American Airlines 1997 Annual Report Download

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AM R CORPORATI ON
1997 Annual Report
From employees
to customers,
to investors,
people
are the foundation
of our company.

Table of contents

  • Page 1
    AM R CO R P O R ATI O N From employees to customers, to investors, people are the foundation of our company. 1 9 9 7 Annual Report

  • Page 2
    ... air transportation, in the development and application of information technology for aviation, travel and tourism, and in a wide range of other aviation-related activities, including management services, training and consulting. COVER 1. John Richter has been the Employee of the Year in American...

  • Page 3
    ... Earnings per common share (diluted) Before extraordinary loss Net earnings Return on equity before extraordinary loss Return on equity Ratio of current assets to current liabilities at year-end Average equivalent number of employees Approximate number of common shareholders of record at year...

  • Page 4
    ... of seats filled - increased to 69.5 percent, the airline's highest ever. At the same time, American's passenger yield - or the amount, on average, we collect to fly one passenger one mile - increased by 2.6 percent. Fuller planes and higher yields boosted revenue per available seat mile by...

  • Page 5
    ...we have not been able to bring our costs to fully competitive levels. American's cost per available seat mile for 1997 increased by 4 percent. Some of that increase is attributable to higher aircraft maintenance costs and some to higher labor costs associated with contractual scale and seniority pay...

  • Page 6
    ...by the signing of a 25-year multibillion dollar outsourcing agreement with US Airways. During its first full year as a public company, TSG attracted numerous new clients for its information technology solutions business, while sustaining its leadership position in electronic travel distribution. For...

  • Page 7
    ...'s decision to upgrade of shares to our pilots in the new contract with the Allied Pilots Association. We also announced a separate $500 million stock buyback plan, which at year's end had been about 30 percent completed. AMR had a strong year in 1997 - a direct result of our employees' hard work...

  • Page 8
    ..., Operations American Airlines Gerard J . Arpey Senior Vice President and Chief Financial Officer AMR Corporation Senior Vice President, Finance and Planning and Chief Financial Officer American Airlines Peter J . Dolara Senior Vice President Miami, Caribbean and Latin America American Airlines...

  • Page 9
    ..., Marketing American Airlines Thomas J . Kiernan Senior Vice President, Corporate Services American Airlines David L. Kruse Senior Vice President Maintenance and Engineering American Airlines Anne H. McNamara Senior Vice President and General Counsel AMR Corporation and American Airlines Donald...

  • Page 10
    ...maintenance operations and reduces the number of heavy maintenance locations from eight to two. Travelocity, The SABRE Group's Internet site for travel planning and booking, introduces FareWatcher, an E-mail service that alerts Travelocity subscribers when a pre-designated fare goes down. American...

  • Page 11
    ... orders 12 new 66-seat Super ATR turboprops. American becomes the only major hub-and-spoke U.S. airline with a solid investment grade rating when Standard & Poor's upgrades both AMR Corporation and American Airlines corporate and senior debt ratings. For the first time in two years, American begins...

  • Page 12
    ... Services group of companies changes its trade name to AMR Global Services to better reflect the international scope of its businesses, which include call center management, airline operations services, general aviation, logistics management and training. American expands its cooperative services...

  • Page 13
    ... year. In addition to publishing American Way and Southwest Airlines' Spirit magazines, AA Publishing provides Internet editorial content for travel-related companies. AMR reports fourth-quarter net earnings of $208 million, an $86 million improvement versus 1996, excluding special items. 4 11

  • Page 14
    ... has submitted 69 money-saving suggestions to American's IdeAAs In Action program, and her 1997 ideas alone will save American $40,000 a year. American's 20-year aircraft acquisition agreement with Boeing, finalized in November, ensures that the company will continue to operate one of the youngest...

  • Page 15
    ... markets on one side of a hub city to markets on the other side, airlines are able to exponentially increase the number of origin-destination combinations they serve. In 1997, American Airlines enjoyed good success at all its hubs: Dallas/ Fort Worth, Miami, Chicago and, to a lesser degree, San Juan...

