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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 March 31, 2002.
[ ]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, (817) 963-1234
including area code
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 April 16, 2002.
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 months ended March
31, 2002 and 2001
Condensed Consolidated Balance Sheets -- March 31, 2002 and
December 31, 2001
Condensed Consolidated Statements of Cash Flows -- Three months
ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements -- March 31,
2002
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
March 31,
2002 2001
<s> <c> <c>
Revenues
Passenger $3,484 $ 3,935
Cargo 133 174
Other 191 269
Total operating revenues 3,808 4,378
Expenses
Wages, salaries and benefits 1,972 1,632
Aircraft fuel 497 670
Depreciation and amortization 304 278
Other rentals and landing fees 268 236
Maintenance, materials and repairs 230 234
Aircraft rentals 219 140
Food service 169 181
Commissions to agents 151 212
Other operating expenses 720 807
Total operating expenses 4,530 4,390
Operating Loss (722) (12)
Other Income (Expense)
Interest income 18 22
Interest expense (127) (76)
Interest capitalized 20 39
Related party interest - net 5 (11)
Miscellaneous - net (8) (6)
(92) (32)
Loss Before Income Taxes (814) (44)
Income tax benefit (272) (10)
Net Loss $ (542) $ (34)
</Table>
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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>
March 31, December 31,
2002 2001
Assets
<s> <c> <c>
Current Assets
Cash $ 132 $ 117
Short-term investments 2,170 2,856
Receivables, net 1,824 1,371
Inventories, net 689 752
Deferred income taxes 847 844
Other current assets 543 519
Total current assets 6,205 6,459
Equipment and Property
Flight equipment, net 13,497 13,151
Other equipment and property, net 2,149 2,000
Purchase deposits for flight equipment 615 834
16,261 15,985
Equipment and Property Under Capital Leases
Flight equipment, net 1,440 1,492
Other equipment and property, net 93 95
1,533 1,587
Goodwill and route acquisition costs 2,131 2,122
Airport operating and gate lease rights, net 451 459
Other assets, net 3,979 3,865
$ 30,560 $ 30,477
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,388 $ 1,717
Accrued liabilities 2,143 2,017
Air traffic liability 2,930 2,763
Payable to affiliates, net 73 66
Current maturities of long-term debt 164 421
Current obligations under capital leases 386 189
Total current liabilities 7,084 7,173
Long-term debt, less current maturities 6,947 6,530
Obligations under capital leases, less
current obligations 1,331 1,396
Deferred income taxes 1,823 1,465
Postretirement benefits 2,573 2,538
Other liabilities, deferred gains and
deferred credits 5,860 5,896
Stockholder's Equity
Common stock - -
Additional paid-in capital 2,527 2,596
Accumulated other comprehensive loss (71) (145)
Retained earnings 2,486 3,028
4,942 5,479
$ 30,560 $ 30,477
</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>
Three Months Ended
March 31,
2002 2001
<s> <c> <c>
Net Cash Used for Operating Activities $ (407) $ (43)
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (508) (746)
Net decrease in short-term investments 686 275
Proceeds from sale of equipment and property 12 126
Net cash provided by (used for) investing activities 190 (345)
Cash Flow from Financing Activities:
Payments on long-term debt and capital lease
obligations (175) (80)
Proceeds from issuance of long-term debt 469 532
Funds transferred from affiliates, net (62) 18
Net cash provided by financing activities 232 470
Net increase in cash 15 82
Cash at beginning of period 117 86
Cash at end of period $ 132 $ 168
</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 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. The Company's
2002 results continue to be adversely impacted by the September 11,
2001 terrorist attacks. In addition, on April 9, 2001, American
Airlines, Inc. (a wholly owned subsidiary of AMR Corporation)
purchased substantially all of the assets and assumed certain
liabilities of Trans World Airlines, Inc. (TWA). Accordingly, the
operating results of TWA are included in the accompanying condensed
consolidated financial statements for the three-month period ended
March 31, 2002 but not for the three-month period ended March 31,
2001. When utilized in this report, all references to American
Airlines, Inc. include TWA (collectively, American or the Company).
Results of operations for the periods presented herein are not
necessarily indicative of results of operations for the entire year.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 ("2001 Form
10-K"). Certain amounts from 2001 have been reclassified to conform
with the 2002 presentation.
