<Page> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 2001.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-2691.
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (817) 963-1234
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 1,000 shares as of October 19,
2001.
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions H(1)(a) and (b) of Form 10-Q.
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INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2001 and 2000
Condensed Consolidated Balance Sheets -- September 30, 2001 and
December 31, 2000
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements -- September
30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Revenues
Passenger - American Airlines $3,440 $4,390 $ 11,349 $ 12,355
- TWA LLC 591 - 1,262 -
Cargo 157 182 519 525
Other revenues 266 261 850 765
Total operating revenues 4,454 4,833 13,980 13,645
Expenses
Wages, salaries and benefits 2,012 1,617 5,652 4,701
Aircraft fuel 739 616 2,211 1,682
Depreciation and amortization 330 273 924 790
Other rentals and landing fees 301 231 835 684
Maintenance, materials and
repairs 286 228 766 674
Commissions to agents 195 249 651 747
Food service 207 202 605 581
Aircraft rentals 223 140 581 420
Other operating expenses 882 760 2,603 2,192
Special charges 531 - 1,117 -
U.S. Government grant (780) - (780) -
Total operating expenses 4,926 4,316 15,165 12,471
Operating Income (Loss) (472) 517 (1,185) 1,174
Other Income (Expense)
Interest income 16 40 60 104
Interest expense (84) (71) (253) (210)
Interest capitalized 35 35 109 104
Related party interest - net (11) 2 (33) 8
Miscellaneous - net (9) (8) 21 40
(53) (2) (96) 46
Earnings (Loss) Before
Income Taxes (525) 515 (1,281) 1,220
Income tax provision (benefit) (187) 199 (454) 475
Net Earnings (Loss) $(338) $ 316 $ (827) $ 745
</Table>
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
<Table>
<Caption>
September 30, December 31,
2001 2000
Assets
<s> <c> <c>
Current Assets
Cash $ 66 $ 86
Short-term investments 2,256 1,549
Receivables, net 1,782 1,242
Receivable from affiliates, net 723 -
Inventories, net 776 656
Deferred income taxes 672 675
Other current assets 345 186
Total current assets 6,620 4,394
Equipment and Property
Flight equipment, net 12,849 12,081
Other equipment and property, net 1,885 1,607
Purchase deposits for flight equipment 1,424 1,590
16,158 15,278
Equipment and Property Under Capital Leases
Flight equipment, net 1,574 1,252
Other equipment and property, net 96 96
1,670 1,348
Route acquisition costs and airport
operating and gate lease rights, net 1,313 1,103
Other assets, net 4,390 1,038
$ 30,151 $23,161
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,540 $ 1,178
Accrued liabilities 2,468 2,067
Air traffic liability 3,095 2,696
Payable to affiliates, net - 511
Current maturities of long-term debt 373 108
Current obligations under capital leases 241 201
Total current liabilities 7,717 6,761
Long-term debt, less current maturities 4,790 2,601
Obligations under capital leases,
less current obligations 1,470 1,163
Deferred income taxes 1,911 2,080
Postretirement benefits 2,417 1,706
Other liabilities, deferred gains
and deferred credits 4,762 2,415
Stockholder's Equity
Common stock - -
Additional paid-in capital 3,347 1,847
Accumulated other comprehensive income (26) (2)
Retained earnings 3,763 4,590
7,084 6,435
$ 30,151 $ 23,161
</Table>
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
<Table>
<Caption>
Nine Months Ended
September 30,
2001 2000
<s> <c> <c>
Net Cash Provided by Operating Activities $1,132 $2,681
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (2,728) (2,485)
Acquisition of Trans World Airlines, Inc. (742) -
Net increase in short-term investments (707) (453)
Proceeds from:
Sale of equipment and property 308 206
Sale of other investments 26 94
Other investments and miscellaneous 18 (15)
Net cash used for investing activities (3,825) (2,653)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (249) (176)
Proceeds from:
Issuance of long-term debt 2,515 102
Sale-leaseback transactions 141 -
Funds transferred from affiliates, net 266 142
Net cash provided by financing activities 2,673 68
Net increase (decrease) in cash (20) 96
Cash at beginning of period 86 72
Cash at end of period $ 66 $ 168
Activities Not Affecting Cash:
Capital contribution from Parent to American $1,500 $ -
</Table>
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States 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 known adjustments,
consisting of normal recurring accruals, the impact of the September
11, 2001 terrorist attacks referred to below, and asset impairment and
other charges 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
indicative of results of operations for the entire year (see
discussion of the impact of the September 11, 2001 terrorist attacks
in footnote 2 below). The balance sheet at December 31, 2000 has been
derived from the audited financial statements at that date. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the American Airlines, Inc.
(American or the Company) Annual Report on Form 10-K for the year
ended December 31, 2000. Certain amounts have been reclassified to
conform with the 2001 presentation.
Among the effects experienced by the Company from the September 11,
2001 terrorist attacks have been significant flight disruption
costs caused by the Federal Aviation Administration's (FAA) imposed
grounding of the U.S. airline industry's fleet, significantly
increased security and other costs, significantly higher ticket
refunds, significantly reduced load factors, and significantly
reduced yields. Further terrorist attacks using commercial aircraft
in flight could result in another grounding of the Company's fleet,
and would likely result in additional reductions in load factor and
yields, along with increased ticket refund, security and other
costs. In addition, terrorist attacks not involving commercial
aircraft, or the general increase in hostilities relating to
reprisals against terrorist organizations or otherwise, could
result in decreased load factors and yields for airlines, including
the Company, and increased costs.
The Company will continue to evaluate whether any additional
provisions and/or revisions to the charges recorded as of September
30, 2001 (see footnote 2 below) are required during the fourth
quarter of 2001. However, the impact of the September 11, 2001
terrorist attacks on the Company's financial condition and the
sufficiency of its financial resources to absorb that impact will
depend on a number of factors. For a discussion of these factors,
see Management Discussion and Analysis of Financial Condition and
Results of Operations - Other Information.
