American Airlines 1999 Annual Report Download

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1999
A Legacy of Leadership
AMR CORPORATION ANNUAL REPORT 1999
AMERICAN AIRLINES

Table of contents

  • Page 1
    A Legacy of Leadership AM E R I C AN AI R LI N E S 1926 1936 A M R C O R P O R AT I O N A N N U A L R E P O R T 1 9 9 9 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 ...

  • Page 2
    ... Board Of Directors M anagement - Divisions And Subsidiaries Corporate Information In keeping with our goal of remaining on the cutting edge of technology, next year the essays that are typically included with the annual report's financial information will be available only through A MR's Web site.

  • Page 3
    ... 1998 are ref lect ed as discont inued operat ions. 1999 numbers include Sabre employees but do not include employees of AM R Services, AM R Combs or TeleService Resources. Allied Pilot s Associat ion. Cont ract amendable August 31, 2001. Associat ion of Prof essional Flight At t endant s. Cont ract...

  • Page 4
    ... o new aircraft types - the Boeing 777 and 737-800 - on Sabre Holdings Corp. (Sabre) - AM R's largest non-airline business, and the focal point of an approximately $5 billion transfer of value to our shareholders - grew in its quest to become the w orld's leading provider of information technology...

  • Page 5
    ...and American Eagle in the global airline industry. W ith that goal in mind, last summer w e introduced the Airline Leadership Plan, w hich lays out the six key areas w e think w ill define excellence in our industry in the years to come: safety, service, product, netw ork, technology and culture. By...

  • Page 6
    ... year's annual report to the World W ide Web. Giving employees the tools they need to get the job done is just one part of our plan to create a people-focused culture. We launched a number of positive initiatives aimed at cultural improvement, from better compensation and benefits packages, to new...

  • Page 7
    ... of the corporation during this period of enormous grow th and accomplishment. W ith our new executive team in employees and w ith the investments w e've made to modernize our fleet and enhance our service and products, w e are clearly building on the legacy of leadership that w ill carry us w ell...

  • Page 8
    ... share of trials and triumphs during the past seven decades. And as a new chapter in its history unfolds, w e see in American Airlines a legacy of leadership that makes us proud of our past and optimistic about our future. One of t he company's early employees, Charles A. Lindbergh, f lew t he mail...

  • Page 9
    .... The construction of large hubs in Dallas/Fort Worth and Chicago - and eventually M iami and San Juan - allow ed it to efficiently offer more flights to more cities. The creation of AAdvantage, the w orld's first travel aw ards program, helped American attract and keep customers by allow ing them...

  • Page 10
    ... team developed a new strategic plan to invest in the airline w here it could grow profitably, to shrink the airline w here it could not operate at a profit, and to rapidly expand the company's profitable non-airline businesses. The early and mid-1990s w ere a difficult time for American Airlines...

  • Page 11
    ... (CAB) with broad powers to rule on airline " routes and rates." New York City Municipal Airport (LaGuardia) opens, prompting American to move its headquarters from Chicago and establish the first Admirals Club. A growing reputation for safety and service helps the airline earn nearly $2 million...

  • Page 12
    ...," American crews fly " the Hump" over the Himalayas to supply Allied forces in China and help train military transport pilots. A converted DC- 3 inaugurates the first scheduled domestic cargo service, carrying war materials and civilian fashions from New York to Los Angeles. Many employees return...

  • Page 13
    ... enable employees t o bet t er deliver court eous and f riendly cust omer service. role in getting customers' travel experiences off to a good start. In 1999, American launched a new multiyear technology initiative designed to create a more user-friendly system that w ill give agents better...

  • Page 14
    ... Sabre. DC-7, offering nonstop transcontinental flights in both directions for the first time. American's New York to Los Angeles business by 73 percent in its first year, sets new transcontinental speed records and makes sleeper planes obsolete. authority to fly between Chicago and San Francisco...

