have a
material adverse impact on us.
Fares
are at low levels and our reduced pricing power adversely
affects our ability to achieve adequate pricing, especially with
respect to business travel.
Our passenger yield (on an inflation-adjusted basis) remains low
by historical standards. We believe that this is due in large
part to a corresponding decline in our pricing power. Our
reduced pricing power is the product of several factors
including: greater cost sensitivity on the part of travelers
(particularly business travelers); pricing transparency
resulting from the use of the internet; greater competition from
low-cost carriers and from carriers that have reorganized in
recent years under the protection of Chapter 11; other
carriers being better hedged against rising fuel costs and able
to better absorb high jet fuel prices; fare simplification
efforts by certain carriers; and the economy. We believe that
this pricing environment could persist indefinitely.
Our
corporate or business strategy may change.
In light of the rapid changes in the airline industry, we
evaluate our assets on an ongoing basis with a view to
maximizing their value to us and determining which are core to
our operations. We also regularly evaluate our corporate and
business strategies, and they are influenced by factors beyond
our control, including changes in the competitive landscape we
face. Our corporate and business strategies are, therefore,
subject to change.
AMR is considering, and may engage in discussions with third
parties regarding, the divestiture of AMR Eagle and other
separation transactions, and may decide to proceed with one or
more such transactions. There can be no assurance that AMR will
complete any separation transactions or that any announced plans
or transactions will be consummated, and no prediction can be
made as to the impact of any such transactions on stockholder
value or on us. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Recent Events.
Our
business is subject to extensive government regulation, which
can result in increases in our costs, disruptions to our
operations, limits on our operating flexibility, reductions in
the demand for air travel, and competitive disadvantages. In
particular, recently enacted and possible future environmental
regulations may adversely affect our business and financial
results.
Airlines are subject to extensive domestic and international
regulatory requirements. Many of these requirements result in
significant costs. For example, the FAA from time to time issues
directives and other regulations relating to the maintenance and
operation of aircraft. In addition, the FAA has recently
proposed regulations that would affect crewmember hiring and
crewmember rest and duty requirements. It is unknown at this
time whether, and in what form, these regulations may be
promulgated. However, if these regulations were promulgated in
their current form, we believe they could have a material
adverse impact on the Company. In addition, as a result of
heightened levels of concern regarding data privacy, the Company
is subject to an increasing number of domestic and foreign laws
regarding the privacy and security of passenger and employee
data.
15
Compliance with regulatory requirements drives significant
expenditures and has in the past, and may in the future, cause
disruptions to our operations. In addition, the ability of
U.S. carriers to operate international routes is subject to
change because the applicable arrangements between the
U.S. and foreign governments may be amended from time to
time (such as through the adoption of an open skies policy), or
because appropriate slots or facilities are not made available.
Any such change could adversely impact the value of our
international route authorities and related assets.
Moreover, additional laws, regulations, taxes and airport rates
and charges have been enacted from time to time that have
significantly increased the costs of airline operations, reduced
the demand for air travel or restricted the way we can conduct
our business. For example, the ATSA, which became law in 2001,
mandated the federalization of certain airport security
procedures and resulted in the imposition of additional security
requirements on airlines.
The results of our operations, demand for air travel, and the
manner in which we conduct our business each may be affected by
changes in law and future actions taken by governmental
agencies, including:
|
|
|
|
|
changes in law which affect the services that can be offered by
airlines in particular markets and at particular airports, or
the types of fees that can be charged to passengers;
|
|
|
|
the granting and timing of certain governmental approvals
(including foreign government approvals) needed for codesharing
alliances and other arrangements with other airlines;
|
|
|
|
restrictions on competitive practices (for example court orders,
or agency regulations or orders, that would curtail an
airlines ability to respond to a competitor);
|
|
|
|
the adoption of new passenger security standards or regulations
that impact customer service standards (for example,
passenger bill of rights);
|
|
|
|
restrictions on airport operations, such as restrictions on the
use of takeoff and landing slots at airports or the auction or
reallocation of slot rights currently or previously held by
us; or
|
|
|
|
the adoption of more restrictive locally imposed noise
restrictions.
|
In addition, the U.S. air traffic control (ATC) system,
which is operated by the FAA, is not successfully managing the
growing demand for U.S. air travel. U.S. airlines
carry about 750 million passengers a year and are forecast
to accommodate a billion passengers annually by 2021. Air
traffic controllers rely on outdated technologies that routinely
overwhelm the system and compel airlines to fly inefficient,
indirect routes. We support a common sense approach to ATC
modernization that would allocate costs to all ATC system users
in proportion to the services they consume. Reauthorization of
legislation that funds the FAA, which includes proposals
regarding upgrades to the ATC system, is under consideration in
Congress. It is uncertain whether such legislation will become
law. In the meantime, FAA funding continues under temporary
periodic extensions.
Many aspects of our operations are subject to increasingly
stringent environmental regulations. Concerns about climate
change and greenhouse gas emissions, in particular, may result
in the imposition of additional legislation or regulation. The
EU has adopted a directive under which each EU member state is
required to extend the existing EU emissions trading scheme
(ETS) to aviation. This will require the Company to annually
submit emission allowances in order to operate flights to and
from EU member states in January 2012 and thereafter, including
flights between the U.S. and EU member states. In December
2009, the ATA, joined by American, Continental and United, filed
a legal action in the United Kingdom challenging the
implementation of the EU ETS as applied to aviation. We believe
that non-EU governments are also likely to consider formal
challenges to the EU ETS as applied to aviation. It is not clear
whether the EU ETS will withstand such challenges. However,
unless interim relief is granted, we will be required to
continue to comply with the EU ETS during the pendency of the
legal challenges. Although the cost of compliance with the EU
ETS is difficult to predict given the uncertainty of a number of
variables, such as the number and price of emission allowances
we may be required to purchase, such costs could be significant.
Other legislative or regulatory actions addressing climate
change and emissions from aviation that may be taken in the
future by the U.S., state or foreign governments or through
international treaties may adversely affect our business and
financial results. The United Nations International Civil
Aviation Organization (ICAO), for
16
example, recently adopted a resolution identifying certain fuel
efficiency goals and emission trading system principles for
international aviation, which may provide a basis for such
future legislative or regulatory action. Climate change
legislation was previously introduced in the U.S. Congress;
such legislation could be re-introduced in the future by the
U.S. Congress and state legislatures, and could contain
provisions affecting the aviation industry. In addition, the EPA
could seek to regulate greenhouse gas emissions from aircraft.
It is currently unknown how climate change legislation or
regulation, if enacted, would specifically apply to the aviation
industry. However, the impact on us of any climate change
legislation or regulation is likely to be adverse and related
costs of compliance could be significant. Such legislation or
regulation could result in, among other things, increased fuel
costs, carbon taxes or fees, the imposition of requirements to
purchase emission offsets or credits, increased aircraft and
equipment costs, and restrictions on the growth of airline
operations. We continue to evaluate ongoing climate change
developments at the international, federal and state levels and
assess the potential associated impacts on our business and
operations.
We
could be adversely affected by conflicts overseas or terrorist
attacks.
Actual or threatened U.S. military involvement in overseas
operations has, on occasion, had an adverse impact on our
business, financial position (including access to capital
markets) and results of operations, and on the airline industry
in general. The continuing conflicts in Iraq and Afghanistan, or
other conflicts or events in the Middle East or elsewhere, may
result in similar adverse impacts.
The Terrorist Attacks had a material adverse impact on us. The
occurrence of another terrorist attack (whether domestic or
international and whether against us or another entity) could
again have a material adverse impact on us.
Our
international operations are subject to economic and political
instability and could be adversely affected by numerous events,
circumstances or government actions beyond our
control.
Our current international activities and prospects could be
adversely affected by factors such as reversals or delays in the
opening of foreign markets, exchange controls, currency and
political risks (including changes in exchange rates and
currency devaluations), environmental regulation, increases in
taxes and fees and changes in international government
regulation of our operations, including the inability to obtain
or retain needed route authorities
and/or slots.
For example, the open skies air services agreement between the
U.S. and the EU which took effect in March 2008
provides airlines from the U.S. and EU member states open
access to each others markets, with freedom of pricing and
unlimited rights to fly beyond the U.S. and any airport in
the EU including Londons Heathrow Airport. The agreement
has resulted in American facing increased competition in these
markets, including Heathrow. In addition, an open skies air
services agreement between the U.S. and Japan that provides
airlines from the U.S. and Japan open access to each
others markets took effect in November 2010.
We
could be adversely affected by an outbreak of a disease that
affects travel behavior.
In the second quarter of 2009, there was an outbreak of the H1N1
virus which had an adverse impact throughout our network but
primarily on our operations to and from Mexico. In 2003, there
was an outbreak of Severe Acute Respiratory Syndrome (SARS),
which had an adverse impact primarily on our Asia operations. In
addition, in the past there have been concerns about outbreaks
or potential outbreaks of other diseases, such as avian flu. Any
outbreak of a disease (including an additional outbreak of the
H1N1 virus) that affects travel behavior could have a material
adverse impact on us. In addition, outbreaks of disease could
result in quarantines of our personnel or an inability to access
facilities or our aircraft, which could adversely affect our
operations.
Our
labor costs are higher than those of our
competitors.
Wages, salaries and benefits constitute a significant percentage
of our total operating expenses. In 2010, they constituted
approximately 31 percent of our total operating expenses.
All of the major
hub-and-spoke
carriers with whom American competes have achieved significant
labor cost savings through or outside of bankruptcy proceedings.
We believe Americans labor costs are higher than those of
its primary competitors, and it is unclear
17
how long this labor cost disadvantage may persist. These higher
labor costs may adversely affect our ability to achieve and
sustain profitability while competing with other airlines with
lower labor costs. Additionally, we cannot predict the outcome
of our ongoing negotiations with our unionized work groups.
Significant increases in pay and benefits resulting from changes
to our collective bargaining agreements could have a material
adverse effect on us.
We
could be adversely affected if we are unable to have
satisfactory relations with any unionized or other employee work
group.
Our business is labor intensive. To the extent that we are
unable to have satisfactory relations with any unionized or
other employee work group, our operations and our ability to
execute our strategic plans could be adversely affected. In
addition, any disruption by an employee work group (e.g.,
sick-out, slowdown, full or partial strike, or other job action)
may materially adversely affect our operations and impair our
financial performance.
In April 2003, American reached agreements (the Labor
Agreements) with each of its three major unions, the APA,
the TWU) and the APFA. The Labor Agreements substantially
moderated the labor costs associated with the employees
represented by the unions. In conjunction with the Labor
Agreements, American also implemented various changes in the pay
plans and benefits for non-unionized personnel. The Labor
Agreements became amendable in 2008 (although the parties agreed
that they could begin the negotiations process as early as
2006). American has been in negotiations with the APA since
September 20 2006, the TWU since May 11, 2006 (with respect
to Dispatchers), and since November 7, 2007 (with respect
to the other six groups at American represented by the TWU), and
with the APFA since June 2008 (expedited negotiations) and
September 10, 2008 (standard negotiations), to amend their
respective Labor Agreements. At this time, all such negotiations
are mediated negotiations under the auspices of the National
Mediation Board (NMB). NMB mediation with the APA
began on May 6, 2008, with the TWU (with respect to the
Dispatchers) on October 28, 2008, with the other TWU groups
on various dates in 2009, and with the APFA on January 22,
2009. These negotiations are governed by the Railway Labor Act
(RLA), which prescribes no set timetable for
the negotiations and mediation process. The negotiations and
mediation process in the airline industry typically is slow and
sometimes contentious. The RLA prohibits the parties from
engaging in self-help prior to the exhaustion of the RLAs
bargaining process. That process is not exhausted until the NMB
has declared the parties are at a bargaining impasse, one or
both parties has declined the NMBs proffer of binding
arbitration, and a
30-day
cooling off period has expired without the appointment of a
Presidential Emergency Board. If we are unable to reach
agreement with any of our unionized work groups, and the
RLAs bargaining process has been fully exhausted, we may
be subject to lawful strikes, work stoppages or other job
actions.
In May, 2010, American negotiated tentative agreements with
several workgroups within the TWU, including the Maintenance
Control Technician group, the Material Logistics Specialists
group and the Mechanic and Related group. Agreements with the
TWU groups are subject to ratification by the relevant
membership of TWU, and, while the Maintenance Control Technician
group ratified their agreement, the Material Logistics
Specialists group and the Mechanic and Related group tentative
agreements were not ratified.
Mediated negotiations with the APA, with the APFA and with the
TWU with respect to groups other than the Maintenance Control
Technician group continue. In addition, the APA has filed a
number of grievances, lawsuits and complaints, most of which
American believes are part of a corporate campaign related to
the unions labor agreement negotiations with American.
While American is vigorously defending these disputes,
unfavorable outcomes in one or more of them could require
American to incur additional costs, change the way it conducts
some parts of its business, or otherwise adversely affect us.
Increases
in insurance costs or reductions in coverage could have an
adverse impact on us.
We carry insurance for public liability, passenger liability,
property damage and all-risk coverage for damage to our
aircraft. As a result of the Terrorist Attacks, aviation
insurers significantly reduced the amount of insurance coverage
available to commercial air carriers for liability to persons
other than employees or passengers for claims resulting from
acts of terrorism, war or similar events (war-risk coverage). At
the same time, these insurers significantly increased the
premiums for aviation insurance in general. While the price of
commercial insurance has declined since the period immediately
after the Terrorist Attacks, in the event commercial insurance
carriers further
18
reduce the amount of insurance coverage available to us, or
significantly increase its cost, we would be adversely affected.
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 we could obtain comparable
coverage in the commercial market, but we could incur
substantially higher premiums and more restrictive terms, if
such coverage is available at all. If we are unable to obtain
adequate war-risk coverage at commercially reasonable rates, we
would be adversely affected.
We may
be unable to retain key management personnel.
We are dependent on the experience and industry knowledge of our
key management employees, and there can be no assurance that we
will be able to retain them. Any inability to retain our key
management employees, or attract and retain additional qualified
management employees, could have a negative impact on us.
We are
increasingly dependent on technology and could be adversely
affected by a failure or disruption of our computer,
communications or other technology systems.
We are heavily and increasingly dependent on technology to
operate our business, reduce our costs and enhance customer
service. The computer and communications systems on which we
rely could be disrupted due to various events, some of which are
beyond our control, including natural disasters, power failures,
terrorist attacks, equipment failures, system implementation
failures, software failures and computer viruses and hackers. We
have taken certain steps to help reduce the risk of some (but
not all) of these potential disruptions. There can be no
assurance, however, that the measures we have taken are adequate
to prevent or remedy disruptions or failures of these systems.
Any substantial or repeated failure of these systems could
impact our operations and customer service, result in the loss
of important data, loss of revenues, and increased costs, and
generally harm our business. Moreover, a failure of certain of
our vital systems could limit our ability to operate our flights
for an extended period of time, which would have a material
adverse impact on our operations and our business. In addition,
we will need to continue to make significant investments in
technology to pursue initiatives to reduce costs and enhance
customer service. If we are unable to make these investments,
our business could be negatively impacted.
We are
at risk of losses and adverse publicity which might result from
an accident involving any of our aircraft.
If one of our aircraft were to be involved in an accident, we
could be exposed to significant tort liability. The insurance we
carry to cover damages arising from any future accidents may be
inadequate. In the event that our insurance is not adequate, we
may be forced to bear substantial losses from an accident. In
addition, any accident involving an aircraft operated by us
could adversely affect the publics perception of us.
Interruptions
or disruptions in service at one or more of our primary market
airports could have an adverse impact on us.
Our business is heavily dependent on our operations at our
primary market airports in Dallas/Ft. Worth, Chicago,
Miami, New York City and Los Angeles. Each of these operations
includes flights that gather and distribute traffic from markets
in the geographic region around the primary market to other
major cities. A significant interruption or disruption in
service at one or more of our primary markets could adversely
impact our operations.
The
airline industry is heavily taxed.
The airline industry is subject to extensive government fees and
taxation that negatively impact our revenue. The
U.S. airline industry is one of the most heavily taxed of
all industries. These fees and taxes have grown significantly in
the past decade for domestic flights and various U.S. fees
and taxes also are assessed on international flights. In
addition, the governments of foreign countries in which we
operate impose on U.S. airlines, including us, various fees
and taxes, and these assessments have been increasing in number
and amount in recent years. Certain of
19
these fees and taxes must be included in the fares we advertise
or quote to our customers. Due to the competitive revenue
environment, many increases in these fees and taxes have been
absorbed by the airline industry rather than being passed on to
the passenger. Further increases in fees and taxes may reduce
demand for air travel, and thus our revenues.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
The Company had no unresolved Securities and Exchange Commission
staff comments at December 31, 2010.
Flight
Equipment Operating
Owned and leased aircraft operated by the Company at
December 31, 2010 included:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
Average
|
|
Equipment Type
|
|
Capacity
|
|
Owned
|
|
|
Leased
|
|
|
Leased
|
|
|
Total
|
|
|
Age (Years)
|
|
|
American Airlines Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boeing 737 - 800
|
|
156
|
|
|
86
|
|
|
|
|
|
|
|
66
|
|
|
|
152
|
|
|
|
6
|
|
Boeing 757 - 200
|
|
187
|
|
|
84
|
|
|
|
9
|
|
|
|
31
|
|
|
|
124
|
|
|
|
16
|
|
Boeing 767 - 200 Extended Range
|
|
168
|
|
|
3
|
|
|
|
11
|
|
|
|
1
|
|
|
|
15
|
|
|
|
24
|
|
Boeing 767 - 300 Extended Range
|
|
225
|
|
|
45
|
|
|
|
2
|
|
|
|
11
|
|
|
|
58
|
|
|
|
17
|
|
Boeing 777 - 200 Extended Range
|
|
247
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
10
|
|
McDonnell Douglas MD-80
|
|
140
|
|
|
83
|
|
|
|
48
|
|
|
|
93
|
|
|
|
224
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
348
|
|
|
|
70
|
|
|
|
202
|
|
|
|
620
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR Eagle Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bombardier CRJ - 700
|
|
63/65
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
5
|
|
Embraer RJ - 135
|
|
37
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
11
|
|
Embraer RJ - 140
|
|
44
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
9
|
|
Embraer RJ - 145
|
|
50
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
9
|
|
Super ATR
|
|
64/66
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
39
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
255
|
|
|
|
|
|
|
|
39
|
|
|
|
294
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2 owned McDonnell
Douglas MD-80 and 17 owned Embraer RJ-135 aircraft were in
temporary storage as of December 31, 2010.
20
Flight
Equipment Non-Operating
Owned and leased aircraft not operated by the Company at
December 31, 2010 included:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
Equipment Type
|
|
Owned
|
|
|
Leased
|
|
|
Leased
|
|
|
Total
|
|
|
American Airlines Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airbus A300 - 600R
|
|
|
1
|
|
|
|
|
|
|
|
9
|
|
|
|
10
|
|
Fokker 100
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Boeing 737 - 800
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
McDonnell Douglas MD-80
|
|
|
35
|
|
|
|
14
|
|
|
|
10
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
37
|
|
|
|
14
|
|
|
|
23
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR Eagle Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saab 340B
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For information concerning the estimated useful lives and
residual values for owned aircraft, lease terms for leased
aircraft and amortization relating to aircraft under capital
leases, see Notes 1 and 5 to the consolidated financial
statements.
Flight
Equipment Leased
Lease expirations for the aircraft included in the table of
capital and operating leased flight equipment operated by the
Company as of December 31, 2010 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Equipment Type
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
American Airlines Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boeing 737 - 800
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
57
|
|
Boeing 757 - 200
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
24
|
|
|
|
5
|
|
Boeing 767 - 200 Extended Range
|
|
|
1
|
|
|
|
2
|
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Boeing 767 - 300 Extended Range
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
9
|
|
McDonnell Douglas MD-80
|
|
|
7
|
|
|
|
20
|
|
|
|
22
|
|
|
|
17
|
|
|
|
15
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
22
|
|
|
|
41
|
|
|
|
29
|
|
|
|
40
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR Eagle Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Super ATR
|
|
|
|
|
|
|
1
|
|
|
|
12
|
|
|
|
12
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
12
|
|
|
|
12
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American leases all 39 Super ATR aircraft from a third party and
in turn, subleases those aircraft to AMR Eagle for operation.
