American Airlines 2007 Annual Report Download - page 63

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5. Leases (Continued)
At December 31, 2007, the Company was operating 184 jet aircraft and 2 turboprop aircraft under operating
leases and 84 jet 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.
The special facility revenue bonds have been issued by certain municipalities primarily to improve airport facilities
and purchase equipment. To the extent these transactions were committed to prior to May 21, 1998 (the effective
date of EITF 97-10, “The Effect of Lessee Involvement in Asset Construction”) they are accounted for as
operating leases under Financial Accounting Standards Board Interpretation 23, “Leases of Certain Property
Owned by a Governmental Unit or Authority”. Approximately $1.7 billion of these bonds (with total future
payments of approximately $4.1 billion as of December 31, 2007) are guaranteed by American, AMR, or both.
Approximately $395 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: $218
million in 2008, $112 million in 2014 and $65 million in 2015. 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 listed in the table above at their ultimate maturity date rather than
their mandatory tender provision date. Approximately $198 million of special facility revenue bonds with
mandatory tender provisions were successfully remarketed in 2005. They were acquired by American in 2003
under a mandatory tender provision. Thus, the receipt by American of the proceeds from the remarketing
resulted in an increase to Other liabilities and deferred credits where the tendered bonds had been classified
pending their use to offset certain future operating lease obligations.
Rent expense, excluding landing fees, was $1.4 billion, $1.4 billion and $1.3 billion in 2007, 2006 and 2005,
respectively.
American has determined that it holds a significant variable interest in, but is not the primary beneficiary of,
certain trusts that are the lessors under 84 of its aircraft operating leases. These leases contain a fixed price
purchase option, which allows American to purchase the aircraft at a predetermined price on a specified date.
However, American does not guarantee the residual value of the aircraft. As of December 31, 2007, future lease
payments required under these leases totaled $2.0 billion.
6. Indebtedness
Long-term debt consisted of (in millions):
December 31,
2007 2006
Secured variable and fixed rate indebtedness due through 2021
(effective rates from 4.25% - 11.36% at December 31, 2007) $ 4,662 $ 6,000
Enhanced equipment trust certificates due through 2012
(rates from 3.86% - 12.00% at December 31, 2007) 2,482 2,968
6.0% - 8.5% special facility revenue bonds due through 2036 1,688 1,697
Credit facility agreement due through 2010
(effective rate of 8.60% at December 31, 2007) 440 740
4.25% - 4.50% senior convertible notes due 2023 – 2024 619 619
9.0% - 10.20% debentures due through 2021 213 213
7.88% - 10.55% notes due through 2039 211 226
10,315 12,463
Less current maturities 902 1,246
Long-term debt, less current maturities $ 9,413 $ 11,217