  • Page 16
    ... becoming the name sponsor for a new Miami arena. Airport, where we operate more than 750 flights a day to 115 cities, and offer nonstop service to 21 international destinations. During the year, we launched a project to construct ten new gates in Terminal 2W. These new gates, which will be linked...

  • Page 17
    ...in recent months launched new or increased nonstop service in several non-hub domestic markets, including New York - Fort Lauderdale, Nashville - Los Angeles, Austin, Texas - San J ose, Calif., and Boston - San Francisco. American Eagle If anyone knows about customer service and customer loyalty, it...

  • Page 18
    .... The new entity will be known as American Eagle Airlines, Inc. W hile the change will be transparent to the traveling public, the consolidation will help the regional airline reduce costs, eliminate redundancies and increase operational efficiency. International Since 1980, American has evolved...

  • Page 19
    ... nonstop service from Chicago O'Hare to Tokyo. We also have received tentative approval for daily nonstop service from Tokyo to New York Kennedy and Boston and from DFW to Osaka. We will continue to look for opportunities to extend the reach of our international network. However, in today's airline...

  • Page 20
    ... well: American ranked first in domestic on-time performance in more months during the year than any other major hub- andspoke U.S. airline. we focused on finalizing agreements with other alliance partners. During the year, we concluded a codesharing and frequent flyer alliance with Iberia, which...

  • Page 21
    ... list. Expanding the number of AAdvantage partners is just one way American seeks to build and sustain the loyalty of its best customers; another is our network of Admirals Clubs. In 1997, we opened a new club at Washington National Airport. We also completed a major expansion of one of our two DFW...

  • Page 22
    ...Des Moines CHICAGO Moline/ Quad Cities Peoria Bloomington Champaign/ Springfield Urbana Evansville Kansas City St. Louis Springfield/ Branson Los Angeles Long Beach Carlsbad San Diego Fayetteville Fort Smith Lawton/Fort Sill Lubbock Wichita Falls DALLAS/FORT WORTH Abilene Waco San Angelo Killeen...

  • Page 23
    .../Saguenay AMERICAN AIRLINES CITIES AMERICAN EAGLE CITIES AMERICAN AIRLINES/ AMERICAN EAGLE CITIES HUB CITIES CODESHARE CITIES Fort Wayne Pittsburgh Columbus Indianapolis Dayton Cincinnati Louisville Baltimore Washington, D.C. Greensboro/ High Point/ Winston-Salem Knoxville Nashville Raleigh...

  • Page 24
    ...La Paz Santa Cruz Belo Horizonte CHILE PARAGUAY São Paulo Asunción Rio de Janeiro ARGENTINA Porto Alegre URUGUAY Santiago Buenos Aires Montevideo AMERICAN AIRLINES CITIES AMERICAN EAGLE CITIES AMERICAN AIRLINES/ AMERICAN EAGLE CITIES HUB CITIES CODESHARE CITIES Cities served as of May 1998.

  • Page 25
    OTHER CODESHARE CITIES: Bahrain Doha, Qatar Abu Dhabi, U.A.E. Muscat, Oman Johannesburg, South Africa Cape Town, South Africa Singapore Taipei, Taiwan Sydney, Australia Melbourne, Australia Auckland, New Zealand Whitehorse, Canada Stockholm SWEDEN SCOTLAND Glasgow Belfast Edinburgh IRELAND ...

  • Page 26
    ... by American Airlines employees. DFW; during 1998, additional lounges will be built in Chicago, Miami, New York Kennedy, and Boston. We are also building other facilities to meet the needs of our best customers. American's Platinum Service Center, which has operated successfully at Chicago O'Hare...

  • Page 27
    ... weekly E-mail notices of discount fares, has grown steadily to more than 1.4 million. Cargo - A Growing Business Beneath the Seats Even with record revenue and traffic increases in 1997, American Airlines Cargo improved service quality thanks to employee commitment and teamwork. That includes DFW...

  • Page 28
    ... Travel Awards. The SABRE Group's electronic travel distribution customers, including travel agents, travel suppliers, corporations, and online consumers, can use the SABRE system to make reservations with more than 400 airlines, more than 50 car rental companies and nearly 39,000 hotels worldwide...