2.Accumulated depreciation of owned equipment and property at March
31, 2002 and December 31, 2001 was $8.2 billion. Accumulated
amortization of equipment and property under capital leases at March
31, 2002 and December 31, 2001 was $1.0 billion.
3.The following table provides unaudited pro forma consolidated
results of operations, assuming the acquisition of TWA had occurred
as of January 1, 2001 (in millions, except per share amounts):
Three Months Ended
March 31,2001
Operating revenues $ 5,160
Net loss (88)
The unaudited pro forma consolidated results of operations have
been prepared for comparative purposes only. These amounts are not
indicative of the combined results that 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.
4.As discussed in the notes to the consolidated financial
statements included in the Company's 2001 Form 10-K, Miami-Dade County
(the County) is currently investigating and remediating various
environmental conditions at the Miami International Airport (MIA) and
funding the remediation costs through landing fees and various cost
recovery methods. American has been named as potentially responsible
party (PRP) for the contamination at MIA. During the second quarter
of 2001, the County filed a lawsuit against 17 defendants, including
American, 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'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.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5.As of March 31, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 12 Boeing 777-200ERs, nine
Boeing 767-300ERs and one Boeing 757-200 aircraft. Deliveries of
these aircraft are scheduled to continue through 2008. Payments for
these aircraft are expected to be approximately $375 million during
the remainder of 2002, $1 billion in 2003, $500 million in 2004 and an
aggregate of approximately $1.3 billion in 2005 through 2008.
6.During the three-month period ended March 31, 2002, American
borrowed approximately $225 million under various debt agreements
which are secured by aircraft. Effective interest rates on these
agreements are based on London Interbank Offered Rate plus a spread
and mature in 2012.
In March 2002, the Regional Airports Improvement Corporation issued
facilities sublease revenue bonds at the Los Angeles International
Airport to provide reimbursement to American for certain facility
construction costs. The proceeds of approximately $215 million
provided to American have been recorded as long-term debt on the
condensed consolidated balance sheets. These obligations bear
interest at fixed rates, with an average rate of 7.88 percent, and
mature over various periods of time, with a final maturity in 2024.
7.Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended (SFAS 133). SFAS 133
required the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges are adjusted to fair
value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives are
either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair
value is immediately recognized in earnings. The adoption of SFAS 133
did not result in a cumulative effect adjustment being recorded to net
income for the change in accounting. However, the Company recorded a
transition adjustment of approximately $64 million in Accumulated
other comprehensive loss in the first quarter of 2001.
In addition, effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). SFAS 142 requires the Company
to test goodwill and indefinite-lived intangible assets (for
American, route acquisition costs) for impairment rather than
amortize them. During the first quarter of 2002, the Company
completed its impairment analysis for route acquisition costs in
accordance with SFAS 142. The analysis did not result in an
impairment charge. The Company will complete the impairment analysis
for its $1.3 billion of goodwill during the second quarter of 2002
and record an impairment adjustment at that time, if necessary.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table provides information relating to the Company's
amortized and unamortized intangible assets as of March 31, 2002
(in millions):
Accumulated
Cost Amortization
Amortized intangible assets:
Airport operating rights $ 449 $ 132
Gate lease rights 209 75
Total $ 658 $ 207
Unamortized intangible assets:
Goodwill $1,302
Route acquisition costs 829
Total $2,131
Airport operating and gate lease rights are being amortized on a
straight-line basis over 25 years to a zero residual value. For
the three-month period ended March 31, 2002, the Company recorded
amortization expense of approximately $8 million related to these
intangible assets. The Company expects to record annual
amortization expense of approximately $26 million in each of the
next five years related to these intangible assets.
The pro forma effect of SFAS 142 - assuming the Company had adopted
this standard as of January 1, 2001 - is immaterial to the
Company's net loss for the three-month period ended March 31, 2001.
