ar0331-10q.htm
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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
FORM
10-Q
[ü]Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the Quarterly Period Ended March 31,
2009.
[ ]Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
Transition Period From to .
Commission
file number 1-8400.
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AMR
Corporation
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(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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(I.R.S.
Employer Identification No.)
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4333
Amon Carter Blvd.
Fort
Worth, Texas
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76155
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code
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(817)
963-1234
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Not
Applicable
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(Former
name, former address and former fiscal year , if changed since last
report)
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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 ¨ No
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the
Exchange Act. þ Large Accelerated
Filer ¨ Accelerated
Filer ¨ Non-accelerated
Filer
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). ¨
Yes þ No
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Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Common
Stock, $1 par value – 284,952,923 shares as of April 09,
2009.
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INDEX
AMR
CORPORATION
PART
I: FINANCIAL INFORMATION
Item
1. Financial Statements
Consolidated
Statements of Operations -- Three months ended March 31, 2009 and
2008
Condensed
Consolidated Balance Sheets -- March 31, 2009 and December 31, 2008
Condensed
Consolidated Statements of Cash Flows -- Three months ended March 31, 2009 and
2008
Notes to
Condensed Consolidated Financial Statements -- March 31, 2009
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
Item
4. Controls and Procedures
PART
II: OTHER INFORMATION
Item
1. Legal Proceedings
Item
6. Exhibits
SIGNATURE
PART
I: FINANCIAL INFORMATION
Item
1. Financial
Statements
AMR
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited) (In millions,
except per share
amounts)
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Three
Months Ended March 31,
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2009
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2008
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Revenues
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Passenger
- American Airlines
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$ |
3,680 |
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$ |
4,379 |
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-
Regional Affiliates
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457 |
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581 |
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Cargo
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144 |
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215 |
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Other
revenues
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558 |
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522 |
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Total
operating revenues
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4,839 |
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5,697 |
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Expenses
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Wages,
salaries and benefits
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1,688 |
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1,644 |
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Aircraft
fuel
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1,298 |
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2,050 |
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Other
rentals and landing fees
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324 |
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323 |
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Depreciation
and amortization
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272 |
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309 |
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Maintenance,
materials and repairs
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305 |
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315 |
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Commissions,
booking fees and credit card expense
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217 |
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257 |
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Aircraft
rentals
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124 |
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125 |
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Food
service
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114 |
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127 |
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Special
charges
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13 |
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- |
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Other
operating expenses
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678 |
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734 |
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Total
operating expenses
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5,033 |
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5,884 |
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Operating
Loss
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(194 |
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(187 |
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Other
Income (Expense)
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Interest
income
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11 |
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53 |
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Interest
expense
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(186 |
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(207 |
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Interest
capitalized
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10 |
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5 |
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Miscellaneous
- net
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(16 |
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(5 |
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(181 |
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(154 |
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Loss
Before Income Taxes
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(375 |
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(341 |
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Income
tax
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- |
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- |
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Net
Loss
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$ |
(375 |
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$ |
(341 |
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Loss
Per Share
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Basic
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$ |
(1.35 |
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$ |
(1.37 |
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Diluted
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$ |
(1.35 |
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$ |
(1.37 |
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The
accompanying notes are an integral part of these financial
statements.
AMR
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In
millions)
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March
31,
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December
31,
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2009
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2008
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Assets
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Current
Assets
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Cash
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$ |
187 |
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$ |
191 |
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Short-term
investments
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2,677 |
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2,916 |
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Restricted
cash and short-term investments
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462 |
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459 |
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Receivables,
net
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785 |
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811 |
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Inventories,
net
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494 |
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525 |
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Fuel
derivative contracts
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159 |
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188 |
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Fuel
derivative collateral deposits
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343 |
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575 |
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Other
current assets
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255 |
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270 |
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Total
current assets
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5,362 |
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5,935 |
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Equipment
and Property
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Flight
equipment, net
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12,356 |
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12,454 |
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Other
equipment and property, net
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2,361 |
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2,370 |
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Purchase
deposits for flight equipment
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650 |
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671 |
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15,367 |
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15,495 |
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Equipment
and Property Under Capital Leases
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Flight
equipment, net
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150 |
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181 |
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Other
equipment and property, net
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57 |
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59 |
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207 |
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240 |
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Route
acquisition costs and airport operating and gate lease rights,
net
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1,102 |
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1,109 |
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Other
assets
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2,480 |
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2,396 |
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$ |
24,518 |
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$ |
25,175 |
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Liabilities
and Stockholder’s Equity
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Current
Liabilities
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Accounts
payable
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$ |
1,005 |
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$ |
952 |
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Accrued
liabilities
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1,976 |
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2,042 |
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Air
traffic liability
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3,845 |
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3,708 |
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Fuel
derivative liability
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613 |
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716 |
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Current
maturities of long-term debt
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1,371 |
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1,845 |
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Current
obligations under capital leases
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98 |
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107 |
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Total
current liabilities
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8,908 |
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9,370 |
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Long-term
debt, less current maturities
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8,314 |
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8,423 |
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Obligations
under capital leases, less current obligations
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528 |
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582 |
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Pension
and postretirement benefits
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6,739 |
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6,614 |
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Other
liabilities, deferred gains and deferred credits
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3,138 |
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3,121 |
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Stockholder’s
Equity
Preferred
stock
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- |
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- |
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Common
stock
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285 |
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285 |
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Additional
paid-in capital
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4,004 |
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3,992 |
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Treasury
stock
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(367 |
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(367 |
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Accumulated
other comprehensive loss
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(2,988 |
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(3,177 |
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Accumulated
deficit
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(4,043 |
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(3,668 |
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(3,109 |
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(2,935 |
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$ |
24,518 |
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$ |
25,175 |
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The
accompanying notes are an integral part of these financial
statements.
AMR
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In
millions)
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Three
Months Ended March 31,
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2009
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2008
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Net
Cash Provided by Operating Activities
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$ |
459 |
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$ |
449 |
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Cash
Flow from Investing Activities:
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Capital
expenditures
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(169 |
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(217 |
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Net
(increase) decrease in short-term investments
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239 |
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71 |
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Net
(increase) decrease in restricted cash and short-term
investments
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(3 |
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2 |
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Proceeds
from sale of equipment and property
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3 |
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2 |
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Cash
collateral on spare parts financing
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45 |
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1 |
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Net
cash provided by (used for) investing activities
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115 |
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(141 |
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Cash
Flow from Financing Activities:
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Payments
on long-term debt and capital lease obligations
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(753 |
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(254 |
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Proceeds
from:
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Issuance
of debt and sale leaseback transactions
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174 |
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- |
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Reimbursement
from construction reserve account
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1 |
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1 |
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Net
cash used by financing activities
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(578 |
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(253 |
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Net
increase (decrease) in cash
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(4 |
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55 |
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Cash
at beginning of period
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191 |
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148 |
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Cash
at end of period
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$ |
187 |
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$ |
203 |
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The
accompanying notes are an integral part of these financial
statements.
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NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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1.
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The
accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, these financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
financial position, results of operations and cash flows for the periods
indicated. Results of operations for the periods presented herein are not
necessarily indicative of results of operations for the entire
year. The condensed consolidated financial statements include
the accounts of AMR Corporation (AMR or the Company) and its wholly owned
subsidiaries, including (i) its principal subsidiary American Airlines,
Inc. (American) and (ii) its regional airline subsidiary, AMR Eagle
Holding Corporation and its primary subsidiaries, American Eagle Airlines,
Inc. and Executive Airlines, Inc. (collectively, AMR Eagle). The condensed
consolidated financial statements also include the accounts of variable
interest entities for which the Company is the primary beneficiary. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the AMR Annual Report on Form 10-K for the
year ended December 31, 2008 (2008 Form 10-K).
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During
the first quarter of 2009, the Company experienced a significant weakening of
demand, especially in international markets, due to the worldwide economic
recession creating a very challenging environment. This factor coupled with the
recent severe disruptions in the capital markets has negatively impacted the
Company and significantly impacted its results of operations and cash flows for
the three months ended March 31, 2009. Consequently, the Company’s
liquidity has been negatively affected as unrestricted cash and short-term
investments decreased from $3.1 billion as of December 31, 2008 to
$2.9 billion at March 31, 2009. In addition, the Company may not
be able to improve its liquidity position for the remainder of 2009 if lower
demand for air travel and a weak global economy were to persist and if the
Company is unable to obtain financing on reasonable terms.