2.On September 11, 2001, two American aircraft were hijacked and
destroyed in terrorist attacks on The World Trade Center in New York
City and the Pentagon in northern Virginia. On the same day, two
United Air Lines aircraft were also hijacked and used in terrorist
attacks. In addition to the loss of all passengers and crew on board
the aircraft, these attacks resulted in untold deaths and injuries to
persons on the ground and massive property damage. In response to
those terrorist attacks, the FAA issued a federal ground stop order on
September 11, 2001, prohibiting all flights to, from, and within the
United States. Airports did not reopen until September 13, 2001
(except for Washington Reagan National Airport, which was partially
reopened on October 4, 2001). The Company was able to operate only a
portion of its scheduled flights for several days thereafter. When
flights were permitted to resume, passenger traffic and yields on the
Company's flights were significantly lower than prior to the attacks.
As a result, the Company announced that it would reduce its operating
schedule to approximately 80 percent of the schedule it flew prior to
September 11, 2001. In addition, the Company also announced that, as
a result of its schedule reduction and the sharp fall off in passenger
traffic, it would eliminate at least 18,000 jobs. The Company's
future schedule will vary as the Company reacts to continuing changes
in demand and yields, as well as normal factors such as seasonality
and fleet composition.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act (the Act), which
for all U.S. airlines and air cargo carriers (collectively, air
carriers), provides for, among other things: (i) $5 billion in
compensation for direct losses (including lost revenues) incurred
as a result of the federal ground stop order and for incremental
losses incurred through December 31, 2001 as a direct result of the
attacks; (ii) subject to certain conditions, the availability of up
to $10 billion in federal government guarantees of certain loans
made to air carriers for which credit is not reasonably available
as determined by a newly established Air Transportation
Stabilization Board; (iii) the authority of the Secretary of
Transportation to reimburse air carriers (which authority expires
180 days after the enactment of the Act) for the increase in the
cost of insurance, for coverage ending before October 1, 2002, over
the premium in effect for the period September 4, 2001 to September
10, 2001; (iv) at the discretion of the Secretary of
Transportation, a $100 million limit on the liability of any air
carrier to third parties with respect to acts of terrorism
committed on or to such air carrier during the 180-day period
following the enactment of the Act; (v) the extension of the due
date for the payment by air carriers of certain excise taxes; and
(vi) compensation to individual claimants who were physically
injured or killed as a result of the terrorist attacks of September
11, 2001. In addition, the Act provides that, notwithstanding any
other provision of law, liability for all claims, whether
compensatory or punitive, arising from the terrorist-related events
of September 11, 2001 against any air carrier shall not exceed the
liability coverage maintained by the air carrier.
The Company estimates that its liability from claims arising from
the events of September 11, 2001 is approximately $2.3 billion,
after considering the liability protections provided for by the
Act. The Company expects to recover the $2.3 billion from its
insurance carriers as claims are settled. The insurance receivable
and liability are classified as Other assets, net and Other
liabilities, deferred gains and deferred credits on the
accompanying condensed consolidated balance sheets, respectively.
The Company may revise these estimates as additional information
becomes available concerning the expected claims.
As a result of the September 11, 2001 events, aviation insurers
have significantly reduced the maximum amount of insurance coverage
available to commercial air carriers for liability to persons other
than employees or passengers for claims resulting from acts of
terrorism, war or similar events (war-risk coverage). At the same
time, they significantly increased the premiums for such coverage
as well as for aviation insurance in general. As detailed above,
the Act mitigated the immediate effects of changes in the aviation
insurance market. In addition, and pursuant to the Act, the
Government has issued war risk coverage to U.S. air carriers for
renewable 30-day periods.
Under the Act, each air carrier is entitled to receive the lesser
of (i) its direct and incremental losses for the period September
11, 2001 to December 31, 2001 or (ii) its available seat mile
allocation of the $5 billion compensation available under the Act.
The Company has received a total of $437 million from the U.S.
Government under the Act. The Company expects to receive
additional payments in the fourth quarter of 2001 aggregating
approximately $437 million. As of September 30, 2001, the Company
recognized approximately $780 million as compensation under the
Act, which is included in U.S. Government grant on the accompanying
consolidated statements of operations, and is based upon direct and
incremental losses for the period September 11, 2001 through
September 30, 2001, including special charges and lost revenue.
Special charges for the three months ended September 30, 2001
includes the following (in millions):
Provision for aircraft impairments and groundings $ 398
Facility exit costs 60
Employee charges 53
Other 20
$ 531
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Provision for aircraft impairments and groundings
Following the events of September 11, 2001 and decisions by other
carriers to ground their Fokker 100 fleets, the Company determined
that the estimated fair market value of its Fokker 100 aircraft had
further declined in value, on an other than temporary basis, as
compared to the estimated fair market values used to write-down the
carrying value of these aircraft during the second quarter of 2001
(see discussion below). Therefore, during the third quarter of
2001, the Company recorded an additional charge of approximately
$325 million reflecting the diminution in the estimated fair market
value of these aircraft and related rotables.
Earlier this year, the Company determined that the estimated future
undiscounted cash flows expected to be generated by its Fokker 100
aircraft would be less than their carrying amount and therefore,
these aircraft were impaired under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). As a result, during the second quarter of 2001, the
Company recorded an asset impairment charge of approximately $586
million relating to the write-down of the carrying value of 71
Fokker 100 aircraft and related rotables to their estimated fair
market values. Management estimated or determined the undiscounted
future cash flows utilizing models used by the Company in making
fleet and scheduling decisions. In determining the fair market
value of these aircraft, the Company considered outside third party
appraisals and recent transactions involving sales of similar
aircraft.
As a result of the writedown of these aircraft to fair market
value, as well as the acceleration of the retirement dates and
changes in salvage values, depreciation and amortization expense
will decrease by approximately $55 million on an annualized basis.
