American Airlines 1998 Annual Report Download - page 47

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11 aircraft will be delivered between 2000 and 2002. The
carrying value of the 11 remaining aircraft American has
committed to sell was approximately $711 million as of
December 31, 1998.
AMR and American have included an event risk
covenant in approximately $3.0 billion of debt and lease
agreements. The covenant permits the holders of such instru-
ments to receive a higher rate of return (between 50 and 700
basis points above the stated rate) if a designated event, as
defined, should occur and the credit rating of the debentures
or the debt obligations underlying the lease agreements is
downgraded below certain levels.
Special facility revenue bonds have been issued by
certain municipalities, primarily to purchase equipment
and improve airport facilities which are leased by American.
In certain cases, the bond issue proceeds were loaned to
American and are included in long-term debt. Certain bonds
have rates that are periodically reset and are remarketed by
various agents. In certain circumstances, American may be
required to purchase up to $437 million of the special facility
revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the
bonds to offset its lease or debt obligations. American may
borrow the purchase price of these bonds under standby let-
ter of credit agreements. At American’s option, these letters of
credit are secured by funds held by bond trustees and by
approximately $519 million of short-term investments.
In early February 1999, some members of the APA
engaged in certain activities (increased sick time and declin-
ing to fly additional trips) that resulted in numerous
cancellations across American’s system. These actions were
taken in response to the acquisition of Reno Air in December
1998. In an attempt to resolve the dispute, the Company
and the APA have agreed to non-binding mediation. These
actions adversely impacted the Company’s first quarter
1999 net earnings.
4.LEASES
AMR’s subsidiaries lease various types of equipment and
property, including aircraft, passenger terminals, equipment
and various other facilities. The future minimum lease pay-
ments required under capital leases, together with the present
value of net minimum lease payments, and future minimum
lease payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 1998, were (in millions):
Capital Operating
Year Ending December 31, Leases Leases
1999 $ 273 $ 1,012
2000 341 951
2001 323 949
2002 274 904
2003 191 919
2004 and subsequent 1,261 12,480
2,663 1$17,215 2
Less amount representing interest 745
Present value of net minimum
lease payments $ 1,918
1 Future minimum payments required under capital leases include $192 million guaranteed by
AMR relating to special facility revenue bonds issued by municipalities.
2 Future minimum payments required under operating leases include $6.1 billion guaranteed by
AMR relating to special facility revenue bonds issued by municipalities.
At December 31, 1998, the Company had 187 jet
aircraft and 39 turboprop aircraft under operating leases,
and 86 jet aircraft and 63 turboprop aircraft under capital
leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for
one to five years. Most aircraft leases have purchase options
at or near the end of the lease term at fair market value, but
generally not to exceed a stated percentage of the defined
lessor’s cost of the aircraft or at a predetermined fixed
amount.
Rent expense, excluding landing fees, was $1.2 bil-
lion for 1998, 1997 and 1996.
5.INDEBTEDNESS
Long-term debt (excluding amounts maturing within one
year) consisted of (in millions):
December 31,
1998 1997
8.05% - 10.62% notes due through 2021 $865 $874
Secured debt due through 2015
(effective rates from 6.317% - 9.957%
at December 31, 1998) 857 644
9.0% - 10.20% debentures due through 2021 437 437
6.0% - 7.10% bonds due through 2031 176 176
Variable rate indebtedness due through 2024
(3.55% at December 31, 1998) 86 86
Other 15 31
Long-term debt, less current maturities $2,436 $2,248
AMR CORPORATION
2,663 1
745