  • Page 29
    ..., SABRE Web Reservations, allows consumers to search an agency's web site and obtain quotes in local currencies. Travelocity, The SABRE Group's Internet site for travel planning and reservations, contains destination highlights, maps, hotels and a variety of other travel-related information from...

  • Page 30
    ... In 1997, The SABRE Group enlisted several major travel agencies as partners in marketing SABRE BTS. Today, the company counts more than 30 Fortune 500 companies as customers. Information Technology Solutions The second major group within TSG - information technology solutions - invested heavily in...

  • Page 31
    ... Dollar Rent a Car and Thrifty Car Rental to manage their reservations and back office systems. W hile we expect new outsourcing agreements to be an important source of revenue growth in the years to come, American Airlines will likely remain The SABRE Group's largest information technology client...

  • Page 32
    ..., general sales representation, flight dispatch and management services for more than 200 airlines and airport authorities at approximately 65 locations throughout North America, Europe, and Asia. In 1997, the company's cargo-handling operations in France and at Kennedy Airport in New York received...

  • Page 33
    ... operates the American Airlines Training and Conference Center, which hosts a wide variety of training activities. The center's training facilities are also marketed to other companies. In addition, the group issued 11 school districts new site licenses for the use of the American Airlines Travel...

  • Page 34
    ...cleaning of DFW ramps. Fleet service clerks at American, Eagle and AMR Services may be less visible than other employees, but they are crucial to dependability. related industries. Another major business within MSG, Airline Management Services, manages AMR's relationships with four airline partners...

  • Page 35
    ...'s Discussion and Analysis Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Stockholders' Equity Notes to Consolidated Financial Statements Report of Independent Auditors Report of Management 34 47 48 50 51 52 67 67

  • Page 36
    ...than 200 hotel companies covering approximately 39,000 hotel properties worldwide. During 1997, more airline bookings in North America were made through SABRE than through any other global distribution system. The SABRE Group is actively involved in marketing SABRE internationally either directly or...

  • Page 37
    ... of non-airline Fortune 500 clients. The AMR Training Group operates the American Airlines Training & Conference Center and provides a wide variety of training services to American and a number of other corporate clients. AGS provides airline ground and cabin service handling at 10 locations in...

  • Page 38
    ...yield per ton mile (cents) Operating expenses excluding special charges per available seat mile (cents) Operating aircraft at year-end transactions with American and the Airline Group. In the second quarter of 1996, American and The SABRE Group completed the negotiation of a new technology services...

  • Page 39
    ... in Airline Group revenues of the first and second quarters of 1995. Other revenues increased 17.2 percent, or $123 million, primarily as a result of an increase in aircraft maintenance work and airport ground services performed by American for other airlines and increased employee travel service...

  • Page 40
    ... (including outsourced services, data processing services, booking fees, credit card fees, crew travel expenses, advertising and communications costs) increased by 1.3 percent, or $33 million, including a $26 million charge in 1996 to write down the value of aircraft interiors American planned to...

  • Page 41
    ... class action litigation settlement. Miscellaneous - net for 1995 included a $41 million charge related to the loss of an aircraft operated by American. 1996 Compared to 1995 Revenues for The SABRE Group increased 6.1 percent, or $93 million. Electronic travel distribution revenues increased...

  • Page 42
    ... to support The SABRE Group's revenue growth and wage and salary increases for existing employees. Subscriber incentive expenses increased in order to maintain and grow The SABRE Group's customer base. Additionally, the new agreements with American covering air travel and certain marketing services...

  • Page 43
    ... of certain airport facilities, were funded primarily with internally generated cash. Proceeds from the sale of equipment and property of $281 million in 1997 include proceeds received upon the delivery of three of American's McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx) in...

  • Page 44
    ... market prices, the total cost of The SABRE Group's stock repurchase program will be approximately $55 million. In February 1998, The SABRE Group signed longterm agreements with ABACUS International Holdings Ltd. which created a Singapore-based joint venture company to manage travel distribution...

  • Page 45
    ... revenues and expenses and foreign currency-denominated assets and liabilities as of December 31, 1997. Furthermore, this calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. quoted market prices or discounted future cash flows based on...