Substantially all of the Companys aircraft leases include
an option to purchase the aircraft or to extend the lease term,
or both, with the purchase price or renewal rental to be based
essentially on the market value of the aircraft at the end of
the term of the lease or at a predetermined fixed amount.
Ground
Properties
The Company leases or has built as leasehold improvements on
leased property: most of its airport and terminal facilities in
the U.S. and overseas; its training facilities in
Fort Worth, Texas; its principal overhaul and maintenance
bases at Tulsa International Airport (Tulsa, Oklahoma) and
Alliance Airport (Fort Worth, Texas); its regional
reservation offices; and local ticket and administration offices
throughout the system. In November 2010,
21
AMR closed its Kansas City overhaul and maintenance base. The
Company owns its headquarters building in Fort Worth,
Texas. American has entered into agreements with the Tulsa
Municipal Airport Trust; the Alliance Airport Authority,
Fort Worth, Texas; the New York City Industrial Development
Agency; and the Dallas/Fort Worth, Chicago OHare,
Newark, San Juan, and Los Angeles airport authorities to
provide funds for the cost of constructing, improving and
modifying facilities and acquiring equipment which are or will
be leased to the Company. The Company also uses public airports
for its flight operations under lease or use arrangements with
the municipalities or governmental agencies owning or
controlling them and leases certain other ground equipment for
use at its facilities.
For information concerning the estimated lives and residual
values for owned ground properties, lease terms and amortization
relating to ground properties under capital leases, and
acquisitions of ground properties, see Notes 1 and 5 to the
consolidated financial statements.
|
|
ITEM 3.
|
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
22
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 given
preliminary approval by the court on September 8, 2010. The
settlement has not yet received final approval, and some 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.
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 filed a notice
of appeal on June 22, 2009 with respect to the courts
ruling for American. 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, 2010, 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, 2010,
the Company filed a lawsuit in Tarrant County,
23
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, 2010, 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, 2010.
The parties further agreed to enter into good faith
negotiations. The Stand-Down Agreement will remain in effect
until June 1, 2010. 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.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of the Companys
security holders during the last quarter of its fiscal year
ended December 31, 2010.
Executive
Officers of the Registrant
The following information relates to the executive officers of
AMR as of the filing of this
Form 10-K.
|
|
|
Gerard J. Arpey
|
|
Mr. Arpey currently serves as Chairman and Chief Executive
Officer of AMR and American. Mr. Arpey was elected Chairman,
President and Chief Executive Officer of AMR and American in May
2004. He was elected Chief Executive Officer of AMR and
American in April 2003. He served as President and Chief
Operating Officer of AMR and American from April 2002 to April
2003. He served as Executive Vice President
Operations of American from January 2000 to April 2002, Chief
Financial Officer of AMR from 1995 through 2000 and Senior Vice
President Planning of American from 1992 to January
1995. Prior to that, he served in various management positions
at American since 1982. Age 52.
|
Thomas W. Horton
|
|
Mr. Horton was named President AMR Corporation and
American Airlines in July 2010. Mr. Horton served as Executive
Vice President of Finance and Planning and Chief Financial
Officer of AMR and American from March 2006 to July 2010, In
2006, Mr. Horton returned to American from AT&T Corp., a
telecommunications company, where he had been Vice Chairman and
Chief Financial Officer. Prior to leaving for AT&T Corp.,
Mr. Horton was Senior Vice President and Chief Financial Officer
of AMR and American from January 2000 to 2002. From 1994 to
January 2000, Mr. Horton served as a Vice President of American
and prior to that served in various management positions of
American beginning in 1985. Age 49.
|
Daniel P. Garton
|
|
Daniel P. Garton was named President and Chief Executive Officer
of American Eagle Airlines in June 2010. He is also an
Executive Vice President of AMR and American Airlines. Mr.
Garton served as Executive Vice President Marketing
of American from September 2002 to June 2010. He served as
Executive Vice President Customer Services of
American from January 2000 to September 2002 and Senior Vice
President Customer Services of American from 1998 to
January 2000. Prior to that, he served as President of AMR
Eagle from 1995 to 1998. Except for two years service as Senior
Vice President and Chief Financial Officer of Continental
between 1993 and 1995, he has been with the Company in various
management positions since 1984. Age 53.
|
24
|
|
|
Robert W. Reding
|
|
Mr. Reding was elected Executive Vice President
Operations for American in September 2007. He is also an
Executive Vice President of AMR. He served as Senior Vice
President Technical Operations for American from May
2003 to September 2007. He joined the Company in March 2000 and
served as Chief Operations Officer of AMR Eagle through May
2003. Prior to joining the Company, Mr. Reding served as
President and Chief Executive Officer of Reno Air from 1992 to
1998 and President and Chief Executive Officer of Canadian
Regional Airlines from 1998 to March 2000. Age 61.
|
Gary F. Kennedy
|
|
Mr. Kennedy was elected Senior Vice President and General
Counsel of AMR and American in January 2003. He is also the
Companys Chief Compliance Officer. He served as Vice
President Corporate Real Estate of American from
1996 to January 2003. Prior to that, he served as an attorney
and in various management positions at American since 1984. Age
55.
|
Isabella D. Goren
|
|
Ms. Goren was named Senior Vice President and Chief Financial
Officer of AMR and American in July 2010. She served as Senior
Vice President Customer Relationship Marketing from
March 2006 to July 2010. Prior to that, she served as Vice
President Interactive Marketing and Reservations from July 2003
to March 2006, and as Vice President Customer
Services Planning from October 1998 to July 2003. She has been
with the Company in various management positions since 1986. Age
50.
|
There are no family relationships among the executive officers
of the Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the
evaluation of the ability and integrity of any director or
executive officer during the past ten years.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
|
The Companys common stock is traded on the New York Stock
Exchange (symbol AMR). The approximate number of record holders
of the Companys common stock at February 9, 2011 was
14,675.
The range of closing market prices for AMRs common stock
on the New York Stock Exchange was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
10.16
|
|
|
$
|
6.92
|
|
|
$
|
12.29
|
|
|
$
|
2.54
|
|
June 30
|
|
|
9.10
|
|
|
|
6.53
|
|
|
|
6.22
|
|
|
|
3.37
|
|
September 30
|
|
|
7.44
|
|
|
|
5.99
|
|
|
|
9.03
|
|
|
|
3.98
|
|
December 31
|
|
|
8.87
|
|
|
|
5.96
|
|
|
|
8.14
|
|
|
|
5.19
|
|
No cash dividends on common stock were declared for any period
during 2010 or 2009, and the Company has no intention of paying
cash dividends in the foreseeable future.
25
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010(2)
|
|
2009(2),(6)
|
|
2008(2),(5)
|
|
2007(4)
|
|
2006(1)
|
|
|
(In millions, except per share amounts)
|
|
Total operating revenues
|
|
$
|
22,170
|
|
|
$
|
19,917
|
|
|
$
|
23,766
|
|
|
$
|
22,935
|
|
|
$
|
22,563
|
|
Operating income (loss)
|
|
|
308
|
|
|
|
(1,004
|
)
|
|
|
(1,889
|
)
|
|
|
965
|
|
|
|
1,060
|
|
Net income (loss)
|
|
|
(471
|
)
|
|
|
(1,468
|
)
|
|
|
(2,118
|
)
|
|
|
456
|
|
|
|
189
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(1.41
|
)
|
|
|
(4.99
|
)
|
|
|
(8.16
|
)
|
|
|
1.86
|
|
|
|
0.92
|
|
Diluted
|
|
|
(1.41
|
)
|
|
|
(4.99
|
)
|
|
|
(8.16
|
)
|
|
|
1.71
|
|
|
|
0.82
|
|
Total assets
|
|
|
25,088
|
|
|
|
25,438
|
|
|
|
25,175
|
|
|
|
28,571
|
|
|
|
29,145
|
|
Long-term debt, less current maturities
|
|
|
8,756
|
|
|
|
9,984
|
|
|
|
8,423
|
|
|
|
9,387
|
|
|
|
11,122
|
|
Obligations under capital leases, less current obligations
|
|
|
497
|
|
|
|
599
|
|
|
|
582
|
|
|
|
680
|
|
|
|
824
|
|
Obligation for pension and postretirement benefits
|
|
|
7,877
|
|
|
|
7,397
|
|
|
|
6,614
|
|
|
|
3,620
|
|
|
|
5,341
|
|
Stockholders equity (deficit)(3)
|
|
|
(3,945
|
)
|
|
|
(3,489
|
)
|
|
|
(2,935
|
)
|
|
|
2,704
|
|
|
|
(511
|
)
|
|
|
|
(1) |
|
Includes the impact of adopting guidance related to planned
major maintenance activities. |
|
(2) |
|
Includes restructuring charges and special items. In 2010,
special items consisted of $81 million and include the
impairment of certain route authorities in Latin America and
losses on Venezuelan currency remeasurement. In 2009, these
restructuring charges of $171 million primarily consisted
of the grounding of the Airbus A300 fleet and the impairment of
Embraer RJ-135 aircraft. Special items in 2009 consisted of
$184 million and include the impairment of certain route
and slot authorities, primarily in Latin America, and losses on
certain sale leaseback transactions. In 2008, restructuring
charges consisted of $1.2 billion primarily related to
aircraft and employee charges due to announced capacity
reductions (for further discussion of these items, see
Note 2 to the consolidated financial statements). |
|
(3) |
|
Effective December 31, 2006, the Company adopted guidance
issued on accounting for defined benefit plans and other
postretirement plans. This adoption decreased Stockholders
equity by $1.0 billion and increased the obligation for
pension and other postretirement benefits by $880 million.
As a result of actuarial changes, including the discount rate
and the impact of legislation changing pilot retirement age to
65, the Company recorded a $1.7 billion reduction in
pension and retiree medical and other benefits and a
corresponding increase in stockholders equity in 2007. As
a result of a significant decline in 2008 in the market value of
the Companys benefit plan assets, the Company recorded a
$3.0 billion increase in pension and retiree medical and
other benefits and a similar decrease in stockholders
equity in 2008. In 2008, the Company incurred $103 million
in expense due to a pension settlement. |
|
(4) |
|
Includes the impact of the $138 million gain on the sale of
ARINC . |
|
(5) |
|
Includes the impact of the $432 million gain on the sale of
American Beacon Advisors. |
|
(6) |
|
Includes the impact of a $248 million tax benefit related
to the allocation of tax expense to other comprehensive income
items recognized in 2009. |
No cash dividends were declared on AMRs common shares
during any of the periods above.
Information on the comparability of results is included in
Item 7, Managements Discussion and
Analysis and the notes to the consolidated financial
statements.
26
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Information
The discussions under Business, Risk Factors, Properties and
Legal Proceedings, and the following discussions under
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Quantitative
and Qualitative Disclosures about Market Risk 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 Risk Factors listed in
Item 1A could cause the Companys actual results to
differ materially from historical results and from those
expressed in forward-looking statements.
Recent
Events
In late 2009, the Company unveiled a new business
plan FlightPlan 2020, which is an evolution of the
Turnaround Plan that guided the Company through the last decade.
FlightPlan 2020 is a strategic framework developed to secure the
Companys future by focusing on what will be required to
succeed in the airline business over the next decade. It
establishes the Companys priorities and a clear plan to
better position the Company to meet the challenges of the coming
years. This plan for achieving sustained profitability has five
tenets: (i) Invest Wisely, (ii) Earn Customer Loyalty,
(iii) Strengthen and Defend our Global Network,
(iv) Be a Good Place for Good People and (v) Fly
Profitably. All strategic actions by the Company going forward
are expected to be designed to realize the goals of FlightPlan
2020.
Under FlightPlan 2020, the Company has launched its network
strategy that focuses resources in its cornerstone markets of
Dallas/Fort Worth (DFW), Chicago OHare, Miami, New
York City and Los Angeles, and has continued to execute its
fleet renewal and replacement plan. Further, the Company
continues to pursue its strategy to form cooperative agreements
with oneworld members and other airlines.
In 2008, American entered into a joint business agreement (JBA)
and related marketing arrangements with British Airways and
Iberia. These agreements provide for commercial cooperation on
flights between North America and most countries in Europe,
pooling and sharing of certain revenues and costs, expanded
codesharing, enhanced frequent flyer program reciprocity, and
cooperation in other areas.
In July 2010, American obtained clearance from the European
Commission (EC) and approval by the Department of Transportation
(DOT) for antitrust immunity (ATI) for its planned cooperation
with British Airways, Iberia, Finnair and Royal Jordanian.
Regulatory conditions for ATI approval for the British Airways,
Iberia, Finnair and Royal Jordanian cooperative agreement
include a collective obligation of the Company, British Airways,
and
27
Iberia to lease to other carriers up to seven takeoff and
landing slot pairs at London Heathrow airport and up to three
John F. Kennedy airport operational authorities, depending on
market conditions. American began implementation of the JBA with
British Airways and Iberia and expanded cooperation with Finnair
and Royal Jordanian in October 2010. No assurances can be given
as to any arrangements that may ultimately be implemented or any
benefits that we may derive from such arrangements.
In February 2010, American and JAL announced the decision to
strengthen their relationship. The carriers, entered into a JBA
which will enhance their scope of cooperation on routes between
North America and Asia through adjustments to their respective
networks, flight schedules, and other business activities. This,
in turn, will allow both carriers to better complement each
others operations and to develop and offer competitive
products and quality service to their customers.
As a part of these commercial benefits, American determined that
with ATI and by participating in a joint business agreement with
American, JAL could realize approximately $100 million in
annual incremental revenue. American has given JAL a guarantee
to that effect covering the first three years following
implementation of the joint business agreement, subject to
certain terms and conditions. At this time, the amount (if any)
that AMR may ultimately owe under the agreement is unclear. The
Company and other oneworld members have also discussed
various possible financing arrangements with JAL. The Company
has agreed to negotiate in good faith towards a capital
investment in JAL by American, oneworld and a private
investment firm in the future if invited by JAL and the
Government of Japan. To date, the Government of Japan has
declined any such investment, and the Company does not expect
that any such investment will be made in the near term. Any such
investment would be on and subject to terms and conditions
customary to such an arrangement. The Company also expects that
the amount of such a capital investment, if any, by American and
other oneworld carriers, would not exceed
$300 million, with additional investment from private
partners.
In the fourth quarter of 2010, American and JAL received
approval for ATI on certain routes between North America
and Asia from the DOT and MLIT. Implementation of the JBA is
subject to successful negotiation of certain detailed financial
and commercial arrangements and other approvals. American
expects to begin implementing the JBA with JAL in 2011. No
assurances can be given as to any arrangements that may
ultimately be implemented or any benefits that the Company may
derive from such arrangements.
In 2010, American also commenced commercial collaboration in New
York and Boston with JetBlue. Americans agreement with
JetBlue provides customers with interline service in
non-overlapping markets, letting customers connect between 15 of
Americans international destinations from New York and
Boston and 26 domestic cities flown by JetBlue. Further,
American expanded its relationship with JetBlue so that
AAdvantage members and members of JetBlues customer
loyalty program will be able to earn AAdvantage miles or JetBlue
points, respectively, when they fly on American and JetBlue
cooperative interline routes. Under the terms of the agreements
for commercial collaboration, American transferred eight slot
pairs at Ronald Reagan National Airport in Washington, D.C.
(which were owned by American) and one slot pair at White
Plains, New York (which were owned by AMR Eagle) to JetBlue, and
JetBlue transferred twelve slot pairs at JFK to American. The
reciprocal frequent flyer earning benefits and slot transfers
became effective in the fourth quarter of 2010.
Further in 2010, the Company announced that it plans to extend
its network through new commercial collaboration agreements with
several airlines, including Air Berlin, Europes fifth
largest airline, GOL Airlines of Brazil, Jetstar Airways, which
is an affiliate airline of Qantas Airways (a oneworld
alliance member), and Canadas WestJet. These agreements
include both interline and codeshare arrangements that allow
customers of the Company and the respective airline to book and
travel on the others network. Selected agreements are
subject to regulatory approval and no assurances can be given as
to any arrangements that may ultimately be implemented or any
benefits that the Company may derive from such arrangements.
The Company currently estimates that the implementation of its
cornerstone strategy, the implementation of the Companys
JBA with British Airways/Iberia and proposed cooperation with
JAL, and various other alliance and network activities will
result in incremental revenues and cost savings of over
$500 million per year. The Company expects that it will
realize the majority of these incremental revenues and cost
savings in 2011, and the remainder by year end 2012. This
estimate is based on a number of assumptions that are inherently
uncertain, and the Companys ability to realize these
benefits depends on various factors, some of which are beyond
the Companys control, such
28
as factors referred to above in Forward-Looking
Information. No assurances can be given as to any benefits
the Company may derive from such arrangements.
The Company is in active labor contract negotiations with each
of its organized labor groups. The Company negotiated tentative
agreements with several workgroups within the Transport Workers
Union of American
AFL-CIO
(TWU) including the Maintenance Control Technician group, the
Material Logistics Specialists group and the Mechanic and
Related group. Agreements with the TWU groups are subject to
ratification by the relevant membership of TWU, and while the
Maintenance Control Technician group ratified their agreement,
the Material Logistics Specialists group and the Mechanic and
Related group tentative agreements were not ratified. Mediated
negotiation continues under the auspices of the National
Mediation Board with the TWU, the Allied Pilots Association
(APA) and the Association of Professional Flight Attendants
(APFA).
Based on analysis of airline industry labor contracts, the
Company currently estimates that Americans labor cost
disadvantage (the amount by which its labor costs exceed what
such costs would be if they were determined based on the average
of other network carrier labor contracts) is approximately
$600 million per year. The Company expects this gap to
narrow as open industry labor contracts are settled. This
expectation is based on a number of assumptions. The airline
industry labor contract negotiation process is inherently
uncertain and the results of labor contract negotiations are
difficult to predict.
In June 2010, AMR reiterated its intent to evaluate the possible
divestiture of AMR Eagle, its wholly-owned regional carrier. 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. AMR continues to evaluate both the desirability and
the form of such a divestiture, which may include a spin-off to
AMR shareholders, a sale to a third party, or some other form of
separation. 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.
During 2010, Congress passed and the President signed new
healthcare legislation. While the new law did and will continue
to impact certain of our active employee healthcare plans,
according to recently released interim final regulations
promulgated under the legislation, the Companys retiree
medical benefits will be exempt from many of the mandates of the
legislation. Thus, we currently believe this impact will not be
material. We will continue to review the impact of the new law
as governmental agencies issue interpretations regarding its
meaning and scope. Also in 2010, the President signed the
Dodd-Frank Wall Street Reform and Consumer Protection Act which
could impact the Company, but those effects cannot be predicted
at this time as the related rules and regulations have not been
finalized.
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
item 3) 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
29
related matters. The amounts of these contingencies could
increase or decrease in the near term, based on revisions to
those assessments.
The Company files its tax returns as prescribed by the tax laws
of the jurisdictions in which it operates. The Companys
2004 through 2009 tax years are still subject to examination by
the Internal Revenue Service. Various state and foreign
jurisdiction tax years remain open to examination, and the
Company is under examination, in administrative appeals, or
engaged in tax litigation in certain jurisdictions. See Income
Taxes under Critical Accounting Policies and
Estimates under Item 7.
On August 26, 2010, the Federal Aviation Administration
(FAA) proposed a $24.2 million civil penalty against
American, claiming that American failed to properly perform
certain portions of an FAA Airworthiness Directive concerning
certain wiring to the McDonnell Douglas MD-80 aircraft auxiliary
hydraulic pump. American plans to challenge the proposed civil
penalty. The Company has concluded that the amount of the
penalty, if any, that may be paid is not estimable at
December 31, 2010.
