American Airlines 1997 Annual Report Download - page 56

AMR CORPORATION
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3. Commitments And Contingencies
At December 31, 1997, the Company had commitments
to acquire the following aircraft: 75 Boeing 737-800s, 12
Boeing 757-200s, 11 Boeing 777-200IGWs, eight Boeing
767-300ERs, 42 Embraer EMB-145s, 25 Bombardier CRJ-
700s and five ATR 72s. Deliveries of these aircraft com-
mence in 1998 and will continue through 2004. Future
payments, including estimated amounts for price escala-
tion through anticipated delivery dates for these aircraft
and related equipment, will approximate $1.5 billion in
1998, $1.9 billion in 1999, $560 million in 2000 and an
aggregate of $1.5 billion in 2001 through 2004. In addi-
tion to these commitments for aircraft, the Company’s
Board of Directors has authorized expenditures of approx-
imately $1.5 billion over the next five years related to
modifications to aircraft, renovations of, and additions to,
airport and office facilities, and the acquisition of various
other equipment and assets. AMR expects to spend
approximately $700 million of this authorized amount in
1998.
The Miami International Airport Authority is currently
remediating various environmental conditions at the Miami
International Airport (the Airport) and funding the reme-
diation costs through landing fee revenues. Future costs of
the remediation effort may be borne by carriers operating
at the Airport, including American, through increased
landing fees and/or other charges since certain of the poten-
tially responsible parties are no longer in business. The
future increase in landing fees and/or other charges may be
material but 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. The ultimate resolution is not,
however, expected to have a significant impact on the
financial position or liquidity of AMR.
In April 1995, American announced an agreement to
sell 12 of its McDonnell Douglas MD-11 aircraft to Fed-
eral Express Corporation (FedEx), with delivery of the
aircraft between 1996 and 1999. No gain or loss is
expected to be recognized as a result of this transaction.
Six aircraft had been delivered as of December 31, 1997.
The carrying value of the six remaining aircraft American
has committed to sell was approximately $357 million as
of December 31, 1997. In addition, American has the
option to sell its remaining seven MD-11 aircraft with
deliveries between 2000 and 2002.
AMR and American have included an event risk
covenant in approximately $3.1 billion of debt and lease
agreements. The covenant permits the holders of such
instruments 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 Ameri-
can. 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 remar-
keted by various agents. In certain circumstances, Amer-
ican 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 letter of credit agreements. At
American’s option, these letters of credit are secured by
funds held by bond trustees and by approximately $492
million of short-term investments.