American Airlines 2005 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 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

58
3. Investments (Continued)
In 2004, the Company sold its remaining interest in Orbitz, a travel planning website, 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.
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 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.
4. Commitments, Contingencies and Guarantees
As of December 31, 2005, the Company had commitments to acquire 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 $102 million in 2006 and an
aggregate of approximately $2.8 billion in 2011 through 2016. The Company has pre-arranged backstop financing
available for the aircraft scheduled to be delivered in 2006.
American has granted Boeing a security interest in American’s purchase deposits with Boeing. These purchase
deposits totaled $277 million at December 31, 2005 and 2004.
The Company has contracts related to facility construction or improvement projects, primarily at airport locations.
The contractual obligations related to these projects totaled approximately $236 million as of December 31, 2005.
The Company expects to make payments of $176 million and $60 million in 2006 and 2007, respectively. See
Footnote 6 for information related to financing of JFK construction costs which are included in these amounts. 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 $90 million in 2006, $64 million in 2007, $65 million in 2008 and $18 million in 2009. 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.