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 our 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 is in business 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 2, 2010, Travelport doubled the
booking fees it charges American for some international
point-of-sale
bookings through Travelport, and made it more difficult for
travel agents to find Americans fares on the Travelport
system display. We believe these actions violate our agreement
with Travelport. In response, American filed counterclaims
against Travelport for breach of contract, and implemented a
charge on bookings through Travelport in an effort to offset the
booking fee increase. There can be no assurance that we will be
successful in offsetting this expense completely, or that we
will ultimately prevail in the lawsuit filed by Travelport or on
our counterclaims. We are vigorously pursuing our counterclaims
and rights in the litigation, as well as engaged in active
negotiations with Travelport to resolve the lawsuit and our
counterclaims.
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.
We are engaged in active negotiations with Orbitz to enter into
a new agreement.
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. We are engaged in
active negotiations with Expedia to enter into a new agreement.
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,
30
2011. 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.
While we believe 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 our business if we are unsuccessful in
resolving one or more of these matters. If as a result of these
matters it becomes more difficult for our customers to find and
book flights on American, we could be put at a competitive
disadvantage against our competitors and this may result in
lower bookings. If we are unable to sell American inventory
through any or all of these channels, our level of bookings,
business and results of operations could be materially adversely
affected. We also believe the actions taken by Travelport and
Sabre described above are not permitted by the applicable
contracts. We intend to vigorously pursue our 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 net loss of $471 million in 2010
compared to a net loss of $1.5 billion in 2009. The
Companys smaller net loss in 2010 reflects an improvement
in a weak global economy; which led to higher passenger
revenues, partially offset by higher fuel prices. Mainline
passenger revenue increased by $1.7 billion to
$16.8 billion for the year ended December 31, 2010
compared to 2009. Mainline passenger unit revenues increased
10.4 percent in 2010 due to an 8.7 percent increase in
passenger yield compared to 2009 and a load factor increase of
approximately 1.2 points. Passenger yield remains below the
Companys peak yield set in the year 2000, despite
cumulative inflation of approximately 27 percent over the
same time frame. 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. Since
deregulation in 1978, the Companys passenger yield has
increased 78 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 increases in passenger yield will continue to
significantly lag CPI indefinitely.
The increase in total passenger revenue was partially offset by
significantly higher
year-over-year
fuel prices. Fuel expense, taking into account the impact of
fuel hedging, increased by $847 million to
$6.4 billion for the year ended December 31, 2010
compared to 2009. Hedging losses accounted for approximately
$142 million of the overall increase in fuel expense. The
Company paid an average of $2.32 per gallon in 2010 compared to
an average of $2.01 per gallon in 2009, including effects of
hedging. Although fuel prices have abated considerably from the
record high prices recorded in July 2008, they have increased
since the first quarter of 2009, particularly recently, and
remain high and extremely volatile by historical standards. In
addition, the Companys unit costs, excluding fuel and
special charges, were greater for the year ended
December 31, 2010 than for the same period in 2009. Factors
driving the increase include revenue related costs, such as
credit card fees and booking fees and commissions, and higher
aircraft rent related to the Companys fleet renewal plan.
The Company remains focused on cost reductions, but expects such
factors to result in continuing cost pressures in 2011.
In addition, the Companys 2010 results were negatively
impacted by a net amount of $81 million in special items
related to the Venezuelan currency remeasurement in January 2010
and a non-cash impairment charge to write down certain routes
and slot authorities in Latin America as a result of open skies
agreements. Comparatively, the Companys 2009 operating
results were negatively impacted by a net amount of
$107 million in special items, restructuring charges and a
non-cash tax item, including $184 million from the
impairment of certain route and slot authorities, primarily in
Latin America, and losses on certain sale leaseback
transactions. Restructuring charges for 2009 were
$171 million and related to announced capacity reductions,
including the grounding of the Airbus A300 fleet and the
impairment of certain Embraer RJ-135 aircraft. Also included in
2009 results is a $248 million non-
31
cash tax benefit resulting from the allocation of the tax
expense to other comprehensive income items recognized during
2009. The 2009 restructuring charges, the 2009 non-cash tax item
and the 2010 and 2009 route impairments are described in
Notes 2, 8 and 11, respectively, to the consolidated
financial statements.
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.
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 December 31, 2010, the Company had
$4.5 billion in unrestricted cash and short-term
investments and $450 million in Restricted cash and
short-term investments, both at fair value, versus
$4.4 billion in unrestricted cash and short-term
investments and $460 million in Restricted cash and
short-term investments in 2009.
The Companys unrestricted short-term investment portfolio
consist of a variety of what the Company believes are highly
liquid, low 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.
Significant Indebtedness and Future
Financing Indebtedness is a significant risk to
the Company as discussed in the Risk Factors listed in
Item 1A. During the last five years, the Company raised an
aggregate of approximately $8.8 billion in 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-K,
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.
In 2011, the Company will be required to make approximately
$2.4 billion of principal payments on long-term debt and
approximately $100 million in principal payments on capital
leases, and the Company expects to spend approximately
$1.6 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
32
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 (refer to Contractual Obligations in
Item 7), 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.
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.
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 remaining financing sources
primarily include: (i) a very limited amount of additional
secured aircraft debt or sale leaseback transactions involving
owned aircraft; (ii) debt secured by other assets;
(iii) securitization of future operating receipts;
(iv) the sale or monetization of certain assets;
(v) unsecured debt; and (vi) issuance of equity or
equity-like securities. Besides unencumbered aircraft, the
Companys most likely sources of liquidity include the
financing of route authorities, takeoff and landing slots, spare
parts, and the sale or financing of certain of AMRs
business units and subsidiaries, such as AMR Eagle. The
Companys ability to obtain future financing is limited by
the value of its unencumbered assets. Almost all of the
Companys aircraft assets (including aircraft eligible for
the benefits of Section 1110 of the U.S. Bankruptcy
Code) are encumbered. Also, the market value of these aircraft
assets has declined in recent years, and may continue to
decline. The Company believes it has at least $2 billion in
assets that could be used as possible financing sources as of
the date of this filing. However, many of these assets may be
difficult to finance, and the availability and level of the
financing sources described above cannot be assured. The Company
also believes it has the ability to refinance aircraft as those
aircraft become unencumbered.
In July 2010, the Company entered into an amendment to Purchase
Agreement No. 1977 with The Boeing Company (Boeing) to
exercise rights to acquire additional Boeing
737-800
aircraft. Pursuant to the amendment, American exercised rights
to purchase 35 Boeing
737-800
aircraft for delivery in 2011 and 2012. In conjunction with this
transaction, American has arranged for backstop financing of the
additional Boeing
737-800
aircraft deliveries, subject to certain terms and conditions.
As of December 31, 2010, American had 15 Boeing
737-800
purchase commitments for 2011 and 28 Boeing
737-800
purchase commitments in 2012 and in addition to those
commitments, American had firm commitments for eleven Boeing
737-800
aircraft and seven Boeing
777-200
aircraft scheduled to be delivered in
2013-2016.
33
AMR Eagle has firm commitments for 8 Bombardier CRJ-700 aircraft
scheduled to be delivered in 2011. Payments for the
Companys aircraft purchase commitments will approximate
$884 million in 2011, $951 million in 2012,
$491 million in 2013, $291 million in 2014,
$169 million for 2015, and $79 million for 2016. These
amounts are net of purchase deposits currently held by the
manufacturers.
On January 14, 2011, the Company entered into an amendment
to Purchase Agreement No. 1980 with Boeing to exercise
rights to acquire two Boeing
777-300ER
aircraft for delivery in 2012. The Companys total purchase
commitments are expected to be approximately $2.8 billion
as of the end of the first quarter 2011, reflecting this
transaction and aircraft purchase deposits paid during that
period.
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
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.
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 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 AMRs failure to maintain a
certain level of liquidity, the amount of such liquidity. As of
December 31, 2010, 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.
Cash Flow Activity The Companys cash
flow from operating activities during the year ended
December 31, 2010 generated $1.2 billion, which is an
increase of $311 million from the same period in 2009
primarily due to an improved revenue environment in 2010 as
compared to 2009.
34
The Company made debt and capital lease payments of
$1.2 billion in 2010 while capital expenditures during 2010
were $2.0 billion and primarily included new aircraft and
aircraft modifications. Substantially all of the aircraft were
financed through previously arranged financing transactions.
Due to the current value of the Companys derivative
contracts, some agreements with counterparties require
collateral to be deposited by the counterparty. As of
December 31, 2010, the cash collateral held by AMR from
such counterparties was $73 million as compared to
$14 million held by such counterparties at
December 31, 2009. Cash held at December 31, 2010 from
counterparties is included in short-term investments. As a
result of movements in fuel prices, the cash collateral amounts
held by AMR 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).
Compensation On January 18, 2011, the
Company approved the 2011 Annual Incentive Plan (AIP) for
American. All U.S. based employees of American are eligible
to participate in the AIP. The AIP is Americans annual
bonus plan and provides for the payment of awards in the event
certain financial
and/or
customer service metrics are satisfied.
Working Capital AMR (principally American)
historically operates with a working capital deficit, as do most
other airline companies. In addition, the Company has
historically relied heavily on external financing to fund
capital expenditures. More recently, the Company has also relied
on external financing to fund operating losses, employee pension
obligations and debt maturities.
Off Balance Sheet Arrangements American has
determined that it holds a significant variable interest in, but
is not the primary beneficiary of, certain trusts that are the
lessors under 83 of its aircraft operating leases. These leases
contain a fixed price purchase option, which allows American to
purchase the aircraft at a predetermined price on a specified
date. However, American does not guarantee the residual value of
the aircraft. As of December 31, 2010, future lease
payments required under these leases totaled $1.1 billion.
Certain special facility revenue bonds have been issued by
certain municipalities primarily to purchase equipment and
improve airport facilities that are leased by American and
accounted for as operating leases. Approximately
$1.5 billion of these bonds (with total future payments of
approximately $3.2 billion as of December 31,
2010) are guaranteed by American, AMR, or both.
Approximately $177 million of these special facility
revenue bonds contain mandatory tender provisions that require
American to make operating lease payments sufficient to
repurchase the bonds at various times: $112 million in 2014
and $65 million in 2015. Although American has the right to
remarket the bonds, there can be no assurance that these bonds
will be successfully remarketed. Any payments to redeem or
purchase bonds that are not remarketed would generally reduce
existing rent leveling accruals or are considered prepaid
facility rentals and would reduce future operating lease
commitments.
In addition, the Company had other operating leases, primarily
for aircraft and airport facilities, with total future lease
payments of $6.5 billion as of December 31, 2010.
Entering into aircraft leases allows the Company to obtain
aircraft without immediate cash outflows.
35
Contractual
Obligations
The following table summarizes the Companys obligations
and commitments as of December 31, 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year(s) Ended December 31,
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
2016 and
|
|
Contractual Obligations
|
|
Total
|
|
|
2011
|
|
|
2013
|
|
|
2015
|
|
|
Beyond
|
|
|
Operating lease payments for aircraft and facility obligations(1)
|
|
$
|
10,804
|
|
|
$
|
1,254
|
|
|
$
|
2,041
|
|
|
$
|
1,503
|
|
|
$
|
6,006
|
|
Firm aircraft commitments(2)
|
|
|
2,865
|
|
|
|
884
|
|
|
|
1,442
|
|
|
|
460
|
|
|
|
79
|
|
Capacity purchase agreement(3)
|
|
|
71
|
|
|
|
56
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Long-term debt(4)
|
|
|
14,558
|
|
|
|
2,997
|
|
|
|
3,654
|
|
|
|
2,778
|
|
|
|
5,129
|
|
Capital lease obligations
|
|
|
976
|
|
|
|
186
|
|
|
|
256
|
|
|
|
185
|
|
|
|
349
|
|
Other purchase obligations(5)
|
|
|
1,030
|
|
|
|
238
|
|
|
|
247
|
|
|
|
169
|
|
|
|
376
|
|
Other long-term liabilities(6)
|
|
|
7,624
|
|
|
|
700
|
|
|
|
1,330
|
|
|
|
1,259
|
|
|
|
4,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments(7)
|
|
$
|
37,928
|
|
|
$
|
6,315
|
|
|
$
|
8,985
|
|
|
$
|
6,354
|
|
|
$
|
16,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain special facility revenue bonds issued by
municipalities which are supported by operating
leases executed by American are guaranteed by AMR
and/or American. The special facility revenue bonds with
mandatory tender provisions discussed above are included in this
table based on lease payment terms rather than their mandatory
tender provision date. See Note 5 to the consolidated
financial statements for additional information. |
|
(2) |
|
As of December 31, 2010, the Company had firm commitments
to acquire 15 Boeing
737-800s in
2011 and 28 Boeing
737-800
aircraft in 2012, and in addition to those commitments, the
Company had firm commitments for eleven Boeing
737-800
aircraft and seven Boeing 777 aircraft scheduled to be delivered
in 2013 2016. AMR Eagle has firm commitments for 8
Bombardier CRJ-700 aircraft scheduled to be delivered in 2011.
Future payments for all aircraft, including the estimated
amounts for price escalation, are currently estimated to be
approximately $2.9 billion, with the majority occurring in
2011 through 2013. Additional information about the
Companys obligations is included in Note 4 to the
consolidated financial statements. |
|
(3) |
|
The table reflects minimum required payments under the capacity
purchase agreement between American and a regional airline,
Chautauqua Airlines, Inc. (Chautauqua). If the Company
terminates its contract with Chautauqua without cause,
Chautauqua has the right to put its 15 Embraer aircraft to the
Company. If this were to happen, the Company would take
possession of the aircraft and become liable for lease
obligations totaling approximately $21 million per year
with lease expirations in 2018 and 2019. These lease obligations
are not included in the table above. See Note 4 to the
consolidated financial statements for additional information. |
|
(4) |
|
Amounts represent contractual amounts due, including interest.
Interest on variable rate debt was estimated based on the
current rate at December 31, 2010. |
|
(5) |
|
Includes noncancelable commitments to purchase goods or
services, primarily information technology related support. The
Company has made estimates as to the timing of certain payments
primarily for construction related costs. The actual timing of
payments may vary from these estimates. Substantially all of the
Companys purchase orders issued for other purchases in the
ordinary course of business contain a
30-day
cancellation clause that allows the Company to cancel an order
with 30 days notice. |
|
(6) |
|
Includes minimum pension contributions based on actuarially
determined estimates and other postretirement benefit payments
based on estimated payments through 2020. See Note 10 to
the consolidated financial statements. |
|
(7) |
|
Total contractual obligations do not include long-term contracts
that represent a variable expense (based on levels of operation)
or where short-term cancellation provisions exist. |
36
Pension Obligations 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. The Company estimates its 2011
required contribution to its defined benefit pension plans to be
approximately $520 million under the provisions of these
acts.
The Companys obligation for pension and retiree medical
and other benefits increased from $7.4 billion at
December 31, 2009 to $7.9 billion at December 31,
2010, largely the result of a lower discount rate associated
with declining interest rates in the bond markets in 2010. A
significant portion of this increase is recorded in Accumulated
other comprehensive loss, a component of stockholders
equity.
Results
of Operations
The Company recorded a net loss of $471 million in 2010
compared to a net loss of $1.5 billion in 2009. The
Companys smaller net loss in 2010 reflects a strengthening
of the revenue environment in a weak global economy which led to
higher passenger revenues, partially offset by higher fuel
prices. In addition to higher fuel expenses, the Companys
2010 results were negatively impacted by $81 million in
special items. The special items consist of $53 million
related to the Venezuelan currency remeasurement in January 2010
and a $28 million non-cash impairment of certain routes in
Latin America.
The Company recorded a net loss of $1.5 billion in 2009
compared to a net loss of $2.1 billion in 2008. The
Companys 2009 loss was primarily attributable to a
significant decrease in passenger revenue due to lower traffic
and passenger yield. The 2009 results were also negatively
impacted by a net amount of $107 million in special items,
restructuring charges and a non-cash tax item. 2009 special
items of $184 million included the impairment of certain
route and slot authorities, primarily in Latin America, and
losses on certain sale leaseback transactions. Restructuring
charges for 2009 were $171 million and related to announced
capacity reductions, including the grounding of the Airbus A300
fleet and the impairment of certain Embraer RJ-135 aircraft.
Also included in 2009 results is a $248 million non-cash
tax benefit resulting from the allocation of the tax expense to
other comprehensive income items recognized during 2009. The
2009 restructuring charges, the 2009 non-cash tax item and the
2010 and 2009 route impairments are described in Notes 2, 8
and 11, respectively, to the consolidated financial statements.
The Company recorded a net loss of $2.1 billion in 2008.
The Companys 2008 results included an impairment charge of
$1.1 billion to write the McDonnell Douglas MD-80 and
Embraer RJ-135 fleets and certain related long-lived assets down
to their estimated fair values, a $71 million accrual for
employee severance cost and a $33 million expense related
to the grounding of leased Airbus A300 aircraft prior to lease
expiration, all in connection with announced capacity reductions
and included in Special charges in the Consolidated Statements
of Operations. In addition, the Companys 2008 results
included the sale of American Beacon for a net gain of
$432 million included in
Miscellaneous-net
on the Consolidated Statements of Operations and the impact of a
pension settlement charge of $103 million for one of the
Companys defined benefit plans included in Wages, salaries
and benefits on the Consolidated Statements of Operations.
Revenues
2010 Compared to 2009 The Companys
revenues increased approximately $2.3 billion, or
11.3 percent, to $22.2 billion in 2010 compared to
2009 due to increased traffic and higher average fares.
Americans passenger revenues increased by
11.5 percent, or $1.7 billion, on a capacity (ASM)
increase of 1.0 percent. Americans passenger load
factor increased approximately 1.2 points to 81.9 percent
and passenger revenue yield per passenger mile increased
8.7 percent to 13.36 cents. This resulted in an increase in
passenger revenue per available seat mile (RASM) of
10.4 percent to 10.94 cents. In 2010, American derived
approximately 60 percent of its passenger revenues from
domestic operations and approximately 40 percent from
international operations (flights serving
37
international destinations). Following is additional information
regarding Americans domestic and international RASM and
capacity:
|
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|
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|
|
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|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
RASM
|
|
Y-O-Y
|
|
ASMs
|
|
Y-O-Y
|
|
|
(Cents)
|
|
Change
|
|
(Billions)
|
|
Change
|
|
DOT Domestic
|
|
|
10.80
|
|
|
|
9.5
|
%
|
|
|
93.2
|
|
|
|
0.2
|
%
|
International
|
|
|
11.14
|
|
|
|
11.8
|
|
|
|
60.0
|
|
|
|
2.2
|
|
DOT Latin America
|
|
|
11.80
|
|
|
|
8.1
|
|
|
|
29.4
|
|
|
|
3.7
|
|
DOT Atlantic
|
|
|
10.58
|
|
|
|
15.9
|
|
|
|
23.2
|
|
|
|
(1.9
|
)
|
DOT Pacific
|
|
|
10.29
|
|
|
|
15.7
|
|
|
|
7.4
|
|
|
|
9.8
|
|
Regional Affiliates passenger revenues, which are based on
industry standard proration agreements for flights connecting to
American flights, increased $315 million or
15.7 percent as a result of passenger yield increase of
8.4 percent. Regional Affiliates traffic increased
6.7 percent to 8.8 billion revenue passenger miles
(RPMs), while capacity increased 5.3 percent to
12.2 billion ASMs, resulting in a 1.0 point increase in
passenger load factor to 72.4 percent.
Cargo revenues increased 16.3 percent, or $94 million,
primarily as a result of increased volume, particularly in the
Latin America and Pacific regions.
Other revenues increased 5.3 percent, or $121 million,
to $2.4 billion due to increases in certain passenger
service charge volumes and fees and increased revenue associated
with the sale of mileage credits in the AAdvantage frequent
flyer program.