The Company remains
heavily indebted and has significant obligations. However, as of the
date of this Form 10-Q, the Company believes it can access sufficient
liquidity to fund its operations and obligations for the remainder of 2009,
including repayment of debt and capital leases, capital expenditures and other
contractual obligations.
To date
during 2009, the Company secured approximately $148 million of financing that
was previously uncommitted through loans on certain aircraft. These
transactions are in addition to previously arranged financing and backstop
financing which could be used for a significant portion of the Company’s
remaining 2009 - 2011 Boeing 737-800 aircraft deliveries. Exclusive
of these transactions, the Company estimates that it has at least $3.6 billion
in unencumbered assets and other sources of liquidity and the Company continues
to evaluate the most cost-effective alternatives to raise additional
capital. The Company’s possible financing sources primarily include:
(i) a limited amount of additional secured aircraft debt or sale leaseback
transactions involving owned aircraft; (ii) leases of or debt secured by new
aircraft deliveries; (iii) debt secured by other assets; (iv) securitization of
future operating receipts; (v) the sale or monetization of certain assets; (vi)
unsecured debt; and (vii) issuance of equity and/or equity-like securities.
Besides unencumbered aircraft, some of the Company’s particular assets and other
sources of liquidity that could be sold or otherwise used as sources of
financing include AAdvantage program miles, takeoff and landing slots, and
certain of the Company’s business units and subsidiaries, such as AMR
Eagle.
For
additional information regarding the Company’s possible financing sources, see
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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2.
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As
of March 31, 2009, the Company had commitments to acquire 27 Boeing
737-800s for the remainder of 2009, 39 Boeing 737-800s in 2010 and eight
Boeing 737-800 aircraft in 2011. In addition to these aircraft,
the Company has commitments for eleven 737-800 aircraft and seven Boeing
777 aircraft scheduled to be delivered in 2013 through
2016. Payments will approximate $975 million in the remainder
of 2009, $1.1 billion in 2010, $349 million in 2011, $217 million in 2012,
$399 million in 2013, and $556 million for 2014 and beyond. These amounts
are net of purchase deposits currently held by the
manufacturer.
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NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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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. The SO states that, in the event
that the allegations in the SO are affirmed, the Commission will impose fines
against the Company. The Company intends to vigorously contest the
allegations and findings in the SO under EU laws, and it intends to cooperate
fully with all other pending investigations. Based on the information
to date, the Company has not recorded any reserve for this exposure for the
quarter ended March 31, 2009. In the event that the SO is affirmed or other
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.
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3.
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Accumulated
depreciation of owned equipment and property at March 31, 2009 and
December 31, 2008 was $10.1 billion and $9.9 billion,
respectively. Accumulated amortization of equipment and
property under capital leases at March 31, 2009 and December 31, 2008 was
$530 million and $536 million,
respectively.
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4.
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As
discussed in Note 7 to the consolidated financial statements in the 2008
Form 10-K, the Company has a valuation allowance against the full amount
of its net deferred tax asset. The Company currently provides a valuation
allowance against deferred tax assets when it is more likely than not that
some portion, or all of its deferred tax assets, will not be realized. The
Company’s deferred tax asset valuation allowance increased approximately
$62 million during the three months ended March 31, 2009 to $2.8 billion
as of March 31, 2009, including the impact of comprehensive income for the
three months ended March 31, 2009 and changes from other
adjustments.
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The
Company estimates that the unrecognized tax benefit recorded under Financial
Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes”, may decrease during the next twelve months based on anticipated
resolution of a pending Internal Revenue Service Appeals
process. Changes in the unrecognized tax benefit will have no impact
on the effective tax rate due to the existence of the valuation
allowance.
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5.
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As
of March 31, 2009, AMR had issued guarantees covering approximately $1.2
billion of American’s tax-exempt bond debt and American had issued
guarantees covering approximately $427 million of AMR’s unsecured
debt. In addition, as of March 31, 2009, AMR and American had
issued guarantees covering approximately $284 million of AMR Eagle’s
secured debt and AMR has issued guarantees covering an additional $2.0
billion of AMR Eagle’s secured
debt.
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In
May 2008, the Financial Accounting Standards Board (FASB) affirmed the
consensus of FASB Staff Position APB 14-1 (FSP APB 14-1), “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement),” which applies to all convertible debt
instruments that have a ‘‘net settlement feature’’, which means that such
convertible debt instruments, by their terms, may be settled either wholly or
partially in cash upon conversion. FSP APB 14-1 requires issuers
of convertible debt instruments that may be settled wholly or partially in cash
upon conversion to separately account for the liability and equity components in
a manner reflective of the issuers’ nonconvertible debt borrowing
rate. The Company adopted FSP APB 14-1 as of January 1, 2009, and the
adoption impacted the historical accounting for the 4.25 percent senior
convertible notes due 2023 (the 4.25 Notes) and the 4.50 percent senior
convertible notes due 2024 (the 4.50 Notes), and resulted in increased interest
expense of approximately $5 million and $13 million for the three months ended
March 31, 2009, and 2008, as well as an increase to paid in capital of $207
million with an offset to accumulated deficit of $206 million and current
portion of long term debt of $1 million as of January 1, 2009. The
impact to loss per share was an increase of $0.02 and $0.05 for the quarters
ended March 31, 2009 and 2008, respectively. The Company expects to
file a Form 8-K to reflect the adoption of FSP APB 14-1 for the 2008, 2007 and
2006 financial statements, in April 2009.
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
In the
first quarter of 2009, AMR retired, by purchasing with cash $318 million
principal amount of its 4.50 Notes. Virtually all of the holders of
the 4.50 Notes exercised their elective put rights and the Company purchased and
retired these notes at a price equal to 100 percent of their principal
amount. Under the terms of the 4.50 Notes, the Company had the option
to pay the purchase price with cash, stock, or a combination of cash and stock,
and the Company elected to pay for the 4.50 Notes solely with cash.
During
the quarter ended March 31, 2009, the Company raised approximately $94 million
under a loan secured by various aircraft. The loan generally bears interest at a
LIBOR-based (London Interbank Offered Rate) variable rate with a fixed margin
which resets quarterly and is due in installments through 2019.
|
6.
|
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.
|
Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
|
(in
millions)
|
|
Fair Value Measurements as of March 31,
2009
|
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments 1
|
|
$ |
2,677 |
|
|
$ |
1,357 |
|
|
$ |
1,320 |
|
|
$ |
- |
|
|
Restricted
cash and short-term investments 1
|
|
|
462 |
|
|
|
462 |
|
|
|
- |
|
|
|
- |
|
|
Fuel
derivative contracts, net liability 1
|
|
|
454 |
|
|
|
- |
|
|
|
454 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,593 |
|
|
$ |
1,819 |
|
|
$ |
1,774 |
|
|
$ |
- |
|
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) at each measurement
date.
|
7.
|
The
following table provides the components of net periodic benefit cost for
the three months ended March 31, 2009 and 2008 (in
millions):
|
|
|
|
Pension
Benefits
|
|
|
Retiree
Medical and Other Benefits
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Components of net periodic benefit
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
84 |
|
|
$ |
81 |
|
|
$ |
14 |
|
|
$ |
13 |
|
|
Interest
cost
|
|
|
178 |
|
|
|
171 |
|
|
|
44 |
|
|
|
43 |
|
|
Expected
return on assets
|
|
|
(143 |
) |
|
|
(198 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
4 |
|
|
|
4 |
|
|
|
(2 |
) |
|
|
(4 |
) |
|
Unrecognized
net (gain) loss
|
|
|
37 |
|
|
|
- |
|
|
|
(3 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
160 |
|
|
$ |
58 |
|
|
$ |
50 |
|
|
$ |
41 |
|
The
Company has no required 2009 contributions to its defined benefit pension plans
under the provisions of the Pension Funding Equity Act of 2004 and the Pension
Protection Act of 2006. The Company’s estimates of its defined
benefit pension plan contributions reflect the current provisions of the Pension
Funding Equity Act of 2004 and the Pension Protection Act of
2006. The Company expects to contribute approximately $13 million to
its retiree medical and other benefit plan in 2009.
