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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 Period Ended March 31, 1996.
[ ]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 periods 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 .
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date.
Common Stock, $1 par value - 1,000 as of April 30, 1996
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INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Statement of Operations -- Three months ended March
31, 1996 and 1995
Condensed Consolidated Balance Sheet -- March 31, 1996 and December
31, 1995
Condensed Consolidated Statement of Cash Flows -- Three months
ended March 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements -- March 31,
1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART 1. FINANCIAL INFORMATION
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended
March 31,
1996 1995
Revenues
Airline Group:
Passenger $3,287 $3,090
Cargo 160 156
Other 182 158
3,629 3,404
Information Services Group 408 364
Less: Intergroup revenues (139) (142)
Total operating revenues 3,898 3,626
Expenses
Wages, salaries and benefits 1,332 1,263
Aircraft fuel 424 365
Commissions to agents 296 307
Depreciation and amortization 271 287
Other rentals and landing fees 197 195
Food service 154 158
Aircraft rentals 148 153
Maintenance materials and repairs 134 118
Other operating expenses 584 529
Total operating expenses 3,540 3,375
Operating Income 358 251
Other Income (Expense)
Interest income 5 5
Interest expense (111) (145)
Miscellaneous - net (1) (11)
(107) (151)
Earnings Before Income Taxes 251 100
Income tax provision 101 44
Net Earnings $ 150 $ 56
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
March December
31, 31,
1996 1995
Assets (Unaudited) (Note 1)
Current Assets
Cash $ 31 $ 70
Short-term investments 791 816
Receivables, net 1,222 1,013
Inventories, net 532 516
Other current assets 469 438
Total current assets 3,045 2,853
Equipment and Property
Flight equipment, net 8,902 9,096
Other equipment and property, net 1,811 1,820
10,713 10,916
Equipment and Property Under Capital Leases
Flight equipment, net 1,251 1,274
Other equipment and property, net 160 160
1,411 1,434
Route acquisition costs, net 996 1,003
Other assets, net 1,402 1,423
$ 17,567 $ 17,629
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 803 $ 742
Payables to affiliates 968 907
Accrued liabilities 1,558 1,789
Air traffic liability 1,707 1,467
Current maturities of long-term debt 33 49
Current maturities of long-term debt due
to Parent - 193
Current obligations under capital leases 125 101
Total current liabilities 5,194 5,248
Long-term debt, less current maturities 1,170 1,318
Long-term debt due to Parent 1,676 1,676
Obligations under capital leases, less
current obligations 1,702 1,777
Deferred income taxes 479 480
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,552 3,484
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,699 1,699
Retained earnings 2,095 1,947
3,794 3,646
$ 17,567 $ 17,629
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Three Months Ended
March 31,
1996 1995
Net Cash Provided by Operating Activities $ 296 $ 228
Cash Flow from Investing Activities:
Capital expenditures (94) (440)
Net decrease in short-term investments 25 270
Proceeds from sale of equipment and property 73 57
Net cash provided by (used for)
investing activities 4 (113)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (207) (52)
Funds transferred to affiliates, net (132) (21)
Net cash used for financing activities (339) (73)
Net increase (decrease) in cash (39) 42
Cash at beginning of period 70 13
Cash at end of period $ 31 $ 55
Cash Payments For:
Interest $ 114 $ 135
Income taxes 133 17
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 balance sheet at December 31, 1995 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, 1995.
2.Certain amounts from 1995 have been reclassified to conform with
the 1996 presentation.
3.Accumulated depreciation of owned equipment and property at March
31, 1996 and December 31, 1995, was $5.6 billion and $5.4 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at March 31, 1996 and December 31, 1995, was
$788 million and $778 million, respectively.
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, 1995, the Miami International Airport Authority
is currently remediating various environmental conditions at Miami
International Airport (Airport) and funding the remediation costs
through landing fee revenues. Some of the costs of the remediation
effort may be borne by carriers currently operating at the Airport,
including American, through increased landing fees. The ultimate
resolution of this matter is not expected to have a significant
impact on the financial position or liquidity of American.
5.On April 17, 1996, the Company announced that the Board of
Directors of AMR Corporation (AMR) and American had approved a
reorganization of The SABRE Group as a separate, wholly-owned
subsidiary of AMR subject to the receipt of a favorable tax ruling
and certain other conditions. This reorganization will involve the
dividend of American's SABRE Travel Information Network, SABRE
Computer Services, SABRE Development Services and SABRE Interactive
divisions (collectively, the Information Services Group) to AMR.
Subject to meeting the conditions noted above, the reorganization
should be completed sometime during the third quarter.
Operating income for the Information Services Group was $133
million and $115 million for the three months ended March 31, 1996
and 1995, respectively. Selected financial data for the
Information Services Group for the years ended December 31, 1995,
1994 and 1993 is included in Note 12 to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. It is anticipated that upon
completion of the reorganization approximately $850 million of
American's debt owed to AMR will be replaced by an equivalent
amount of debt owed to AMR by The SABRE Group, thereby reducing
American's annual interest costs -- and increasing The SABRE
Group's annual interest costs -- by approximately $50-60 million.