2009 Compared to 2008 The Companys
revenues decreased approximately $3.8 billion, or
16.2 percent, to $19.9 billion in 2009 compared to
2008. Americans passenger revenues decreased by
17.5 percent, or $3.2 billion, on a capacity decrease
of approximately 7.2 percent year over year. Mainline
passenger load factor increased approximately 0.1 points to
80.7 percent and passenger revenue yield per passenger mile
decreased 11.2 percent to 12.28 cents. This resulted in a
decrease in passenger revenue per available seat mile (RASM) of
11.1 percent to 9.91 cents. In 2009, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
RASM
|
|
Y-O-Y
|
|
ASMs
|
|
Y-O-Y
|
|
|
(Cents)
|
|
Change
|
|
(Billions)
|
|
Change
|
|
DOT Domestic
|
|
|
9.87
|
|
|
|
(8.7
|
)%
|
|
|
93.0
|
|
|
|
(8.7
|
)%
|
International
|
|
|
9.96
|
|
|
|
(14.9
|
)
|
|
|
58.8
|
|
|
|
(4.7
|
)
|
DOT Latin America
|
|
|
10.91
|
|
|
|
(12.5
|
)
|
|
|
28.4
|
|
|
|
(6.5
|
)
|
DOT Atlantic
|
|
|
9.13
|
|
|
|
(16.7
|
)
|
|
|
23.7
|
|
|
|
(3.7
|
)
|
DOT Pacific
|
|
|
8.90
|
|
|
|
(19.4
|
)
|
|
|
6.7
|
|
|
|
0.1
|
|
Regional Affiliates passenger revenues, which are based on
industry standard proration agreements for flights connecting to
American flights, decreased by $474 million, or
19.1 percent, to $2.0 billion as a result of a
reduction in capacity, decreased passenger traffic and lower
yield. Regional Affiliates traffic decreased
6.7 percent to 8.3 billion revenue passenger miles
(RPMs), while capacity decreased 8.2 percent to
11.6 billion ASMs, resulting in a 1.2 point increase in
passenger load factor to 71.4 percent.
Cargo revenues decreased by 33.9 percent, or
$296 million, primarily due to decreases in advertising
mail and freight traffic resulting from the current economic
downturn.
Other revenues increased 5.4 percent, or $118 million,
to $2.3 billion due to increases in certain passenger
service charges instituted throughout the year in 2008.
38
Operating
Expenses
2010 Compared to 2009 The Companys total
operating expenses increased 4.5 percent, or
$941 million, to $21.9 billion in 2010 compared to
2009. Americans mainline operating expenses per ASM in
2010 increased 3.2 percent compared to 2009 to 12.62 cents.
The increase in operating expense was largely due to a
year-over-year
increase in fuel prices from $2.01 per gallon in 2009 to $2.32
per gallon in 2010, including the impact of fuel hedging. Fuel
expense was the Companys second largest single expense
category in 2010 and the price increase resulted in
$847 million in incremental
year-over-year
fuel expense in 2010 (based on the
year-over-year
increase in the average price per gallon multiplied by gallons
consumed, inclusive of the impact of fuel hedging). A return to
the recent historically high 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Change
|
|
|
|
|
|
|
December 31,
|
|
|
from
|
|
|
Percentage
|
|
Operating Expenses
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Wages, salaries and benefits
|
|
$
|
6,847
|
|
|
$
|
40
|
|
|
|
0.6
|
%
|
Aircraft fuel
|
|
|
6,400
|
|
|
|
847
|
|
|
|
15.3
|
(a)
|
Other rentals and landing fees
|
|
|
1,418
|
|
|
|
65
|
|
|
|
4.8
|
|
Depreciation and amortization
|
|
|
1,093
|
|
|
|
(11
|
)
|
|
|
(1.0
|
)
|
Maintenance, materials and repairs
|
|
|
1,329
|
|
|
|
49
|
|
|
|
3.8
|
|
Commissions, booking fees and credit card expense
|
|
|
976
|
|
|
|
123
|
|
|
|
14.5
|
(b)
|
Aircraft rentals
|
|
|
580
|
|
|
|
75
|
|
|
|
14.9
|
(c)
|
Food service
|
|
|
490
|
|
|
|
3
|
|
|
|
0.6
|
|
Special charges
|
|
|
|
|
|
|
(171
|
)
|
|
|
|
*(d)
|
Other operating expenses
|
|
|
2,729
|
|
|
|
(79
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
21,862
|
|
|
$
|
941
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Aircraft fuel expense increased primarily due to a
15.2 percent increase in the Companys price per
gallon of fuel (net of the impact of hedging losses of
$142 million). |
|
(b) |
|
Commissions, booking fees and credit card expenses increased due
to an 11.3 percent increase in operating revenues. |
|
(c) |
|
Aircraft rental expense increased principally due to new
aircraft deliveries in 2009 and 2010. |
|
(d) |
|
Special charges in 2009 related to announced capacity
reductions, the grounding of the Airbus A300 fleet and the write
down of certain Embraer RJ-135 aircraft to their estimated fair
values. |
.
2009 Compared to 2008 The Companys total
operating expenses decreased 18.5 percent, or
$4.7 billion, to $20.9 billion in 2009 compared to
2008. Americans mainline operating expenses per ASM in
2009 decreased 11.9 percent compared to 2008 to 12.22
cents. The decrease in operating expense was largely due to a
year-over-year
decrease in AMRs fuel prices from $3.03 per gallon in 2008
to $2.01 per gallon in 2009, including the impact of fuel
hedging. The Companys unit costs excluding fuel and
special charges were greater for the year ended
December 31, 2009 than the year ended December 31,
2008. Factors driving the increase include increased defined
benefit pension expenses (due to the stock market decline in
2008), higher airport rent and landing fees and
39
cost pressures associated with the Companys capacity
reductions announced in 2008 and 2009 and dependability
initiatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Change
|
|
|
|
|
|
|
December 31,
|
|
|
from
|
|
|
Percentage
|
|
Operating Expenses
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Wages, salaries and benefits
|
|
$
|
6,807
|
|
|
$
|
152
|
|
|
|
2.3
|
%
|
Aircraft fuel
|
|
|
5,553
|
|
|
|
(3,461
|
)
|
|
|
(38.4
|
)(a)
|
Other rentals and landing fees
|
|
|
1,353
|
|
|
|
55
|
|
|
|
4.2
|
|
Depreciation and amortization
|
|
|
1,104
|
|
|
|
(103
|
)
|
|
|
(8.5
|
)
|
Maintenance, materials and repairs
|
|
|
1,280
|
|
|
|
43
|
|
|
|
3.5
|
|
Commissions, booking fees and credit card expense
|
|
|
853
|
|
|
|
(144
|
)
|
|
|
(14.4
|
)(b)
|
Aircraft rentals
|
|
|
505
|
|
|
|
13
|
|
|
|
2.6
|
|
Food service
|
|
|
487
|
|
|
|
(31
|
)
|
|
|
(6.0
|
)
|
Special charges
|
|
|
171
|
|
|
|
(1,042
|
)
|
|
|
(85.9
|
)(c)
|
Other operating expenses
|
|
|
2,808
|
|
|
|
(216
|
)
|
|
|
(7.1
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
20,921
|
|
|
$
|
(4,734
|
)
|
|
|
(18.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Aircraft fuel expense decreased primarily due to a
33.7 percent decrease in the Companys price per
gallon of fuel (net of the impact of fuel hedging) and a
7.0 percent decrease in the Companys fuel
consumption. The Company recorded $651 million in net
losses and $380 million in net gains on its fuel hedging
contracts for the years ended December 31, 2009 and 2008,
respectively. |
|
(b) |
|
Commissions, booking fees and credit card expense decreased in
conjunction with the 16.2 percent decrease in the
Companys revenues. |
|
(c) |
|
Special charges in 2008 are related to an impairment charge of
$1.1 billion to write down the Companys McDonnell
Douglas MD-80 and Embraer RJ-135 fleets and certain related
long-lived assets to their estimated fair values. Special
charges in 2009 relate to announced capacity reductions, the
grounding of the Airbus A300 fleet and the write down of certain
Embraer RJ-135 aircraft to their estimated fair values. |
|
(d) |
|
Other operating expenses in 2009 include $184 million for
the impairment of certain route and slot authorities, primarily
in Latin America, and losses on certain sale leaseback
transactions. |
Other
Income (Expense)
Other income (expense) consists of Interest income and expense,
Interest capitalized and Miscellaneous net.
2010 Compared to 2009 Decreases in both
short-term investment balances and interest rates caused a
decrease in Interest income of $8 million, or
23.1 percent, to $26 million. Interest expense
increased $79 million, or 10.7 percent, to
$823 million primarily as a result of an increase in the
Companys long-term debt balance.
2009 Compared to 2008 Decreases in both
short-term investment balances throughout most of 2009 and
decreases in interest rates caused a decrease in Interest income
of $147 million, or 81.2 percent, to $34 million.
Interest expense decreased $59 million, or
7.3 percent, to $744 million primarily as a result of
a decrease in the Companys long-term debt balance
throughout most of 2009 and decreases in interest rates on
variable rate debt.
Income
Tax Benefit
The Company has recorded in 2010 and 2009 an income tax expense
credit of approximately $30 million and $36 million,
respectively, resulting from the Companys anticipated
election under applicable sections of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of
2010 and Section 3081 of the Housing and Economic Recovery
Act of 2008 (as extended by the American Recovery and
Reinvestment Act of 2009),
40
allowing corporations to accelerate utilization of certain
research and alternative minimum tax (AMT) credit carryforwards
in lieu of applicable bonus depreciation on certain qualifying
capital investments.
The Company did not record a net tax provision (benefit)
associated with 2008 net loss due to the Company providing
a valuation allowance, as discussed in Note 8 to the
consolidated financial statements. However, during 2009, the
Company generated a pre-tax loss of $1.8 billion and other
comprehensive income of approximately $701 million. In
accordance with accounting standards, the net zero tax provision
is required to be allocated between Operating loss and
Accumulated other comprehensive income. Application of this
guidance during 2009 resulted in a non-cash income tax benefit
of $248 million, offset by a $248 million charge to
other comprehensive income related to such items being
recognized in 2009. See Note 8 for additional information
regarding the allocation of income tax benefit to Operating
income and Accumulated other comprehensive income.
Operating
Statistics
The following table provides statistical information for
American and Regional Affiliates for the years ended
December 31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
American Airlines, Inc. Mainline Jet Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions)
|
|
|
125,486
|
|
|
|
122,418
|
|
|
|
131,757
|
|
Available seat miles (millions)
|
|
|
153,241
|
|
|
|
151,774
|
|
|
|
163,532
|
|
Cargo ton miles (millions)
|
|
|
1,886
|
|
|
|
1,656
|
|
|
|
2,005
|
|
Passenger load factor
|
|
|
81.9
|
%
|
|
|
80.7
|
%
|
|
|
80.6
|
%
|
Passenger revenue yield per passenger mile (cents)
|
|
|
13.36
|
|
|
|
12.28
|
|
|
|
13.84
|
|
Passenger revenue per available seat mile (cents)
|
|
|
10.94
|
|
|
|
9.91
|
|
|
|
11.15
|
|
Cargo revenue yield per ton mile (cents)
|
|
|
35.65
|
|
|
|
34.91
|
|
|
|
43.59
|
|
Operating expenses per available seat mile, excluding Regional
Affiliates (cents)(*)
|
|
|
12.62
|
|
|
|
12.22
|
|
|
|
13.87
|
|
Fuel consumption (gallons, in millions)
|
|
|
2,481
|
|
|
|
2,499
|
|
|
|
2,694
|
|
Fuel price per gallon (cents)
|
|
|
231.0
|
|
|
|
200.7
|
|
|
|
302.6
|
|
Operating aircraft at year-end
|
|
|
620
|
|
|
|
610
|
|
|
|
626
|
|
Regional Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions)
|
|
|
8,812
|
|
|
|
8,255
|
|
|
|
8,846
|
|
Available seat miles (millions)
|
|
|
12,179
|
|
|
|
11,566
|
|
|
|
12,603
|
|
Passenger load factor
|
|
|
72.4
|
%
|
|
|
71.4
|
%
|
|
|
70.2
|
%
|
|
|
|
(*) |
|
Excludes $2.7 billion, $2.5 billion and
$3.1 billion of expense incurred related to Regional
Affiliates in 2010, 2009 and 2008, respectively |
Outlook
The Company currently expects capacity for Americans
mainline jet operations to increase by approximately 3.8% in the
first quarter of 2011 versus first quarter 2010. Americans
mainline capacity for the full year 2011 is expected to increase
approximately 3.6% from 2010 with a 1% increase in domestic
capacity and a 7.7% growth in international capacity.
The Company expects first quarter 2011 mainline unit costs to
increase approximately 1.6 percent year over year. The
first quarter 2011 unit cost expectations reflect the
increase in the cost of fuel during the second half of 2010 and
projected fuel prices in 2011. Despite anticipated higher
revenue-related expenses (such as booking fees and commissions)
and financing costs related to the Companys new Boeing
737-800
aircraft, the Company expects first quarter mainline unit costs
excluding fuel to be 3.2% lower than the prior year periods.
41
The Companys results are significantly affected by the
price of jet fuel, which is in turn affected by a number of
factors beyond the Companys control. Although fuel prices
abated considerably from the record high prices recorded in July
2008, they have increased since the first quarter of 2009,
particularly recently, and remain high and extremely volatile by
historical standards.
Other
Information
Critical Accounting Policies and Estimates The
preparation of the Companys financial statements in
conformity with U.S. Generally Accepted Accounting
Principles (U.S. GAAP) 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,
routes, passenger revenue, frequent flyer program, stock
compensation, pensions and retiree medical and other benefits,
income taxes and derivatives accounting.
Long-lived assets The Company has
approximately $16 billion of long-lived assets as of
December 31, 2010, including approximately $15 billion
related to flight equipment and other fixed assets. In addition
to the original cost of these assets, the recorded value of the
Companys fixed assets is impacted by a number of estimates
made by the Company, including estimated useful lives, salvage
values and the Companys determination as to whether
aircraft are temporarily or permanently grounded. In accordance
with U.S. GAAP, the Company records impairment charges on
long-lived assets used in operations when events and
circumstances indicate that the assets may be impaired, the
undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets and the
net book value of the assets exceeds their estimated fair value.
In making these determinations, the Company uses certain
assumptions, including, but not limited to: (i) estimated
fair value of the assets; and (ii) estimated future cash
flows expected to be generated by the assets, generally
evaluated at a fleet level, which are based on additional
assumptions such as asset utilization, length of service and
estimated salvage values. A change in the Companys fleet
plan has been the primary indicator that has resulted in an
impairment charge in the past.
The majority of Americans fleet types are depreciated over
30 years. It is possible that the ultimate lives of the
Companys aircraft will be significantly different than the
current estimate due to unforeseen events in the future that
impact the Companys fleet plan, including positive or
negative developments in the areas described above. For example,
operating the aircraft for a longer period will result in higher
maintenance, fuel and other operating costs than if the Company
replaced the aircraft. At some point in the future, higher
operating costs, including higher fuel expense,
and/or
improvement in the Companys economic condition, could
change the Companys analysis of the impact of retaining
aircraft versus replacing them with new aircraft.
In the fourth quarter of 2009, due to the continuing severe
downturn in the global economy and weakness in the regional jet
aircraft market, the Companys plan to sell certain of its
Embraer RJ-135 aircraft was no longer feasible at the amount for
which these aircraft had been valued. Consequently, the Company
reclassified these aircraft from held for sale to held for use,
tested them for impairment and concluded the carrying values of
certain of its Embraer RJ-135 aircraft were no longer
recoverable.
In the second quarter of 2008, due to the Companys
capacity reduction announcement, the Company concluded a
triggering event had occurred and required that fixed assets be
tested for impairment. As a result of that testing, the Company
recorded impairment charges related to its McDonnell Douglas
MD-80 aircraft and Embraer RJ-135 aircraft. See Note 2 to
the consolidated financial statements for more information.
International Slots and Route Authorities AMR
performs annual impairment tests on its international slots and
route authorities, which are indefinite life intangible assets
and as a result they are not amortized. As discussed above, the
Company also performs impairment tests when events and
circumstances indicate that the assets might be impaired. These
tests are primarily based on estimates of discounted future cash
flows, using assumptions based on historical results adjusted to
reflect the Companys best estimate of future market and
operating conditions and also consideration of markets for these
assets. The net carrying value of assets not recoverable is
reduced to fair
42
value. The Companys estimates of fair value represent its
best estimate based on industry trends and reference to market
rates and transactions.
During 2009, the Company adopted guidance on measuring the fair
value of assets and liabilities. The guidance introduces a
framework for measuring fair value primarily based on exit
prices and expands required disclosure about fair value
measurements of assets and liabilities.
The Company had recorded international slots and route
authorities of $708 million as of December 31, 2010.
The Company estimates the fair value of these assets based on
market information and estimated future cash flows. The Company
believes its estimates and assumptions are reasonable; however,
given the significant uncertainty regarding how open skies
agreements will ultimately affect the Companys operations
at Heathrow and Narita, and other international locations that
are evaluating open skies, as well as volatility in
the revenue and fuel environment, the actual results could
differ from those estimates. Further, as a part of the annual
impairment test, it was determined that the fair value of
certain routes in Latin America was less than the carrying
value, and therefore, the Company recorded an impairment charge.
See Note 11 to the consolidated financial statements for
additional information regarding the valuation of the
Companys routes.
Passenger revenue Passenger ticket sales are
initially recorded as a component of Air traffic liability.
Revenue derived from ticket sales is recognized at the time
service is provided. However, due to various factors, including
the industrys pricing structure and interline agreements
throughout the industry, certain amounts are recognized in
revenue using estimates regarding both the timing of the revenue
recognition and the amount of revenue to be recognized,
including breakage. These estimates are generally based upon the
evaluation of historical trends, including the use of regression
analysis and other methods to model the outcome of future events
based on the Companys historical experience, and are
recognized at the scheduled time of departure. The
Companys estimation techniques have been applied
consistently from year to year. However, due to changes in the
Companys ticket refund policy and changes in the travel
profile of customers, historical trends may not be
representative of future results.
Frequent flyer program American uses the
incremental cost method to account for the portion of its
frequent flyer liability incurred when AAdvantage members earn
mileage credits by flying on American or its regional affiliates.
The Company considers breakage in its incremental cost
calculation and recognizes breakage on AAdvantage miles sold
over the estimated period of usage for sold miles that are
ultimately redeemed. The Company calculates its breakage
estimate using separate breakage rates for miles earned by
flying on American and miles earned through other companies who
have purchased AAdvantage miles for distribution to their
customers, due to differing behavior patterns. Management
considers historical patterns of account breakage to be a useful
indicator when estimating future breakage. Future program
redemption opportunities can significantly alter customer
behavior from historical patterns with respect to inactive
accounts. Such changes may result in material changes to the
frequent flyer liability, as well as recognized revenues from
the program.
American includes fuel, food, and passenger insurance costs in
the calculation of incremental cost. These estimates are
generally updated based upon the Companys
12-month
historical average of such costs. American also accrues a
frequent flyer liability for the mileage credits expected to be
used for travel on participating airlines based on historical
usage patterns and contractual rates.
Revenue earned from selling AAdvantage miles to other companies
is recognized in two components. The first component represents
the revenue for air transportation sold and is valued at fair
value. This revenue is deferred along with revenue related to
expected breakage of sold miles and recognized over the period
the mileage is expected to be used, which is currently estimated
to be 28 months. The second revenue component, based on the
residual method and representing the marketing services sold, is
recognized as related services are provided.
The Companys total liability for future AAdvantage award
redemptions for free, discounted or upgraded travel on American,
American Eagle or participating airlines, as well as
unrecognized revenue from selling AAdvantage miles to other
companies, was approximately $1.4 billion and
$1.5 billion at December 31, 2010 and 2009,
respectively (and is recorded as a component of Air traffic
liability in the consolidated balance sheets),
43
representing 16.3 percent and 19.2 percent of
AMRs total current liabilities, at December 31, 2010
and 2009, respectively.
