American Airlines 2004 Annual Report Download - page 61

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5. Leases
AMR's subsidiaries lease various types of equipment and property, primarily aircraft and airport facilities. The
future minimum lease payments required under capital leases, together with the present value of such payments,
and future minimum lease payments required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2004, were (in millions):
Year Ending December 31,
Capital
Leases
Operating
Leases
2005 $ 258 $ 1,092
2006 259 1,022
2007 189 996
2008 226 938
2009 174 840
2010 and subsequent 950 7,534
2,056 $ 12,422 (1)
Less amount representing interest 821
Present value of net minimum lease payments $ 1,235
(1) As of December 31, 2004, included in Accrued liabilities and Other liabilities and deferred credits on the accompanying
consolidated balance sheet is approximately $1.3 billion relating to rent expense being recorded in advance of future
operating lease payments.
At December 31, 2004, the Company had 231 jet aircraft and 27 turboprop aircraft under operating leases and 94
jet aircraft and seven turboprop aircraft under capital leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for one to five years. Some aircraft leases have purchase
options at or near the end of the lease term at fair market value, but generally not to exceed a stated percentage
of the defined lessor's cost of the aircraft or a predetermined fixed amount.
In 2003, the Company reached concessionary agreements with certain lessors. Certain of the agreements provide
that the Company’s obligations under the related lease revert to the original terms if certain events occur prior to
December 31, 2005, including: (i) an event of default under the related lease (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. If any one of these events were to occur, the Company
would be responsible for approximately $72 million in additional operating lease payments and $59 million in
additional payments related to capital leases as of December 31, 2004. This amount will increase to approximately
$119 million in operating lease payments and $111 million in payments related to capital leases prior to the
expiration of the provision on December 31, 2005. These amounts are being accounted for as contingent rentals
and will only be recognized if they become payable.
Special facility revenue bonds have been issued by certain municipalities primarily to improve airport facilities (and
purchase equipment) that are leased by American and accounted for as operating leases. Approximately $1.7
billion of these bonds (with total future payments of approximately $4.6 billion as of December 31, 2004) are
guaranteed by American, AMR, or both. Approximately $532 million of these special facility revenue bonds contain
mandatory tender provisions that require American to make operating lease payments sufficient to repurchase the
bonds at various times: $104 million in 2005, $28 million in 2006, $100 million in 2007, $188 million in 2008 and
$112 million in 2014. Although American has the right to remarket the bonds, there can be no assurance that
these bonds will be successfully remarketed. Any payments to redeem or purchase bonds that are not remarketed
would generally reduce existing rent leveling accruals or be considered prepaid facility rentals and would reduce
future operating lease commitments. The special facility revenue bonds that contain mandatory tender provisions
are included in the table above at their ultimate maturity date rather than their mandatory tender provision date.
Approximately $112 million of special facility revenue bonds with mandatory tender provisions were successfully
remarketed in 2004.