The Company also announced it would accelerate the retirement of
its remaining 50 owned Boeing 727-200 aircraft (previously
scheduled to be retired by January 2003) to early 2002, ground all
McDonnell Douglas DC-9 (DC9) aircraft by the end of October 2001,
and immediately ground eight McDonnell Douglas MD-80 (MD80)
aircraft. In conjunction therewith, the Company recorded a charge
of approximately $73 million related primarily to future lease
commitments on the DC9 and MD80 operating leased aircraft past the
dates they will be removed from service, lease return and storage
costs, and the write-down of one owned MD80 aircraft to its
estimated fair market value. Cash outlays are estimated to be
approximately $64 million and will occur over the remaining lease
terms, which extend through 2010.
The Company will continue to evaluate its current operating
schedule to determine if additional revisions to its fleet plan are
warranted, which will be primarily dependent on passenger demand
and yield in the upcoming months. In addition, the events of
September 11, 2001 and the resulting significant decline in
passenger traffic and yields require the Company to assess its long-
lived assets for impairment, including aircraft fleets, route
acquisition costs, airport operating and gate lease rights, and
goodwill. However, the Company is currently not able to make a
reasonable estimate of future cash flows derived from these long-
lived assets for the purposes of assessing whether such assets are
impaired because of the lack of predictability of future traffic,
business mix and yields. The Company will perform impairment
reviews once this information becomes more predictable and future
operating cash flows therefore become reasonably estimable. This
may occur in the fourth quarter of 2001 or during 2002. The size
of any resulting charge is not presently known, but could be
significant.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Facility exit costs
Also in response to the September 11, 2001 terrorist attacks, the
Company announced that it would discontinue service at Dallas Love
Field and discontinue or reduce service on several of its
international routes. In addition, the Company announced it would
close six Admiral's Clubs, five airport Platinum Service Centers
and approximately 105 off-airport Travel Centers in 37 cities, all
effective September 28, 2001. As a result of these announcements,
the Company recorded a $60 million charge related to the write-off
of leasehold improvements, fixed assets and future lease
commitments. Cash outlays are estimated to be approximately $19
million and will occur over the remaining lease terms, which extend
through 2017.
Employee charges
On September 19, 2001, the Company announced that it would be
forced to reduce its workforce by at least 18,000 jobs across all
work groups (pilots, flight attendants, mechanics, fleet service
clerks, agents, management and support staff personnel). The
reduction in workforce, which the Company expects to accomplish
through various measures, including leave of absences, job sharing,
elimination of open positions, furloughs in accordance with
collective bargaining agreements, and permanent layoffs, resulted
from the September 11, 2001 terrorist attacks and the Company's
subsequent reduction of its operating schedule by approximately 20
percent due to a sharp reduction in passenger traffic. The Company
recorded an employee charge of approximately $53 million for
termination benefits provided to the employees impacted. Cash
outlays for the employee charges are expected to occur
substantially during the remainder of 2001 and will approximate the
amount of the charge recorded.
3.Accumulated depreciation of owned equipment and property at
September 30, 2001 and December 31, 2000, was $8.4 billion and $7.8
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 2001 and December 31,
2000, was $1.0 billion.
4.As discussed in the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, the Miami International Airport
Authority is currently investigating and remediating various
environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through various cost
recovery methods. American has been named as potentially
responsible party (PRP) and contributor to the contamination.
During the second quarter of 2001, the Airport filed a lawsuit
against 17 defendants, including the Company, in an attempt to
recover its past and future cleanup costs (Miami-Dade County,
Florida v. Advance Cargo Services, Inc., et al. in the Florida
Circuit Court). In addition to the 17 defendants named in the
lawsuit, 243 other agencies and companies were also named as PRPs
and contributors to the contamination. The Company's portion of
the cleanup costs cannot be reasonably estimated due to various
factors, including the unknown extent of the remedial actions that
may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding
the environmental agencies that will ultimately supervise the
remedial activities and the nature of that supervision. In
addition, the Company is subject to environmental issues at various
other airport and non-airport locations. Management believes,
after considering a number of factors, that the ultimate
disposition of these environmental issues is not expected to
materially affect the Company's consolidated financial position,
results of operations or cash flows. Amounts recorded for
environmental issues are based on the Company's current assessments
of the ultimate outcome and, accordingly, could increase or
decrease as these assessments change.
5.As of September 30, 2001, the Company had commitments to acquire
the following aircraft: 49 Boeing 737-800s, 15 Boeing 767-300ERs, 15
Boeing 757-200s, and 10 Boeing 777-200ERs. Future payments for all
aircraft, including the estimated amounts for price escalation, will
approximate $500 million during the remainder of 2001, $500 million in
2002, $200 million in 2003 and approximately $2.1 billion in 2004 and
beyond. These cash flows reflect a tentative agreement the Company has
with Boeing to defer 29 of its 45 2002 deliveries to 2004 and beyond.
As the Company and Boeing are still negotiating the final terms of the
tentative agreement, the above aircraft commitment and cash flow
amounts could change.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6.During the first nine months of 2001, American entered into various
debt agreements secured by aircraft having a net book value of
approximately $1.4 billion. Effective interest rates on these
agreements are fixed or variable (based on LIBOR plus a spread),
ranging up to 7.4 percent, and mature over various periods of time,
ranging from 2013 to 2021. During the nine months ended September
30, 2001, the Company had borrowed approximately $1.4 billion under
these agreements.
American has $1 billion in credit facility agreements that expire
December 15, 2005, subject to certain conditions. In September
2001, American borrowed approximately $819 million under the credit
facility agreements which bears interest at 3.94 percent.
During the third quarter of 2001, American entered into an advance
payment facility which expires in 2004. Interest is variable based
upon one month LIBOR plus a spread. As of September 30, 2001, the
Company had borrowed approximately $200 million under this advance
payment facility. These borrowings bear interest ranging from 3 to
4 percent.