The approximate number of free travel awards used for travel on
American and American Eagle was 5.6 million one-way travel
awards in 2010 (or 2.8 million round trip awards) and
5.2 million one-way travel awards in 2009 (or
2.6 million round trip travel awards) representing
approximately 8.8 and 8.9 percent of passengers boarded in
each year, respectively. The Company believes displacement of
revenue passengers is minimal given the Companys load
factors, its ability to manage frequent flyer seat inventory,
and the relatively low ratio of free award usage to total
passengers boarded.
Changes to the percentage of the amount of revenue deferred,
deferred recognition period, percentage of awards expected to be
redeemed for travel on participating airlines, breakage or cost
per mile estimates could have a significant impact on the
Companys revenues or incremental cost accrual in the year
of the change as well as in future years.
Stock Compensation The Company
grants awards under its various share based payment plans and
utilizes option pricing models or fair value models to estimate
the fair value of its awards. Certain awards contain a market
performance condition, which is taken into account in estimating
the fair value on the date of grant. The fair value of those
awards is calculated by multiplying the stock price on the date
of grant by the expected payout percentage and the number of
shares granted. The Company accounts for these awards over the
three year term of the award based on the grant date fair value,
provided adequate shares are available to settle the awards. For
awards where adequate shares are not anticipated to be available
or that only permit settlement in cash, the fair value is
re-measured each reporting period.
Pensions and retiree medical and other
benefits The Company recognizes the
funded status (i.e., the difference between the fair value of
plan assets and the projected benefit obligations) of its
pension and postretirement plans in the consolidated balance
sheet with a corresponding adjustment to Accumulated other
comprehensive income (loss).
The Companys pension and other postretirement benefit
costs and liabilities are calculated using various actuarial
assumptions and methodologies. The Company uses certain
assumptions including, but not limited to, the selection of the:
(i) discount rate; (ii) expected return on plan
assets; and (iii) expected health care cost trend rate and,
starting in 2007 (iv) the estimated age of pilot retirement
(as discussed below).
These assumptions as of December 31 were:
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Discount rate (cost/liability)
|
|
6.10%/5.80%
|
|
6.50%/6.10%
|
Expected return on plan assets
|
|
8.50%
|
|
8.50%
|
Expected health care cost trend rate:
|
|
|
|
|
Pre-65 individuals
|
|
|
|
|
Initial
|
|
8.0%
|
|
7.0%
|
Ultimate
|
|
4.5%
|
|
4.5%
|
Post-65 individuals
|
|
|
|
|
Initial
|
|
8.0%
|
|
7.5%
|
Ultimate (2010)
|
|
4.5%
|
|
4.5%
|
Pilot Retirement Age
|
|
63
|
|
63
|
When establishing our discount rate, to measure our obligations,
we match high quality corporate bonds available in the
marketplace whose cash flows approximate our projected benefit
disbursements. Lowering the discount rate by 50 basis
points as of December 31, 2010 would increase the
Companys pension and postretirement benefits obligations
by approximately $850 million and $170 million,
respectively, and increase estimated 2011 pension and
postretirement benefits expense by $80 million and less
than $1 million, respectively.
The expected return on plan assets is based upon an evaluation
of the Companys historical trends and experience taking
into account current and expected market conditions and the
Companys target asset allocation of
44
35 percent longer duration corporate and
U.S. government/agency bonds, 28 percent
U.S. value stocks, 20 percent developed international
stocks, 6 percent emerging markets stocks and bonds and
11 percent alternative (private) investments. The expected
return on plan assets component of the Companys net
periodic benefit cost is calculated based on the fair value of
plan assets and the Companys target asset allocation. The
Company monitors its actual asset allocation and believes that
its long-term asset allocation will continue to approximate its
target allocation. The Companys historical annualized
ten-year rate of return on plan assets, calculated using a
geometric compounding of monthly returns, is approximately
7.7 percent as of December 31, 2010. Lowering the
expected long-term rate of return on plan assets by
50 basis points as of December 31, 2010 would increase
estimated 2011 pension expense by approximately $40 million.
The health care cost trend rate is based upon an evaluation of
the Companys historical trends and experience taking into
account current and expected market conditions. Increasing the
assumed health care cost trend rate by 100 basis points
would increase estimated 2011 postretirement benefits expense by
$22 million.
Income taxes The Company generally
believes that the positions taken on previously filed income tax
returns are more likely than not to be sustained by the taxing
authorities. The Company has recorded income tax and related
interest liabilities where the Company believes its position may
not be sustained or where the full income tax benefit will not
be recognized. The effects of potential income tax benefits
resulting from the Companys unrecognized tax positions are
not reflected in the tax balances of the financial statements.
Recognized and unrecognized tax positions are reviewed and
adjusted as events occur that affect the Companys judgment
about the recognizability of income tax benefits, such as
lapsing of applicable statutes of limitations, conclusion of tax
audits, release of administrative guidance, or rendering of a
court decision affecting a particular tax position. The Company
records a deferred tax asset valuation allowance when it is more
likely than not that some portion or all of its deferred tax
assets will not be realized. The Company considers its
historical earnings, trends, and outlook for future years in
making this determination. The Company had a deferred tax
valuation allowance of $3.0 billion and $2.9 billion,
respectively, at December 31, 2010 and 2009. See
Note 8 to the consolidated financial statements for
additional information.
Derivatives As required by
U.S. GAAP, 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. The fair value of the Companys hedging
contracts is recorded in Current Assets or Current Liabilities
in the accompanying consolidated balance sheets and is recorded
gross of the collateral posted and on a trade basis. As of
December 31, 2010, the Company had derivative contracts in
an asset position at fair value of $269 million including a
liability related to contracts that settled in December. A
deferred gain of $153 million was recorded in Accumulated
other comprehensive income (OCI) at December 31, 2010 and
will be recognized in future periods as contracts settle.
New
Accounting Pronouncements
In November of 2009, the Financial Accounting Standards Board
(FASB) issued new guidance that significantly changes the
accounting for revenue in arrangements with multiple
deliverables by requiring entities to separately account for
individual deliverables in more of these arrangements and
estimate the fair value of each component individually on a
pro-rata basis. The guidance removes the criterion that entities
must use vendor-specific objective and reliable evidence of fair
value when separately accounting for deliverables, allowing for
the recognition of revenue in a manner that more closely aligns
with the economics of certain arrangements, based on
managements estimate of the selling price. The standard
must be applied prospectively to revenue arrangements entered
into or materially modified in fiscal years beginning on or
after June 15, 2010. In addition, the FASB significantly
expanded the disclosures related to multiple deliverable revenue
arrangements. Although the Company continues to evaluate the
impact of the adoption of this standard on its consolidated
financial statements, the
45
Company believes the impact of adoption will not be material in
2011, but could have a significant impact on future results as
new or materially modified revenue arrangements with certain
partners are established in the normal course of business.
Glossary
of Defined Terms
ASM Available Seat Mile. A measure
of capacity. ASMs equal the total number of seats available for
transporting passengers during a reporting period multiplied by
the total number of miles flown during that period.
CASM (Operating) Cost per Available Seat
Mile. The amount of operating cost incurred per
ASM during a reporting period, also referred to as unit
cost.
Passenger Load Factor A measure of utilized
available seating capacity calculated by dividing RPMs by ASMs
for a reporting period.
Passenger Mile Yield or Yield The amount of
passenger revenue earned per RPM during a reporting period.
RASM Passenger Revenue per ASM. The
amount of passenger revenue earned per ASM during a reporting
period. Passenger RASM is also referred to as unit
revenue.
RPM Revenue Passenger Mile. One
revenue-paying passenger transported one mile. RPMs equal the
number of revenue passengers during a reporting period
multiplied by the number of miles flown by those passengers
during that during that period. RPMs are also referred to as
traffic.
|
|
ITEM 7(A).
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market
Risk Sensitive Instruments and Positions
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. See
Note 7 to the consolidated financial statements for
accounting policies and additional information regarding
derivatives.
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 December 31, 2010 and 2009
cost per gallon of fuel. Based on projected 2011 fuel usage,
such an increase would result in an increase to Aircraft fuel
expense of approximately $502 million in 2011, inclusive of
the impact of effective fuel hedge instruments outstanding at
December 31, 2010, 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 2010, inclusive of the impact
of fuel hedge instruments outstanding at December 31, 2009.
As of January 2011, the Company had cash flow hedges, with
collars and options, covering approximately 35 percent of
its estimated 2011 fuel requirements. Comparatively, as of
December 31, 2009, the Company had hedged, with collars and
options, approximately 24 percent of its estimated 2010
fuel requirements. The consumption hedged for 2011 by cash flow
hedges is capped at an average price of approximately $2.52 per
gallon of jet fuel, and the Companys collars have an
average floor price of approximately $1.92 per gallon of jet
fuel (both the capped and floor price exclude taxes and
transportation costs). The Companys collars represent
approximately 30 percent of its estimated 2011 fuel
requirements. A deterioration of the Companys 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
46
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.
Foreign Currency The Company is exposed to the
effect of foreign exchange rate fluctuations on the
U.S. dollar value of foreign currency-denominated operating
revenues and expenses. The Companys largest exposure comes
from the British pound, Euro, Canadian dollar, Japanese yen and
various Latin American currencies. The Company does not
currently have a foreign currency hedge program related to its
foreign currency-denominated ticket sales. A uniform
10 percent strengthening in the value of the
U.S. dollar from December 31, 2010 and 2009 levels
relative to each of the currencies in which the Company has
foreign currency exposure would result in a decrease in
operating income of approximately $170 million and
$136 million for the years ending December 31, 2010
and 2009, respectively, due to the Companys
foreign-denominated revenues exceeding its foreign-denominated
expenses. This sensitivity analysis was prepared based upon
projected 2011 and 2010 foreign currency-denominated revenues
and expenses as of December 31, 2010 and 2009, respectively.
On January 11, 2010, the Venezuelan Government devalued its
currency from 2.15 bolivars per U.S. dollar to 4.30
bolivars per U.S. dollar and the currency was designated as
hyperinflationary. As a result, the Company recognized a loss of
$53 million related to the currency remeasurement in
January 2010. The Company does not expect any significant
ongoing impact of the currency devaluation on its operations in
Venezuela, but there can be no assurances to that effect.
Interest The Companys earnings are also
affected by changes in interest rates due to the impact those
changes have on its interest income from cash and short-term
investments, and its interest expense from variable-rate debt
instruments. The Companys largest exposure with respect to
variable rate debt comes from changes in the London Interbank
Offered Rate (LIBOR). The Company had variable rate debt
instruments representing approximately 23 percent of its
total long-term debt at December 31, 2010 and 2009. If the
Companys interest rates average 10 percent more in
2011 than they did at December 31, 2010, the Companys
interest expense would increase by approximately $7 million
and interest income from cash and short-term investments would
increase by approximately $3 million. In comparison, at
December 31, 2009, the Company estimated that if interest
rates averaged 10 percent more in 2010 than they did at
December 31, 2009, the Companys interest expense
would have increased by approximately $8 million and
interest income from cash and short-term investments would have
increased by approximately $1 million. These amounts are
determined by considering the impact of the hypothetical
interest rates on the Companys variable rate long-term
debt and cash and short-term investment balances at
December 31, 2010 and 2009.
Market risk for fixed rate long-term debt is estimated as the
potential increase in fair value resulting from a hypothetical
10 percent decrease in interest rates and amounts to
approximately $237 million and $316 million as of
December 31, 2010 and 2009, respectively. The fair values
of the Companys long-term debt were estimated using quoted
market prices or discounted future cash flows based on the
Companys incremental borrowing rates for similar types of
borrowing arrangements.
47
|
|
ITEM 8.
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
51-52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55-85
|
|
48
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of
AMR Corporation as of December 31, 2010 and 2009, and the
related consolidated statements of operations,
stockholders equity (deficit) and cash flows for each of
the three years in the period ended December 31, 2010. Our
audits also included the financial statement schedule listed in
the Index at Item 15(a)(2). These consolidated financial
statements and schedule are the responsibility of AMR
Corporations management. Our responsibility is to express
an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AMR Corporation at December 31, 2010
and 2009 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), AMR
Corporations internal control over financial reporting as
of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 16, 2011 expressed an
unqualified opinion thereon.
Dallas, Texas
February 16, 2011
49
AMR
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger American Airlines
|
|
$
|
16,760
|
|
|
$
|
15,037
|
|
|
$
|
18,234
|
|
Regional Affiliates
|
|
|
2,327
|
|
|
|
2,012
|
|
|
|
2,486
|
|
Cargo
|
|
|
672
|
|
|
|
578
|
|
|
|
874
|
|
Other revenues
|
|
|
2,411
|
|
|
|
2,290
|
|
|
|
2,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
22,170
|
|
|
|
19,917
|
|
|
|
23,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages, salaries and benefits
|
|
|
6,847
|
|
|
|
6,807
|
|
|
|
6,655
|
|
Aircraft fuel
|
|
|
6,400
|
|
|
|
5,553
|
|
|
|
9,014
|
|
Other rentals and landing fees
|
|
|
1,418
|
|
|
|
1,353
|
|
|
|
1,298
|
|
Depreciation and amortization
|
|
|
1,093
|
|
|
|
1,104
|
|
|
|
1,207
|
|
Maintenance, materials and repairs
|
|
|
1,329
|
|
|
|
1,280
|
|
|
|
1,237
|
|
Commissions, booking fees and credit card expense
|
|
|
976
|
|
|
|
853
|
|
|
|
997
|
|
Aircraft rentals
|
|
|
580
|
|
|
|
505
|
|
|
|
492
|
|
Food service
|
|
|
490
|
|
|
|
487
|
|
|
|
518
|
|
Special charges
|
|
|
|
|
|
|
171
|
|
|
|
1,213
|
|
Other operating expenses
|
|
|
2,729
|
|
|
|
2,808
|
|
|
|
3,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21,862
|
|
|
|
20,921
|
|
|
|
25,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
308
|
|
|
|
(1,004
|
)
|
|
|
(1,889
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
26
|
|
|
|
34
|
|
|
|
181
|
|
Interest expense
|
|
|
(823
|
)
|
|
|
(744
|
)
|
|
|
(803
|
)
|
Interest capitalized
|
|
|
31
|
|
|
|
42
|
|
|
|
33
|
|
Miscellaneous net
|
|
|
(48
|
)
|
|
|
(80
|
)
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(814
|
)
|
|
|
(748
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(506
|
)
|
|
|
(1,752
|
)
|
|
|
(2,118
|
)
|
Income tax (benefit)
|
|
|
(35
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss)
|
|
$
|
(471
|
)
|
|
$
|
(1,468
|
)
|
|
$
|
(2,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.41
|
)
|
|
$
|
(4.99
|
)
|
|
$
|
(8.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.41
|
)
|
|
$
|
(4.99
|
)
|
|
$
|
(8.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
50
AMR
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except
|
|
|
|
shares and par value)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
168
|
|
|
$
|
153
|
|
Short-term investments
|
|
|
4,328
|
|
|
|
4,246
|
|
Restricted cash and short-term investments
|
|
|
450
|
|
|
|
460
|
|
Receivables, less allowance for uncollectible accounts
(2010 $58; 2009 $58)
|
|
|
738
|
|
|
|
768
|
|
Inventories, less allowance for obsolescence (2010
$530; 2009 $509)
|
|
|
594
|
|
|
|
557
|
|
Fuel derivative contracts
|
|
|
269
|
|
|
|
135
|
|
Fuel derivative collateral deposits
|
|
|
|
|
|
|
14
|
|
Other current assets
|
|
|
291
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,838
|
|
|
|
6,642
|
|
Equipment and Property
|
|
|
|
|
|
|
|
|
Flight equipment, at cost
|
|
|
20,345
|
|
|
|
19,647
|
|
Less accumulated depreciation
|
|
|
8,081
|
|
|
|
7,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,264
|
|
|
|
12,265
|
|
Purchase deposits for flight equipment
|
|
|
375
|
|
|
|
639
|
|
Other equipment and property, at cost
|
|
|
5,173
|
|
|
|
5,158
|
|
Less accumulated depreciation
|
|
|
2,974
|
|
|
|
2,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,199
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,838
|
|
|
|
15,181
|
|
Equipment and Property Under Capital Leases
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
605
|
|
|
|
651
|
|
Other equipment and property
|
|
|
219
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
824
|
|
|
|
866
|
|
Less accumulated amortization
|
|
|
580
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
295
|
|
Other Assets
|
|
|
|
|
|
|
|
|
International slots and route authorities
|
|
|
708
|
|
|
|
736
|
|
Domestic slots and airport operating and gate lease rights, less
accumulated amortization (2010 $473; 2009
$445)
|
|
|
224
|
|
|
|
252
|
|
Other assets
|
|
|
2,236
|
|
|
|
2,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,168
|
|
|
|
3,320
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
25,088
|
|
|
$
|
25,438
|
|
|
|
|
|
|
|
|
|
|
51
AMR
CORPORATION
CONSOLIDATED
BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except
|
|
|
|
shares and par value)
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,156
|
|
|
$
|
1,064
|
|
Accrued salaries and wages
|
|
|
498
|
|
|
|
488
|
|
Fuel derivative liability
|
|
|
|
|
|
|
80
|
|
Accrued liabilities
|
|
|
1,587
|
|
|
|
1,551
|
|
Air traffic liability
|
|
|
3,656
|
|
|
|
3,431
|
|
Current maturities of long-term debt
|
|
|
1,776
|
|
|
|
1,024
|
|
Current obligations under capital leases
|
|
|
107
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,780
|
|
|
|
7,728
|
|
Long-Term Debt, Less Current Maturities
|
|
|
8,756
|
|
|
|
9,984
|
|
Obligations Under Capital Leases, Less Current Obligations
|
|
|
497
|
|
|
|
599
|
|
Other Liabilities and Credits
|
|
|
|
|
|
|
|
|
Deferred gains
|
|
|
270
|
|
|
|
272
|
|
Pension and postretirement benefits
|
|
|
7,877
|
|
|
|
7,397
|
|
Other liabilities and deferred credits
|
|
|
2,853
|
|
|
|
2,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
|
10,616
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred stock 20,000,000 shares authorized;
None issued
|
|
|
|
|
|
|
|
|
Common stock $1 par value;
750,000,000 shares authorized; shares issued:
2010 339,389,724; 2009 338,564,327
|
|
|
339
|
|
|
|
339
|
|
Additional paid-in capital
|
|
|
4,445
|
|
|
|
4,399
|
|
Treasury shares at cost: 2010 and 2009 5,940,399
|
|
|
(367
|
)
|
|
|
(367
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,755
|
)
|
|
|
(2,724
|
)
|
Accumulated deficit
|
|
|
(5,607
|
)
|
|
|
(5,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,945
|
)
|
|
|
(3,489
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity (Deficit)
|
|
$
|
25,088
|
|
|
$
|
25,438
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
52
AMR
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cash Flow from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
(471
|
)
|
|
$
|
(1,468
|
)
|
|
$
|
(2,118
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
967
|
|
|
|
979
|
|
|
|
1,055
|
|
Amortization
|
|
|
126
|
|
|
|
125
|
|
|
|
152
|
|
Equity based stock compensation
|
|
|
43
|
|
|
|
61
|
|
|
|
53
|
|
Special charges
|
|
|
|
|
|
|
171
|
|
|
|
1,317
|
|
Pension and postretirement
|
|
|
236
|
|
|
|
657
|
|
|
|
279
|
|
Gain on sale of subsidiary
|
|
|
|
|
|
|
|
|
|
|
(432
|
)
|
Redemption payments under operating leases for special facility
revenue bonds
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables
|
|
|
29
|
|
|
|
43
|
|
|
|
217
|
|
Decrease (increase) in inventories
|
|
|
(81
|
)
|
|
|
(79
|
)
|
|
|
5
|
|
Decrease (increase) in derivative collateral and unwound
derivative contracts
|
|
|
87
|
|
|
|
561
|
|
|
|
(940
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
(19
|
)
|
|
|
(75
|
)
|
|
|
(421
|
)
|
Increase (decrease) in air traffic liability
|
|
|
225
|
|
|
|
(277
|
)
|
|
|
(277
|
)
|
Increase (decrease) in other liabilities and deferred credits
|
|
|
144
|
|
|
|
220
|
|
|
|
(101
|
)
|
Other, net
|
|
|
(45
|
)
|
|
|
12
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
1,241
|
|
|
|
930
|
|
|
|
(1,394
|
)
|
Cash Flow from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, including purchase deposits on flight
equipment
|
|
|
(1,962
|
)
|
|
|
(1,521
|
)
|
|
|
(876
|
)
|
Net decrease (increase) in short-term investments
|
|
|
(82
|
)
|
|
|
(1,330
|
)
|
|
|
1,471
|
|
Net decrease (increase) in restricted cash and short-term
investments
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
(31
|
)
|
Proceeds from sale of equipment, property and
investments/subsidiaries
|
|
|
4
|
|
|
|
76
|
|
|
|
480
|
|
Other
|
|
|
|
|
|
|
53
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2,030
|
)
|
|
|
(2,723
|
)
|
|
|
1,055
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital lease obligations
|
|
|
(1,154
|
)
|
|
|
(2,416
|
)
|
|
|
(1,092
|
)
|
Proceeds from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
412
|
|
|
|
294
|
|
Reimbursement from construction reserve account
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Issuance of long-term debt
|
|
|
542
|
|
|
|
2,990
|
|
|
|
825
|
|
Sale leaseback transactions
|
|
|
1,408
|
|
|
|
768
|
|
|
|
354
|
|
Net cash provided by (used in) financing activities
|
|
|
804
|
|
|
|
1,755
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
15
|
|
|
|
(38
|
)
|
|
|
43
|
|
Cash at beginning of year
|
|
|
153
|
|
|
|
191
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
168
|
|
|
$
|
153
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
53
AMR
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Income (loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
|
(In millions, except share amounts)
|
|
|
Balance at January 1, 2008
|
|
$
|
255
|
|
|
$
|
3,696
|
|
|
$
|
(367
|
)
|
|
$
|
670
|
|
|
$
|
(1,550
|
)
|
|
$
|
2,704
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,118
|
)
|
|
|
(2,118
|
)
|
Changes in pension, retiree medical and other liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,724
|
)
|
|
|
|
|
|
|
(2,724
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,116
|
)
|
|
|
|
|
|
|
(1,116
|
)
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,965
|
)
|
Reclassification and amortization of stock compensation plans
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Issuance of 27,057,554 shares
|
|
|
27
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294
|
|
Issuance of 2,492,860 shares to employees pursuant to stock
option and deferred stock incentive plans
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
285
|
|
|
|
3,992
|
|
|
|
(367
|
)
|
|
|
(3,177
|
)
|
|
|
(3,668
|
)
|
|
|
(2,935
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,468
|
)
|
|
|
(1,468
|
)
|
Changes in pension, retiree medical and other liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
(117
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
813
|
|
Non-cash tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(248
|
)
|
|
|
|
|
|
|
(248
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,015
|
)
|
Reclassification and amortization of stock compensation plans
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Issuance of 52,269,849 shares
|
|
|
52
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412
|
|
Issuance of 1,399,833 shares to employees pursuant to stock
option and deferred stock incentive plans
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
339
|
|
|
|
4,399
|
|
|
|
(367
|
)
|
|
|
(2,724
|
)
|
|
|
(5,136
|
)
|
|
|
(3,489
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(471
|
)
|
|
|
(471
|
)
|
Changes in pension, retiree medical and other liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(247
|
)
|
|
|
|
|
|
|
(247
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(502
|
)
|
Reclassification and amortization of stock compensation plans
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Issuance of 825,397 shares to employees pursuant to stock
option and deferred stock incentive plans
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
339
|
|
|
|
4,445
|
|
|
|
(367
|
)
|
|
|
(2,755
|
)
|
|
|
(5,607
|
)
|
|
|
(3,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
54
AMR
CORPORATION
1. Summary
of Accounting Policies
Basis of Presentation The accompanying
consolidated financial statements as of December 31, 2010
and for the three years ended December 31, 2010 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
consolidated financial statements as of and for the years ended
December 31, 2010, 2009 and 2008 include the accounts of
the Company and its wholly owned subsidiaries as well as VIEs
for which the Company is the primary beneficiary. All
significant intercompany transactions have been eliminated.
