American Airlines 2000 Annual Report Download - page 12

10
The auction of TWA’s assets was commenced on
March 5, 2001, and recessed to March 7, 2001. During
the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain
aircraft security deposits, advance rental payments and
rental rebates that were estimated to bring approxi-
mately $117 million of value to TWA. The Company
expects that the increase in the Company’s bid will be
more that offset, however, by the benefit to the Com-
pany of the reductions in rental rates the Company has
negotiated with TWA’s aircraft lessors. On March 7,
2001, TWA’s board selected the Company’s bid as the
“highest and best” offer, and on March 12, 2001, the
U.S. Bankruptcy Court, District of Delaware, entered an
order approving the sale of TWA’s assets to the Com-
pany. Consummation of the transaction is subject to
several contingencies, including the waiver by TWA’s
unions of certain provisions of their collective bargain-
ing agreements. The approval of the U.S. Department of
Justice was obtained on March 16, 2001. Certain parties
have filed appeals of the Bankruptcy Court’s sale order,
and have sought a stay of the transaction, pending the
appeals. A provision of the Bankruptcy Code will per-
mit the Company to close the transaction, despite pend-
ing appeals, unless a stay is granted. If a stay is
granted, the Company would anticipate that the appeal
process would be expedited. Upon the closing of the
transaction, TWA will be integrated into American’s
operations with a continued hub operation in St. Louis.
The Company expects to fund the acquisition of TWA’s
assets with its existing cash and short-term investments,
internally generated cash or new financing depending
on market conditions and the Company’s evolving view
of its long-term needs.
Secondly, the Company announced that it has
agreed to acquire from United Airlines, Inc. (United)
certain key strategic assets (slots, gates and aircraft) of
US Airways, Inc. (US Airways) upon the consummation
of the previously announced merger between United
and US Airways. In addition to the acquisition of these
assets, American will lease a number of slots and gates
from United so that American may operate half of the
northeast Shuttle (New York/Washington DC/Boston).
United will operate the other half of the Shuttle. For
these assets, American will pay approximately $1.2 bil-
lion in cash to United and assume approximately $300
million in aircraft operating leases. The consummation
of these transactions is contingent upon the closing of
the proposed United/US Airways merger. Also, the
acquisition of aircraft is generally dependent upon a
certain number of US Airways’ Boeing 757 cockpit crew
members transferring to American’s payroll.
Finally, American has agreed to acquire a 49 per-
cent stake in, and to enter into an exclusive marketing
agreement with, DC Air LLC (DC Air). American has
agreed to pay $82 million in cash for its ownership
stake. American will have a right of first refusal on the
acquisition of the remaining 51 percent stake in DC Air.
American will also lease to DC Air a certain number of
Fokker 100 aircraft with necessary crews (known in the
industry as a “wet lease”). These wet leased aircraft will
be used by DC Air in its operations. DC Air is the first
significant new entrant at Ronald Reagan Washington
National Airport (DCA) in over a decade. DC Air will
acquire the assets needed to begin its DCA operations
from United/US Airways upon the consummation of the
merger between the two carriers. American’s investment
in DC Air and the other arrangements described above
are contingent upon the consummation of the merger
between United and US Airways.
American has $1.0 billion in credit facility agree-
ments that expire December 15, 2005, subject to cer-
tain conditions. At American’s option, interest on these
agreements can be calculated on one of several differ-
ent bases. For most borrowings, American would antic-
ipate choosing a floating rate based upon the London
Interbank Offered Rate (LIBOR). At December 31, 2000,
no borrowings were outstanding under these agreements.
AMR (principally American Airlines) historically
operates with a working capital deficit as do most other
airline companies. The existence of such a deficit has
not in the past impaired the Company’s ability to meet
its obligations as they become due and is not expected
to do so in the future.
OTH ER INFORMATION
Environmental Matters Subsidiaries of AMR have been
notified of potential liability with regard to several envi-
ronmental cleanup sites and certain airport locations. At
sites where remedial litigation has commenced, poten-
tial liability is joint and several. AMR’s alleged volumet-
ric contributions at these sites are minimal compared to
others. AMR does not expect these matters, individually
or collectively, to have a material impact on its results
of operations, financial position or liquidity. Additional
information is included in Note 3 to the consolidated
financial statements.