8.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 that
qualify for hedge accounting in comprehensive income (loss). For the
three months ended March 31, 2002 and 2001, comprehensive income
(loss) was $(468) million and $40 million, respectively. The
difference between net loss and comprehensive loss for the three
months ended March 31, 2002 is due primarily to the accounting for the
Company's derivative financial instruments under SFAS 133. The
difference between net loss and comprehensive income for the three
months ended March 31, 2001 was due primarily to the cumulative effect
of the adoption of SFAS 133 and the accounting for the Company's
derivative financial instruments under SFAS 133.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2002 and 2001
Summary American Airlines, Inc. (a wholly owned subsidiary of AMR
Corporation) recorded a net loss for the three months ended March 31,
2002 of $542 million. This compares to a net loss of $34 million for the
first quarter of 2001. American Airlines,Inc. operating loss of $722
million increased $710 million compared to the same period in 2001.
The Company's 2002 results continue to be adversely impacted by the
September 11, 2001 terrorist attacks. In addition, on April 9, 2001,
American Airlines, Inc. purchased substantially all of the assets
and assumed certain liabilities of Trans World Airlines, Inc.
(TWA). Accordingly, the operating results of TWA are included in the
accompanying condensed consolidated financial statements for the three-
month period ended March 31, 2002 but not for the three-month period
ended March 31, 2001. All references to American Airlines, Inc.
include TWA (collectively, American or the Company).
Although traffic has continued to increase on significantly reduced
capacity since the events of September 11, 2001, the Company's first
quarter 2002 revenues were down significantly year-over-year. In
addition to the residual effects of September 11, the Company's
revenues continue to be negatively impacted by the economic slowdown
- -- seen largely in business travel declines-- and an increase in fare
sale activity. In total, the Company's revenues decreased $570
million, or 13 percent, in the first quarter of 2002 from the same
period last year. American's passenger revenues decreased by 11.5
percent, or $451 million in the first three months of 2002 from the
same period in 2001. American's domestic revenue per available seat
mile (RASM) decreased 15.4 percent, to 8.7 cents, on a capacity
increase of 9.4 percent, to 29.3 billion available seat miles (ASMs).
International RASM decreased to 8.66 cents, or 10.6 percent, on a
capacity decrease of 11.4 percent. The decrease in international RASM
was due to a 14.1 percent decrease and 11.9 percent decrease in
European and Latin American RASM, respectively, slightly offset by a 9
percent increase in Pacific RASM. The decrease in international
capacity was driven by a 39.5 percent, 13.9 percent and 4 percent
reduction in Pacific, European and Latin American ASMs, respectively.
Cargo revenues decreased $41 million, or 23.6 percent, due primarily
to the continued impact of the September 11, 2001 terrorist attacks
and the economic slowdown.
Other revenues decreased 29 percent, or $78 million, due primarily to
decreases in contract maintenance work that American performs for
other airlines, and decreases in codeshare revenue and employee
travel service charges.
The Company's operating expenses increased 3.2 percent, or $140
million. American's cost per ASM increased 0.4 percent to 11.30
cents. Wages, salaries and benefits increased 20.8 percent, or $340
million, primarily due to contractual wage rate and seniority
increases that are built into the Company's labor contracts. In
addition, the Company experienced increases in its pension and health
insurance costs, the latter reflecting rapidly rising medical care
and prescription drug costs. Aircraft fuel expense decreased 25.8
percent, or $173 million, due primarily to a 23.3 percent decrease in
the Company's average price per gallon of fuel. Other rentals and
landing fees increased 13.6 percent, or $32 million, due to higher
facilities rent and landing fees across American's system. Aircraft
rentals increased $79 million, or 56.4 percent, due primarily to the
addition of TWA aircraft. Commissions to agents decreased 28.8
percent, or $61 million, due primarily to an 11.5 percent decrease in
passenger revenues and a decrease in the percentage of commissionable
transactions. Other operating expenses decreased 10.8 percent, or
$87 million, due primarily to decreases in contract maintenance work
that American performs for other airlines, and decreases in travel
and incidental costs, advertising and promotion costs, and credit
card fees, which were partially offset by higher insurance and
security costs.
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Other income (expense), historically a net expense, increased $60
million due to the following: Interest income decreased 18.2 percent,
or $4 million, due primarily to decreases in interest rates. Interest
expense increased $51 million, or 67.1 percent, resulting primarily
from the increase in the Company's long-term debt. Interest
capitalized decreased $19 million, or 48.7 percent, due primarily to a
decrease in purchase deposits for flight equipment. Related party
interest - net decreased $16 million due primarily to higher
receivable balances from affiliated entities versus the first quarter
of 2001.