In April 2001, the Board of Directors of American approved the
guarantee by American of AMR's existing debt obligations. As of
September 30, 2001, American unconditionally guaranteed through the
life of the related obligations approximately $695 million of
unsecured debt, approximately $700 million of secured debt and
approximately $1.6 billion of special facility revenue bonds issued
by municipalities.
Subsequent to September 30, 2001 and through October 24, 2001, the
Company had issued approximately $1.3 billion of enhanced equipment
trust certificates, with $740 million received at closing and the
remainder to be received as certain aircraft are delivered, with
interest rates ranging from 6.978 to 8.608 percent and maturing in
2011. These borrowings are secured by aircraft.
7.In September 2001, the Board of Directors of AMR approved the
capital contribution of $1.5 billion from AMR to American. This
capital contribution was recorded as an addition to American's
stockholder's equity.
8.On April 9, 2001, the Company purchased substantially all of the
assets of Trans World Airlines, Inc. (TWA) for approximately $742
million in cash (subject to certain working capital adjustments) and
assumed certain liabilities, including TWA's postretirement benefit
other than pension liability. The $742 million includes the $625
million purchase price paid to TWA and various other acquisition
costs, primarily the purchase of aircraft security deposits and
prepaid rent. TWA was the eighth largest U.S. carrier, with a primary
domestic hub in St. Louis. The Company funded the acquisition of
TWA's assets with its existing cash and short-term investments. The
acquisition of TWA was accounted for under the purchase method of
accounting and, accordingly, the operating results of TWA since the
date of acquisition have been included in the accompanying
consolidated financial statements for the three and nine-month periods
ended September 30, 2001.
The accompanying consolidated financial statements reflect the
preliminary allocation of the purchase price, which was based on
estimated fair values of the assets acquired and liabilities
assumed, and is subject to adjustments when additional information
concerning asset and liability valuations are finalized. The
preliminary excess purchase price over the estimated fair values of
the net assets acquired resulted in goodwill in excess of $900
million, which is being amortized on a straight-line basis over 40
years, and brought the Company's total goodwill to approximately
$1.2 billion as of September 30, 2001. However, effective January
1, 2002, the Company will discontinue the amortization of goodwill
in accordance with Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets."
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table provides unaudited pro forma consolidated
results of operations, assuming the acquisition had occurred as of
January 1, 2000 (in millions):
Nine Months Ended
September 30,
2001 2000
Operating revenues $14,878 $16,490
Net earnings (loss) (814) 822
The unaudited pro forma consolidated results of operations have
been prepared for comparative purposes only. These amounts are not
indicative of the combined results which would have occurred had
the transaction actually been consummated on the date indicated
above and are not indicative of the consolidated results of
operations which may occur in the future.
In addition, the Company acquired certain aircraft lease
obligations, primarily operating lease agreements, in connection
with the acquisition of TWA. The future minimum lease payments
required under these operating leases are as follows (in millions):
Year Ending December 31,
2002 $ 373
2003 271
2004 200
2005 174
2006 and subsequent 1,229
$2,247
9.For the three and nine months ended September 30, 2001, the Company
recognized net gains of approximately $14 million and $49 million,
respectively, as a component of fuel expense on the accompanying
consolidated statements of operations related to its fuel hedging
agreements. This compares to net gains recognized by the Company
of approximately $151 million and $371 million, respectively, for
the three and nine months ended September 30, 2000. (The amounts
for 2001 and 2000 are not comparable in that the 2001 amounts
reflect the January 1, 2001 adoption of Statement of Financial
Accounting Standards No. 133 (SFAS 133); the 2000 amounts do not.)
The fair value of the Company's fuel hedging agreements at
September 30, 2001, representing the amount the Company would
receive to terminate the agreements, totaled $93 million.
10.The Company includes unrealized gains and losses on available-
for-sale securities, changes in minimum pension liabilities and
changes in the fair value of certain derivative financial
instruments which qualify for hedge accounting in comprehensive
income (loss). For the three and nine months ended September 30,
2001, comprehensive loss was $434 million and $852 million,
respectively. The difference between net loss and comprehensive
loss for the three and nine months ended September 30, 2001 is due
primarily to the cumulative effect of the adoption of SFAS 133 and
the on-going fair value adjustments of derivative financial
instruments under SFAS 133, net of the reclassification into
earnings of the Company's derivative financial instruments. The
difference between net income and comprehensive income for the
three and nine months ended September 30, 2000 was not material.
11.During 1999, the Company entered into an agreement with
priceline.com Incorporated (priceline) whereby ticket inventory
provided by the Company may be sold through priceline's e-commerce
system. In conjunction with this agreement, the Company received
warrants to purchase approximately 5.5 million shares of priceline
common stock. In the second quarter of 2000, the Company sold
these warrants for proceeds of approximately $94 million, and
recorded a pre-tax gain of $57 million, which is included in
Miscellaneous - net on the consolidated statements of operations.
-9-
<Page> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 2001 and 2000
Summary American's net loss for the nine months ended September 30,
2001 was $827 million, compared with net earnings of $745 million for
the same period in 2000. American's operating loss for the nine
months ended September 30, 2001 was $1.2 billion, compared to
operating income of $1.2 billion for the same period in 2000. On
September 11, 2001, two of American's aircraft were hijacked and
destroyed in terrorist attacks on The World Trade Center in New York
City and the Pentagon in northern Virginia. On the same day, two
United Air Lines aircraft were also hijacked and used in terrorist
attacks. In response to the terrorist attacks, the Federal Aviation
Administration issued a federal ground stop order on September 11,
2001, prohibiting all flights to, from, and within the United States.
