American Airlines 2008 Annual Report Download - page 35

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The Company’s substantial indebtedness and other obligations have important consequences. For example, they:
(i) limit the Company’s ability to obtain additional funding for working capital, capital expenditures, acquisitions and
general corporate purposes, and adversely affect the terms on which such funding could be obtained; (ii) require
the Company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness
and other obligations, thereby reducing the funds available for other purposes; (iii) make the Company more
vulnerable to economic downturns; and (iv) limit the Company’s ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and economic conditions.
Under the Company’s Boeing 737-800 and Boeing 777-200 purchase agreements, payments for the related
aircraft purchase commitments will be approximately $1.0 billion in 2009, $1.1 billion in 2010, $355 million in 2011,
$218 million in 2012, $417 million in 2013 and $584 million for 2014 and beyond. These amounts are net of
purchase deposits currently held by the manufacturer.
In October 2008, the Company entered into a sale leaseback agreement for 20 of the 76 Boeing 737-800 aircraft
to be delivered in 2009 - 2011. Such financing is subject to certain terms and conditions including a minimum
liquidity requirement. In addition, the Company had previously arranged for backstop financing which covered a
significant portion of the remaining 2009 - 2011 Boeing 737-800 aircraft deliveries. As a result, all of the
Company’s 737-800 aircraft purchase commitments for 2009 - 2011 will be covered by committed financing
except for approximately $195 million, substantially all of which is due in the fourth quarter of 2010.
In October 2008, the Company entered into a new purchase agreement with Boeing for the acquisition of 42
Boeing 787-9 aircraft. Per the purchase agreement, the first such aircraft is scheduled to be delivered in 2012,
and the last is scheduled to be delivered in 2018. The agreement also includes purchase rights to acquire up to
58 additional Boeing 787 aircraft, with deliveries between 2015 and 2020. Based on preliminary information
received from Boeing on the impact of the overall Boeing 787 program delay to American’s delivery positions due
to the strike in 2008, the Company now believes the first of the initial 42 aircraft will be delivered during the second
half of 2013. The first of the 58 optional purchase rights aircraft would be delivered in the second half of 2016
based on the same preliminary information. Under the 787-9 purchase agreement, except as described below,
American will not be obligated to purchase a 787-9 aircraft unless it gives Boeing notice confirming its election to
do so at least 18 months prior to the scheduled delivery date for that aircraft. If American does not give that notice
with respect to an aircraft, the aircraft will be no longer subject to the 787-9 purchase agreement. These
confirmation rights may be exercised until May 1, 2013, provided that those rights will terminate earlier if American
reaches a collective bargaining agreement with its pilot union that includes provisions enabling American to utilize
the 787-9 to American’s satisfaction in the operations desired by American, or if American confirms its election to
purchase any of the initial 42 787-9 aircraft. While there can be no assurances, American expects to have
reached an agreement as described above with its pilots union prior to the first notification date. In either of those
events, American would become obligated to purchase all of the initial 42 aircraft then subject to the purchase
agreement. If neither of those events occur prior to May 1, 2013, then on that date American may elect to
purchase all of the initial 42 aircraft then subject to the purchase agreement, and if it does not elect to do so, the
purchase agreement will terminate in its entirety.
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The Company’s continued aircraft replacement strategy, and its execution of that strategy, will depend on such
factors as future economic and industry conditions and the financial condition of the Company.
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 a fully drawn $255
million revolving credit facility with a final maturity on June 17, 2009, and a fully drawn $436 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).