  • Page 46
    ... was increased from $6 per departure to $12 for each arrival and departure and a 7.5 percent tax was added on the purchase of frequent flyer miles. Dallas Love Field In 1968, as part of an agreement between the cities of Fort Worth and Dallas to build and operate Dallas/Fort Worth Airport (DFW...

  • Page 47
    ... in domestic airline bookings growth in 1998, The SABRE Group expects to compensate for the decline with growth in international bookings, non-air bookings and price increases. Management Services Group The Management Services Group comprises several businesses whose activities are various and...

  • Page 48
    ..., combined Management Services Group operating results will likely remain consistent with 1997 results. FORWARD LOOKING INFORMATION op future code-sharing programs and to evaluate new alliances. All forward-looking statements in this report are based upon information available to the Company on the...

  • Page 49
    ...16,910 Expenses Wages, salaries and benefits Aircraft fuel Commissions to agents Depreciation and amortization Other rentals and landing fees Maintenance materials and repairs Food service Aircraft rentals Other operating expenses Restructuring costs Total operating expenses Operating Income Other...

  • Page 50
    ...Capital Leases Flight equipment Other equipment and property Less accumulated amortization Other Assets Route acquisition costs, less accumulated amortization (1997 - $211; 1996 - $182) Airport operating and gate lease rights, less accumulated amortization (1997 - $143; 1996 - $123) Prepaid pension...

  • Page 51
    ... millions, except shares and par value) 1997 December 31, 1996 Liabilities and Stockholders' Equity Current Liabilities Accounts payable Accrued salaries and wages Accrued liabilities Air traffic liability Current maturities of long-term debt Current obligations under capital leases Total current...

  • Page 52
    ... loss Provision for restructuring costs Change in assets and liabilities: Decrease (increase) in receivables Increase in inventories Increase in accounts payable and accrued liabilities Increase (decrease) in air traffic liability Other, net Net cash provided by operating activities $ 985 $ 1,016...

  • Page 53
    ... 5,750,000 stock options at $10 below market value at date of grant Repurchase of 7,043,375 common shares Issuance of 2,502,959 shares from Treasury pursuant to stock option, deferred stock and restricted stock incentive plans, net of tax benefit of $15 Adjustment for minimum pension liability, net...

  • Page 54
    ... of the related aircraft and engines, for spare parts expected to be on hand at the date aircraft are retired from service, plus allowances for spare parts currently identified as excess. These allowances are based on management estimates, which are subject to change. In 1996, American changed the...

  • Page 55
    ... for stock option grants if the exercise price of the Company's stock option grants is at or above the fair market value of the underlying stock on the date of grant. Electronic Travel Distribution Revenues Revenues for airline travel reservations are recognized at the time of the booking of...

  • Page 56
    ... is currently remediating various environmental conditions at the Miami International Airport (the Airport) and funding the remediation costs through landing fee revenues. Future costs of the remediation effort may be borne by carriers operating at the Airport, including American, through increased...

  • Page 57
    ... 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. During 1996, American made prepayments totaling $565 million on cancelable operating leases...

  • Page 58
    ...a positive fair value at the reporting date, reduced by the effects of master netting agreements. To manage credit risks, the Company selects counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines, and monitors the market position of the program...

  • Page 59
    ... dollar. FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of the Company's long-term debt were estimated using quoted market prices where available. For long-term debt not actively traded, fair values were estimated using discounted cash flow analyses, based on the Company's current incremental...

  • Page 60
    ...from the write-off of AMR's investment in Canadian Airlines International Limited (see Note 14) and expiring foreign tax credits. 8. Common And Preferred Stock In J anuary 1998, the Board of Directors approved an amendment to the Company's Certificate of Incorporation increasing the total number of...

  • Page 61
    ...,000 shares. In 1997, the total charge for stock compensation expense included in wages, salaries and benefits expense was $75 million. No compensation expense was recognized for stock option grants under the 1988 Plan since the exercise price of the Company's stock option grants was the fair market...

  • Page 62
    ...5,750,000 (2,030,890) 3,719,110 The weighted-average grant date fair value of all stock option awards granted during 1997 and 1996 was $22.01 and $25.80, respectively. Shares of deferred stock are awarded at no cost to officers and key employees under the 1988 Plan's Career Equity Program and will...