Airports did not reopen until September 13, 2001 (except for
Washington Reagan National Airport, which was partially reopened on
October 4, 2001). The Company was able to operate only a portion of
its scheduled flights for several days thereafter. When flights were
permitted to resume, passenger traffic and yields on the Company's
flights were significantly lower than prior to the attacks. As a
result, the Company announced that it would reduce its operating
schedule to approximately 80 percent of the schedule it flew prior to
September 11, 2001. For additional information related to the
September 11, 2001 events, see footnote 2 to the condensed
consolidated financial statements. In addition, as discussed in
footnote 8 to the condensed consolidated financial statements, on
April 9, 2001, the Company purchased substantially all of the assets
and assumed certain liabilities of TWA. Accordingly, the operating
results of TWA since the date of acquisition have been included in
the accompanying consolidated financial statements for the nine month
period ended September 30, 2001. The Company's third quarter 2000
results include the effect of a labor disruption at one of the
Company's major competitors which positively impacted the Company's
net earnings.
The Company's revenues increased approximately $335 million, or 2.5
percent, during the first nine months of 2001 versus the same period
last year. However, excluding TWA's revenues for the period April
10, 2001 through September 30, 2001, the Company's revenues would
have decreased approximately $1.1 billion versus the same period last
year. The Company's 2001 revenues, yield, revenue passenger miles and
available seat miles were severely impacted by the September 11, 2001
terrorist attacks, the reduced operating schedule, a worsening of the
U.S. economy that had already been dampening the demand for travel
both domestically and internationally prior to the September 11, 2001
events, business travel restrictions imposed by numerous companies as
a result of the September 11, 2001 attacks, and increased fare sale
activity occurring subsequent to the September 11 attacks to
encourage passengers to resume flying. The Company estimates the
September 11, 2001 terrorist attacks to have negatively impacted the
Company's revenues by approximately $550 million to $650 million.
American's passenger revenues decreased by 8.1 percent, or $1
billion. American's yield of 13.49 cents decreased by 2.7 percent
compared to the same period in 2000. Domestic yields decreased 3.9
percent from the first nine months of 2000. International yields
increased 0.2 percent, reflecting an increase of 4.1 percent in Latin
American yields, mostly offset by a decrease of 7.0 percent and 2.6
percent in Pacific and European yields, respectively.
American's traffic or revenue passenger miles (RPMs) decreased 5.5
percent to 84.1 billion miles for the nine months ended September 30,
2001. American's capacity or available seat miles (ASMs) decreased
2.2 percent to 118.9 billion miles for the first nine months of 2001.
American's domestic traffic decreased 6.8 percent on a capacity
decrease of 2.4 percent while international traffic decreased 2.9
percent on capacity decreases of 1.6 percent. International activity
included a 6.7 percent increase in traffic to the Pacific on a
capacity increase of 8.2 percent, a 4.0 percent decrease in traffic
to Europe on a capacity increase of 0.3 percent, and a 3.9 percent
decrease in traffic to Latin America on a capacity decrease of 5.2
percent.
TWA's passenger revenues were approximately $1.3 billion for the
period April 10, 2001 through September 30, 2001. TWA's traffic was
11.1 billion RPMs while capacity was 16 billion ASMs.
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<Page> 13
The Company's operating expenses increased 21.6 percent, or
approximately $2.7 billion, and included approximately $1.5 billion
related to TWA's operations for the period April 10, 2001 through
September 30, 2001. In addition to the specific explanations provided
below, the significant decline in passenger traffic resulting from
the terrorist acts of September 11, 2001 caused a favorable impact on
certain passenger-related operating expenses, including aircraft
fuel, other rentals and landing fees, commissions to agents and food
service. American's cost per ASM increased 8.7 percent to 11.15
cents, excluding the impact of the second and third quarter 2001
special charges and U.S. Government grant. The increase in
American's cost per ASM was driven partially by a reduction in ASMs
due to the Company's More Room Throughout Coach program. Adjusted
for this program, American's cost per ASM grew approximately 5
percent, excluding the impact of the special charges and U.S.
Government grant. Wages, salaries and benefits increased 20.2
percent, or $951 million, and included approximately $600 million
related to the addition of TWA. The remaining increase of
approximately $351 million related primarily to an increase in the
average number of equivalent employees and contractual wage rate and
seniority increases that are built into the Company's labor
contracts. During the nine months ended September 30, 2001, the
Company recorded approximately $280 million in additional wages,
salaries and benefits related to the Company's new or tentative labor
contracts. This was offset by a $281 million decrease in the
provision for profit-sharing as compared to the corresponding period
in the prior year. Aircraft fuel expense increased 31.5 percent, or
$529 million, and included approximately $237 million related to the
addition of TWA. The increase in aircraft fuel expense was due to a
13.9 percent increase in the Company's average price per gallon and a
12 percent increase in the Company's fuel consumption, including TWA.
Depreciation and amortization expense increased 17 percent, or $134
million, due primarily to the addition of new aircraft and an
increase of approximately $55 million related to TWA. Other rentals
and landing fees increased $151 million, or 22.1 percent, and
included approximately $97 million related to the addition of TWA.
The remaining increase of $54 million is due primarily to higher
facilities rent and landing fees across American's system.
Maintenance, materials and repairs increased $92 million, or 13.6
percent, and included approximately $54 million related to TWA. The
remaining increase was due primarily to an increase in engine volumes
at the Company's maintenance bases. Commissions to agents decreased
12.9 percent, or $96 million, and included approximately $48 million
related to TWA. Despite an increase of approximately 2.1 percent in
combined passenger revenues, the Company benefited from commission
structure changes implemented in 2000. Aircraft rentals increased
$161 million, or 38.3 percent, due primarily to the addition of TWA
aircraft. Other operating expense increased 18.8 percent, or $411
million, and included approximately $264 million related to TWA. The
remaining increase is due primarily to increases in outsourced
services, data processing, TWA integration expenses, and travel and
incidental costs. Special charges result from the September 11, 2001
terrorist events and the asset impairment charge recorded in the
second quarter of 2001. The September 11, 2001 special charges
include approximately $398 million related to aircraft impairments
and groundings, $60 million in facility exit costs, $53 million in
employee charges, and approximately $20 million in other charges.