In addition, the reorganization will include a new marketing and
services agreement between American and The SABRE Group. Although
the terms of the new agreement have not been finalized, it is
expected to increase American's revenues from services provided to
The SABRE Group (such as air travel) and decrease American's costs
for technology services provided by The SABRE Group.
AMR also continues to study, as it has in the past, other
transactions which may involve The SABRE Group, such as strategic
partnerships or an initial public offering of a portion of The
SABRE Group's stock. No decisions, however, have been made at this
time as to what, if any, transactions involving The SABRE Group may
occur after the reorganization is complete.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
American recorded net earnings for the three months ended March 31,
1996, of $150 million. This compares to net earnings of $56 million
for first quarter 1995. American's operating income was $358 million
for first quarter 1996 compared with $251 million for first quarter
1995.
American's passenger revenues increased by 6.4 percent, or $197
million. American's yield (the average amount one passenger pays to
fly one mile) of 13.34 cents increased by 2.9 percent compared to the
same period in 1995. Domestic yields increased 4.0 percent from
first quarter 1995, while international yields were up 0.6 percent.
American's traffic or revenue passenger miles (RPMs) increased 3.3
percent to 24.6 billion miles for the quarter ended March 31, 1996.
American's capacity or available seat miles (ASMs) increased 0.4
percent to 37.6 billion miles in the first quarter of 1996, primarily
as a result of increases in jet stage length and aircraft
productivity. Jet stage length increased 8.7 percent and aircraft
productivity, as measured by miles flown per aircraft per day,
increased 2.1 percent compared with first quarter 1995. American's
domestic traffic increased 0.9 percent on capacity decreases of 1.9
percent and international traffic grew 9.4 percent on capacity
increases of 6.3 percent. The increase in international traffic was
led by a 13.4 percent increase in traffic to Europe on capacity
growth of 5.1 percent, and a 5.6 percent increase in traffic to Latin
America on capacity growth of 7.2 percent.
Although not quantifiable, some portion of the passenger revenue
increase is attributable to the January 1, 1996 expiration of the ten
percent federal excise tax on airline travel.
Airline Group other revenues increased 15.2 percent, $24 million,
primarily due to contract maintenance work performed by American for
other airlines.
Information Services Group revenues increased 12.1 percent, $44
million, primarily due to higher booking fee prices and increased
volumes.
American's operating expenses increased 4.9 percent, or $165 million.
Jet Airline cost per ASM increased by 3.7 percent to 8.99 cents.
Wages, salaries and benefits rose 5.5 percent, $69 million, due
primarily to contractual wage rate and seniority increases that are
built into the Company's labor contracts and an increase in the
provision for profit sharing, partially offset by a decrease due to
the outsourcing of certain services. Aircraft fuel expense increased
16.2 percent, $59 million, due to a 9.1 cent increase in American's
average price per gallon, which includes the impact of the October
1995 expiration of the fuel tax exemption for the airline industry.
Maintenance materials and repairs expense increased 13.6 percent, $16
million, due to the maturing of the Boeing 757 and 767 fleets, the
timing of scheduled maintenance occurring in first quarter 1996
compared to first quarter 1995, and maintenance work performed in
first quarter 1996 on certain Boeing 727 aircraft purchased off lease
in late 1995. Other operating expenses increased 10.4 percent, $55
million, primarily due to an increase in outsourced services, costs
associated with increased contract maintenance work performed for
other airlines, and adverse winter weather.
Other Income (Expense) decreased 29.1 percent or $44 million.
Interest expense decreased $34 million primarily due to scheduled
debt repayments and the retirement of debt prior to scheduled
maturity.
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PART II
Item 1. Legal Proceedings
In January, 1985, American announced a new fare category, the
"Ultimate SuperSaver," a discount, advance purchase fare that carried
a 25 percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiffs
allege that the 10 percent federal excise transportation tax should be
excluded from the "fare" upon which the 25 percent penalty is
assessed. The case has not been certified as a class action. Summary
judgment was granted in favor of American but subsequently reversed
and vacated by the Illinois Appellate court. American believes the
matter is without merit and is vigorously defending the lawsuit.
American has been sued in two class action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in
connection with certain changes made to American's AAdvantage frequent
flyer program in May, 1988. (Wolens, et al v. American Airlines, Inc.,
No. 88 CH 7554, and Tucker v. American Airlines, Inc., No. 89 CH 199.)