  • Page 63
    ... and foreign government and corporate debt securities, marketable equity securities, and money market and mutual fund shares, of which approximately $92 million and $71 million of plan assets at December 31, 1997 and 1996, respectively, were invested in shares of mutual funds managed by a subsidiary...

  • Page 64
    ...1983 Group Annuity Mortality Table. The weighted-average expected long-term rate of return on assets was 9.50% in 1997, 1996 and 1995. The vested benefit obligation and plan assets at fair value at December 31, 1997, for plans whose benefits are guaranteed by the Pension Benefit Guaranty Corporation...

  • Page 65
    ...): Year Ended December 31, 1995 Special termination benefits: Pension Other postretirement benefits Other termination benefits Actuarial losses: Pension Other postretirement benefits Total cost of early retirement programs Provisions for aircraft impairment and retirement Other 102 67 332 193...

  • Page 66
    ... the estimated market value of certain DC10 aircraft previously grounded by the Company. No cash costs have been incurred or are expected as a result of these DC-10 write-downs. Also included in the aircraft restructuring costs is a $48 million charge related to the planned early retirement in 1996...

  • Page 67
    ... and amortization expense Restructuring costs Capital expenditures Identifiable assets The SABRE Group: Total revenues Intergroup revenues Operating income Depreciation and amortization expense Capital expenditures Identifiable assets Management Services Group: Total revenues Intergroup revenues...

  • Page 68
    ... for American's share of a multi-carrier travel agency class action litigation settlement. Results for the fourth quarter of 1996 include a $497 million gain recorded by the Company related to the initial public offering of The SABRE Group (See Note 13), a $251 mil- lion charge related to the write...

  • Page 69
    ...1997, in conformity with generally accepted accounting principles. 2121 San J acinto Dallas, Texas 75201 J anuary 19, 1998 The management of AMR Corporation is responsible for the integrity and objectivity of the Company's financial statements and related information. The financial statements have...

  • Page 70
    ... Diluted Total assets Long-term debt, less current maturities Obligations under capital leases, less current obligations Non-redeemable preferred stock Convertible preferred stock, common stock and other stockholders' equity1 Common shares outstanding at year-end (in thousands) Book value per common...

  • Page 71
    ... 68,363 55.50 3,727 62,311 59.82 3,766 62,244 60.50 3,148 58,841 53.50 2,681 58,816 45.58 159,000 - 2,200,000 - - - - - 300 300 69

  • Page 72
    ... Board of Directors which is identical to the AMR Executive Committee) Robert L. Crandall Chairman, President and Chief Executive Officer AMR Corporation Chairman and Chief Executive Officer American Airlines, Inc. (Air Transportation, Information Systems and Diversified Services) Fort Worth, Texas...

  • Page 73
    ... Affairs Bernard J. DeSena Vice President - Chicago Eric J. Speck Senior Vice President SABRE Travel Information Network Thomas J. Kiernan Senior Vice President Corporate Services Cecil D. Ewell, Jr. Vice President - Flight and Chief Pilot Peggy E. Sterling Vice President Dallas/Fort Worth...

  • Page 74
    ... furnished without charge upon written request to: Corporate Secretary AMR Corporation Mail Drop 5675 P .O. Box 619616 Dallas/Fort Worth Airport, TX 75261-9616 Common Stock Transfer Agent & Registrar First Chicago Trust Company of New York, Inc. P .O. Box 2500 J ersey City, NJ 07303-2500 (201) 324...

  • Page 75
    ...periods. AMR Corporation's 1997 Annual Report is printed on recycled paper. In order to reduce paper use, as well as to provide more timely and cost-effective information to shareholders, AMR makes its quarterly results available via the Internet and a shareholder information line. Shareholders can...

  • Page 76
    AMR Corporation P .O. Box 619616 Dallas/Fort Worth Airport, Texas 75261-9616 American Airlines' Internet address is http://www.aa.com AMR's Internet address is http://www.amrcorp.com The SABRE Group's Internet address is http://www.sabre.com