American Airlines 1997 Annual Report Download - page 57

AMR CORPORATION
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4. Leases
AMR’s subsidiaries lease various types of equipment and
property, including aircraft, passenger terminals, equip-
ment and various other facilities. The future minimum
lease payments required under capital leases, together
with the present value of net minimum lease payments,
and future minimum lease payments required under
operating leases that have initial or remaining non-cance-
lable lease terms in excess of one year as of December 31,
1997, were (in millions):
Capital Operating
Year Ending December 31, Leases Leases
1998 $ 255 $ 1,011
1999 250 985
2000 315 935
2001 297 931
2002 247 887
2003 and subsequent 1,206 13,366
2,5701$18,1152
Less amount representing interest 806
Present value of net minimum lease payments $ 1,764
1Future minimum payments required under capital leases include $192
million guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
2Future minimum payments required under operating leases include $6.2
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1997, the Company had 186 jet air-
craft and 44 turboprop aircraft under operating leases,
and 82 jet aircraft and 63 turboprop aircraft under capi-
tal leases. The aircraft leases can generally be renewed at
rates based on fair market value at the end of the lease
term for one to five years. Most aircraft leases have pur-
chase options at or near the end of the lease term at fair
market value, but generally not to exceed a stated per-
centage 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 it had on 12
of its Boeing 767-300 aircraft. Upon the expiration of the
amended leases, American can purchase the aircraft for a
nominal amount. As a result, the aircraft are recorded as
flight equipment under capital leases.
Rent expense, excluding landing fees, was $1.2 billion
for 1997 and 1996 and $1.3 billion for 1995.
5. Indebtedness
Long-term debt (excluding amounts maturing within one
year) consisted of (in millions):
December 31,
1997 1996
6.50% - 10.70% notes due through 2021 $1,469 $1,859
8.625% - 10.20% debentures due through 2021 437 506
Variable rate indebtedness due through 2024
(3.55% - 6.824% at December 31, 1997) 135 162
6.0% - 9.25% bonds due through 2031 176 176
Other 43 49
Long-term debt, less current maturities $2,260 $2,752
Maturities of long-term debt (including sinking fund
requirements) for the next five years are: 1998 - $397
million; 1999 - $34 million; 2000 - $230 million; 2001 -
$436 million; 2002 - $66 million.
During 1996, AMR repurchased and/or retired prior to
scheduled maturity approximately $1.1 billion in face
value of long-term debt and capital lease obligations.
Cash from operations provided the funding for the repur-
chases and retirements. These transactions resulted in an
extraordinary loss of $136 million ($89 million after tax)
in 1996. In May 1996, the Company’s convertible deben-
tures were converted into common stock of AMR, which
resulted in an $834 million decrease in long-term debt
and an $817 million increase in stockholders’ equity (net
of conversion fees and issuance costs).
American has a $1.0 billion credit facility agreement
which expires December 19, 2001. At American’s
option, interest on the agreement can be calculated on
one of several different bases. For most borrowings,
American would anticipate choosing a floating rate
based upon the London Interbank Offered Rate
(LIBOR). At December 31, 1997, no borrowings were
outstanding under the agreement.
Certain debt is secured by aircraft, engines, equipment
and other assets having a net book value of approximately
$739 million. In addition, certain of American’s debt and
credit facility agreements contain restrictive covenants,
including a cash flow coverage test and a minimum net
worth requirement, which could affect AMR’s ability to pay
dividends. At December 31, 1997, under the most restric-
tive provisions of those agreements, approximately $1.9
billion of American’s retained earnings were available for
payment of dividends to AMR.