American Airlines 2002 Annual Report Download - page 3

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1
PART I
ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR’s operations fall almost
entirely in the airline industry. AMR's principal subsidiary, American Airlines, Inc., was founded in 1934. On April
9, 2001, American Airlines, Inc. (through a wholly owned subsidiary, TWA Airlines LLC (TWA LLC)) purchased
substantially all of the assets and assumed certain liabilities of Trans World Airlines, Inc. (TWA), the eighth largest
U.S. carrier. American Airlines, Inc., including TWA LLC (collectively, American), is the largest scheduled
passenger airline in the world. At the end of 2002, American provided scheduled jet service to more than 152
destinations throughout North America, the Caribbean, Latin America, Europe and the Pacific. American is also
one of the largest scheduled air freight carriers in the world, providing a wide range of freight and mail services to
shippers throughout its system.
In addition, AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned subsidiary of AMR, owns two
regional airlines which do business as "American Eagle” -- American Eagle Airlines, Inc. and Executive Airlines,
Inc. (Executive) (collectively the American Eagle carriers). In addition, American contracts with three
independently owned regional airlines which do business as the “AmericanConnection” (the AmericanConnection
carriers). The American Eagle carriers and the AmericanConnection carriers provide connecting service from eight
of American's high-traffic cities to smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
AMR Investment Services, Inc. (AMR Investment), a wholly-owned subsidiary of AMR, is responsible for
the investment and oversight of assets of AMR’s defined benefit and defined contribution plans, as well as its
short-term investments. It serves as manager of the American AAdvantage Funds, a family of mutual funds with
both institutional and retail shareholders, and provides customized fixed income portfolio management services.
As of December 31, 2002, AMR Investment was responsible for management of approximately $29.6 billion in
assets, including direct management of approximately $17.0 billion in short-term fixed income investments. The
Company is actively pursuing a possible sale of AMR Investment.
A. Recent Events
The past two years have had a large impact on the Company's finances. The Company incurred
aggregate operating losses of $3.3 billion and $2.5 billion for the years ended December 31, 2002 and 2001,
respectively. These losses reflect, among other things, the substantial decrease in the Company's revenues
which began in early 2001. On reduced capacity since the events of September 11, 2001, the Company's
revenues for the year ended December 31, 2002 were down 8.8 percent, with American's revenue per available
seat mile down 7.2 percent on a capacity decrease of 1.4 percent, compared to the year ended December 31,
2001, which included the results of TWA LLC beginning on April 10, 2001.
Revenues
This revenue decrease has been driven by a number of factors, some of which the Company believes will
persist indefinitely and others permanently, including:
• A steep fall-off in the demand for air travel, particularly business travel, primarily caused by the continuing
weakness of the U.S. economy and growing use of travel substitutes such as audio, video, and web
conferencing. Because the Company has in recent years tailored its network, product, schedule and
pricing strategies to the business travel market, reduced demand for business travel has affected the
Company more than most other carriers. In addition, the war in Iraq has had a significant adverse impact
on international and domestic revenues and future bookings. This adverse impact is expected to continue
for the duration of the war and for an unknown period of time thereafter; however, the Company cannot
reasonably predict the extent of such impact.