  • Page 15
    ...under w ay at Dallas/Fort Worth, Chicago, Los Angeles, Boston and London Heathrow. Our most substantial investments in improving the customer experience, how ever, have been made in new and new ly refurbished aircraft. In 1999, American added 11 new Boeing 777 and 24 Boeing 737 aircraft to the fleet...

  • Page 16
    ... AA.com and the AAdvantage program. The Internet presents an opportunity for American to market and sell products and services in new w ays, communicate more effectively w ith its best customers and low er distribution costs. The cornerstone of American's Internet strategy is chase upgrades and, of...

  • Page 17
    ... the American product - and keep our brand in the front of customers' minds, even w hen they're not flying. In 1999, the roster of non-airline AAdvantage partners continued to grow w ith the addition of companies such as Blockbuster and TD Waterhouse. AAdvantage also added a number of new airline...

  • Page 18
    ... at American - such as good pay and benefits and opportunities to grow ; provide a Human Resources infrastructure that can effectively deliver employee support services; and develop a w orld-class leadership team to support them, hold them accountable for a high level of performance and help them...

  • Page 19
    ... Super SAAver fares, offering 35 to 45 percent savings, lure travelers who have never before flown. As Congress deregulates air fares and routes, American orders 30 Boeing 767s to accelerate the retirement of aging 707s. Moving its headquarters from New York to Dallas/Fort Worth positions American...

  • Page 20
    ... providing connecting service at hub airports. The rapidly expanding American orders 67 Super 80s and takes options on 100 more. Construction begins on new hubs in Nashville, Raleigh/Durham and San Juan, as the company stuns the industry with its computer- based Ultimate Super SAAver fares. 1986...

  • Page 21
    ... positively impacted by the dramatic, ongoing transformation of its fleet. By year's end, Eagle had deployed 45 new 50-seat regional jets and nine new 37-seat jets. 1987 1988 1989 1990 American merges with West Coast airline AirCal and launches service from Dallas/Fort Worth to Tokyo. American...

  • Page 22
    ... Smith Museum, a tribute to the man and the airline, opens. American Airlines Cargo celebrates the 50th anniversary of scheduled air cargo service in the United States. Operations in Raleigh/Durham and Nashville are scaled back and resources are shifted to more productive hubs. American regains...

  • Page 23
    ...service by acquiring Reno Air. American announces it will remove two rows of seats from its coach cabins. The AOL AAdvantage online customer loyalty program begins. AMR Corp. spins off Sabre after previously selling most other non- airline subsidiaries. 2001 The American Airlines Center in Dallas...

  • Page 24
    ... KS Wichit a Los Angeles Long Beach Orange Count y/ John Wayne Airport Ont ario Palm Springs OK Oklahoma Cit y Amarillo Law t on/Fort Sill Tulsa AZ NM Phoenix/Scot t sdale San Diego Tucson El Paso Lubbock M idland/ Odessa Wichit a Falls Dallas/ Fort Worth Abilene San Angelo TX Aust...

  • Page 25
    ... FL St at ion/ Lake Bryan Charles New Orleans Orlando Laf ayet t e Beaumont / Tampa/St . Pet ersburg Freeport Port Art hur M arsh Harbour Sarasot a/Bradent on West Palm Beach Fort M yers Governor's Harbour Fort Lauderdale Naples Nassau M iami M arat hon Key West George Tow n BAHAM AS Providenciales...

  • Page 26
    ...ALASKA...RICO HAITI ...COSTA RICA PANAM A VENEZUELA GUYANA COLOM BIA SURINAM FRENCH GUIANA ECUADOR BRAZIL PERU BOLIVIA pic of pricorn PARAGUAY ARGENTINA CHILE URUGUAY tarctic cle onew orld SYSTEM 160° 120° 80° 40° 0° American Airlines Cit ies Admirals Club Locat ions Cooperat ive Service...

