American Airlines 1998 Annual Report Download - page 30

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1997 COMPARED TO 1996 Operating expenses increased
14.0 percent, or $181 million, due primarily to increases
in salaries, benefits and employee-related costs and sub-
scriber incentive expenses. Salaries, benefits and
employee-related costs increased due to an increase in the
average number of equivalent employees necessary to sup-
port The Sabre Group’s revenue growth, and wage and
salary increases for existing employees. Subscriber incen-
tive expenses increased in order to maintain and expand
The Sabre Group’s travel agency subscriber base.
OTHER INCOME (EXPENSE)
1998 COMPARED TO 1997 Other income (expense)
increased $10 million due primarily to a favorable
court judgment.
1997 COMPARED TO 1996 Other income (expense)
increased $35 million due to an increase in interest
income of $17 million due to higher investment balances,
an increase in other income of $13 million primarily due
to losses in 1996 from a subsidiary of The Sabre Group
not active in 1997, and a decrease in interest expense of
approximately $6 million primarily due to a lower princi-
pal balance outstanding on the subordinated debenture
payable to AMR and lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $3.2 billion in
1998, $2.9 billion in 1997 and $2.7 billion in 1996. The
$326 million increase from 1997 to 1998 resulted primarily
from an increase in net earnings. The $181 million increase
from 1996 to 1997 resulted primarily from an increase in
the air traffic liability due to higher advanced sales.
Capital expenditures in 1998 totaled $2.7 billion,
compared to $1.4 billion in 1997 and $523 million in
1996, and included purchase deposits on new aircraft
orders of $870 million, aircraft acquisitions of approxi-
mately $850 million, and purchases of computer-related
equipment totaling approximately $360 million. In 1998,
American took delivery of 10 jet aircraft – six Boeing 757-
200s and four Boeing 767-300ERs. American Eagle took
delivery of 20 Embraer EMB-145s and five Super ATR air-
craft. These expenditures, as well as the expansion of
certain airport facilities, were funded primarily with inter-
nally generated cash, except for (i) the Embraer aircraft
acquisitions which were funded through secured debt
agreements, and (ii) five Boeing 757-200 aircraft which
were financed through sale-leaseback transactions. During
1998, The Sabre Group invested approximately $140 mil-
lion for a 35 percent interest in ABACUS International Ltd.
The Company made acquisitions and other investments of
$137 million, which relate primarily to the acquisition of
Reno Air in December 1998. Proceeds from the sale of
equipment and property of $293 million in 1998 include
proceeds received upon the delivery of two of American’s
McDonnell Douglas MD-11 aircraft to Federal Express
Corporation (FedEx) in accordance with the 1995 agree-
ment between the two parties, 10 ATR 42 aircraft, and
other aircraft equipment sales.
At December 31, 1998, the Company had commit-
ments to acquire the following aircraft: 100 Boeing
737-800s, 34 Boeing 777-200IGWs, six Boeing 757-200s,
four Boeing 767-300ERs, 75 Embraer EMB-135s, 30
Embraer EMB-145s and 25 Bombardier CRJ-700s.
Deliveries of these aircraft commence in 1999 and will
continue through 2005. Future payments, including esti-
mated amounts for price escalation through anticipated
delivery dates for these aircraft and related equipment, will
approximate $2.7 billion in 1999, $2.0 billion in 2000,
$1.6 billion in 2001 and an aggregate of approximately
$1.5 billion in 2002 through 2005. In addition to these
commitments for aircraft, the Company expects to spend
approximately $1.5 billion related to modifications to air-
craft, renovations of -- and additions to -- airport and
office facilities, and the acquisition of various other equip-
ment and assets in 1999, of which approximately $625
million has been authorized by the Company’s Board of
Directors. The Company expects to fund the majority of
its 1999 capital expenditures from the Company’s existing