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
|
8.
|
As
a result of the revenue environment, high fuel prices and the Company’s
restructuring activities, including its capacity reductions, the Company
has recorded a number of charges during the last few
years. The following table
summarizes the components of the Company’s special charges, the remaining
accruals for these charges and the capacity reduction related charges (in
millions) as of March 31,
2009:
|
|
|
|
Aircraft
Charges
|
|
|
Facility
Exit Costs
|
|
|
Employee
Charges
|
|
|
Total
|
|
|
Remaining
accrual at December 31, 2008
|
|
$ |
110 |
|
|
$ |
16 |
|
|
$ |
16 |
|
|
$ |
142 |
|
|
Capacity
reduction charges
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
|
Non-cash
charges
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
Adjustments
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
|
Payments
|
|
|
(8 |
) |
|
|
- |
|
|
|
(16 |
) |
|
|
(24 |
) |
|
Remaining
accrual at March 31, 2009
|
|
$ |
115 |
|
|
$ |
15 |
|
|
$ |
- |
|
|
$ |
130 |
|
Cash
outlays related to the accruals for aircraft charges and facility exit costs
will occur through 2017 and 2018, respectively.
|
9.
|
As
part of the Company's risk management program, it uses a variety of
financial instruments, primarily heating oil option and collar contracts,
as cash flow hedges to mitigate commodity price risk. The
Company does not hold or issue derivative financial instruments for
trading purposes. As of March 31, 2009, the Company had fuel
derivative contracts outstanding covering 30 million barrels of jet fuel
that will be settled over the next 24 months. A deterioration
of the Company’s liquidity position may negatively affect the Company’s
ability to hedge fuel in the
future.
|
In
accordance with Statement of Financial Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activity” (SFAS 133), the Company
assesses, both at the inception of each hedge and on an on-going basis, whether
the derivatives that are used in its hedging transactions are highly effective
in offsetting changes in cash flows of the hedged items. Derivatives
that meet the requirements of SFAS 133 are granted special hedge accounting
treatment, and the Company’s hedges generally meet these
requirements. Accordingly, the Company’s fuel derivative contracts
are accounted for as cash flow hedges, and the fair value of the Company’s
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 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.
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
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
quarters ended March 31, 2009 and 2008, the Company recognized an increase
(decrease) of approximately $268 million and ($107) million, respectively, in
fuel expense on the accompanying consolidated statements of operations related
to its fuel hedging agreements, including the ineffective portion of the
hedges. The fair value of the Company’s fuel hedging agreements at
March 31, 2009 and December 31, 2008, representing the amount the Company would
pay to terminate the agreements, totaled $393 million and $450 million,
respectively, which excludes a payable related to contracts that settled in the
last month of each respective reporting period. As of March 31, 2009,
the Company estimates that during the remainder of 2009 it will reclassify from
Accumulated other comprehensive loss into fuel expense approximately $523
million in net losses (based on prices as of March 31, 2009) related to its fuel
derivative hedges, including losses from terminated contracts with a bankrupt
counterparty and unwound trades.
The
impact of cash flow hedges on the Company’s consolidated financial statements is
depicted below (in millions):
| |
Fair
Value of Aircraft Fuel Derivative Instruments (all cash flow hedges under
SFAS 133)
|
| |
Asset
Derivatives as of
|
|
Liability
Derivatives as of
|
| |
March
31, 2009
|
|
December
31, 2008
|
|
March
31, 2009
|
|
December
31, 2008
|
| |
Balance
Sheet Location
|
Fair
Value
|
|
Balance
Sheet Location
|
Fair
Value
|
|
Balance
Sheet Location
|
Fair
Value
|
|
Balance
Sheet Location
|
Fair
Value
|
| |
Fuel
derivative contracts
|
$ -
|
|
Fuel
derivative contracts
|
$ -
|
|
Fuel
derivative liability
|
$
454
|
|
Accrued
liabilities
|
$ 528
|
|
Effect
of Aircraft Fuel Derivative Instruments on Statements of Operations (all
cash flow hedges under SFAS 133)
|
|
| |
|
|
Amount
of Gain (Loss) Recognized in OCI on Derivative1 as
of March 31,
|
|
Location
of Gain (Loss) Reclassified from Accumulated OCI into Income 1
|
|
Amount
of Gain (Loss) Reclassified from Accumulated OCI into Income 1 as
of March 31,
|
|
Location
of Gain (Loss) Recognized in Income on Derivative 2
|
|
Amount
of Gain (Loss) Recognized in Income on Derivative 2 as
of March 31,
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
(127 |
) |
|
$ |
273 |
|
Aircraft
Fuel
|
|
$ |
(271 |
) |
|
$ |
115 |
|
Aircraft
Fuel
|
|
$ |
3 |
|
|
$ |
(8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Effective
portion of gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 Ineffective
portion of gain (loss)
|
|
|
|
|
|
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
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 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.
Certain
of the Company’s derivative instrument contracts provide that if the Company’s
unrestricted cash balance or credit ratings remain above certain levels, loss
positions on these instruments need not be fully collateralized. If
the Company’s unrestricted cash balance or credit rating were to fall below
these levels, it would trigger additional collateral to be deposited with the
counterparty up to 100 percent of the loss position of the derivative
contracts. As of March 31, 2009, the aggregate fair value of all
derivative instruments with credit-risk-related contingent features that are in
a net liability position is $454 million, for which the Company had posted
collateral of $343 million. If all credit-risk-contingent features
underlying these agreements had been triggered on March 31, 2009, the Company
would have been required to post collateral of 100 percent of the loss position
referred to above, or $454 million.
|
10.
|
The
following table sets forth the computations of basic and diluted earnings
(loss) per share (in millions, except per share
data):
|
| |
|
|
Three
Months Ended March 31,
|
|
| |
|
|
2009
|
|
|
2008
|
|
| |
Numerator:
|
|
|
|
|
|
|
| |
Net
earnings (loss) – numerator for diluted earnings (loss)
per
share
|
|
$ |
(375 |
) |
|
$ |
(341 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Denominator:
|
|
|
|
|
|
|
|
|
| |
Denominator
for basic earnings (loss) per share –
weighted
average shares
|
|
|
279 |
|
|
|
249 |
|
| |
Effect
of dilutive securities:
Senior
convertible notes
|
|
|
- |
|
|
|
- |
|
| |
Employee
options and shares
|
|
|
- |
|
|
|
- |
|
| |
Assumed
treasury shares repurchased
|
|
|
- |
|
|
|
- |
|
| |
Dilutive
potential common shares
|
|
|
- |
|
|
|
- |
|
| |
Denominator
for basic and diluted loss per share –
weighted
average shares
|
|
|
279 |
|
|
|
249 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Basic
earnings (loss) per share
|
|
$ |
(1.35 |
) |
|
$ |
(1.37 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
earnings (loss) per share
|
|
$ |
(1.35 |
) |
|
$ |
(1.37 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
The
following were excluded from the calculation:
|
|
|
|
|
|
|
|
|
| |
Convertible
notes, employee stock options and deferred stock because inclusion would
be anti-dilutive
|
|
|
10 |
|
|
|
45 |
|
| |
Employee
stock options because the options’ exercise price was greater than the
average market price of shares
|
|
|
15 |
|
|
|
12 |
|
Item
2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
Forward-Looking
Information
Statements
in this report contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events. When used in this
document and in documents incorporated herein by reference, the words "expects,"
"plans," "anticipates," “indicates,” “believes,” “forecast,” “guidance,”
“outlook,” “may,” “will,” “should,” “seeks,” “targets” and similar expressions
are intended to identify forward-looking statements. Forward-looking statements
include, without limitation, the Company’s expectations concerning operations
and financial conditions, including changes in capacity, revenues, and costs;
future financing plans and needs; 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, including the Company’s application for antitrust immunity with other
oneworld alliance
members; 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, and statements regarding expectations of regulatory
approval of the Company’s application for antitrust immunity with other oneworld members are
forward-looking statements.