The effective tax rate for the three months ended March 31, 2002 was
impacted by a $27 million charge resulting from a provision in Congress'
economic stimulus package that changes the period for carrybacks of
net operating losses (NOLs). This change allows the Company to carry
back 2001 and 2002 NOLs for five years, rather than two years under
the existing law, allowing the Company to more quickly recover its
NOLs. The extended NOL carryback did, however, result in the
displacement of foreign tax credits taken in prior years. These
credits are now expected to expire before being utilized by the
Company, resulting in this charge.
AIRCRAFT INFORMATION
As of March 31, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 12 Boeing 777-200ERs, nine
Boeing 767-300ERs and one Boeing 757-200 aircraft. Deliveries of
these aircraft are scheduled to continue through 2008. Payments for
these aircraft are expected to be approximately $375 million during
the remainder of 2002, $1 billion in 2003, $500 million in 2004 and an
aggregate of approximately $1.3 billion in 2005 through 2008.
OTHER INFORMATION
In addition to the Company's approximately $2.3 billion in cash and
short-term investments as of March 31, 2002, 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 authorized by the Air Transportation Safety and System
Stabilization Act (the Act), which is estimated to be in excess of
$100 million, (ii) additional secured aircraft debt, (iii) the
availability of the Company's $1 billion credit facility, (iv) sale-
leaseback transactions of owned property, including aircraft and real
estate, (v) the recovery of past federal income taxes paid as a
result of a provision in the recently passed economic stimulus
package regarding NOL carrybacks (in April 2002, AMR Corporation
received approximately $393 million related to the utilization of its
remaining 2001 NOL), (vi) tax-exempt borrowings for airport
facilities, (vii) securitization of future operating receipts, (viii)
unsecured borrowings, and (ix) borrowings backed by federal loan
guarantees as provided under the Act. No assurance can be given that
any of these financing sources will be available on terms acceptable
to the Company. However, the Company believes it will meet its
current financing needs.
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. Pursuant to authority
granted in the Act, the Government has supplemented the commercial war-
risk insurance until May 19, 2002 with a third party liability policy
to cover losses to persons other than employees or passengers for
renewable 60-day periods. In the event the insurance carriers reduce
further the amount of insurance coverage available or the Government
fails to renew war-risk insurance, the Company's operations and/or
financial position, results of operations or cash flows would be
adversely impacted.
As discussed in the Company's 2001 Form 10-K, a provision in the
current Allied Pilots Association contract further limits the number
of ASMs and block hours flown by American's regional carrier partners
when American pilots are on furlough. As AMR Eagle continues to
accept previously ordered regional jets, this will cause the ASM cap
to be reached sometime in the first half of 2002, necessitating
actions to comply with that cap. American is working with its
regional partners to ensure that it is in compliance with this
provision. Actions currently being taken and considered by AMR Eagle
to reduce its capacity are discussed in AMR Corporation's 2001 Form 10-
K. In addition, American is removing its code from flights of the
American Connection carriers, which are independent carriers that
provide feed to American's St. Louis hub. American believes that the
combination of all these actions will enable it to comply with the ASM
cap through 2002 and for sometime beyond.
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OUTLOOK
Capacity for American is expected to be down approximately 11 percent
in the second quarter of 2002 compared to last year's second quarter
levels. For the second quarter of 2002, the Company expects traffic
to be lower by approximately 11 percent as compared to last year's
second quarter levels. Pressure to reduce costs will continue,
although the Company will continue to see higher wages, salaries and
benefit costs, higher security costs and insurance premiums, and
greater interest expense. Although the Company expects to see an
increase in fuel prices as compared to the first quarter of 2002,
fuel prices are expected to remain lower in the second quarter of
2002 as compared to last year's second quarter prices. Further, the
Company expects to see a benefit in commission expense due to the
domestic base commission changes implemented in March 2002. In total
however, American's unit costs for the second quarter of 2002 are
expected to be two to three percent higher than last year's second
quarter. Given this higher unit cost, coupled with the revenue
pressures seen in the first quarter and expected to continue into the
second quarter, the Company expects to incur a loss in the second
quarter (although the Company does not expect this loss to be of the
same magnitude as the Company's first quarter loss), and will likely
incur a loss for 2002.
