American Airlines 2006 Annual Report Download - page 64

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60
4. Commitments, Contingencies and Guarantees (Continued)
In certain transactions, including certain aircraft financing leases and loans and derivative transactions, the
lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law,
illegality or certain other events or circumstances. In such a case, the Company may be required to make a lump
sum payment to terminate the relevant transaction.
In its aircraft financing agreements, the Company generally indemnifies the financing parties, trustees acting on
their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing,
manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities
(or taxes) relate to the negligence of the indemnified parties.
The Company has general indemnity clauses in many of its airport and other real estate leases where the
Company as lessee indemnifies the lessor (and related parties) against liabilities related to the Company’s use of
the leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the
indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified
parties. In addition, the Company provides environmental indemnities in many of these leases for contamination
related to the Company’s use of the leased property.
Under certain contracts with third parties, the Company indemnifies the third party against legal liability arising out
of an action by the third party, or certain other parties. The terms of these contracts vary and the potential
exposure under these indemnities cannot be determined. Generally, the Company has liability insurance
protecting the Company for its obligations it has undertaken under these indemnities.
AMR and American have event risk covenants in approximately $1.7 billion of indebtedness and operating leases
as of December 31, 2006. These covenants permit the holders of such obligations to receive a higher rate of
return (between 100 and 650 basis points above the stated rate) if a designated event, as defined, should occur
and the credit ratings of such obligations are downgraded below certain levels within a certain period of time. No
designated event, as defined, had occurred as of December 31, 2006.
The Company is subject to environmental issues at various airport and non-airport locations for which it has
accrued $33 million and $40 million, which are included in Accrued liabilities on the accompanying consolidated
balance sheets, at December 31, 2006 and 2005, respectively. Management believes, after considering a number
of factors, that the ultimate disposition of these environmental issues is not expected to materially affect the
Company’s consolidated financial position, results of operations or cash flows. Amounts recorded for
environmental issues are based on the Company’s current assessments of the ultimate outcome and,
accordingly, could increase or decrease as these assessments change.
The Company is involved in certain claims and litigation related to its operations. In the opinion of management,
liabilities, if any, arising from these claims and litigation will not have a material adverse effect on the Company’s
consolidated financial position, results of operations, or cash flows, after consideration of available insurance.