Forward-looking
statements are subject to a number of factors that could cause the Company’s
actual results to differ materially from the Company’s
expectations. The following factors, in addition to other possible
factors not listed, could cause the Company’s actual results to differ
materially from those expressed in forward-looking statements: the
materially weakened financial condition of the Company, resulting from its
significant losses in recent years; weaker demand for air travel and lower
investment asset returns resulting from the severe global economic downturn; the
Company’s need to raise substantial additional funds and its ability to do so on
acceptable terms; the ability of the Company to generate additional revenues and
reduce its costs; continued high and volatile fuel prices and further increases
in the price of fuel, and the availability of fuel; the Company’s substantial
indebtedness and other obligations; the ability of the Company to satisfy
existing financial or other covenants in certain of its credit agreements;
changes in economic and other conditions beyond the Company’s control, and the
volatile results of the Company’s operations; the fiercely and increasingly
competitive business environment faced by the Company; potential industry
consolidation and alliance changes; competition with reorganized carriers; low
fare levels by historical standards and the Company’s reduced pricing power;
changes in the Company’s corporate or business strategy; government regulation
of the Company’s business; conflicts overseas or terrorist attacks;
uncertainties with respect to the Company’s international operations; outbreaks
of a disease (such as SARS or avian flu) that affects travel behavior; labor
costs that are higher than those of the Company’s competitors; uncertainties
with respect to the Company’s relationships with unionized and other employee
work groups; increased insurance costs and potential reductions of available
insurance coverage; the Company’s ability to retain key management personnel;
potential failures or disruptions of the Company’s computer, communications or
other technology systems; losses and adverse publicity resulting from any
accident involving the Company’s aircraft; changes in the price of the Company’s
common stock; and the ability of the Company to reach acceptable agreements with
third parties. Additional information concerning these and other
factors is contained in the Company’s Securities and Exchange Commission
filings, including but not limited to the Company’s 2008 Form 10-K (see in
particular Item 1A “Risk Factors” in the 2008 Form 10-K).
Overview
The
Company recorded a net loss of $375 million in the first quarter of 2009
compared to a net loss of $341 million in the same period last year, due
primarily to a decrease in passenger revenue. The Company is experiencing significantly weaker demand for air travel
driven by the severe and rapid downturn in the global economy. Passenger
revenue decreased by $823 million to $4.1 billion in the three months ended
March 31, 2009 compared to the same period last year. Mainline
passenger unit revenues decreased 8.7 percent for the first quarter due to a 4.5
percent decrease in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2008 and a load factor decrease of 3.5
points. The Company implemented
capacity reductions in 2008 in response to record high fuel prices which have
somewhat mitigated weakening of demand. No assurance can be
given that any capacity reductions or other steps the Company may take will be
adequate to offset the effects of reduced demand.
The
decrease in total passenger revenue was partially offset by significantly lower
fuel prices; the Company paid an average of $1.91 per gallon in the first
quarter 2009 compared to an average of $2.74 per gallon in the first three
months of 2008, including effects of hedging.
The
Company’s unit costs excluding fuel were greater for the quarter ended March 31,
2009 than for the same period in 2008, and are expected to be higher for each
period during for the remainder of 2009 compared to the corresponding prior year
period. Factors driving the increase include increased defined
benefit pension expenses (due to the stock market decline) and retiree medical
and other expenses, and cost pressures associated with the Company’s previously
announced capacity reductions and dependability initiatives.
In
reaction to these challenges, the Company has continued to work to implement and
maintain several key actions designed to help it manage through these near term
challenges while seeking to position itself for long-term success, including the
range of service charges introduced in 2008 to generate additional revenue,
execution of its fleet renewal and replacement plan, initiatives to improve
dependability and on-time performance, and an initiative to strengthen its
global network through the application pending with the U.S. Department of
Transportation for global antitrust immunity with four members of the oneworld
global alliance.
The Company’s ability to
return to profitability and its ability to continue to fund its obligations on
an ongoing basis will depend on a number of factors, many of which are largely
beyond the Company’s control. Certain risk factors that affect
the Company’s business and financial results are discussed in the Risk Factors
listed in Item 1A in the 2008 Form 10-K. In addition, most of the
Company’s largest domestic competitors and several smaller carriers have filed
for bankruptcy in the last several years and have used this process to
significantly reduce contractual labor and other costs. In order to
remain competitive and to improve its financial condition, the Company must
continue to take steps to generate additional revenues and to reduce its
costs. Although the Company has a number of initiatives underway to
address its cost and revenue challenges, the adequacy and ultimate success of
these and other initiatives is not known at this time and cannot be
assured. 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 improve substantially and if fuel
prices were to increase and persist for an extended period at high
levels.
LIQUIDITY
AND CAPITAL RESOURCES
Significant Indebtedness and
Future Financing
The Company remains
heavily indebted and has significant obligations (including substantial pension
funding obligations), as described more fully under Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in the
2008 Form 10-K. Indebtedness is a significant risk to the
Company as discussed in the Risk Factors listed in Item 1A in the 2008 Form
10-K. During 2006, 2007, 2008 and 2009, the Company raised an
aggregate of approximately $2.5 billion in financing to fund capital commitments
(mainly for aircraft and ground properties), debt maturities, and employee
pension obligations, and to bolster its liquidity. As of the date of this
Form 10-Q, the Company believes it should have sufficient liquidity to
fund its operations and obligations for the remainder of 2009, including
repayment of debt and capital leases, capital expenditures and other contractual
obligations. However, 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 substantial pension funding obligations (refer to
Contractual Obligations in Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the 2008 Form 10-K), the Company will need
access to substantial additional funding.
For the
remainder of 2009, the Company will be required to make approximately $1.0
billion of principal payments on long-term debt and approximately $94 million in
principal payments on capital leases, and the Company expects to spend
approximately $1.3 billion on capital expenditures. In addition, the
global economic downturn and the obligation to post cash collateral to secure
fuel hedging obligations have negatively impacted, and may in the future
negatively impact, the Company’s liquidity. Increases in the amount
of required reserves under credit card processing agreements may also negatively
impact the Company’s liquidity.
Despite
the current disruptions in the capital markets, in the quarter ended March 31,
2009, the Company obtained an aggregate of approximately $174 million of
financing under a loan secured by various aircraft and under previously
committed sale leaseback financings of certain aircraft. In addition,
in April 2009, the Company arranged committed financing for two aircraft
scheduled to be delivered in 2009.
The
Company’s possible financing sources primarily include: (i) a limited amount of
additional secured aircraft debt or sale leaseback transactions involving owned
aircraft; (ii) leases of or debt secured by new aircraft deliveries; (iii) debt
secured by other assets; (iv) securitization of future operating receipts; (v)
the sale or monetization of certain assets; (vi) unsecured debt; and (vii)
issuance of equity and/or equity-like securities. Besides unencumbered aircraft,
some of the Company’s particular assets and other sources of liquidity that
could be sold or otherwise used as sources of financing include AAdvantage
program miles, and takeoff and landing slots, and certain of the Company’s
business units and subsidiaries, such as AMR Eagle. The Company’s
ability to obtain future financing is limited by the value of its unencumbered
assets. A very large majority of the Company’s aircraft assets
(including most of the 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 $3.6 billion in
unencumbered assets and other sources of liquidity as of March 31, 2009. However, the
availability and level of the financing sources described above cannot be
assured, particularly in light of the Company’s and American’s financial results
in recent years, the Company’s and American’s substantial indebtedness, the
difficult revenue environment they face, their reduced credit ratings, recent
historically high fuel prices, and the financial difficulties experienced in the
airline industry. In addition, the global economic downturn and
recent severe disruptions in the capital markets and other sources of funding have resulted in greater
volatility, less liquidity, widening of credit spreads and substantially more
limited availability of funding. The inability of the Company to
obtain necessary funding on acceptable terms would have a material adverse
impact on the Company and on its ability to sustain its operations.
The
Company’s substantial indebtedness and other obligations have important
consequences. For example, they: (i) limit the Company’s ability to
obtain additional funding for working capital, capital expenditures,
acquisitions and general corporate purposes, and 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 (iv) limit the Company’s ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and economic
conditions.
Future
payments for all aircraft that the Company was committed to acquire as of March
31, 2009, including the estimated amounts for price escalation, are currently
estimated to be approximately $3.6 billion. Payments are currently
scheduled to be approximately $975 million in the remainder of 2009, $1.1
billion in 2010, $349 million in 2011, $217 million in 2012, $399 million in
2013, and $556 million for 2014 and beyond. These amounts are net of purchase
deposits currently held by the manufacturer.