During the second quarter of 2001, the Company recorded an asset
impairment charge of $586 million relating to the writedown of the
carrying value of the Company's Fokker 100 aircraft and related
rotables. The Company will continue to evaluate whether any
additional provisions and/or revisions to the charges recorded as of
September 30, 2001 are required during the fourth quarter of 2001
(see further discussion in footnote 2 to the condensed consolidated
financial statements). U.S. Government grant represents the
reimbursement for direct and incremental costs resulting from the
terrorist attacks, including impairment charges and lost revenues,
recognized by the Company in the third quarter of 2001 relating to
the Air Transportation Safety and System Stabilization Act (see
further discussion in footnote 2 to the condensed consolidated
financial statements).
Interest income decreased 42.3 percent, or $44 million, resulting
from lower investment balances throughout most of the year. Interest
expense increased $43 million, or 20.5 percent, primarily as a result
of the increase in long-term debt. Related party interest - net
increased $41 million due primarily to higher affiliate intercompany
balances with American. Miscellaneous - net decreased $19 million,
or 47.5 percent, reflecting the $57 million gain in the second
quarter of 2000 on the sale of the Company's warrants to purchase 5.5
million shares of priceline common stock versus a $45 million gain
during the second quarter of 2001 from the settlement of a legal
matter related to the Company's 1999 labor disruption.
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<Page> 14
OTHER INFORMATION
As of September 30, 2001, the Company had commitments to acquire
the following aircraft: 49 Boeing 737-800s, 15 Boeing 767-300ERs, 15
Boeing 757-200s, and 10 Boeing 777-200ERs. Future payments for all
aircraft, including the estimated amounts for price escalation, will
approximate $500 million during the remainder of 2001, $500 million in
2002, $200 million in 2003 and approximately $2.1 billion in 2004 and
beyond. These cash flows reflect a tentative agreement the Company has
with Boeing to defer 29 of its 45 2002 deliveries to 2004 and beyond.
As the Company and Boeing are still negotiating the final terms of the
tentative agreement, the above aircraft commitment and cash flow
amounts could change.
The Company has available a variety of future financing sources,
including, but not limited to: (i) the receipt of the remainder of
the U.S. Government grant, which approximates $437 million, (ii)
additional secured aircraft debt agreements, including the issuance
of approximately $1.3 billion of enhanced equipment trust
certificates as of October 24, 2001, with $740 million received at
closing and the remainder to be received as aircraft are delivered,
(iii) sale-leaseback transactions of owned property, including
aircraft and real estate, (iv) securitization of future operating
receipts, (v) unsecured borrowings, and (vi) federal loan guarantees
as provided under the Act and other types of secured debt agreements.
No assurance can be given that any of these financing sources will be
available on terms acceptable to the Company.
As of September 30, 2001, the Company is in compliance with the two
financial covenants contained in the Company's credit facility
agreements. However, it is likely that a significant loss in the
fourth quarter of 2001 could cause the Company to violate one or both
covenants, unless they are modified. American is currently pursuing
such modifications to the agreements so that the Company will remain
in compliance with the covenants. Absent such modification, the $819
million currently outstanding under the credit facility agreements
could become due and payable in late first quarter 2002.
Subsequent to the September 11, 2001 events, Standard & Poor's
downgraded the senior unsecured credit rating of American from BBB- to
BB and Moody's downgraded the senior unsecured credit rating of
American from Baa3 to Ba2. The long-term corporate credit ratings of
American remain on Standard & Poor's CreditWatch with negative
implications and Moody's has retained the credit ratings of American
on review for possible downgrade.
The impact of the terrorist attacks of September 11, 2001 and their
aftermath on the Company and the sufficiency of its financial
resources to absorb that impact will depend on a number of factors,
including: (i) the magnitude and duration of the adverse impact of the
terrorist attacks on the economy in general, and the airline industry
in particular; (ii) the Company's ability to reduce its operating
costs and conserve its financial resources, taking into account the
increased costs it will incur as a consequence of the attacks,
including those referred to below; (iii) the higher costs associated
with new airline security directives and any other increased
regulation of air carriers; (iv) the significantly higher costs of
aircraft insurance coverage for future claims caused by acts of war,
terrorism, sabotage, hijacking and other similar perils, and the
extent to which such insurance will continue to be available; (v) the
Company's ability to raise additional financing; (vi) the price and
availability of jet fuel, and the availability to the Company of fuel
hedges in light of current industry conditions; (vii) the number of
crew members who may be called for duty in the reserve forces of the
armed services and the resulting impact on the Company's ability to
operate as planned; (viii) any resulting declines in the values of the
aircraft in the Company's fleet and any aircraft or other asset
impairment charge, including routes, slots, gates and other
intangibles; (ix) the extent of the benefits received by the Company
under the Act, taking into account any challenges to and
interpretations or amendments of the Act or regulations issued
pursuant thereto; and (x) the Company's ability to retain its
management and other employees in light of current industry conditions
and their impact on compensation and morale.
At this point, due in part to the lack of predictability of future
traffic, business mix and yields, the Company is unable to fully
estimate the impact on it of the events of September 11, 2001 and
their consequences and the sufficiency of its financial resources to
absorb that impact, including the mitigating effects of the Act and
the Company's aggressive actions to reduce its costs. However, given
the magnitude of these unprecedented events and the possible
subsequent effects, the Company expects that the adverse impact to
the Company's financial condition, its operations and its prospects
will be material and could be highly material.
