American Airlines 2003 Annual Report Download - page 53

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2. Special charges and U.S. government grant
In early 2001, the economic slowdown in the U.S. resulted in a sharp decline in the Company’s revenues. This
slowdown was accelerated and exacerbated by the terrorist attacks on September 11, 2001. As a result, the
Company reduced its operating schedule by approximately 20 percent and reduced its workforce by approximately
20,000 jobs in the fourth quarter 2001. Subsequent to these events, the Company determined that the revenue
decrease would likely persist indefinitely and that achieving $4 billion in annual capacity-independent cost savings
was necessary to offset the revenue decline. The Company initiated the following restructuring activities to realize
this goal:
• In 2002, the Company announced a series of initiatives to reduce its costs by $2 billion. These initiatives are
being implemented through 2005, and involve: (i) scheduling efficiencies, including the de-peaking of certain
of its hubs, (ii) fleet simplification, (iii) streamlined customer interaction, (iv) distribution modifications, (v) in-
flight product changes, (vi) operational changes and (vii) headquarters/administration efficiencies. As a result
of the initiatives, the Company reduced an estimated 7,000 jobs by March 2003.
• In February 2003, American asked its employees for approximately $1.8 billion in annual savings through a
combination of changes in wages, benefits and work rules. In April 2003, American reached agreements with
its three unions (the Labor Agreements) and also implemented various changes in the pay plans and benefits
for non-unionized personnel, including officers and other management (the Management Reductions), which
resulted in additional workforce reductions. In addition, the Company and American reached concessionary
agreements with certain vendors, lessors, lenders and suppliers (collectively, the Vendors, and the
agreements, the Vendor Agreements). Generally, under the terms of these Vendor Agreements, the
Company or American will receive the benefit of lower rates and charges for certain goods and services, and
more favorable rent and financing terms with respect to certain of its aircraft.
As a result of the Company’s continuing restructuring activities, the Company has recorded a number of special
charges. Special charges (credits) for the years ended December 31, 2003, 2002 and 2001 included the following
(in millions):
Year Ended December 31,
2003 2002 2001
Aircraft charges $ 321 $ 658 $ 1,237
Employee charges 92 57 71
Facility exit costs 62 3 115
Other (68) - 43
Total special charges $ 407 $ 718 $ 1,466
Year Description of Charge
Amount
(millions)
Aircraft charges
2003 Accelerated the planned retirement of Airbus A300 aircraft and permanently
retired Boeing 767-200 aircraft and four Boeing 767-200 ER aircraft. Aircraft
and related Airbus A300 rotables were written down to fair value. * $ 264
Retired 11 Boeing 757 leased aircraft and accrued future lease commitments
and lease return condition costs 77
Adjusted prior accruals for lease return and other costs initially recorded as a
component of Special charges (20)
$ 321