In 2008,
the Company entered into a new purchase agreement with Boeing for the
acquisition of 42 Boeing 787-9 aircraft. Per the purchase agreement,
and before delays due to the recent Boeing strike as discussed below, the first
such aircraft is scheduled to be delivered in 2012, and the last is scheduled to
be delivered in 2018. The agreement also
includes purchase rights to acquire up to 58 additional Boeing 787 aircraft,
with deliveries between 2015 and 2020. Based on preliminary
information received from Boeing on the impact of the overall Boeing 787
program delay to
American’s delivery positions due to the strike in 2008, the Company now
believes the first of the initial 42 aircraft will be delivered during the
second half of 2013. The first of the 58 optional purchase rights
aircraft would be delivered in the second half of 2016 based on the same
preliminary information. Under the 787-9 purchase
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 be no longer subject to the 787-9 purchase
agreement. These confirmation rights may be exercised until May 1,
2013, 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 American’s 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 to 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 occur prior to May 1, 2013, 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.
.
The
Company’s continued aircraft replacement strategy, and its execution of that
strategy, will depend on such factors as future economic and industry conditions
and the financial condition of the Company.
Credit Facility
Covenants
American
has a secured bank credit facility which consists of a fully drawn $255 million
revolving credit facility, with a final maturity on June 17, 2009, and a $435
million term loan facility, with a final maturity on December 17, 2010 (the
Revolving Facility and the Term Loan Facility, respectively, and collectively,
the Credit Facility). American’s obligations under the
Credit Facility are guaranteed by AMR.
The
Credit Facility contains a covenant (the Liquidity Covenant) requiring American
to maintain, as defined, unrestricted cash, unencumbered short term investments
and amounts available for drawing under committed revolving credit facilities of
not less than $1.25 billion for each quarterly period through the life of the
Credit Facility. AMR and American were in compliance with the
Liquidity Covenant as of March 31, 2009 and expect to be able to continue to
comply with this covenant in the near term. In addition, the Credit
Facility contains a covenant (the EBITDAR Covenant) requiring AMR to maintain a
ratio of cash flow (defined as consolidated net income, before interest expense
(less capitalized interest), income taxes, depreciation and amortization and
rentals, adjusted for certain gains or losses and non-cash items) to fixed
charges (comprising interest expense (less capitalized interest) and
rentals). In May 2008, AMR and American entered into an amendment to
the Credit Facility which waived compliance with the EBITDAR Covenant for
periods ending on any date from and including June 30, 2008 through March 31,
2009, and which reduced the minimum ratios AMR is required to satisfy
thereafter. The required ratio will be 0.90 to 1.00 for the one
quarter period ending June 30, 2009 and will increase to 1.15 to 1.00 for the
four quarter period ending September 30, 2010. Given the volatility
of fuel prices and revenues, uncertainty in the capital markets and about other
sources of funding, and other factors, it is difficult to assess whether the
Company will be able to continue to comply with these covenants, and there are
no assurances that it will be able to do so. Failure to comply with
these covenants would result in a default under the Credit Facility which – if
the Company did not take steps to obtain a waiver of, or otherwise mitigate, the
default – could result in a default under a significant amount of its other debt
and lease obligations, and otherwise have a material adverse impact on the
Company and on its ability to sustain its operations.
Credit Card Processing
Agreements
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 American’s current credit card processing agreements, the related
credit card company or processor may hold back, under certain circumstances, a
reserve from American’s credit card receivables.
Under one
such agreement, the amount of such reserve may be based on, among other things,
the amount of unrestricted cash (not including undrawn credit facilities) held
by American and American’s debt service coverage ratio, as defined in such
agreement. Given the volatility of fuel prices and revenues,
uncertainty in the capital markets and other sources of funding, and other
factors, it is difficult to forecast the required amount of such reserve at any
time. The Company’s maximum holdback exposure is $200 million through August 15,
2009, and the holdback reserve was $157 million as of March 31,
2009. However, if current conditions persist, absent a waiver or
modification of the agreement, such required amount could be significantly
greater than $200 million in the latter half of 2009.
Pension Funding
Obligation
The
Company is required to make minimum contributions to its defined benefit pension
plans under the minimum funding requirements of the Employee Retirement Income
Security Act (ERISA), the Pension Funding Equity Act of 2004 and the Pension
Protection Act of 2006. The Company is not required to make any 2009
contributions to its defined benefit pension plans under the provisions of these
acts.
Although
the Company is not required to make contributions to its defined benefit pension
plans in 2009, based on current funding levels of the plans, the Company expects
that the amount of the required contributions will be substantial in 2010 and
future years. The Company expects to contribute approximately $13
million to its retiree medical and other benefit plan in 2009.
Cash Flow
Activity
At March 31, 2009, the
Company had $2.9 billion in unrestricted cash and short-term investments, which
decreased by $243 million from the balance of $3.1 billion at December 31,
2008. Net cash provided by operating activities in the
three-month period ended March 31, 2009 was $459 million, an increase of $10
million over the same period in 2008. The decline in unrestricted
cash and short-term investments is primarily due to the significant decline in
the demand for air travel, which resulted in a 16.6% decrease in passenger
revenue and principal payments made during the first quarter.
The
Company made scheduled debt and capital lease payments of $753 million in the
first three months of 2009. Included in this amount, AMR retired, by
purchasing with cash, the $318 million principal amount of its 4.50
Notes. Virtually all of the holders of the 4.50 Notes exercised their
elective put rights and the Company purchased and retired these notes at a price
equal to 100 percent of their principal amount. Under the terms of
the 4.50 Notes, the Company had the option to pay the purchase price with cash,
stock, or a combination of cash and stock, and the Company elected to pay for
the 4.50 Notes solely with cash.
Despite
the current disruptions in the capital markets, in the quarter ended March 31,
2009, the Company obtained an aggregate of approximately $174 million of
financing under a loan secured by various aircraft and under previously
committed sale leaseback financings of certain aircraft.
Capital
expenditures for the first three months of 2009 were $169 million and primarily
consisted of new aircraft and certain aircraft modifications.
Due to
the current value of the Company’s derivative contracts, some agreements with
counterparties require collateral to be deposited by the Company. As
of March 31, 2009, the cash collateral held by such counterparties from AMR was
$343 million. The amount of collateral required to be deposited with
the Company or with the counterparty by the Company is based on fuel price in
relation to the market values of the derivative contracts and collateral
provisions per the terms of those contracts and can fluctuate
significantly. These derivative contracts are currently required to
be collateralized at approximately 75 percent of the fair value of the liability
position. As such, when these contracts settle (mainly in the second
quarter of 2009), the collateral posted with counterparties will effectively
offset the loss position and minimal further cash impact will be recorded
assuming a static forward heating oil curve from March 31,
2009. Under the same assumption, the Company does not currently
expect to be required to deposit significant additional cash collateral above
March 31, 2009 levels with counterparties with regard to fuel hedges in place as
of March 31, 2009. Additional information regarding the Company’s
fuel hedging program is also included in Item 3 “Quantitative and Qualitative
Disclosures about Market Risk” and in Note 9 to the condensed consolidated
financial statements.
War-Risk
Insurance
The U.S.
government has agreed to provide commercial war-risk insurance for U.S. based
airlines until August 31, 2009, covering losses to employees, passengers, third
parties and aircraft. If the U.S. government does not extend the
policy beyond that date, or if the U.S. government at anytime thereafter ceases
to provide such insurance, or reduces the coverage provided by such insurance,
the Company will attempt to purchase similar coverage with narrower scope from
commercial insurers at an additional cost. To the extent this coverage is not
available at commercially reasonable rates, the Company would be adversely
affected. While the price of commercial insurance has declined since the premium
increases immediately after terrorist attacks of September 11, 2001, 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.
