American Airlines 2005 Annual Report Download - page 59

Download and view the complete annual report

Please find page 59 of the 2005 American Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

56
2. Restructuring Charges and U.S. Government Grant
In the fourth quarter of 2005, the Company permanently grounded and retired 27 McDonnell Douglas MD-80
airframes, 24 of which had previously been in temporary storage. The other three aircraft were in-service
immediately prior to being retired. Of these 27 aircraft, 13 are owned by the Company, six are accounted for as
capital leases and eight are accounted for as operating leases. As a result of the retirement, the Company
incurred a charge of $155 million, included in Other operating expenses in the consolidated statement of
operations, to accrue future lease commitments and write-down the aircraft frames to their fair values. In
determining the fair values of these aircraft, the Company considered outside third party appraisals and recent
transactions involving inventory for the aircraft.
In 2003, the Company reached concessionary agreements with certain lessors. Certain of these agreements
provided that the Company’s obligations under the related debt would revert to the original terms if certain events
occurred prior to December 31, 2005. Because none of these events occurred prior to that date, the Company
recognized a gain of $37 million in the fourth quarter of 2005 that was related to the resolution of a debt
restructuring agreed to as part of the concessions.
As a result of the Terrorist Attacks, the depressed revenue environment, high fuel prices and the Company’s
restructuring activities, the Company recorded a number of charges. The following table summarizes the
components of these charges and the remaining accruals for future lease payments, aircraft lease return and
other costs, facilities closure costs and employee severance and benefit costs (in millions):
Aircraft
Charges
Facility
Exit Costs
Employee
Charges
Other
Total
Remaining accrual at
January 1, 2003
$ 209
$ 17
$ 44
$ -
$ 270
Restructuring charges 341 62 92 (68) 427
Adjustments (20) - - - (20)
Non-cash charges (264) (17) 23 68 (190)
Payments (69) (6) (133) - (208)
Remaining accrual at
December 31, 2003
197
56
26
-
279
Restructuring charges 21 - 42 - 63
Adjustments (20) (21) (11) - (52)
Non-cash charges (21) - - - (21)
Payments (48) (9) (21) - (78)
Remaining accrual at
December 31, 2004
129
26
36
-
191
Restructuring charges 155 19 - (37) 137
Adjustments - (2) - - (2)
Non-cash charges (119) - - 37 (82)
Payments (13) (7) (36) - (56)
Remaining accrual at
December 31, 2005
$ 152
$ 36
$ -
$ -
$ 188
Cash outlays related to the accruals for aircraft charges and facility exit costs will occur through 2017 and 2018,
respectively.
U.S. government grant
In April 2003, the President signed the Emergency Wartime Supplemental Appropriations Act, 2003 (the
Appropriations Act), which included provisions authorizing payment of $2.3 billion to reimburse air carriers for
increased security costs in proportion to the amounts each carrier had paid or collected in passenger security and
air carrier security fees to the Transportation Security Administration (the Security Fee Reimbursement). The
Company’s Security Fee Reimbursement was $358 million (net of payments to independent regional affiliates)
and is included in U.S. government grant in the accompanying consolidated statements of operations.