In both cases, the plaintiffs seek to represent all persons who joined
the AAdvantage program before May 1988. Currently, the plaintiffs
allege that, on that date, American implemented changes that limited
the number of seats available to participants traveling on certain
awards and established blackout dates during which no AAdvantage seats
would be available for certain awards and that these changes breached
American's contracts with AAdvantage members. Plaintiffs seek money
damages for such alleged breach and attorneys' fees. Previously the
plaintiffs also alleged violation of the Illinois Consumer Fraud and
Deceptive Business Practice Act (Consumer Fraud Act) and sought
punitive damages, attorneys' fees and injunctive relief preventing
American from making changes to the AAdvantage program. American
originally moved to dismiss all of the claims asserting that they were
preempted by the Federal Aviation Act and barred by the Commerce
Clause of the U.S. Constitution.
Initially, the trial court denied American's preemption motions,
but certified its decision for interlocutory appeal. In December
1990, the Illinois Appellate Court held that plaintiffs' claims for an
injunction are preempted by the Federal Aviation Act, but that
plaintiffs' claims for money damages could proceed. On March 12,
1992, the Illinois Supreme Court affirmed the decision of the
Appellate Court. American sought a writ of certiorari from the U.S.
Supreme Court; and on October 5, 1992, the Court vacated the decision
of the Illinois Supreme Court and remanded the cases for
reconsideration in light of the U.S. Supreme Court's decision in
Morales v. TWA, et al, which interpreted the preemption provisions of
the Federal Aviation Act very broadly. On December 16, 1993, the
Illinois Supreme Court rendered its decision on remand, holding that
plaintiffs' claims seeking an injunction are preempted, but that
identical claims for compensatory and punitive damages are not
preempted. On February 8, 1994, American filed a petition for a writ
of certiorari in the U.S. Supreme Court. The Illinois Supreme Court
granted American's motion to stay the state court proceeding pending
disposition of American's petition in the U.S. Supreme Court. The
matter was argued before the U.S. Supreme Court on November 1, 1994,
and on January 18, 1995, the U.S. Supreme Court issued its opinion
ending a portion of the suit against American. The U.S. Supreme Court
held that a) plaintiffs' claim for violation of the Illinois Consumer
Fraud Act is preempted by federal law -- entirely ending that part of
the case and eliminating plaintiffs' claim for punitive damages; and
b) certain breach of contract claims are not preempted by federal
law.
The U.S. Supreme Court did not determine, however, whether the
contract claims asserted by the plaintiffs are preempted, and
therefore, remanded the case to the state court for further
proceedings. Subsequently, plaintiffs filed an amended complaint
seeking damages solely for a breach of contract claim. In the event
that the plaintiffs' breach of contract claim is eventually permitted
to proceed in the state court, American intends to vigorously defend
the case.
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Legal Proceedings (Continued)
In December, 1993, American announced that the number of miles
required to claim a certain travel award under American's AAdvantage
frequent flyer program would be increased effective February 1, 1995.
On February 1, 1995 a class action lawsuit entitled Gutterman vs.
American Airlines, Inc. was filed in the Circuit Court of Cook County,
Illinois. The Gutterman plaintiffs claim that this increase in
mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. On February 9, 1995, a
virtually identical class action lawsuit entitled Benway vs. American
Airlines, Inc. was filed in District Court, Dallas County, Texas.
After limited discovery and prior to class certification, a summary
judgment dismissing the Benway case was entered by the Dallas County
Court in July 1995. On March 11, 1996, American's motion to dismiss
the Gutterman lawsuit was denied. American has filed a motion for
reconsideration which is still pending. Further, American's motion
for summary judgment is still pending and will be pursued if the
motion for reconsideration is not granted. No class has been
certified in the Gutterman lawsuit and to date no discovery has been
undertaken. American believes the Gutterman complaint is without
merit and is vigorously defending the lawsuit.
On February 10, 1995, American capped travel agency commissions
for one-way and round trip domestic tickets at $25 and $50,
respectively. Immediately thereafter, numerous travel agencies, and
two travel agency trade association groups, filed class action
lawsuits against American and other major air carriers (Continental,
Delta, Northwest, United, USAir and TWA) that had independently
imposed similar limits on travel agency commissions. The suits were
transferred to the United States District Court for the District of
Minnesota, and consolidated as a multi-district litigation captioned
In Re: Airline Travel Agency Commission Antitrust Litigation. The
plaintiffs assert that the airline defendants conspired to reduce
travel agency commissions and to monopolize air travel in violation of
sections 1 and 2 of the Sherman Act. The case has been certified as a
class action on behalf of approximately 40,000 domestic travel
agencies and two travel agency trade associations. In June 1995 after
extensive, expedited discovery, the travel agents moved for a
preliminary injunction to enjoin the commission caps, and the
defendants simultaneously moved for summary judgment. On August 31,
1995, the District Court denied both motions. Pre-trial activities
against the defendants, including American, are continuing. American
is vigorously defending the lawsuit.
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PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
None
On April 17, 1996, American filed a report on Form 8-K relative to
the planned reorganization of The SABRE Group.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN AIRLINES, INC.
Date: April 30, 1996 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President - Finance and Planning
and Chief Financial Officer
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