American Airlines 2004 Annual Report Download - page 56

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2. Special charges and U.S. government grant (Continued)
Year Description of Charge
Amount
(millions)
Facility exit costs
2004 Adjusted prior accruals for future lease commitments upon completion of a
space reevaluation primarily done in connection with the occupation of some of
the space by another carrier $ (21)
2003 Accrued the fair value of future lease commitments and wrote-off certain
prepaid rental amounts and leasehold improvements related to certain excess
airport space $ 45
Reduced the size of the St. Louis hub and accrued the fair value of certain
future lease commitments 12
Other 5
$62
* In determining the asset impairment charges described above, management estimated the
undiscounted future cash flows using models used by the Company in making fleet and scheduling
decisions. In determining the fair value of these aircraft, the Company considered outside third party
appraisals and recent transactions involving sales of similar aircraft and engines. The Company also
considered internal valuation models in determining the fair value of these aircraft, and with respect to
the Fokker 100 aircraft, incorporated the fact that with this grounding, no major airline operates this fleet
type.
** 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 major unions (the Labor Agreements) to achieve these savings and also
implemented various reductions in the pay plans and benefits for non-unionized personnel, including
officers and other management (the Management Reductions).
Other
In 2003, American sold 33 Fokker 100 aircraft (with a minimal net book value), issued a $23 million non-interest-
bearing note, payable in installments and maturing in December 2010, entered into short-term leases on these
aircraft and issued shares of AMR common stock as discussed in Note 9. In exchange, approximately $130 million
of debt related to certain of the Fokker 100 aircraft was retired. However, the agreement contains provisions that
would require American to repay additional amounts of the original debt if certain events occur prior to December
31, 2005, including: (i) an event of default (which generally occurs only if a payment default occurs), (ii) an event of
loss with respect to the related aircraft, (iii) rejection by the Company of the lease under the provisions of Chapter
11 of the U.S. Bankruptcy Code or (iv) the Company’s filing for bankruptcy under Chapter 7 of the U.S. Bankruptcy
Code. As a result of this transaction, including the sale of the 33 Fokker 100 aircraft, and the termination of the
Company’s interest rate swap agreements related to the debt that has been retired, the Company recognized a
gain of approximately $68 million in 2003. If the certain events described above do not occur, the Company
expects to recognize an additional gain of approximately $37 million in December 2005.