American Airlines 2000 Annual Report Download - page 35

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15 . SU BSEQUEN T EVENT S
On January 10, 2001, the Company announced three
transactions that are expected to substantially increase
the scope of its existing network. First, the Company
has announced that it had agreed to purchase substan-
tially all of the assets of Trans World Airlines, Inc.
(TWA) for approximately $500 million in cash and to
assume approximately $3.5 billion of TWA’s obligations.
The Company’s agreement with TWA contemplated that
TWA would file for bankruptcy protection under Chap-
ter 11 of the U.S. Bankruptcy Code and conduct an
auction of its assets under the auspices of the Bank-
ruptcy Court. During the auction, other credible offers
would compete with the Company’s offer. TWA filed for
bankruptcy protection on January 10, 2001. In conjunc-
tion therewith, the Company also agreed to provide
TWA with up to $200 million in debtor-in-possession
financing to facilitate TWA’s ability to maintain its oper-
ations until the completion of this transaction. The
amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately
$289 million had been provided via the debtor-in-pos-
session financing.
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. 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.
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.
As a result of the above transactions, and for sev-
eral other reasons, American and American Eagle have
initiated an impairment review of certain fleet types in
accordance with Statement of Financial Accounting
Standards No. 121, “Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Dis-
posed Of.” This review could result in an impairment
charge to be taken by the Company in 2001. The size
of any resulting 2001 charge is not presently known,
but may be significant.