American Airlines 2004 Annual Report Download - page 12

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9
The Air Line Pilots Association (ALPA), which represents American Eagle pilots, reached agreement with
American Eagle effective September 1, 1997, to have all of the pilots of the American Eagle carriers covered by a
single collective bargaining agreement. This agreement lasts until October 31, 2013. The agreement provides to
the parties the right to seek limited changes in 2000, 2004, 2008 and 2012. If the parties are unable to agree on
the limited changes, they also agree that the issues would be resolved by interest arbitration, without the exercise
of self-help (such as a strike). ALPA and American Eagle negotiated a tentative agreement in 2000, but that
agreement failed in ratification. Thereafter, the parties participated in interest arbitration. The interest arbitration
panel determined the limited changes that should be made and these changes were appropriately effected. In
2004, the parties successfully negotiated limited changes that became effective on January 1, 2005.
The Association of Flight Attendants (AFA), which represents the flight attendants of the American Eagle carriers,
reached agreement with American Eagle effective March 2, 1998, to have all flight attendants of the American
Eagle carriers covered by a single contract. The agreement became amendable on September 2, 2001. The
parties agreed to commence negotiations over amendments to the agreement in March 2001. The mediation
assistance of the NMB was requested and mediation commenced in November 2003. The mediated negotiations
continue. The other union employees at the American Eagle carriers are covered by separate agreements with the
TWU, which were effective April 28, 1998, and were amendable April 28, 2003. American Eagle and the TWU
reached agreements with respect to the TWU-represented work groups at various times in late 2004 and early
2005. They have agreed that openers may be exchanged at least 60 days prior to October 1, 2007, for all of those
agreements.
The non-union employees formerly with TWA LLC have been integrated into American's work force. With respect
to the integration of unionized employees formerly employed by TWA LLC, American reached integration
agreements with the APA (with respect to pilot integration) and the APFA (with respect to flight attendant
integration). American and the TWU participated in arbitration and resolved certain unionized ground employee
integration issues in late February and early March 2002. In early April 2002, the NMB declared American and
TWA LLC a single carrier for labor relations purposes and designated American's incumbent unions as the
collective bargaining representatives of the relevant work groups at both American and TWA LLC. Since
American's unions thereafter represented the relevant employees at both carriers, the integration mechanisms
applicable to the unions at American could then begin to be effected. The integration of the unionized work groups
has occurred in accordance with those mechanisms.
E. Fuel
The Company’s operations and financial results are significantly affected by the availability and price of jet fuel.
The Company's fuel costs and consumption for the years 2002 through 2004 were:
Year
Gallons
Consumed
(in millions)
Total Cost
(in millions)
Average
Cost Per
Gallon
(in cents)
Percent of
AMR's
Operating
Expenses
2002 3,345 $ 2,562 76.2 12.3
2003 3,161 2,772 87.7 15.2
2004 3,264 3,969 121.6 21.1
The impact of fuel price changes on the Company and its competitors depends on various factors, including
hedging strategies. The Company has a fuel hedging program in which it enters into jet fuel, heating oil and crude
oil hedging contracts to dampen the impact of the volatility of jet fuel prices. During 2004, 2003 and 2002, the
Company’s fuel hedging program reduced the Company’s fuel expense by approximately $99 million, $149 million
and $4 million, respectively. As of December 31, 2004, the Company had hedged, with option contracts,
approximately 15 percent of its estimated first quarter 2005 fuel requirements and minimal amounts of its
estimated fuel requirements thereafter. A deterioration of the Company’s liquidity position could negatively affect
the Company’s ability to hedge fuel in the future. See the Risk Factors under Item 7 for additional information
regarding fuel.