  • Page 27
    ...OZAM BIQUE ZIM BABWE M AURITIUS M ADAGASCAR AUSTRALIA SWAZILAND LESOTHO SOUTH AFRICA NORTHERN IRELAND SCOTLAND UNITED KINGDOM IRELAND WALES ENGLAND NORWAY SWEDEN VANUATU FIJI BOTSWANA Tropic of Capricorn No rt h NETHERLANDS Se a DENM ARK 40° NEW ZEALAND At lan Ch an n el En g l i sh GERM...

  • Page 28
    ...'s Discussion And Analysis Consolidated Statements Of Operations Consolidated Statements Of Cash Flow s Consolidated Balance Sheets Consolidated Statements Of Stockholders' Equity Notes To Consolidated Financial Statements Report Of Independent Auditors Report Of M anagement 28 38 39 40 42 43 59 59

  • Page 29
    ... to w eak economies in certain parts of the w orld, large industry capacity additions and increased fare sale activity. American's domestic traffic increased 2.1 percent to 76.4 billion revenue passenger miles (RPM s), w hile domestic capacity, as measured by available seat miles (ASM s), increased...

  • Page 30
    ... approximately $1 billion. American's cost per ASM increased by 1.5 percent to 9.39 cents. Wages, salaries and benefits increased $327 million, or 5.6 percent, primarily due to an increase in the average number of equivalent employees and contractual w age rate and seniority increases that are built...

  • Page 31
    ... maintenance volumes at American's maintenance bases as a result of the maturing of its fleet. Other operating expenses increased $192 million, or 7.2 percent, due primarily to spending on the Company's Year 2000 Readiness program, an increase in outsourced services and higher costs resulting from...

  • Page 32
    ... cash, and new financing depending upon capital market conditions and the Company's evolving view of its long-term needs. For the year ended December 31, 1999, the Company purchased approximately 14.1 million shares of its common stock under tw o separate share repurchase programs at a total cost of...

  • Page 33
    ... 2000 equal to the carrying value of the Company's investment in Sabre on M arch 15, 2000, w hich approximated $600 million. The fair market value of AM R's investment in Sabre on M arch 15, 2000, based upon the quoted market closing price of Sabre Class A common stock on the New York Stock Exchange...

  • Page 34
    ... Year 2000 Project w ere expensed as incurred, other than capitalized hardw are costs, and w ere funded through cash from operations. and (ii) removing some federal restrictions on large aircraft configured w ith 56 seats or less (the 1997 Amendment). In October 1997, the City of Fort Worth filed...

  • Page 35
    ... Business Express, and the marketing relationships w ith U.S. Airw ays, Inc. and Alaska Airlines, Inc. Internationally, w hile American w ill introduce minimal service increases, it w ill, w here appropriate, expand its various code-share alliances. Further, onew orld w ill admit tw o new partners...

  • Page 36
    ... operations, including plans to develop future code-sharing programs and to evaluate new alliances. All forw ard-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any...

  • Page 37
    ... $156 million and $96 million as of December 31, 1999 and 1998, respectively. The fair values of the Company's long-term debt w ere estimated using quoted market prices or discounted future cash flow s based on the Company's incremental borrow ing rates for similar types of borrow ing arrangements.

  • Page 38
    ...5 8 4 6 (1) In February 2000, American announced it s " M ore Room Throughout Coach" program w hereby American's ent ire f leet w ill be reconf igured t o increase t he seat pit ch f or more t han 75,000 coach seat s. As a result of t his program, approximat ely 7,200 seat s w ill be removed f rom...

  • Page 39
    ..., except per share amounts) 1999 1998 1997 Revenues Passenger - American Airlines, Inc. - AM R Eagle Cargo Other revenues Total operating revenues $14,707 1,294 643 1,086 17,730 $14,695 1,121 656 1,044 17,516 $14,310 1,017 687 943 16,957 Expenses Wages, salaries and benefits Aircraft fuel...

