American Airlines 2007 Annual Report Download - page 32

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29
Liquidity and Capital Resources
Cash, Short-Term Investments and Restricted Assets At December 31, 2007, the Company had $4.5 billion
in unrestricted cash and short-term investments and $428 million in restricted cash and short-term investments.
Significant Indebtedness and Future Financing Indebtedness is a significant risk to the Company as
discussed in the Risk Factors listed in Item 1A. During 2005, 2006 and 2007, in addition to refinancing its Credit
Facility and certain other debt (see Note 6 to the consolidated financial statements), the Company raised an
aggregate of approximately $2.5 billion in financing to fund capital commitments (mainly for aircraft and ground
properties), debt maturities, and employee pension obligations, and to bolster its liquidity. The Company believes
that it should have sufficient liquidity to fund its operations for the foreseeable future, including repayment of debt
and capital leases, capital expenditures and other contractual obligations, including those relating to the
anticipated accelerated delivery of 47 Boeing 737 aircraft that American had previously committed to acquire in
2013 through 2015. Through December 31, 2007, the Company had advanced 18 of these deliveries and
announced its intent to accelerate the remainder, depending on a number of factors including future economic
conditions and the financial condition of the Company. In addition to advancing prior commitments, the Company
had also ordered five incremental Boeing 737 aircraft. The Company continues to examine its future aircraft
needs and may need additional financing to continue to execute its fleet renewal plan.
However, because the Company has significant debt, lease and other obligations in the next several years,
including commitments to purchase aircraft as well as substantial pension funding obligations (refer to
Contractual Obligations in this Item 7), the Company may need access to additional funding to maintain sufficient
liquidity. The Company currently has no committed financing for any aircraft that it is committed to purchase. The
Company’s possible financing sources primarily include: (i) a limited amount of additional secured aircraft debt (a
most of the Company’s owned aircraft, including most of the Company’s Section 1110-eligible aircraft, are
encumbered) or sale-leaseback transactions involving owned aircraft, (ii) debt secured by new aircraft deliveries,
(iii) debt secured by other assets, (iv) securitization of future operating receipts, (v) the sale or monetization of
certain strategic assets, (vi) unsecured debt and (vii) issuance of equity and/or equity-like securities. However,
the availability and level of these financing sources cannot be assured, particularly in light of the Company’s and
American’s recent financial results, substantial indebtedness, reduced credit ratings, high fuel prices, revenues
that are weak by historical standards, and the financial difficulties being experienced in the airline industry. The
inability of the Company to obtain additional funding on acceptable terms could have a material adverse impact
on the Company and on the ability of the Company to sustain its operations over the long-term.
Credit Ratings AMR’s and American’s credit ratings are significantly below investment grade. Additional
reductions in AMR's or American's credit ratings could further increase its borrowing or other costs and further
restrict the availability of future financing.
Credit Facility Covenants American has a secured bank credit facility which consists of an undrawn $255
million revolving credit facility with a final maturity on June 17, 2009, and a fully drawn $440 million term loan
facility, with a final maturity on December 17, 2010 (the Revolving Facility and the Term Loan Facility,
respectively, and collectively, the Credit Facility). On March 30, 2007, American paid in full the principal balance
of the Revolving Facility and as of December 31, 2007, it remained undrawn. American’s obligations under the
Credit Facility are guaranteed by AMR.