American Airlines 2002 Annual Report Download - page 63

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61
3. Special charges and U.S. Government grant (Continued)
In determining the asset impairment charges described above, management estimated the undiscounted
future cash flows using models used by the Company in making fleet and scheduling decisions. In determining the
fair value of these aircraft, the Company considered outside third party appraisals and recent transactions involving
sales of similar aircraft and engines. In 2002, the Company also considered internal valuation models in
determining the fair value of these aircraft, and with respect to the Fokker 100 aircraft, incorporated the fact that
with this grounding, no major airline will operate this fleet type.
Employee charges
In August 2002, the Company announced that it would reduce an estimated 7,000 jobs by March 2003 to
realign its workforce with the planned capacity reductions, fleet simplification, and hub restructurings. This
reduction in workforce, which affected all work groups (pilots, flight attendants, mechanics, fleet service clerks,
agents, management and support staff personnel), was accomplished through various measures, including limited
voluntary programs, leaves of absence, part-time work schedules, furloughs in accordance with collective
bargaining agreements, and permanent layoffs. As a result, during the third quarter of 2002, the Company
recorded an employee charge of approximately $57 million primarily related to voluntary programs in accordance
with collective bargaining agreements with its pilot and flight attendant work groups. Additional charges related to
the reduction in workforce, incurred in the fourth quarter of 2002, were not significant and are not included in
special charges. The Company does not expect remaining charges related to the reduction in workforce to be
significant. Cash outlays for the $57 million employee charge will be incurred over a period of up to twelve months.
In September 2001, the Company announced that it would reduce its workforce by approximately 20,000
jobs across all work groups (pilots, flight attendants, mechanics, fleet service clerks, agents, management and
support staff personnel). The reduction in workforce, which the Company accomplished through various
measures, including leaves of absence, job sharing, elimination of open positions, furloughs in accordance with
collective bargaining agreements, and permanent layoffs, resulted from the September 11, 2001 terrorist attacks
and the Company’s subsequent reduction of its operating schedule by approximately 20 percent. In connection
therewith, the Company recorded a charge of approximately $71 million for employee termination benefits. Cash
outlays for the employee charges were incurred substantially during 2001.
Facility exit costs
During 2001, the Company announced that it would discontinue service at Dallas Love Field and
discontinue or reduce service on several of its international routes. In addition, the Company announced it would
close six Admiral’s Clubs, five airport Platinum Service Centers and approximately 105 off-airport Travel Centers
in 37 cities, all effective September 28, 2001. As a result of these announcements, the Company recorded an $87
million charge related primarily to future lease commitments and the write-off of leasehold improvements and fixed
assets. Cash outlays related to the accrual of future lease commitments will occur over the remaining lease
terms, which extend through 2018.
In addition, in December 2001, American agreed to sell its terminal facilities lease rights at the Raleigh-
Durham International Airport to the Raleigh-Durham Airport Authority. As a result of this transaction, the Company
recorded a $28 million charge in the fourth quarter of 2001 to accrue the residual cost less sales proceeds. The
transaction closed in early 2002.