  • Page 40
    ...: Repurchase of common stock Payments on long-term debt and capital lease obligations Proceeds from: Issuance of long-term debt Short-term loan from affiliate Sale-leaseback transactions Exercise of stock options Net cash provided by (used for) financing activities Net increase (decrease) in cash...

  • Page 41
    ...D AT E D B A L A N C E S H E E T S December 31, (in millions) A S S E T S 1999 1998 Current Assets Cash Short-term investments Receivables, less allow ance for uncollectible accounts (1999 - $57; 1998 - $19) Inventories, less allow ance for obsolescence (1999 - $279; 1998 - $214) Deferred income...

  • Page 42
    ... 31, (in millions, except shares and par value) L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y 1999 1998 Current Liabilities Accounts payable Accrued salaries and w ages Accrued liabilities Air traffic liability Current maturities of long-term debt Current obligations under...

  • Page 43
    ... incentive plans Issuance of 11,500,000 stock options at $5 below market value at date of grant Repurchase of 14,086,750 common shares Issuance of 5,005,918 shares from Treasury pursuant to stock option, deferred stock and restricted stock incentive plans, net of tax benefit of $15 $182 - - $3,075...

  • Page 44
    ... lives of certain aircraft types from 20 to 25 years and increased the residual value from five to 10 percent. It also established a 30-year life for its new Boeing 777 Invent ories Spare parts, materials and supplies relating to flight equipment are carried at average acquisition cost and are...

  • Page 45
    ...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. Passenger Revenues Passenger ticket sales are initially recorded as a component of air traffic liability. Revenue derived from ticket sales is recognized at the time service...

  • Page 46
    ...approximately $210 million, of w hich approximately $110 million w as held by the Company on behalf of Sabre, based upon the publicly traded market value of Equant common stock. The carrying value (cost basis) of the Company's investment in the depository certificates as of December 31, 1998 w as de...

  • Page 47
    ... issues are based on the Company's current assessments of the ultimate outcome and, accordingly, could increase or decrease as these assessments change. In April 1995, American announced an agreement to sell 12 of its 19 M cDonnell Douglas M D-11 aircraft to Federal Express Corporation (FedEx). In...

  • Page 48
    ...At December 31, 1999, the Company had 205 jet aircraft and 71 turboprop aircraft under operating leases, and 79 jet aircraft and 61 turboprop aircraft under capital leases. The aircraft leases can generally be renew ed at rates based on fair market value at the end of the lease term for one to five...

  • Page 49
    ... financial instruments is represented by the fair value of contracts w ith 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 adjustment of...

  • Page 50
    ... the risk of future exchange rate fluctuations on a portion of American's Fuel Price Risk M anagement American enters into fuel sw ap and option contracts to protect against increases in jet fuel prices. Under the fuel sw ap agreements, American receives or makes payments based on the difference...

  • Page 51
    ... values of the Company's long-term debt w ere estimated using quoted market prices w here available. For long-term debt not actively traded, fair values w ere estimated using discounted cash flow analyses, based on the Company's current incremental borrow ing rates for similar types of borrow ing...

  • Page 52
    ...Options granted under the 1988 and 1998 Long Term Incentive Plans (collectively, the Plans) are (3,381) (50) (220) (3,651) $(1,234) (3,044) (69) (170) (3,283) $(1,027) aw arded w ith an exercise price equal to the fair market value of the stock on date of grant, become exercisable in equal annual...

  • Page 53
    ...31, 1999 The w eighted-average grant date fair value of all stock option aw ards granted during 1999, 1998 and 1997 w as $23.17, $21.15 and $11.00, respectively. Shares of deferred stock are aw arded at no cost to officers and key employees under the Plans' Career Equity Program and w ill be issued...

  • Page 54
    ... the terms of w hich shares of deferred stock are aw arded at no cost to officers and key employees under the Plans. The fair value of the performance shares granted is equal to the market price of the Company's stock at the date of grant. The shares vest over a three-year performance period based...