RESULTS
OF OPERATIONS
For the Three Months Ended
March 31, 2009 and 2008
Revenues
The
Company’s revenues decreased approximately $858 million, or 15.1 percent, to
$4.8 billion in the first quarter of 2009 from the same period last
year. American’s passenger revenues decreased by 16.0 percent, or
$699 million, on an 8.0 percent decrease in capacity (available seat mile)
(ASM). American’s passenger load factor decreased 3.5 points to 75.7
percent while passenger yield decreased by 4.5 percent to 12.87
cents. This resulted in a decrease in passenger revenue per available
seat mile (RASM) of 8.7 percent to 9.74 cents. Following is additional
information regarding American’s domestic and international RASM and
capacity:
|
|
|
Three
Months Ended March 31, 2009
|
|
|
|
|
RASM
(cents)
|
|
|
Y-O-Y
Change
|
|
|
ASMs
(billions)
|
|
|
Y-O-Y
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOT
Domestic
|
|
|
9.68 |
|
|
|
(7.2 |
)
% |
|
|
23.1 |
|
|
|
(10.7 |
)
% |
|
International
|
|
|
9.83 |
|
|
|
(11.1 |
) |
|
|
14.7 |
|
|
|
(3.3 |
) |
|
DOT
Latin America
|
|
|
11.23 |
|
|
|
(8.0 |
) |
|
|
7.7 |
|
|
|
(4.5 |
) |
|
DOT
Atlantic
|
|
|
7.96 |
|
|
|
(17.6 |
) |
|
|
5.3 |
|
|
|
(3.7 |
) |
|
DOT
Pacific
|
|
|
9.28 |
|
|
|
(7.3 |
) |
|
|
1.7 |
|
|
|
4.2 |
|
The
Company’s Regional Affiliates include two wholly owned subsidiaries, American
Eagle Airlines, Inc. and Executive Airlines, Inc. (collectively, AMR Eagle), and
two independent carriers with which American has capacity purchase agreements,
Trans States Airlines, Inc. (Trans States) and Chautauqua Airlines, Inc.
(Chautauqua).
Regional
Affiliates’ passenger revenues, which are based on industry standard proration
agreements for flights connecting to American flights, decreased $124 million,
or 21.3 percent, to $457 million as a result of a reduction in capacity,
decreased passenger traffic and lower yield. Regional Affiliates’ traffic
decreased 13.1 percent to 1.9 billion revenue passenger miles (RPMs), on a
capacity decrease of 9.3 percent to 2.8 billion ASMs, resulting in a 2.9 point
decrease in the passenger load factor to 66.0 percent.
Other
revenues increased 6.9 percent, or $36 million, to $558 million due to increases
in certain passenger service charges.
Operating
Expenses
The
Company’s total operating expenses decreased 14.5 percent, or $851 million, to
$5.0 billion in the first quarter of 2009 compared to the first quarter of
2008. The Company’s operating expenses per ASM in the first quarter
of 2009 decreased 7.0 percent to 12.40 cents compared to the first quarter of
2008. These decreases are due primarily to decreased fuel prices in the first
quarter 2009 compared to the first quarter of 2008. The decreases
were somewhat offset by increased defined benefit pension expenses and retiree
medical and other expenses (due to the stock market decline), and by cost
pressures associated with the Company’s previously announced capacity reductions
and dependability initiatives.
|
(in
millions)
Operating
Expenses
|
|
Three
Months Ended
March
31, 2009
|
|
|
Change
from 2008
|
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages,
salaries and benefits
|
|
$ |
1,688 |
|
|
|
44 |
|
|
|
2.7 |
% |
|
|
Aircraft
fuel
|
|
|
1,298 |
|
|
|
(752 |
) |
|
|
(36.7 |
) |
(a)
|
|
Other
rentals and landing fees
|
|
|
324 |
|
|
|
1 |
|
|
|
0.3 |
|
|
|
Depreciation
and amortization
|
|
|
272 |
|
|
|
(37 |
) |
|
|
(12.0 |
) |
(b)
|
|
Maintenance,
materials and repairs
|
|
|
305 |
|
|
|
(10 |
) |
|
|
(3.2 |
) |
|
|
Commissions,
booking fees and credit card expense
|
|
|
217 |
|
|
|
(40 |
) |
|
|
(15.6 |
) |
(c)
|
|
Aircraft
rentals
|
|
|
124 |
|
|
|
(1 |
) |
|
|
(0.8 |
) |
|
|
Food
service
|
|
|
114 |
|
|
|
(13 |
) |
|
|
(10.2 |
) |
|
|
Special
charges
|
|
|
13 |
|
|
|
13 |
|
|
|
* |
|
|
|
Other
operating expenses
|
|
|
678 |
|
|
|
(56 |
) |
|
|
(7.6 |
) |
|
|
Total
operating expenses
|
|
$ |
5,033 |
|
|
$ |
(851 |
) |
|
|
(14.5 |
)% |
|
|
(a)
|
Aircraft
fuel expense decreased primarily due to a 30.2 percent decrease in the
Company’s price per gallon of fuel (net of the impact of fuel hedging) and
a 9.3 percent decrease in the Company’s fuel
consumption.
|
|
(b)
|
Depreciation
and amortization expense decreased due to impairment charge in
2008.
|
|
(c)
|
Commissions,
booking fees and credit card expense decreased in conjunction with the
15.1 percent decrease in the Company’s
revenue.
|
Interest
income decreased $42 million due to both a decrease in short-term investment
balances and a decrease in interest rates. Interest expense decreased
$21 million as a result of a decrease in the Company’s long-term debt balance
and lower variable interest rates.
The
Company did not record a net tax provision (benefit) associated with its first
quarter 2009 or first quarter 2008 losses due to the Company providing a
valuation allowance, as discussed in Note 4 to the condensed consolidated
financial statements.
Operating
Statistics
The
following table provides statistical information for American and Regional
Affiliates for the three months ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
American
Airlines, Inc. Mainline Jet Operations
|
|
|
|
|
|
|
|
Revenue
passenger miles (millions)
|
|
|
28,593 |
|
|
|
32,488 |
|
|
Available
seat miles (millions)
|
|
|
37,783 |
|
|
|
41,052 |
|
|
Cargo
ton miles (millions)
|
|
|
371 |
|
|
|
505 |
|
|
Passenger
load factor
|
|
|
75.7 |
% |
|
|
79.1 |
% |
|
Passenger
revenue yield per passenger mile (cents)
|
|
|
12.87 |
|
|
|
13.48 |
|
|
Passenger
revenue per available seat mile (cents)
|
|
|
9.74 |
|
|
|
10.67 |
|
|
Cargo
revenue yield per ton mile (cents)
|
|
|
38.90 |
|
|
|
42.57 |
|
|
Operating
expenses per available seat mile, excluding Regional Affiliates (cents)
(*)
|
|
|
11.82 |
|
|
|
12.63 |
|
|
Fuel
consumption (gallons, in millions)
|
|
|
617 |
|
|
|
680 |
|
|
Fuel
price per gallon (cents)
|
|
|
191.1 |
|
|
|
273.2 |
|
|
Operating
aircraft at period-end
|
|
|
617 |
|
|
|
654 |
|
|
|
|
|
|
|
|
|
|
|
|
Regional
Affiliates
|
|
|
|
|
|
|
|
|
|
Revenue
passenger miles (millions)
|
|
|
1,861 |
|
|
|
2,142 |
|
|
Available
seat miles (millions)
|
|
|
2,818 |
|
|
|
3,106 |
|
|
Passenger
load factor
|
|
|
66.0 |
% |
|
|
69.0 |
% |
|
(*)
|
Excludes
$596 million and $721 million of expense incurred related to Regional
Affiliates in 2009 and 2008,
respectively.
|
Operating
aircraft at March 31, 2009, included:
|
|
|
|
|
|
|
|
|
|
American
Airlines Aircraft
|
|
|
|
AMR
Eagle Aircraft
|
|
|
|
|
Airbus
A300-600R
|
|
|
23 |
|
Bombardier
CRJ-700
|
|
|
25 |
|
|
Boeing
737-800
|
|
|
79 |
|
Embraer
135
|
|
|
30 |
|
|
Boeing
757-200
|
|
|
124 |
|
Embraer
140
|
|
|
59 |
|
|
Boeing
767-200 Extended Range
|
|
|
15 |
|
Embraer
145
|
|
|
114 |
|
|
Boeing
767-300 Extended Range
|
|
|
58 |
|
Super
ATR
|
|
|
39 |
|
|
Boeing
777-200 Extended Range
|
|
|
47 |
|
Total
|
|
|
267 |
|
|
McDonnell
Douglas MD-80
|
|
|
271 |
|
|
|
|
|
|
|
Total
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
average aircraft age for American’s and AMR Eagle’s aircraft is 15.5 years and
8.0 years, respectively.
Of the
operating aircraft listed above, four owned Airbus A300-600R aircraft were in
temporary storage as of March 31, 2009.
