American Airlines 2001 Annual Report Download - page 26

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In December 1999, the Company entered into an agreement to sell its investment in the cumulative mandatorily
redeemable convertible preferred stock of Canadian Airlines International Limited (Canadian) for approximately $40 million,
resulting in a gain of $40 million which is included in Miscellaneous – net on the accompanying consolidated statements of
operations. In addition, the Company recognized a tax benefit of $67 million resulting from the tax loss on the investment,
representing the reversal of a deferred tax valuation allowance since it is more likely than not that the tax benefit will be realized.
The valuation allowance was established in 1996 when the investment was written-off because, at that time, it was not more likely
than not that the tax benefit of the write-off would be realized. During 2000, the Company recorded a gain of approximately
$41 million from the recovery of start-up expenses (previously written-off) from the Canadian services agreement entered into
during 1995 which is included in Miscellaneous – net on the accompanying consolidated statements of operations.
5. Commitments and Contingencies
During the fourth quarter of 2001, the Company reached an agreement with Boeing that included a combination
of aircraft delivery deferrals, substitutions and limited additional aircraft orders. As a direct result of the agreement with
Boeing, the Company’s 2002 and 2003 aircraft commitment amounts have been reduced, in the aggregate, by approximately
$700 million. Following this agreement, at December 31, 2001, the Company had commitments to acquire the following aircraft:
47 Boeing 737-800s, 14 Boeing 777-200ERs, nine Boeing 767-300ERs, seven Boeing 757-200s, 124 Embraer regional jets and
24 Bombardier CRJ-700s. Deliveries of all aircraft extend through 2008. Future payments for all aircraft, including the estimated
amounts for price escalation, will approximate $1.3 billion in 2002, $1.7 billion in 2003, $1.2 billion in 2004 and an aggregate
of approximately $1.9 billion in 2005 through 2008. These future payments are net of approximately $470 million related to
deposits made for 2002 aircraft deliveries – which have been deferred as part of the agreement with Boeing – that will be applied
to future aircraft deliveries. In addition to these commitments for aircraft, the Company expects to spend approximately
$500 million in 2002 for modifications to aircraft, renovations of – and additions to – airport and off-airport facilities, and
the acquisition of various other equipment and assets.
Miami-Dade County is currently investigating and remediating various environmental conditions at the Miami Inter-
national Airport (MIA) and funding the remediation costs through landing fees and various cost recovery methods. American
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, 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. 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.
The Company is involved in certain claims and litigation related to its operations. In the opinion of management,
liabilities, if any, arising from these claims and litigation would not have a material adverse effect on the Company’s consolidated
financial position, results of operations, or cash flows.
The Company has agreed to sell its McDonnell Douglas MD-11 aircraft to FedEx Corporation (FedEx). No significant
gain or loss is expected to be recognized as a result of this transaction. As of December 31, 2001, the carrying value of the
remaining aircraft American has committed to sell was approximately $143 million. The Company expects to deliver the
remaining aircraft to FedEx by the third quarter of 2002.
AMR and American have event risk covenants in approximately $2.2 billion of indebtedness as of December 31, 2001.
These covenants permit the holders of such indebtedness to receive a higher rate of return (between 75 and 650 basis points
above the stated rate) if a designated event, as defined, should occur and the credit rating of such indebtedness is downgraded
below certain levels within a certain period of time following the event. No designated event, as defined, has occurred as of
December 31, 2001.