  • Page 55
    ... employees of American and employees of certain other subsidiaries are eligible to participate in pension plans. The defined benefit plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Airline pilots...

  • Page 56
    ... of four percent by 2001. A one percentage point change in the assumed health care cost trend rates w ould have the follow ing effects (in millions): One percent increase One percent decrease 1999 1998 1997 Components of net periodic benefit cost Service cost Int erest cost Expect ed ret urn...

  • Page 57
    ... 2000 equal to the carrying value of the Company's investment in Sabre on M arch 15, 2000, w hich approximated $600 million. The fair market value of AM R's investment in Sabre on M arch 15, 2000, based upon the quoted market closing price of Sabre Class A common stock on the New York Stock Exchange...

  • Page 58
    ... Business Express Airlines, Inc. (acquired in M arch 1999). The American Eagle carriers provide connecting service from seven of American's high-traffic cities to smaller markets throughout the United States, Canada, the Bahamas and the Caribbean. 1998 1997 Domest ic Lat in America Europe Pacif...

  • Page 59
    ... rest at ed f rom amount s previously report ed f or t he discont inued operat ions of Sabre. During the first quarter of 1999, the Company recorded an after-tax gain of approximately $64 million related to the sale of AM R Services, AM R Combs and TeleService Resources, and a $37 million after-tax...

  • Page 60
    ... opinion on the financial statements contained in their report. The Audit Committee of the Board of Directors, composed entirely of independent directors, meets regularly w ith the independent auditors, management and internal auditors to review 2121 San Jacinto Dallas, Texas 75201 January 17, 2000...

  • Page 61
    ... (loss) per common share: Basic 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' equity Common shares outstanding at year-end...

  • Page 62
    ...) (240) 11,720 11,596 124 (40) (40) 10,480 9,736 744 455 455 6.29 5.95 5.90 5.59 20,451 2,737 1,790 - 5,668 182,000 31.14 - - 1.25 1.24 1.06 1.05 19,556 4,983 2,069 - 3,720 152,800 23.83 159,000 - 2.26 2.25 2.26 2.25 19,486 5,603 2,275 - 3,380 151...

  • Page 63
    ...(Financial Services) New York, New York Elected in 2000 Joe M . Rodgers Edw ard A. Brennan, Chairman Armando M . Codina Charles H. Pistor, Jr. Joe M . Rodgers Judith Rodin G OV E R N AN C E C OM M I TTE E Chairman, President and Chief Executive Officer AM R Corporation/American Airlines, Inc. (Air...

  • Page 64
    ...-Information Technology Services and Chief Information Officer Susan M . Oliver President Senior Vice PresidentGovernment Affairs Timothy J. Ahern Vice President-Corporate Communications Bella D. Goren Vice President-Safety, Security and Environmental Jane G. Allen Vice President-Customer...

  • Page 65
    ..., Suite 1600 New York, NY 10005 P RI NCI P AL OF F I CES Transfer Agent & Registrar First Chicago Trust Co., A Division of Equiserve P .O. Box 2500 Jersey City, NJ 07303-2500 (201) 324-1225 M EDI UM TERM NOTES AM R Corporation M ail Drop 5675 P .O. Box 619616 Dallas/Fort Worth Airport, TX 75261...

  • Page 66
    ...6815⁄16 50 471⁄8 AM R Corporation's 1999 Annual Report is printed on recycled paper. Shareholders can also visit AM R's Internet site on the World W ide Web at w w w.amrcorp.com to receive financial and other company information, or to request a printed copy of financial materials. Additionally...

  • Page 67
    A M R C O R P O R AT I O N P .O. Box 619616 Dallas/ Fort W ort h Airport , Texas 75261-9616 American Airlines' Int ernet address is w w w .aa.com AM R's Int ernet address is w w w .amrcorp.com