American Airlines 2004 Annual Report Download - page 59

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3. Investments (Continued)
During 2003, the Company sold its interests in Worldspan, a computer reservations company, and Hotwire, a
discount travel website. The Company received $180 million in cash and a $39 million promissory note for its
interest in Worldspan. It received $84 million in cash, $80 million of which was recognized as a gain, for its interest
in Hotwire. In addition, during 2003, the Company sold a portion of its interest in Orbitz, a travel planning website,
in connection with an Orbitz initial public offering and a secondary offering, resulting in total proceeds of $65
million, and a gain of $70 million. Excluded from this gain are certain contingent payments that will be recorded
when and if received. The gains on the sale of the Company’s interests in Hotwire and Orbitz are included in
Miscellaneous-net in the accompanying consolidated statement of operations.
In 2004, the Company sold its remaining interest in Orbitz resulting in total proceeds of $185 million and a gain of
$146 million, which is included in Miscellaneous-net in the accompanying consolidated statement of operations.
4. Commitments, Contingencies and Guarantees
As of December 31, 2004, the Company had commitments to acquire: 20 Embraer regional jets in 2005; two
Boeing 777-200ERs in 2006; and an aggregate of 47 Boeing 737-800s and seven Boeing 777-200ERs in 2013
through 2016. Future payments for all aircraft, including the estimated amounts for price escalation, will
approximate $345 million in 2005, $101 million in 2006 and an aggregate of approximately $3.0 billion in 2011
through 2016. The Company has pre-arranged financing or backstop financing for all of its aircraft deliveries in
2005 and 2006.
American has granted Boeing a security interest in American’s purchase deposits with Boeing. These purchase
deposits totaled $277 million as of December 31, 2004 and 2003.
The Company has contracts related to facility construction or improvement projects, primarily at airport locations.
The contractual obligations related to these projects totaled approximately $462 million as of December 31, 2004.
The Company expects to make payments related to these projects as follows: $234 million in 2005, $153 million in
2006, $68 million in 2007 and $7 million in 2008. In addition, the Company has an information technology support
related contract that requires minimum annual payments of $152 million through 2013.
American has capacity purchase agreements with two regional airlines, Chautauqua Airlines, Inc. (Chautauqua)
and Trans States Airlines, Inc. (collectively the American Connection carriers) to provide Embraer EMB-140/145
regional jet services to certain markets under the brand “American Connection”. Under these arrangements, the
Company pays the American Connection carriers a fee per block hour to operate the aircraft. The block hour fees
are designed to cover the American Connection carriers’ fully allocated costs plus a margin. Assumptions for
certain costs such as fuel, landing fees, insurance, and aircraft ownership are trued up to actual values on a pass
through basis. In consideration for these payments, the Company retains all passenger and other revenues
resulting from the operation of the American Connection regional jets. Minimum payments under the contracts are
$96 million in 2005, $70 million in 2006, $71 million in 2007, $72 million in 2008 and $20 million in 2009. However,
based on expected utilization, the Company expects to make payments of $174 million in 2005, $177 million in
2006, $179 million in 2007, $181 million in 2008, $184 million in 2009 and $721 million in 2010 and beyond. In
addition, if the Company terminates the Chautauqua contract without cause, Chautauqua has the right to put its 15
Embraer aircraft to the Company. If this were to happen, the Company would take possession of the aircraft and
become liable for lease obligations totaling approximately $21 million per year with lease expirations in 2018 and
2019.
The Company is a party to many routine contracts in which it provides general indemnities in the normal course of
business to third parties for various risks. The Company is not able to estimate the potential amount of any liability
resulting from the indemnities. These indemnities are discussed in the following paragraphs.