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," "believes," and similar expressions are
intended to identify forward-looking statements. 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. Forward-looking statements are subject
to a number of factors that could cause actual results to differ
materially from our expectations. Additional information concerning
these and other factors 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, 2001.
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 2001 Form 10-K.
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<Page> 12
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 AMR Eagle and the 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 monies to American
for debit memos for fare rules violations from July 26, 1995 to the
present. The 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. The Company
intends to vigorously defend the lawsuit. Although the Company
believes that the litigation is without merit, an adverse court decision
could impose restrictions on the Company's relationships with travel
agencies which restrictions could have an adverse impact on the Company.
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. The parties have submitted
briefs to the 10th Circuit Court of Appeals. No date has been set for
oral argument. The Company intends to defend the lawsuit vigorously.
A final adverse court decision imposing restrictions on the Company's
ability to respond to competitors would have an adverse impact on the
Company.
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 from
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. The Company intends to defend these lawsuits vigorously.
One or more final adverse court decisions imposing restrictions on the
Company's ability to respond to competitors or awarding substantial
money damages would have an adverse impact on the Company.
On January 30, 2002, the named plaintiff in Hall v. United Airlines,
et al., No. 7:00 CV 123-BR(1), pending in the United States District
Court for the Eastern District of North Carolina, filed an amended
complaint alleging that between 1997 and the present, 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
named plaintiff seeks to certify a nationwide class of travel agents,
but no class has yet been certified. American is vigorously defending
the lawsuit. A final adverse court decision awarding substantial
money damages would have an adverse impact on the Company.
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<Page> 13
Item 1. Legal Proceedings (Continued)
Miami-Dade County (the County) is currently investigating and
remediating various environmental conditions at the Miami
International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American Airlines,
Inc. and AMR Eagle have been named as potentially responsible parties
(PRPs) for the contamination at MIA. During the second quarter of
2001, the County 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's
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. The Company is vigorously defending the lawsuit.
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<Page> 14
PART II
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
months ended March 31, 2002 and 2001.
Form 8-Ks filed under Item 5 - Other Events
On January 16, 2002, American Airlines, Inc. filed a report on Form
8-K relating to a press release issued by AMR Corporation to announce
AMR Corporation's fourth quarter and full year 2001 earnings and an
agreement with Boeing for the retirement of the Company's 717 fleet.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On January 25, 2002, American Airlines, Inc. furnished a report on
Form 8-K to provide an updated fleet plan for AMR Corporation. In
addition, AMR Corporation provided information regarding presentations
by AMR Corporation's senior management at upcoming transportation
conferences.
On February 22, 2002, American Airlines, Inc. furnished a report
on Form 8-K to provide certain data regarding its unit costs,
capacity, traffic and fuel for the first quarter of 2002.
On March 22, 2002, American Airlines, Inc. furnished a report on
Form 8-K to provide certain data regarding its unit costs, fuel,
capacity and traffic for February through May 2002. Additionally,
AMR Corporation provided information on the recently passed economic
stimulus package which contained a provision regarding net operating
loss carryback that was favorable to AMR Corporation.
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<Page> 15
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: April 18, 2002 BY: /s/ Thomas W. Horton
Thomas W. Horton
Senior Vice President - Finance and
Planning and Chief Financial Officer
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<Page> 16
Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(in millions)
<Table>
<Caption>
Three Months Ended March 31,
2002 2001
<s> <c> <c>
Earnings (loss):
Loss before income taxes $ (814) $ (44)
Add: Total fixed charges (per below) 388 286
Less: Interest capitalized 20 39
Total earnings (loss) $ (446) $ 203
Fixed charges:
Interest $ 127 $ 87
Portion of rental expense
representative of the interest factor 260 198
Amortization of debt expense 1 1
Total fixed charges $ 388 $ 286
Coverage deficiency $ 834 $ 83
</Table>
Note: In April 2001, the Board of Directors of American approved
the guarantee by American of AMR's existing debt obligations. As
of March 31, 2002, this guarantee covered approximately $634
million of unsecured debt and approximately $573 million of
secured debt. The impact of these unconditional guarantees is not
included in the above computation.
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