Owned and
leased aircraft not operated by the Company at March 31, 2009,
included:
|
American
Airlines Aircraft
|
|
|
|
AMR
Eagle Aircraft
|
|
|
|
|
Airbus
A300-600R
|
|
|
7 |
|
Embraer
135
|
|
|
9 |
|
|
Fokker
100
|
|
|
4 |
|
Embraer
145
|
|
|
4 |
|
|
McDonnell
Douglas MD-80
|
|
|
43 |
|
Saab
340B
|
|
|
46 |
|
|
Total
|
|
|
54 |
|
Total
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
AMR Eagle
leased its four owned Embraer 145s that are not operated by AMR Eagle to Trans
States Airlines, Inc.
Outlook
The
Company currently expects capacity for American’s mainline jet operations to
decline by more than 7.7 percent in the second quarter of 2009 versus the second
quarter of 2008. American’s mainline capacity for the full year 2009 is
expected to decrease approximately 6.4 percent from 2008 with approximately a
9.0 percent reduction in domestic capacity and approximately a 2.5 percent
decrease in international capacity.
The
Company currently expects second quarter 2009 mainline unit costs to decrease
approximately 25.1 percent year over year primarily due to a $1.1 billion
impairment charge recorded in the second quarter 2008. Absent the
special charge, second quarter 2009 mainline unit cost is expected to decrease
approximately 11.5 percent which reflects the reduction in the cost of fuel,
somewhat offset by increased defined benefit pension expenses (due to the stock
market decline) and retiree medical and other benefit expenses, and by cost
pressures associated with the Company’s previously announced capacity reductions
and dependability initiatives. Due to these cost pressures, the
Company expects second quarter and full year 2009 unit costs excluding fuel to
be higher than the respective prior year periods. The Company’s
results are significantly affected by the price of jet fuel, which is in turn
affected by a number of factors beyond the Company’s
control. Although fuel prices have abated somewhat from the record
prices recorded in July 2008, fuel prices are still very volatile.
The
Company is experiencing significantly weaker
demand for air travel driven by the severe downturn in the global
economy. The Company implemented capacity reductions in 2008 and 2009
in response to record high fuel prices which have somewhat mitigated this
weakening of demand. However, if the global economic downturn
persists or worsens, demand for air travel may continue to weaken. No
assurance can be given that capacity reductions or other steps the Company may
take will be adequate to offset the effects of reduced demand. In
addition, fare discounting has recently been both broader and deeper than usual,
and the Company expects downward pressure on passenger yields into the second
quarter.
Critical Accounting Policies
and Estimates
The
preparation of the Company’s financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. The Company believes its estimates
and assumptions are reasonable; however, actual results and the timing of the
recognition of such amounts could differ from those estimates. The
Company has identified the following critical accounting policies and estimates
used by management in the preparation of the Company’s financial statements:
accounting for fair value, long-lived assets, routes, passenger revenue,
frequent flyer program, stock compensation, pensions and retiree medical and
other benefits, income taxes and derivatives accounting. These
policies and estimates are described in the 2008 Form 10-K except as updated
below.
Routes -- AMR performs annual
impairment tests on its routes, which are indefinite life intangible assets
under Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangibles" and as a result they are not amortized. 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 Company’s best estimate of future market and operating
conditions. The net carrying value of assets not recoverable is
reduced to fair value. The Company's estimates of fair value represent its best
estimate based on industry trends and reference to market rates and
transactions. Renewal and extension costs for the Company’s
intangible assets are minimal and are expensed as incurred.
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 157 “Fair Value Measurements” (SFAS
157). SFAS 157 introduces a framework for measuring fair value and
expands required disclosure about fair value measurements of assets and
liabilities. SFAS 157-2, applicable to non-financial assets and
liabilities, is effective for fiscal years beginning after November 15, 2008,
and the Company has adopted the standard for those assets and liabilities as of
January 1, 2009. No material impact to the Company’s routes is
expected as the carrying value for the Company’s routes have historically been
significantly less than fair value; however, annual impairment testing on the
Company’s routes will not occur until the fourth quarter of 2009, at which time
the net carrying value of the routes will be reassessed for
recoverability. If it at that time, the fair value of the routes is
less than the carrying value, the Company will adjust the value of the route
assets and apply SFAS 157-2 provisions to its routes.
The Company had recorded route acquisition costs (including
international routes and slots) of $828 million as of March 31, 2009,
including a significant amount related to operations at London
Heathrow. The Company has completed an impairment analysis on the
London Heathrow routes (including slots) as of December 2008, and has concluded
that no impairment exists. The Company believes its estimates
and assumptions are reasonable; however, given the significant uncertainty
regarding how the recent open skies agreement will ultimately affect the
Company’s operations at Heathrow, the actual results could differ from those
estimates.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
There
have been no material changes in market risk from the information provided in
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk of the Company’s 2008 Form
10-K. The change in market risk for aircraft fuel is discussed below
for informational purposes.
The risk
inherent in the Company’s fuel related market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel. The sensitivity analyses presented do not consider the effects
that such adverse changes may have on overall economic activity, nor do they
consider additional actions management may take to mitigate the Company’s
exposure to such changes. Therefore, actual results may
differ. The Company does not hold or issue derivative financial
instruments for trading purposes.
Aircraft
Fuel The Company’s earnings are affected by changes in
the price and availability of aircraft fuel. In order to provide a
measure of control over price and supply, the Company trades and ships fuel and
maintains fuel storage facilities to support its flight
operations. The Company also manages the price risk of fuel costs
primarily by using jet fuel and heating oil hedging contracts. Market
risk is estimated as a hypothetical ten percent increase in the March 31, 2009
cost per gallon of fuel. Based on projected 2009 and 2010 fuel usage
through March 31, 2010, such an increase would result in an increase to aircraft
fuel expense of approximately $282 million in the twelve months ended March 31,
2010, inclusive of the impact of effective fuel hedge instruments outstanding at
March 31, 2009, and assumes the Company’s fuel hedging program remains effective
under Statement of Financial Accounting Standard No. 133, “Accounting for
Derivative Instruments and Hedging Activities”. Comparatively, based
on projected 2009 fuel usage, such an increase would have resulted in an
increase to aircraft fuel expense of approximately $399 million in the twelve
months ended December 31, 2008, inclusive of the impact of fuel hedge
instruments outstanding at December 31, 2008. The change in market
risk is primarily due to the decrease in fuel prices.
Ineffectiveness
is inherent in hedging jet fuel with derivative positions based in crude oil or
other crude oil related commodities. As required by Statement of
Financial Accounting Standard No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (SFAS 133), the Company assesses, both at the inception
of each hedge and on an on-going basis, whether the derivatives that are used in
its hedging transactions are highly effective in offsetting changes in cash
flows of the hedged items. In doing so, the Company uses a regression
model to determine the correlation of the change in prices of the commodities
used to hedge jet fuel (e.g. NYMEX Heating oil) to the change in the price of
jet fuel. The Company also monitors the actual dollar offset of the
hedges’ market values as compared to hypothetical jet fuel
hedges. The fuel hedge contracts are generally deemed to be “highly
effective” if the R-squared is greater than 80 percent and the dollar offset
correlation is within 80 percent to 125 percent. The Company
discontinues hedge accounting prospectively if it determines that a derivative
is no longer expected to be highly effective as a hedge or if it decides to
discontinue the hedging relationship.
As of
March 31, 2009, the Company had cash flow hedges, with collars and options,
covering approximately 32 percent of its estimated remaining 2009 fuel
requirements. The consumption hedged for the remainder of 2009 is
capped at an average price of approximately $2.54 per gallon of jet fuel, and
the Company’s collars have an average floor price of approximately $1.88 per
gallon of jet fuel (both the capped and floor price exclude taxes and
transportation costs). The Company’s collars represent approximately
29 percent of its estimated remaining 2009 fuel requirements. A
deterioration of the Company’s financial position could negatively affect the
Company’s ability to hedge fuel in the future.
Item
4. Controls and
Procedures
The term
“disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to
the controls and procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the Securities and Exchange Commission. An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the Company’s disclosure
controls and procedures as of December 31, 2008. Based on that
evaluation, the Company’s management, including the CEO and CFO, concluded that
the Company’s disclosure controls and procedures were effective as of March 31,
2009. During the quarter ending on March 31, 2009, there was no change in the
Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II: OTHER INFORMATION
Item
1. Legal
Proceedings
Between
April 3, 2003 and June 5, 2003, three lawsuits were filed by travel agents, some
of whom opted out of a prior class action (now dismissed) to pursue their claims
individually against American, other airline defendants, and in one case,
against certain airline defendants and Orbitz LLC. The cases, Tam Travel et. al., v. Delta
Air Lines et. al., in the United States District Court for the Northern
District of California, San Francisco (51 individual agencies), Paula Fausky d/b/a Timeless
Travel v. American Airlines, et. al, in the United States District Court
for the Northern District of Ohio, Eastern Division (29 agencies) and Swope Travel et al. v.