New Accounting Pronouncements In November of
2009, the FASB issued new guidance that significantly changes
the accounting for revenue in arrangements with multiple
deliverables by requiring entities to separately account for
individual deliverables in more of these arrangements. The
guidance removes the criterion that entities must use
vendor-specific objective and reliable evidence of fair value
when separately accounting for deliverables, allowing for the
recognition of revenue in a manner that more closely aligns with
the economics of certain arrangements based on managements
estimate of the selling price. The standard must be applied
prospectively to revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010. In addition, the FASB significantly expanded the
disclosures related to multiple deliverable revenue
arrangements. Although the Company continues to evaluate the
impact of the adoption of this standard on its consolidated
financial statements, the Company believes the impact of
adoption will not be material in 2011, but could have a
significant impact on future results as new or materially
modified revenue arrangements with certain partners are
established in the normal course of business.
Use of Estimates The preparation of financial
statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the amounts
reported in the accompanying consolidated financial statements
and accompanying notes. Actual results could differ from those
estimates.
Restricted Cash and Short-term Investments The
Company has restricted cash and short-term investments related
primarily to collateral held to support projected workers
compensation obligations.
Inventories Spare parts, materials and
supplies relating to flight equipment are carried at average
acquisition cost and are expensed when used in operations.
Allowances for obsolescence are provided over the
estimated useful life of the related aircraft and
engines for spare parts expected to be on hand at
the date aircraft are retired from service. Allowances are also
provided for spare parts currently identified as excess and
obsolete. These allowances are based on management estimates,
which are subject to change.
Maintenance and Repair Costs Maintenance and
repair costs for owned and leased flight equipment are charged
to operating expense as incurred, except costs incurred for
maintenance and repair under flight hour maintenance contract
agreements, which are accrued based on contractual terms when an
obligation exists.
Intangible Assets Route acquisition costs and
airport operating and gate lease rights represent the purchase
price attributable to route authorities (including international
airport take-off and landing slots), domestic airport take-off
and landing slots and airport gate leasehold rights acquired.
Indefinite-lived intangible assets (route acquisition costs and
international slots and related international take-off and
landing slots) are tested for impairment annually on
December 31, rather than amortized, or when a triggering
event occurs, in accordance with U.S. GAAP. Such triggering
events may include significant changes to the Companys
network or capacity, or the implementation of open skies
agreements in countries where the Company operates flights.
Airport operating and gate lease rights are being amortized on a
straight-line basis over 25 years to a zero residual value.
Statements of Cash Flows Short-term
investments, without regard to remaining maturity at
acquisition, are not considered as cash equivalents for purposes
of the statements of cash flows.
55
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Measurement of Asset Impairments The Company
records impairment charges on long-lived assets used in
operations when events and circumstances indicate that the
assets may be impaired. An asset or group of assets is
considered impaired when the undiscounted cash flows estimated
to be generated by the asset are less than the carrying amount
of the asset and the net book value of the asset exceeds its
estimated fair value. In making these determinations, the
Company uses certain assumptions, including, but not limited to:
(i) estimated fair value of the asset; and
(ii) estimated future cash flows expected to be generated
by the asset, which are based on additional assumptions such as
asset utilization, length of service the asset will be used in
the Companys operations and estimated salvage values.
Equipment and Property The provision for
depreciation of operating equipment and property is computed on
the straight-line method applied to each unit of property,
except that major rotable parts, avionics and assemblies are
depreciated on a group basis. The depreciable lives used for the
principal depreciable asset classifications are:
|
|
|
|
|
Depreciable Life
|
|
American jet aircraft and engines
|
|
20 30 years
|
Other regional aircraft and engines
|
|
16 20 years
|
Major rotable parts, avionics and assemblies
|
|
Life of equipment to which applicable
|
Improvements to leased flight equipment
|
|
Lesser of remaining lease term or expected useful life
|
Buildings and improvements (principally on leased land)
|
|
5 30 years or term of lease, including
estimated renewal options when renewal is economically compelled
at key airports
|
Furniture, fixtures and other equipment
|
|
3 10 years
|
Capitalized software
|
|
5 10 years
|
Residual values for aircraft, engines, major rotable parts,
avionics and assemblies are generally five to ten percent,
except when guaranteed by a third party for a different amount.
Equipment and property under capital leases are amortized over
the term of the leases or, in the case of certain aircraft, over
their expected useful lives. Lease terms vary but are generally
six to 25 years for aircraft and seven to 40 years for
other leased equipment and property.
Regional Affiliates Revenue from ticket sales
is generally recognized when service is provided. Regional
Affiliates revenues for flights connecting to American flights
are based on industry standard proration agreements.
Passenger Revenue Passenger ticket sales are
initially recorded as a component of Air traffic liability.
Revenue derived from ticket sales is recognized at the time
service is provided. However, due to various factors, including
the complex pricing structure and interline agreements
throughout the industry, certain amounts are recognized in
revenue using estimates regarding both the timing of the revenue
recognition and the amount of revenue to be recognized,
including breakage. These estimates are generally based upon the
evaluation of historical trends, including the use of regression
analysis and other methods to model the outcome of future events
based on the Companys historical experience, and are
recorded at the scheduled time of departure.
Various taxes and fees assessed on the sale of tickets to end
customers are collected by the Company as an agent and remitted
to taxing authorities. These taxes and fees have been presented
on a net basis in the accompanying consolidated statement of
operations and recorded as a liability until remitted to the
appropriate taxing authority.
Frequent Flyer Program The estimated
incremental cost of providing free travel awards is accrued for
mileage credits earned by using Americans service that are
expected to be redeemed in the future. American also accrues a
frequent flyer liability for the mileage credits that are
expected to be used for travel on participating airlines based
on historical usage patterns and contractual rates. American
sells mileage credits and related services
56
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to companies participating in its frequent flyer program. The
portion of the revenue related to the sale of mileage credits,
representing the revenue for air transportation sold, is valued
at fair value and is deferred and amortized over 28 months,
which approximates the expected period over which the mileage
credits are used. Breakage of sold miles is recognized over the
estimated period of usage. The remaining portion of the revenue,
representing the marketing services sold and administrative
costs associated with operating the AAdvantage program, is
recognized upon sale as a component of Other revenues, as the
related services have been provided. The Companys total
liability for future AAdvantage award redemptions for free,
discounted or upgraded travel on American, American Eagle or
participating airlines as well as unrecognized revenue from
selling AAdvantage miles was approximately $1.4 billion
(and is recorded as a component of Air traffic liability on the
accompanying consolidated balance sheets) at December 31,
2010 and $1.5 billion as of December 31, 2009.
Income Taxes The Company generally believes
that the positions taken on previously filed income tax returns
are more likely than not to be sustained by the taxing
authorities. The Company has recorded income tax and related
interest liabilities where the Company believes its position may
not be sustained or where the full income tax benefit will not
be recognized. Thus, the effects of potential income tax
benefits resulting from the Companys unrecognized tax
positions are not reflected in the tax balances of the financial
statements. Recognized and unrecognized tax positions are
reviewed and adjusted as events occur that affect the
Companys judgment about the recognizability of income tax
benefits, such as lapsing of applicable statutes of limitations,
conclusion of tax audits, release of administrative guidance, or
rendering of a court decision affecting a particular tax
position.
Advertising Costs The Company expenses on a
straight-line basis the costs of advertising as incurred
throughout the year. Advertising expense was $165 million
for the year ended December 31, 2010, and $153 million
for the years ended December 31, 2009 and December 31,
2008.
Subsequent Events In connection with
preparation of the consolidated financial statements and in
accordance U.S. GAAP, the Company evaluated subsequent
events after the balance sheet date of December 31, 2010
and determined that no additional disclosure to that presented
in this
Form 10-K
was necessary.
|
|
2.
|
Special
Charges and Restructuring Activities
|
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, employee reductions and certain
other charges.
Aircraft
Charges
As part of these capacity reductions, the Company grounded its
leased Airbus A300 aircraft prior to lease expiration. In 2009,
the Company incurred approximately $94 million in net
present value of future lease payments and lease return costs
related to the grounding of the leased Airbus A300 fleet. The
Company estimates that virtually all of these charges will
result in future cash expenditures. Further, the Company also
wrote down its owned Airbus A300 aircraft and related inventory
to estimated salvage value in the fourth quarter of 2009,
resulting in a non-cash expense of $20 million. All Airbus
A300 aircraft were permanently retired as of 2009.
In the fourth quarter of 2009, due to the continuing severe
downturn in the global economy and weakness in the regional jet
aircraft market, the Companys plan to sell certain of its
Embraer RJ-135 aircraft was no longer feasible at the amount for
which these aircraft had been valued. Consequently, the Company
reclassified these aircraft from held for sale to held for use,
tested them for impairment and concluded the carrying values of
certain of its Embraer RJ-135 aircraft were no longer
recoverable. Therefore, during the fourth quarter of 2009, the
Company recorded an impairment charge of $42 million to
write these aircraft down to their estimated fair values. In
addition, these aircraft will now resume depreciation
prospectively. In determining the fair values of these aircraft,
the Company
57
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
considered recent transactions for sales of similar aircraft and
the value of the underlying engines. No portion of the
impairment charge will result in future cash expenditures.
Employee
Charges
In conjunction with the capacity reductions announced in 2008,
the Company reduced its workforce commensurate with the
announced system-wide capacity reductions. This reduction in
workforce was accomplished through various measures, including
voluntary programs, part-time work schedules, furloughs in
accordance with collective bargaining agreements, and other
reductions.
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 December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
|
|
|
Facility Exit
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
Costs
|
|
|
Charges
|
|
|
Other
|
|
|
Total
|
|
|
Remaining accrual at January 1, 2008
|
|
$
|
126
|
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
144
|
|
Capacity reduction charges
|
|
|
1,117
|
|
|
|
|
|
|
|
71
|
|
|
|
25
|
|
|
|
1,213
|
|
Non-cash charges
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(1,128
|
)
|
Adjustments
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Payments
|
|
|
(31
|
)
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at December 31, 2008
|
|
$
|
110
|
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
142
|
|
Capacity reduction charges
|
|
|
164
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
Non-cash charges
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
Adjustments
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Payments
|
|
|
(49
|
)
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at December 31, 2009
|
|
$
|
155
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175
|
|
Non-cash charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
(8
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Payments
|
|
|
(88
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at December 31, 2010
|
|
$
|
59
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86
|
|
Cash outlays related to the accruals for aircraft charges and
facility exit costs will occur through 2017 and 2018,
respectively.
Other
On September 22, 2001, the Air Transportation Safety and
System Stabilization Act (the Stabilization Act) was signed into
law. The Stabilization Act provides that, notwithstanding any
other provision of law, liability for all claims, whether
compensatory or punitive, arising from the Terrorist Attacks,
against any air carrier shall not exceed the liability coverage
maintained by the air carrier. Based upon estimates provided by
the Companys insurance providers, the Company initially
recorded a liability of approximately $2.3 billion for
claims arising from the Terrorist Attacks, after considering the
liability protections provided for by the Stabilization Act. The
receivable and the liability, recorded in the accompanying
consolidated balance sheet as Other assets and Other liabilities
and deferred credits, respectively, was $1.6 billion and
$1.7 billion at December 31, 2010 and 2009,
respectively.
58
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investments
and Fair Value Measurements
|
Short-term investments consisted of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Overnight investments, time deposits and Repurchase agreements
|
|
$
|
844
|
|
|
$
|
1,415
|
|
Corporate and bank notes
|
|
|
2,685
|
|
|
|
2,527
|
|
U. S. government agency mortgages
|
|
|
605
|
|
|
|
|
|
U.S. government agency notes
|
|
|
|
|
|
|
300
|
|
Commingled funds
|
|
|
190
|
|
|
|
|
|
Other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,328
|
|
|
$
|
4,246
|
|
|
|
|
|
|
|
|
|
|
Short-term investments at December 31, 2010, by contractual
maturity included (in millions):
|
|
|
|
|
Due in one year or less
|
|
$
|
2,609
|
|
Due between one year and three years
|
|
|
1,114
|
|
Due after three years
|
|
|
605
|
|
|
|
|
|
|
|
|
$
|
4,328
|
|
|
|
|
|
|
All short-term investments are classified as
available-for-sale
and stated at fair value. Unrealized gains and losses are
reflected as a component of Accumulated other comprehensive
income (loss).
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 of
commodity collars and calls, 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 year ended December 31, 2010.
59
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets and liabilities measured at fair value on a recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In millions)
|
|
|
Short-term investments(1,2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
198
|
|
|
$
|
198
|
|
|
$
|
|
|
|
$
|
|
|
Government agency investments
|
|
|
605
|
|
|
|
|
|
|
|
605
|
|
|
|
|
|
Repurchase investments
|
|
|
831
|
|
|
|
|
|
|
|
831
|
|
|
|
|
|
Short-term obligations
|
|
|
1,580
|
|
|
|
|
|
|
|
1,580
|
|
|
|
|
|
Corporate obligations
|
|
|
647
|
|
|
|
|
|
|
|
647
|
|
|
|
|
|
Bank notes/Certificates of deposit/Time deposits
|
|
|
467
|
|
|
|
|
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,328
|
|
|
|
198
|
|
|
|
4,130
|
|
|
|
|
|
Restricted cash and short-term investments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
450
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
Fuel derivative contracts(1)
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,047
|
|
|
$
|
648
|
|
|
$
|
4,399
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $467 million of Bank
notes/Certificates of deposit/Time deposits, $605 million
of U.S. Government agency investments and $647 million of
Corporate obligations which have maturity dates exceeding one
year. |
No significant transfers between Level 1 and Level 2
occurred during the year ended December 31, 2010. The
Companys policy regarding the recording of transfers
between levels is to record any such transfers at the end of the
reporting period.
|
|
4.
|
Commitments,
Contingencies and Guarantees
|
As of December 31, 2010, American had 15 Boeing
737-800
aircraft purchase commitments in 2011 and 28 Boeing
737-800
aircraft purchase commitments in 2012 and, in addition to those
commitments, American had firm purchase commitments for eleven
Boeing
737-800
aircraft and seven Boeing 777 aircraft scheduled to be delivered
in 2013 through 2016. American also previously announced plans
(subject to certain reconfirmation rights) to acquire 42 Boeing
787-9
aircraft, with the right to acquire an additional 58 Boeing
787-9
aircraft. American has selected GE Aviation as the exclusive
provider of engines for its expected order of Boeing
787-9
aircraft. As of December 31, 2010, AMR Eagle had firm
purchase commitments for 8 Bombardier CRJ-700 aircraft scheduled
to be delivered in 2011.
As of December 31, 2010, payments for the above purchase
commitments will approximate $884 million in 2011,
$951 million in 2012, $491 million in 2013,
$291 million in 2014, $169 million in 2015 and
$79 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 $375 million and $639 million at
December 31, 2010 and 2009, respectively.
60
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 14, 2011, the Company entered into an amendment
to Purchase Agreement No. 1980 with the Boeing Company to
exercise rights to acquire two Boeing
777-300ER
aircraft for delivery in 2012. The Companys total purchase
commitments are expected to be approximately $2.8 billion
at the end of the first quarter 2011, reflecting this
transaction and aircraft purchase deposits paid during that
period.
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
European Union (EU) law. During 2010 the EU notified the Company
it was dismissing its investigation against the Company.
On August 26, 2010, the Federal Aviation Administration
(FAA) proposed a $24.2 million civil penalty against
American, claiming that American failed to properly perform
certain portions of an FAA Airworthiness Directive concerning
certain wiring to the McDonnell Douglas MD-80 aircraft auxiliary
hydraulic pump. American plans to challenge the proposed civil
penalty. The Company has concluded that the amount of the
penalty, if any, that may be paid is not estimable at
December 31, 2010.