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<Page> 15
SPECIAL RISK FACTOR
Negative Impact of Terrorist Attacks Among the effects experienced
by the Company from the September 11, 2001 terrorist attacks have been
significant flight disruption costs caused by the FAA's imposed
grounding of the U.S. airline industry's fleet, significantly
increased security and other costs, significantly higher ticket
refunds, significantly reduced load factors, and significantly reduced
yields. Further terrorist attacks using commercial aircraft in flight
could result in another grounding of the Company's fleet, and would
likely result in additional reductions in load factor and yields,
along with increased ticket refund, security and other costs. In
addition, terrorist attacks not involving commercial aircraft, or the
general increase in hostilities relating to reprisals against
terrorist organizations or otherwise, could result in decreased load
factors and yields for airlines, including the Company, and increased
costs.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" (SFAS 141) and No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). SFAS 141 prohibits the use of the pooling-of-
interests method for business combinations initiated after June 30,
2001 and includes criteria for the recognition of intangible assets
separately from goodwill. SFAS 142 includes the requirement to test
goodwill and indefinite lived intangible assets for impairment rather
than amortize them. The Company will adopt SFAS 142 in the first
quarter of 2002, and currently estimates discontinuing the
amortization of approximately $59 million on an annualized basis. The
Company is currently evaluating what additional impact these new
accounting standards may have on the Company's financial position or
results of operations. However, with the decline in the Company's
market capitalization, in part due to the terrorist attacks on
September 11, 2001, the adoption of SFAS 142 might result in the write-
off or write-down of the Company's goodwill.
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 report, the words
"expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. Forward looking
statements include the Company's expectations concerning operations
and financial conditions, overall economic conditions, plans and
objectives for future operations, and the impact of the events of
September 11, 2001 on American and the sufficiency of the Company's
financial resources to absorb that impact. All forward-looking
statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise. Forward-looking statements are subject to a number of
factors that could cause actual results to differ materially from our
expectations. These factors include the adverse impact of the
terrorist attacks on the economy in general, the likelihood of a
further decline in air travel because of the attacks and as a result
of a reduction in American's operations, higher costs associated with
new security directives and potentially new regulatory initiatives,
higher costs for insurance and the continued availability of such
insurance, the number of crew members who may be called for duty in
the armed services and the impact on American's ability to operate as
planned. Additional information concerning these and other factors
that could cause actual results to differ is contained in the
Company's Securities and Exchange Commission filings, including but
not limited to, the Form 10-K for the year ended December 31, 2000.
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<Page> 16
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 Annual Report on Form
10-K for the year ended December 31, 2000, except as discussed below.
Based on projected fuel usage for the next twelve months, including
the Company's estimated fuel consumption for TWA, a hypothetical 10
percent increase in the September 30, 2001 cost per gallon of fuel
would result in an increase in the Company's aircraft fuel expense of
approximately $162 million for the next twelve months, net of fuel
hedge instruments outstanding at September 30, 2001. The change in
market risk from December 31, 2000 is due primarily to the additional
fuel consumption of TWA, partially offset by a decrease in fuel
prices. As of September 30, 2001, the Company, including the
estimated fuel consumption of TWA, has hedged approximately 58 percent
of its remaining 2001 fuel requirements, 38 percent of its 2002 fuel
requirements, and 20 percent of its 2003 fuel requirements.
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<Page> 17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1999, a class action lawsuit was filed, and in November
1999 an amended complaint was filed, against AMR Corporation,
American Airlines, Inc., AMR Eagle Holding Corporation, Airlines
Reporting Corporation, and the Sabre Group Holdings, Inc. in the
United States District Court for the Central District of California,
Western Division (Westways World Travel, Inc. v. AMR Corp., et al.).
The lawsuit alleges that requiring travel agencies to pay debit memos
to American for violations of American's fare rules (by customers of
the agencies) (1) breaches the Agent Reporting Agreement between
American and American Eagle and plaintiffs, (2) constitutes unjust
enrichment, and (3) violates the Racketeer Influenced and Corrupt
Organizations Act of 1970 (RICO). The as yet uncertified class
includes all travel agencies who have been or will be required to pay
moneys to American for debit memos for fare rules violations from
July 26, 1995 to the present. Plaintiffs seek to enjoin American
from enforcing the pricing rules in question and to recover the
amounts paid for debit memos, plus treble damages, attorneys' fees,
and costs. American intends to vigorously defend the lawsuit.
Although the Company believes that the litigation is without merit,
adverse court decisions could impose restrictions on American's
ability to respond to competitors, and American's business may be
adversely impacted.
On May 13, 1999, the United States (through the Antitrust Division
of the Department of Justice) sued AMR Corporation, American
Airlines, Inc., and AMR Eagle Holding Corporation in federal court in
Wichita, Kansas. The lawsuit alleges that American unlawfully
monopolized or attempted to monopolize airline passenger service to
and from Dallas/Fort Worth International Airport (DFW) by increasing
service when new competitors began flying to DFW, and by matching
these new competitors' fares. The Department of Justice seeks to
enjoin American from engaging in the alleged improper conduct and to
impose restraints on American to remedy the alleged effects of its
past conduct. On April 27, 2001, the U.S. District Court for the
District of Kansas granted American's motion for summary judgment.
On June 26, 2001, the U.S. Department of Justice appealed the
granting of American's motion for summary judgment. Following the
events of September 11, 2001, AMR requested, and the 10th Circuit
Court of Appeals agreed, to defer the filing of all briefs until
2002. No date has been set for oral argument. American intends to
defend the lawsuit vigorously.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits
were filed against AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in the United States District Court in
Wichita, Kansas seeking treble damages under federal and state
antitrust laws, as well as injunctive relief and attorneys' fees
(King v. AMR Corp., et al.; Smith v. AMR Corp., et al.; Team Electric
v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier v. AMR
Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR
Corp., et al.). Collectively, these lawsuits allege that American
unlawfully monopolized or attempted to monopolize airline passenger
service to and from DFW by increasing service when new competitors
began flying to DFW, and by matching these new competitors' fares.