Orbitz et. al. in the United States District Court for the Eastern
District of Texas, Beaumont Division (71 agencies) were consolidated for
pre-trial purposes in the United States District Court for the Northern District
of Ohio, Eastern Division. Collectively, these lawsuits seek damages and
injunctive relief alleging that the certain airline defendants and Orbitz LLC:
(i) conspired to prevent travel agents from acting as effective competitors in
the distribution of airline tickets to passengers in violation of Section 1 of
the Sherman Act; (ii) conspired to monopolize the distribution of common
carrier air travel between airports in the United States in violation of Section
2 of the Sherman Act; and that (iii) between 1995 and the present, the airline
defendants conspired to reduce commissions paid to U.S.-based travel agents in
violation of Section 1 of the Sherman Act. On September 23, 2005, the
Fausky
plaintiffs dismissed their claims with prejudice. On September 14, 2006,
the court dismissed with prejudice 28 of the Swope
plaintiffs. On October 29, 2007, the court dismissed all
actions. The Tam plaintiffs have
appealed the court’s decision. The Swope plaintiffs have
moved to have their case remanded to the Eastern District of Texas.
American continues to vigorously defend these lawsuits. A final
adverse court decision awarding substantial money damages or placing material
restrictions on the Company’s distribution practices would have a material
adverse impact on the Company.
On July
12, 2004, a consolidated class action complaint that was subsequently amended on
November 30, 2004, was filed against American and the Association of
Professional Flight Attendants (APFA), the union which represents American’s
flight attendants (Ann
M. Marcoux, et al., v. American Airlines Inc., et al. in the United
States District Court for the Eastern District of New York). While a class has
not yet been certified, the lawsuit seeks on behalf of all of American’s flight
attendants or various subclasses to set aside and to obtain damages allegedly
resulting from the April 2003 Collective Bargaining Agreement referred to as the
Restructuring Participation Agreement (RPA). The RPA was one of three labor
agreements American successfully reached with its unions in order to avoid
filing for bankruptcy in 2003. In a related case (Sherry Cooper, et al. v.
TWA Airlines, LLC, et al., also in the United States District Court for
the Eastern District of New York), the court denied a preliminary injunction
against implementation of the RPA on June 30, 2003. The Marcoux suit alleges
various claims against the APFA and American relating to the RPA and the
ratification vote on the RPA by individual APFA members, including: violation of
the Labor Management Reporting and Disclosure Act (LMRDA) and the APFA’s
Constitution and By-laws, violation by the APFA of its duty of fair
representation to its members, violation by American of provisions of the
Railway Labor Act (RLA) through improper coercion of flight attendants into
voting or changing their vote for ratification, and violations of the Racketeer
Influenced and Corrupt Organizations Act of 1970 (RICO). On
March 28, 2006, the district court dismissed all of various state law claims
against American, all but one of the LMRDA claims against the APFA, and the
claimed violations of RICO. On July 22, 2008, the district court
granted summary judgment to American and APFA concerning the remaining claimed
violations of the RLA and the duty of fair representation against American and
the APFA (as well as one LMRDA claim and one claim against the APFA of a breach
of its constitution). On August 20, 2008, a notice of appeal was
filed on behalf of the purported class of flight attendants. Although the
Company believes the case against it is without merit and both American and the
APFA are vigorously defending the lawsuit, a final adverse court decision
invalidating the RPA and awarding substantial money damages would have a
material adverse impact on the Company.
On
February 14, 2006, the Antitrust Division of the United States Department of
Justice (the “DOJ”) served the Company with a grand jury subpoena as part of an
ongoing investigation into possible criminal violations of the antitrust laws by
certain domestic and foreign air cargo carriers. At this time, the Company does
not believe it is a target of the DOJ investigation. The New Zealand
Commerce Commission notified the Company on February 17, 2006 that it is also
investigating whether the Company and certain other cargo carriers entered into
agreements relating to fuel surcharges, security surcharges, war risk
surcharges, and customs clearance surcharges. On February 22, 2006, the
Company received a letter from the Swiss Competition Commission informing the
Company that it too is investigating whether the Company and certain other cargo
carriers entered into agreements relating to fuel surcharges, security
surcharges, war risk surcharges, and customs clearance surcharges. On
March 11, 2008, the Company received from the Swiss Competition Commission a
request for information concerning, among other things, the scope and
organization of the Company’s activities in Switzerland. On December
19, 2006 and June 12, 2007, the Company received requests for information from
the European Commission seeking information regarding the Company's corporate
structure, and revenue and pricing announcements for air cargo shipments to and
from the European Union. On January 23, 2007, the Brazilian competition
authorities, as part of an ongoing investigation, conducted an unannounced
search of the Company’s cargo facilities in Sao Paulo, Brazil. On
April 28, 2008, the Brazilian competition authorities preliminarily charged the
Company with violating Brazilian 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 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
Company's 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 Company’s activities in Korea. 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. The SO states that, in the event that the allegations in
the SO are affirmed, the Commission will impose fines against the
Company. The Company intends to vigorously contest the allegations
and findings in the SO under EU laws, and it intends to cooperate fully with all
other pending investigations. In the event that the SO is affirmed or other
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. The Company has
not been named as a defendant in the consolidated complaint filed by the
plaintiffs. However, the plaintiffs have not released any claims that
they may have against the Company, and the Company may later be added as a
defendant in the litigation. If the Company is sued on these claims,
it will vigorously defend the suit, but any adverse judgment could have a
material adverse impact on the Company. Also, on January 23, 2007,
the Company was served with a purported class action complaint filed against the
Company, American, and certain foreign and domestic air carriers in the Supreme
Court of British Columbia in Canada (McKay v. Ace Aviation
Holdings, et al.). The plaintiff alleges that the defendants violated
Canadian competition laws by illegally conspiring to set prices and surcharges
on cargo shipments. The complaint seeks compensatory and punitive damages
under Canadian law. On June 22, 2007, the plaintiffs agreed to dismiss
their claims against the Company. The dismissal is without prejudice
and the Company could be brought back into the litigation at a future
date. If litigation is recommenced against the Company in the
Canadian courts, the Company will vigorously defend itself; however, any adverse
judgment could have a material adverse impact on the Company.
On June
20, 2006, the DOJ served the Company with a grand jury subpoena as part of an
ongoing investigation into possible criminal violations of the antitrust laws by
certain domestic and foreign passenger carriers. At this time, the
Company does not believe it is a target of the DOJ investigation. The
Company intends to cooperate fully with this investigation. 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, two additional purported class action complaints,
Turner v. American Airlines, et al., Civ. No. 08-1444 (N.D. Cal.), and LaFlamme
v. American Airlines, et al., Civ. No. 08-1079 (E.D.N.Y.), were 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. On February 17, 2009, the LaFlamme
plaintiffs agreed to dismiss their claims against the Company without
prejudice. In the event that the Turner plaintiffs pursue their claims or
the LaFlamme plaintiffs re-file claims against the Company, 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. On December 1, 2008, the court dismissed with prejudice
all claims against American Beacon. The plaintiff alleges that
American infringes a number of the plaintiff’s patents, each of which relates to
automated telephone call processing systems. The plaintiff is seeking
past and future royalties, injunctive relief, costs and attorneys'
fees. Although the Company believes that the plaintiff’s claims are
without merit and is vigorously defending the lawsuit, a final adverse court
decision awarding substantial money damages or placing material restrictions on
existing automated telephone call system operations would have a material
adverse impact on the Company.
Item
6. Exhibits
|
|
The
following exhibits are included
herein:
|
|
12
|
Computation
of ratio of earnings to fixed charges for the three months ended March 31,
2009 and 2008.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule
13a-14(a).
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule
13a-14(a).
|
|
32
|
Certification
pursuant to Rule 13a-14(b) and section 906 of the Sarbanes-Oxley Act of
2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code).
|
Signature
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
AMR CORPORATION
Date: April
16,
2009 BY:
/s/ Thomas W.
Horton
Thomas W. Horton
Executive Vice President and Chief
Financial Officer
(Principal
Financial and Accounting Officer)