The Company has contracts related to facility construction or
improvement projects, primarily at airport locations. The
contractual obligations related to these projects totaled
approximately $73 million as of December 31, 2010. The
Company expects to make payments of $60 million and
$5 million in 2011 and 2012, respectively. In addition, the
Company has an information technology support related contract
that requires minimum annual payments of $100 million in
2011 and declining to $70 million in 2014 through 2019.
American has a capacity purchase agreement with Chautauqua
Airlines, Inc. to provide Embraer -140 regional jet services to
certain markets under the brand
AmericanConnection®.
Under these arrangements, the Company pays the
AmericanConnection®
carrier a fee per block hour to operate the aircraft. The block
hour fees are designed to cover the
AmericanConnection®
carriers fully allocated costs plus a margin. Assumptions
for certain costs such as fuel, landing fees, insurance, and
aircraft ownership are trued up to actual values on a pass
through basis. In consideration for these payments, the Company
retains all passenger and other revenues resulting from the
operation of the
AmericanConnection®
regional jets. Minimum payments under the contracts are
$56 million in 2011 and $15 million in 2012. In
addition, if the Company terminates the Chautauqua contract
without cause, Chautauqua has the right to put its 15 Embraer
aircraft to the Company. If this were to happen, the Company
would take possession of the aircraft and become liable for
lease obligations totaling approximately $21 million per
year with lease expirations in 2018 and 2019.
The Company is a party to many routine contracts in which it
provides general indemnities in the normal course of business to
third parties for various risks. The Company is not able to
estimate the potential amount of any liability resulting from
the indemnities. These indemnities are discussed in the
following paragraphs.
In its aircraft financing agreements, the Company generally
indemnifies the financing parties, trustees acting on their
behalf and other relevant parties against liabilities (including
certain taxes) resulting from the financing, manufacture,
design, ownership, operation and maintenance of the aircraft
regardless of whether these liabilities (or taxes) relate to the
negligence of the indemnified parties.
The Companys loan agreements and other London Interbank
Offered Rate (LIBOR)-based financing transactions (including
certain leveraged aircraft leases) generally obligate the
Company to reimburse the applicable lender for incremental costs
due to a change in law that imposes (i) any reserve or
special deposit requirement against assets of, deposits with or
credit extended by such lender related to the loan,
(ii) any tax, duty or other charge with respect to the loan
(except standard income tax) or (iii) capital adequacy
requirements. In addition, the Companys loan agreements,
derivative contracts and other financing arrangements typically
contain a withholding tax provision that requires the Company to
pay additional amounts to the applicable lender or other
financing party, generally if withholding taxes are imposed on
such lender or other financing party as a result of a change in
the applicable tax law.
These increased cost and withholding tax provisions continue for
the entire term of the applicable transaction, and there is no
limitation on the maximum additional amounts the Company could
be obligated to pay under such
61
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provisions. Any failure to pay amounts due under such provisions
generally would trigger an event of default and, in a secured
financing transaction, would entitle the lender to foreclose on
the collateral to realize the amount due.
In certain transactions, including certain aircraft financing
leases and loans and derivative transactions, the lessors,
lenders
and/or other
parties have rights to terminate the transaction based on
changes in foreign tax law, illegality or certain other events
or circumstances. In such a case, the Company may be required to
make a lump sum payment to terminate the relevant transaction.
The Company has general indemnity clauses in many of its airport
and other real estate leases where the Company as lessee
indemnifies the lessor (and related parties) against liabilities
related to the Companys use of the leased property.
Generally, these indemnifications cover liabilities resulting
from the negligence of the indemnified parties, but not
liabilities resulting from the gross negligence or willful
misconduct of the indemnified parties. In addition, the Company
provides environmental indemnities in many of these leases for
contamination related to the Companys use of the leased
property.
Under certain contracts with third parties, the Company
indemnifies the third party against legal liability arising out
of an action by the third party, or certain other parties. The
terms of these contracts vary and the potential exposure under
these indemnities cannot be determined. The Company has
liability insurance protecting the Company for some of the
obligations it has undertaken under these indemnities.
AMR and American have event risk covenants in approximately
$1 billion of indebtedness and operating leases as of
December 31, 2010. These covenants permit the holders of
such obligations to receive a higher rate of return (between 100
and 600 basis points above the state rate) if a designated
event, as defined, should occur and the credit ratings of such
obligations are downgraded below certain levels within a certain
period of time. No designated event, as defined, had occurred as
of December 31, 2010.
The Company is involved in certain claims and litigation related
to its operations. The Company is also subject to regulatory
assessments in the ordinary course of business. AMR establishes
reserves for litigation and regulatory matters when those
matters present loss contingencies that are both probable and
can be reasonably estimated. In the opinion of management,
liabilities, if any, arising from these claims and litigation
will not have a material adverse effect on the Companys
consolidated financial position, results of operations, or cash
flows, after consideration of available insurance.
AMRs subsidiaries lease various types of equipment and
property, primarily aircraft and airport facilities. The future
minimum lease payments required under capital leases, together
with the present value of such payments, and future minimum
lease payments required under operating leases that have initial
or remaining non-cancelable lease terms in excess of one year as
of December 31, 2010, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
Year Ending December 31,
|
|
Leases
|
|
|
Leases
|
|
|
2011
|
|
$
|
186
|
|
|
$
|
1,254
|
|
2012
|
|
|
136
|
|
|
|
1,068
|
|
2013
|
|
|
120
|
|
|
|
973
|
|
2014
|
|
|
98
|
|
|
|
831
|
|
2015
|
|
|
87
|
|
|
|
672
|
|
2016 and thereafter
|
|
|
349
|
|
|
|
6,006
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
976
|
|
|
$
|
10,804
|
(1)
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010, included in Accrued liabilities
and Other liabilities and deferred credits on the accompanying
consolidated balance sheet is approximately $1.1 billion
relating to rent expense being recorded in advance of future
operating lease payments. |
62
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2010, the Company was operating 202 jet
aircraft and 39 turboprop aircraft under operating leases and 70
jet aircraft under capital leases. The aircraft leases can
generally be renewed at rates based on fair market value at the
end of the lease term for one to five years. Some aircraft
leases have purchase options at or near the end of the lease
term at fair market value, but generally not to exceed a stated
percentage of the defined lessors cost of the aircraft or
a predetermined fixed amount.
During 2010, the Company financed 36 deliveries of Boeing
737-800
aircraft through sale leaseback transactions resulting in gains
which are being amortized over the respective remaining lease
terms. During 2009 non-recurring charges related to losses on
certain sale leasebacks of vintage aircraft of $88 million
were realized and included in Other operating income.
Special facility revenue bonds have been issued by certain
municipalities primarily to improve airport facilities and
purchase equipment. To the extent these transactions were
committed to prior to May 21, 1998, they are accounted for
as operating leases under U.S. GAAP. Approximately
$1.5 billion of these bonds (with total future payments of
approximately $3.2 billion as of December 31,
2010) are guaranteed by American, AMR, or both.
Approximately $177 million of these special facility
revenue bonds contain mandatory tender provisions that require
American to make operating lease payments sufficient to
repurchase the bonds at various times: $112 million in 2014
and $65 million in 2015. Although American has the right to
remarket the bonds, there can be no assurance that these bonds
will be successfully remarketed. Any payments to redeem or
purchase bonds that are not remarketed would generally reduce
existing rent leveling accruals or be considered prepaid
facility rentals and would reduce future operating lease
commitments. The special facility revenue bonds that contain
mandatory tender provisions are listed in the table above at
their ultimate maturity date rather than their mandatory tender
provision date.
Rent expense, excluding landing fees, was $1.5 billion,
$1.3 billion and $1.3 billion in 2010, 2009 and 2008,
respectively.
American has determined that it holds a significant variable
interest in, but is not the primary beneficiary of, certain
trusts that are the lessors under 83 of its aircraft operating
leases. These leases contain a fixed price purchase option,
which allows American to purchase the aircraft at a
predetermined price on a specified date. However, American does
not guarantee the residual value of the aircraft. As of
December 31, 2010, future lease payments required under
these leases totaled $1.1 billion.
Long-term debt consisted of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Secured variable and fixed rate indebtedness due through 2021
(effective rates from 1.00% 13.00% at
December 31, 2010)
|
|
$
|
5,114
|
|
|
$
|
5,553
|
|
Enhanced equipment trust certificates due through 2019 (rates
from 5.10% 12.00% at December 31, 2010)
|
|
|
2,002
|
|
|
|
2,022
|
|
6.00% 8.50% special facility revenue bonds due
through 2036
|
|
|
1,641
|
|
|
|
1,658
|
|
AAdvantage Miles advance purchase (net of discount of
$110 million) (effective rate 8.30)%
|
|
|
890
|
|
|
|
890
|
|
6.25% senior convertible notes due 2014
|
|
|
460
|
|
|
|
460
|
|
9.00% 10.20% debentures due through 2021
|
|
|
214
|
|
|
|
214
|
|
7.88% 10.55% notes due through 2039
|
|
|
211
|
|
|
|
211
|
|
|
|
|
10,532
|
|
|
|
11,008
|
|
Less current maturities
|
|
|
1,776
|
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
$
|
8,756
|
|
|
$
|
9,984
|
|
|
|
|
|
|
|
|
|
|
63
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Payments of long-term debt (including sinking fund requirements)
for the next five years are: 2011 $2.4 billion;
2012 $1.7 billion; 2013
$990 million; 2014 $1.4 billion,
2015 $713 million. The 2011 amount includes
approximately $600 million that was refinanced in January
2011 as described below and thus is excluded from current
maturities.
As of December 31, 2010, AMR had issued guarantees covering
approximately $1.6 billion of Americans tax-exempt
bond debt (and interest thereon) and $459 million of
Americans secured debt (and interest thereon). American
had issued guarantees covering approximately $885 million
of AMRs unsecured debt (and interest thereon). In
addition, as of December 31, 2010, AMR and American had
issued guarantees covering approximately $216 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 $145 million of Americans leases of
certain Super ATR aircraft, which are subleased to AMR Eagle.
On January 25, 2011, American closed on a $657 million
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.
In 2009, American entered into an arrangement under which
Citibank paid to American $1.0 billion in order to
pre-purchase AAdvantage Miles (the Advance Purchase Miles)
under Americans AAdvantage frequent flier loyalty program
(the Advance Purchase). Approximately $890 million of the
Advance Purchase proceeds is accounted for as a loan from
Citibank with the remaining $110 million recorded as
Deferred Revenue in Other liabilities and deferred credits.
To effect the Advance Purchase, American and Citibank entered
into an Amended and Restated AAdvantage Participation (as so
amended and restated, the Amended Participation Agreement).
Under the Amended Participation Agreement, American agreed that
it would apply in equal monthly installments, over a five year
period beginning on January 1, 2012, the Advance Purchase
Miles to Citibank cardholders AAdvantage accounts.
Pursuant to the Advance Purchase, Citibank has been granted a
first-priority lien in certain of Americans AAdvantage
program assets, and a lien in certain of Americans
Heathrow and Narita routes and slots that would be subordinated
to any subsequent first lien. Commencing on December 31,
2011, American has the right to repurchase, without premium or
penalty, any or all of the Advance Purchase Miles that have not
then been posted to Citibank cardholders accounts.
American is also obligated, in certain circumstances (including
certain specified termination events under the Amended
Participation Agreement, certain cross defaults and cross
acceleration events, and if any Advance Purchase Miles remain at
the end of the term) to repurchase for cash all of the Advance
Purchase Miles that have not then been used by Citibank.
The Amended Participation Agreement includes provisions that
grant Citibank the right to use Advance Purchase Miles on an
accelerated basis under specified circumstances. American also
has the right under certain circumstances to release, or
substitute other comparable collateral for, the Heathrow and
Narita route and slot related collateral.
64
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2009, American closed a $520 million Pass Through
Trust Certificates (the Certificates) financing covering
four Boeing
777-200ER
aircraft owned by American and 16 of Americans Boeing
737-800
deliveries. Equipment notes underlying the Certificates bear
interest at 10.375 percent per annum and principal and
interest on the notes are payable in semi-annual installments
with a balloon payment at maturity in 2019. Approximately
$200 million of the proceeds from the sale of the
Certificates were used by American during 2010 for the delivery
and financing of Boeing
737-800
aircraft.
Also in 2009, American entered into a sale leaseback financing
transaction with GECAS for Boeing
737-800
aircraft (the 2009 Sale Leaseback) delivered in 2010 and certain
Boeing
737-800
aircraft deliveries scheduled to be delivered in 2011 for an
aggregate commitment of $1.6 billion. The 2009 sale
leaseback is subject to certain terms and conditions, including
a condition to the effect that, at the time of entering into the
sale and leaseback of a particular Boeing
737-800
aircraft, American has at least a certain amount of unrestricted
cash and short term investments.
At December 31, 2010, the Company had outstanding
$460 million principal amount of its 6.25 percent
senior convertible notes due 2014. Each note is convertible by
holders into shares of AMR common stock at an initial conversion
rate of 101.0101 shares per $1,000 principal amount of
notes (which represents an equivalent initial conversion price
of approximately $9.90 per share), subject to adjustment upon
the occurrence of certain events, at any time prior to the close
of business on the business day immediately preceding the
maturity date of the notes. The Company must pay the conversion
price of the notes in common stock. If the holders of the notes
do not convert prior to maturity, the Company will retire the
debt in cash. These notes are guaranteed by American.
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, we 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).
Almost all of the Companys aircraft assets (including
aircraft eligible for the benefits of Section 1110 of the
U.S. Bankruptcy Code) are encumbered.
Cash payments for interest, net of capitalized interest, were
$735 million, $631 million and $685 million for
2010, 2009 and 2008, respectively.
|
|
7.
|
Financial
Instruments and Risk Management
|
Fuel Price Risk Management 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 December 31, 2010,
the Company had fuel derivative contracts outstanding covering
31 million barrels of jet fuel that will be settled over
the next 24 months. A deterioration of the Companys
liquidity position may negatively affect the Companys
ability to hedge fuel in the future.
In accordance with U.S. GAAP, 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. Derivatives that meet the requirements are granted
special hedge accounting treatment, and the Companys
hedges generally meet these requirements. Accordingly, the
Companys fuel derivative contracts are accounted for as
cash flow hedges, and the fair value of the Companys
hedging contracts is recorded in Current Assets or Current
Liabilities in the accompanying consolidated balance sheets
until the underlying jet fuel is purchased. The Company
determines the ineffective portion of its fuel hedge contracts
by comparing the cumulative change in the total value of the
fuel hedge contract, or group of fuel hedge contracts, to the
cumulative change in a hypothetical jet fuel hedge. If the total
cumulative change in value of the fuel hedge contract more than
offsets the total cumulative change in a hypothetical jet fuel
hedge, the difference is considered ineffective and is
immediately recognized as a component of Aircraft fuel expense.
Effective gains or losses on fuel
65
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
hedging contracts are deferred in Accumulated other
comprehensive income (loss) and are recognized in earnings as a
component of Aircraft fuel expense when the underlying jet fuel
being hedged is used.
Ineffectiveness is inherent in hedging jet fuel with derivative
positions based in crude oil or other crude oil related
commodities. In assessing effectiveness, 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 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. Subsequently, any changes
in the fair value of these derivatives are marked to market
through earnings in the period of change.
For the years ended December 31, 2010, 2009 and 2008, the
Company recognized net gains (losses) of approximately
($142) million, ($651) million and $380 million,
respectively, as a component of Aircraft fuel expense on the
accompanying consolidated statements of operations related to
its fuel hedging agreements, including the ineffective portion
of the hedges. The fair value of the Companys fuel hedging
agreements at December 31, 2010 and 2009, representing the
amount the Company would receive upon termination of the
agreements, totaled $257 million and $57 million,
respectively, which excludes a payable for both years related to
contracts that settled in December of each year. As of
December 31, 2010, the Company estimates that during the
next twelve months it will reclassify from Accumulated other
comprehensive loss into earnings approximately $121 million
in net gains (based on prices as of December 31,
2010) related to its fuel derivative hedges.
The impact of cash flow hedges on the Companys
consolidated financial statements for the years ending
December 31, 2010 and 2009, respectively, is depicted below
(in millions):
Fair Value of Aircraft Fuel Derivative Instruments (all cash
flow hedges)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives as of December 31,
|
|
Liability Derivatives as of December 31,
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Balance
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Fuel derivative
contracts
|
|
$269
|
|
Fuel derivative
contracts
|
|
$126
|
|
Fuel derivative
liability
|
|
$
|
|
Fuel derivative
liability
|
|
$71
|
Effect of Aircraft Fuel Derivative Instruments on Statements of
Operations (all cash flow hedges)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
(Loss)
|
|
|
|
|
|
|
(Loss)
|
|
Location of Gain
|
|
Reclassified
|
|
Location of Gain
|
|
Amount of Gain (Loss)
|
Recognized in
|
|
(Loss) Reclassified from
|
|
from Accumulated
|
|
(Loss) Recognized
|
|
Recognized in Income on
|
OCI on Derivative(1)
|
|
Accumulated OCI
|
|
OCI into Income(1)
|
|
in Income on
|
|
Derivative(2)
|
2010
|
|
2009
|
|
into Income(1)
|
|
2010
|
|
2009
|
|
Derivative(2)
|
|
2010
|
|
2009
|
|
$72
|
|
$151
|
|
Aircraft Fuel
|
|
$(144)
|
|
$(662)
|
|
Aircraft Fuel
|
|
$2
|
|
$11
|
|
|
|
(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 of the counterparties 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
66
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 exceed specified
mark-to-market
thresholds or upon certain changes in credit ratings.
As of December 31, 2010, the Company had received
collateral of $73 million which is included in short-term
investments.
In addition to the Companys qualifying cash flow hedges,
American has hedges that were effectively unwound in 2009 that
were recorded as assets and liabilities on the balance sheet.
Fair value of these offsetting positions not designated as
hedges as of December 31, 2009 was a $9 million asset
recorded in Fuel derivative contracts and a $9 million
liability recorded in Fuel derivative liability. In January
2010, all of these contracts were settled with a net zero impact
to the Companys financial statements.
Fair Values of Financial Instruments 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
incremental borrowing rates for similar types of borrowing
arrangements.
The carrying value and estimated fair values of the
Companys long-term debt, including current maturities,
were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Secured variable and fixed rate indebtedness
|
|
$
|
5,114
|
|
|
$
|
4,562
|
|
|
$
|
5,553
|
|
|
$
|
4,310
|
|
Enhanced equipment trust certificates
|
|
|
2,002
|
|
|
|
2,127
|
|
|
|
2,022
|
|
|
|
1,999
|
|
6.00% 8.50% special facility revenue bonds
|
|
|
1,641
|
|
|
|
1,657
|
|
|
|
1,658
|
|
|
|
1,600
|
|
AAdvantage Miles advance purchase
|
|
|
890
|
|
|
|
903
|
|
|
|
890
|
|
|
|
893
|
|
4.50% 6.25% senior convertible notes
|
|
|
460
|
|
|
|
526
|
|
|
|
460
|
|
|
|
476
|
|
9.00% 10.20% debentures
|
|
|
214
|
|
|
|
207
|
|
|
|
214
|
|
|
|
158
|
|
7.88% 10.55% notes
|
|
|
211
|
|
|
|
209
|
|
|
|
211
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,532
|
|
|
$
|
10,191
|
|
|
$
|
11,008
|
|
|
$
|
9,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has an unrecognized tax benefit of approximately
$6 million, which did not change during the twelve months
ended December 31, 2010. Changes in the unrecognized tax
benefit have no impact on the effective tax rate due to the
existence of the valuation allowance. Accrued interest on tax
positions is recorded as a component of interest expense but was
not significant at December 31, 2010.