Two of the suits (Smith and Wright) also allege that American
unlawfully monopolized or attempted to monopolize airline passenger
service to and from DFW by offering discounted fares to corporate
purchasers, by offering a frequent flyer program, by imposing certain
conditions on the use and availability of certain fares, and by
offering override commissions to travel agents. The suits propose to
certify several classes of consumers, the broadest of which is all
persons who purchased tickets for air travel on American into or out
of DFW since 1995 to the present. On November 10, 1999, the District
Court stayed all of these actions pending developments in the case
brought by the Department of Justice. As a result, to date no class
has been certified. American intends to defend these lawsuits
vigorously.
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<Page> 18
Item 1. Legal Proceedings (Continued)
In June 2001, the named plaintiff in a class action lawsuit, Hall
v. United Airlines, et al., No. 7:00 CV 123-BR(1), sought leave to
file an amended complaint that would substantially increase the size
and scope of the pending litigation. The Hall case was originally
filed in the United States District Court for the Eastern District of
North Carolina against American and other airlines, and alleged that
during 1999, American and the other defendant airlines conspired to
reduce commissions paid to U.S.-based travel agents in violation of
Section 1 of the Sherman Act. The proposed amended complaint seeks
to add additional named plaintiffs and defendants, and to add
allegations that American and other airlines also conspired to reduce
commission rates from 10 percent to 8 percent in September 1997 and
to cap commissions for international travel at $50 each way in
October 1998. Plaintiff's motion for leave to amend is pending, and
no class has yet been certified. American is vigorously defending
the lawsuit.
The Miami International Airport Authority is currently
investigating and remediating various environmental conditions at the
Miami International Airport (the Airport) and funding the remediation
costs through various cost recovery methods. American Airlines, Inc.
and AMR Eagle have been named as potentially responsible parties
(PRPs) and contributors to the contamination. During the second
quarter of 2001, the Airport filed a lawsuit against 17 defendants,
including American Airlines, Inc., in an attempt to recover its past
and future cleanup costs (Miami-Dade County, Florida v. Advance Cargo
Services, Inc., et al. in the Florida Circuit Court). In addition to
the 17 defendants named in the lawsuit, 243 other agencies and
companies were also named as PRPs and contributors to the
contamination. American and AMR Eagle's portion of the cleanup costs
cannot be reasonably estimated due to various factors, including the
unknown extent of the remedial actions that may be required, the
proportion of the cost that will ultimately be recovered from the
responsible parties, and uncertainties regarding the environmental
agencies that will ultimately supervise the remedial activities and
the nature of that supervision American is vigorously defending the
lawsuit.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three
and nine months ended September 30, 2001 and 2000.
Form 8-Ks filed under Item 5 -- Other Events
On July 19, 2001, American filed a report on Form 8-K relative to a
press release issued by AMR Corporation (AMR) to announce AMR's
second quarter 2001 earnings. In addition, the Form 8-K included
information regarding: (i) American's contract status with the
Association of Professional Flight Attendants, and (ii) that on June
26, 2001, the U.S. Department of Justice appealed the granting of
American's motion for summary judgement in the U.S. government's 1999
civil lawsuit alleging predatory pricing by American.
On August 3, 2001, American filed a report on Form 8-K relative to
a press release issued by American to announce: (i) American and
British Airways have agreed to create a new alliance that would boost
competition, deliver significant benefits for international air
travelers, and move toward a level playing field with other global
airline alliances, and (ii) American and British Airways will file
applications for antitrust immunity in the United States and clearance
for their proposals in the United Kingdom and with the European
Commission.
On August 21, 2001, American filed a report on Form 8-K relative to
a press release issued by American to announce that American would
accelerate the retirement of five additional Boeing 727 aircraft and
will retire its remaining four McDonnell Douglas MD-11 aircraft by
November 1, 2001.
On September 7, 2001, American filed a report on Form 8-K relative
to a press release issued by AMR to announce: (i) AMR expects a third
quarter loss considerably larger than its second quarter loss in
addition to a significant fourth quarter loss, and (ii) American will
retire five more Boeing 727 aircraft earlier than originally planned.
On September 11, 2001, American filed a report on Form 8-K relative
to a press release issued by American to confirm that American lost two
aircraft in tragic events on September 11, 2001.
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<Page> 19
Form 8-Ks filed under Item 5 -- Other Events (Continued)
On September 19, 2001, American filed a report on Form 8-K regarding the
potential impact to the Company of the September 11, 2001 terrorist attacks.
On September 25, 2001, American filed a report on Form 8-K providing:
(i) an update of the potential impact to the Company of the September 11, 2001
terrorist attacks, (ii) information pertaining to the Air Transportation
Safety and System Stabilization Act, (iii) Standard and Poor's and Moody's
downgrade of American's credit rating, and (iv) the announced job reductions.
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<Page> 20
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN AIRLINES, INC.
Date: October 24, 2001 BY: /s/ Thomas W. Horton
Thomas W. Horton
Senior Vice President - Finance and
Planning and Chief Financial Officer
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<Page> 20
Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(in millions)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Earnings:
Earnings (loss) before income taxes $(525) $515 $(1,281) $1,220
Add: Total fixed charges (per below) 379 265 1,045 800
Less: Interest capitalized 35 35 109 104
Total earnings (loss) $(181) $745 $(345) $1,916
Fixed charges:
Interest, including interest
capitalized $ 96 $ 71 $286 $210
Portion of rental expense
representative of the interest
factor 281 194 756 589
Amortization of debt expense 2 - 3 1
Total fixed charges $379 $265 $1,045 $800
Ratio of earnings to fixed charges - 2.81 - 2.40
Coverage deficiency $560 - $1,390 -
</Table>
Note: In April 2001, the Board of Directors of American approved
the guarantee by American of AMR's existing debt obligations. As
of September 30, 2001, American unconditionally guaranteed through
the life of the related obligations approximately $695 million of
unsecured debt and approximately $700 million of secured debt.
The impact of these unconditional guarantees is not included in
the above computation.
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