The reconciliation of the beginning and ending amounts of
unrecognized tax benefit are (in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Unrecognized Tax Benefit at January 1
|
|
$
|
6
|
|
|
$
|
24
|
|
Decreases due to settlements with taxing authority
|
|
|
0
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized Tax Benefit at December 31
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
The Company estimates that the unrecognized tax benefit will not
significantly change within the next twelve months.
67
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company files its tax returns as prescribed by the tax laws
of the jurisdictions in which it operates. The Companys
2004 through 2009 tax years are still subject to examination by
the Internal Revenue Service. Various state and foreign
jurisdiction tax years remain open to examination and the
Company is under examination, in administrative appeals, or
engaged in tax litigation in certain jurisdictions. The Company
believes that the effect of any additional assessment(s) will be
immaterial to its consolidated financial statements.
The significant components of the income tax provision (benefit)
were (in millions);
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current
|
|
$
|
(5
|
)
|
|
$
|
(36
|
)
|
|
$
|
0
|
|
Deferred
|
|
|
(30
|
)
|
|
|
(248
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(35
|
)
|
|
$
|
(284
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax expense (benefit) differed from amounts computed
at the statutory federal income tax rate as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory income tax provision expense/(benefit)
|
|
$
|
(177
|
)
|
|
$
|
(613
|
)
|
|
$
|
(741
|
)
|
State income tax expense/(benefit), net of federal tax effect
|
|
|
(1
|
)
|
|
|
(41
|
)
|
|
|
(49
|
)
|
Meal expense
|
|
|
7
|
|
|
|
7
|
|
|
|
8
|
|
Change in valuation allowance
|
|
|
121
|
|
|
|
597
|
|
|
|
807
|
|
Tax benefit resulting from OCI allocation
|
|
|
|
|
|
|
(248
|
)
|
|
|
|
|
Other, net
|
|
|
15
|
|
|
|
14
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(35
|
)
|
|
$
|
(284
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the valuation allowance reflects the recording by
the Company in 2010 and 2009 of an income tax expense credit of
approximately $30 million and $36 million,
respectively, resulting from the Companys elections under
applicable sections of the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 and the Housing
and Economic Recovery Act of 2008 (as extended by the American
Recovery and Reinvestment Act of 2009), allowing corporations to
accelerate utilization of certain research and alternative
minimum tax (AMT) credit carryforwards in lieu of applicable
bonus depreciation on certain qualifying capital investments.
In addition to the changes in the valuation allowance from
operations described in the table above, the valuation allowance
was also impacted by the changes in the components of
Accumulated other comprehensive income (loss), described in
Note 12 to the consolidated financial statements. The total
increase in the valuation allowance was $121 million,
$135 million, and $2.1 billion in 2010, 2009, and
2008, respectively.
The Company recorded a $248 million non-cash income tax
benefit from continuing operations during the fourth quarter of
2009. 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. As a result, the
Company recorded a tax benefit on the loss from continuing
operations for the year, which will be exactly offset by income
tax expense on other comprehensive income. However, while the
income tax benefit from continuing operations is reported on the
income statement, the income tax expense on other comprehensive
income is recorded directly to Accumulated other comprehensive
income, which is a component of stockholders equity.
Because the income tax expense on other comprehensive income is
equal to the income tax benefit from continuing operations, the
Companys year-end net deferred tax position is not
impacted by this tax allocation.
68
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. In assessing
the realizability of the deferred tax assets, management
considers whether it is more likely than not that some portion,
or all of the deferred tax assets, will be realized. The
ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income (including reversals of
deferred tax liabilities) during the periods in which those
temporary differences will become deductible.
The components of AMRs deferred tax assets and liabilities
were (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Postretirement benefits other than pensions
|
|
$
|
1,056
|
|
|
$
|
971
|
|
Rent expense
|
|
|
333
|
|
|
|
331
|
|
Alternative minimum tax credit carryforwards
|
|
|
392
|
|
|
|
397
|
|
Operating loss carryforwards
|
|
|
2,271
|
|
|
|
2,276
|
|
Pensions
|
|
|
1,865
|
|
|
|
1,686
|
|
Frequent flyer obligation
|
|
|
630
|
|
|
|
669
|
|
Gains from lease transactions
|
|
|
55
|
|
|
|
90
|
|
Other
|
|
|
583
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
7,185
|
|
|
|
7,207
|
|
Valuation allowance
|
|
|
(2,990
|
)
|
|
|
(2,869
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
4,195
|
|
|
|
4,338
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization
|
|
|
(3,985
|
)
|
|
|
(4,152
|
)
|
Other
|
|
|
(185
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4,170
|
)
|
|
|
(4,338
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
25
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the Company had available for federal
income tax purposes an alternative minimum tax credit
carryforward of approximately $392 million, which is
available for an indefinite period, and federal net operating
losses of approximately $6.7 billion for regular tax
purposes, which will expire, if unused, beginning in 2022. These
net operating losses include an unrealized benefit of
approximately $666 million related to the implementation of
share-based compensation accounting guidance that will be
recorded in equity when realized. The Company had available for
state income tax purposes net operating losses of
$3.7 billion, which expire, if unused, in years 2011
through 2027. The amount that will expire in 2011 is
$25 million.
Cash payments (refunds) for income taxes were
($32) million, $6 million and $(14) million for
2010, 2009 and 2008, respectively.
Under special tax rules (the Section 382 Limitation),
cumulative stock ownership changes among material shareholders
exceeding 50 percent during a
3-year
period can potentially limit a companys future use of net
operating losses and tax credits (NOLs). The Section 382
Limitation may be increased by certain built-in
gains, as provided by current IRS guidance. Based on
available information, the Company believes it is not currently
subject to the Section 382 Limitation. If triggered under
current conditions, the Section 382 Limitation is not
expected to significantly impact the recorded value of deferred
taxes or timing of utilization of the Companys NOLs.
69
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Share
Based Compensation
|
AMR grants, or has granted, stock compensation under three
plans: the 1998 Long Term Incentive Plan (the 1998 Plan), the
2003 Employee Stock Incentive Plan (the 2003 Plan) and the 2009
Long Term Incentive Plan (the 2009 Plan). Collectively, the 1998
Plan and the 2009 Plan are referred to as the LTIP Plans.
Under the LTIP Plans, officers and key employees of AMR and its
subsidiaries may be granted certain types of stock or
performance based awards. At December 31, 2010, the Company
had stock option awards, stock appreciation right (SAR) awards,
performance share awards, deferred share awards and other awards
outstanding under these plans. The total number of common shares
authorized for distribution under the 1998 Plan and the 2009
Plan is 23,700,000 and 4,000,000 shares, respectively. The
1998 Plan expired by its terms in 2008.
The Company established the 2003 Plan to provide equity awards
to employees. Under the 2003 Plan, employees may be granted
stock options, restricted stock and deferred stock. At
December 31, 2010, the Company had stock options and
deferred awards outstanding under this plan. The total number of
shares authorized for distribution under the 2003 Plan is
42,680,000 shares.
In 2010, 2009 and 2008 the total charge for share-based
compensation expense included in Wages, salaries and benefits
expense was $53 million, $61 million and
$53 million, respectively. In 2010, 2009 and 2008, the
amount of cash used to settle equity instruments granted under
share-based compensation plans was $2 million,
$1 million and $24 million, respectively.
Stock Options/SARs During 2006, the AMR Board
of Directors approved an amendment covering all of the
outstanding stock options previously granted under the 1998
Plan. The amendment added to each of the outstanding options an
additional SAR in tandem with each of the then outstanding stock
options. The addition of the SAR did not impact the fair value
of the stock options, but simply allowed the Company to settle
the exercise of the option by issuing the net number of shares
equal to the
in-the-money
value of the option. This amendment is estimated to make
available enough shares to permit the Company to settle all
outstanding performance and deferred share awards under the 1998
Plan in stock rather than cash.
Options/SARs granted under the LTIP Plans and the 2003 Plan are
awarded with an exercise price equal to the fair market value of
the stock on date of grant, become exercisable in equal annual
installments over periods ranging from three to five years and
expire no later than ten years from the date of grant. Expense
for the options is recognized on a straight-line basis. The fair
value of each award is estimated on the date of grant using the
modified Black-Scholes option valuation model and the
assumptions noted in the following table. Expected volatilities
are based on implied volatilities from traded options on the
Companys stock, historical volatility of the
Companys stock, and other factors. The Company uses
historical employee exercise data to estimate the expected term
of awards granted used in the valuation model. The risk-free
rate is based on the U.S. Treasury yield curve in effect at
the time of grant. The dividend yield is assumed to be zero
based on the Companys history and expectation of not
paying dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Expected volatility
|
|
|
74.4% to 75.9%
|
|
|
|
73.6% to 76.7%
|
|
|
|
53.0% to 55.9%
|
|
Expected term (in years)
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Risk-free rate
|
|
|
1.18% to 2.58%
|
|
|
|
2.33% to 2.46%
|
|
|
|
2.98% to 3.15%
|
|
Annual forfeiture rate
|
|
|
10.0%
|
|
|
|
10.0%
|
|
|
|
10.0%
|
|
70
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of stock option/SARs activity under the LTIP Plans and
the 2003 Plan as of December 31, 2010, and changes during
the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTIP Plans
|
|
|
The 2003 Plan
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options/SARs
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding at January 1
|
|
|
15,892,528
|
|
|
$
|
19.02
|
|
|
|
13,526,670
|
|
|
$
|
5.66
|
|
Granted
|
|
|
3,165,950
|
|
|
|
7.07
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(100,366
|
)
|
|
|
4.86
|
|
|
|
(211,575
|
)
|
|
|
5.00
|
|
Forfeited or Expired
|
|
|
(3,573,824
|
)
|
|
|
30.51
|
|
|
|
(106,712
|
)
|
|
|
6.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
15,384,288
|
|
|
$
|
13.99
|
|
|
|
13,208,383
|
|
|
$
|
5.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
7,290,070
|
|
|
$
|
21.32
|
|
|
|
13,206,599
|
|
|
$
|
5.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Contractual Term of Options
Outstanding (in years)
|
|
|
6.2
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic Value of Options Outstanding
|
|
$
|
14,155,359
|
|
|
|
|
|
|
$
|
32,871,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of all vested options/SARs is
$35 million and those options have an average remaining
contractual life of 2.8 years. The weighted-average grant
date fair value of options/SARs granted during 2010, 2009 and
2008 was $3.97, $2.54 and $3.78, respectively. The total
intrinsic value of options/SARs exercised during 2010, 2009 and
2008 was $1 million, less than $1 million and
$2 million, respectively.
A summary of the status of the Companys non-vested
options/SARs under all plans as of December 31, 2010, and
changes during the year ended December 31, 2010, is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Options/SARs
|
|
|
Value
|
|
|
Outstanding at January 1
|
|
|
6,765,581
|
|
|
$
|
4.02
|
|
Granted
|
|
|
3,165,950
|
|
|
|
3.97
|
|
Vested
|
|
|
(1,743,271
|
)
|
|
|
4.82
|
|
Forfeited
|
|
|
(92,258
|
)
|
|
|
3.82
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
8,096,002
|
|
|
$
|
3.83
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, there was $14 million of
total unrecognized compensation cost related to non-vested stock
options/SARs granted under the LTIP Plans and the 2003 Plan that
is expected to be recognized over a weighted-average period of
3.4 years. The total fair value of stock options/SARs
vested during the years ended December 31, 2010, 2009 and
2008, was $11 million, $10 million and
$9 million, respectively.
Cash received by the Company from exercise of stock options for
the years ended December 31, 2010, 2009 and 2008, was
$1 million for each of those years. No tax benefit was
realized as a result of stock options/SARs exercised in 2010 due
to the tax valuation allowance discussed in Note 8.
Performance Share Awards Performance share
awards are granted under the LTIP Plans, generally vest pursuant
to a three year measurement period and are settled on the
vesting date. The number of awards ultimately issued under
performance share awards is contingent on AMRs relative
stock price performance compared to certain of its competitors
over a three year period and can range from zero to
175 percent of the awards granted. The
71
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fair value of performance awards is calculated by multiplying
the stock price on the date of grant by the expected payout
percentage and the number of shares granted.
Activity during 2010 for performance awards accounted for as
equity awards was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Awards
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at January 1
|
|
|
7,863,455
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,057,630
|
|
|
|
|
|
|
|
|
|
Settled
|
|
|
(324,462
|
)
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(1,306,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
9,290,446
|
|
|
|
1.3
|
|
|
$
|
72,372,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value represents the Companys
current estimate of the number of shares (9,290,446 shares
at December 31, 2010) that will ultimately be
distributed for outstanding awards computed using the market
value of the Companys common stock at December 31,
2010. The weighted-average grant date fair value per share of
performance share awards granted during 2010, 2009, and 2008 was
$7.01, $4.53 and $8.20, respectively. The total fair value of
equity awards settled during the year ended December 31,
2010 was $2 million. As of December 31, 2010, there
was $23 million of total unrecognized compensation cost
related to performance share awards that is expected to be
recognized over a period of 1.7 years.
Deferred Share Awards The distribution of
deferred share awards granted under the LTIP Plans is based
solely on a requisite service period (generally 36 months).
Career equity awards granted to certain employees of the Company
vest upon the retirement of those individuals. The fair value of
each deferred award is based on AMRs stock price on the
measurement date.
Activity during 2010 for deferred awards accounted for as equity
awards was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at January 1
|
|
|
6,887,268
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,722,330
|
|
|
|
|
|
|
|
|
|
Settled
|
|
|
(628,270
|
)
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(256,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
8,724,559
|
|
|
|
2.2
|
|
|
$
|
67,964,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value per share of deferred
awards granted during 2010, 2009 and 2008 was $7.05, $4.57 and
$8.23, respectively. The total fair value of awards settled
during the years ended December 31, 2010, 2009 and 2008 was
$3 million, $3 million and $6 million,
respectively. As of December 31, 2010, there was
$27 million of total unrecognized compensation cost related
to deferred awards that is expected to be recognized over a
weighted average period of 2.6 years.
Other Awards As of December 31, 2010,
certain performance share agreements and deferred share award
agreements were accounted for as a liability, or as equity, as
appropriate, in the consolidated balance sheet as the plans only
permit settlement in cash or the awards required that the
employee meet certain performance conditions which were not
subject to market measurement. As a result, awards under these
agreements are marked to current market value. As of
December 31, 2010, the aggregate intrinsic value of these
awards was $4 million and the
72
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
weighted average remaining contractual term of these awards was
2.8 years. The total fair value of awards settled during
the years ended December 31, 2010, 2009 and 2008 was
$2 million, $1 million, and $24 million
respectively. As of December 31, 2010, there was
$2 million of total unrecognized compensation cost related
to other awards that is expected to be recognized over a
weighted average period of 3.5 years.
All employees of the Company may participate in pension plans if
they meet the plans eligibility requirements. The defined
benefit plans provide benefits for participating employees based
on years of service and average compensation for a specified
period of time before retirement. The Company uses a December 31
measurement date for all of its defined benefit plans.
Americans pilots also participate in a defined
contribution plan for which Company contributions are determined
as a percentage (11 percent) of participant compensation.
Certain non-contract employees (including all new non-contract
employees) participate in a defined contribution plan in which
the Company will match the employees before-tax
contribution on a
dollar-for-dollar
basis, up to 5.5 percent of their pensionable pay.
In addition to pension benefits, retiree medical and other
postretirement benefits, including certain health care and life
insurance benefits (which provide secondary coverage to
Medicare), are provided to retired employees. The amount of
health care benefits is limited to lifetime maximums as outlined
in the plan. Certain employees of American and employees of
certain other subsidiaries may become eligible for these
benefits if they satisfy eligibility requirements during their
working lives.
Certain employee groups make contributions toward funding a
portion of their retiree health care benefits during their
working lives. The Company funds benefits as incurred and makes
contributions to match employee prefunding.
The following table provides a reconciliation of the changes in
the pension and retiree medical and other benefit obligations
and fair value of assets for the years ended December 31,
2010 and 2009, and a statement of funded status as of
December 31, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retiree Medical and
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Reconciliation of benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at January 1
|
|
$
|
12,003
|
|
|
$
|
10,884
|
|
|
$
|
2,827
|
|
|
$
|
2,779
|
|
Service cost
|
|
|
366
|
|
|
|
333
|
|
|
|
60
|
|
|
|
59
|
|
Interest cost
|
|
|
737
|
|
|
|
712
|
|
|
|
165
|
|
|
|
179
|
|
Actuarial (gain) loss
|
|
|
442
|
|
|
|
675
|
|
|
|
263
|
|
|
|
67
|
|
Plan amendments
|
|
|
1
|
|
|
|
|
|
|
|
(78
|
)
|
|
|
(101
|
)
|
Benefit payments
|
|
|
(581
|
)
|
|
|
(601
|
)
|
|
|
(140
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at December 31
|
|
$
|
12,968
|
|
|
$
|
12,003
|
|
|
$
|
3,097
|
|
|
$
|
2,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
7,051
|
|
|
$
|
6,714
|
|
|
$
|
206
|
|
|
$
|
161
|
|
Actual return on plan assets
|
|
|
837
|
|
|
|
928
|
|
|
|
17
|
|
|
|
34
|
|
Employer contributions
|
|
|
466
|
|
|
|
10
|
|
|
|
151
|
|
|
|
167
|
|
Benefit payments
|
|
|
(581
|
)
|
|
|
(601
|
)
|
|
|
(140
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$
|
7,773
|
|
|
$
|
7,051
|
|
|
$
|
234
|
|
|
$
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31
|
|
$
|
(5,195
|
)
|
|
$
|
(4,952
|
)
|
|
$
|
(2,863
|
)
|
|
$
|
(2,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
AMR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retiree Medical and
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Amounts recognized in the consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
173
|
|
|
$
|
167
|
|
Noncurrent liability
|
|
|
5,187
|
|
|
|
4,943
|
|
|
|
2,690
|
|
|
|
2,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,195
|
|
|
$
|
4,952
|
|
|
$
|
2,863
|
|
|
$
|
2,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
3,052
|
|
|
$
|
3,008
|
|
|
$
|
(128
|
)
|
|
$
|
(402
|
)
|
Prior service cost (credit)
|
|
|
81
|
|
|
|
94
|
|
|
|
(205
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,133
|
|
|
$
|
3,102
|
|
|
$
|
(333
|
)
|
|
$
|
(549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For plans with accumulated benefit obligations exceeding the
fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation (PBO)
|
|
$
|
12,968
|
|
|
$
|
11,977
|
|
|
$
|
|
|
|
$
|
|
|
Accumulated benefit obligation (ABO)
|
|
|
11,508
|
|
|
|
10,558
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation (APBO)
|
|
|
|
|
|
|
|
|
|
|
3,097
|
|
|
|
2,827
|
|
Fair value of plan assets
|
|
|
7,773
|
|
|
|
7,027
|
|
|
|
234
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABO less fair value of plan assets
|
|
|
3,735
|
|
|
|
3,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 and 2009, pension benefit plan assets
of $264 million and $145 million, respectively, and
retiree medical and other benefit plan assets of
$232 million and $204 million, respectively, were
invested in shares of certain mutual funds.
The following tables provide the components of net periodic
benefit cost for the years ended December 31, 2010, 2009
and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
366
|
|
|
$
|
333
|
|
|
$
|
324
|
|
Interest cost
|
|
|
737
|
|
|
|
712
|
|
|
|
684
|
|
Expected return on assets
|
|
|
(593
|
)
|
|
|
(566
|
)
|
|
|
(789
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
13
|
|
|
|
13
|
|
|
|
16
|
|
Settlement
|
|
|
|
|
|
|
|
|
|
|
103
|
|
Unrecognized net loss
|
|
|
154
|
|
|
|
145
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost for defined benefit plans
|
|
|
677
|
|
|
|
637
|
|
|
|
341
|
|
Defined contribution plans
|
|
|
168
|
|
|
|
168
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
845
|
|
|
$
|
805
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|