American Airlines 2008 Annual Report Download - page 66

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63
3. Investments (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
(in millions)
Fair Value Measurements as of December 31, 2008
Description
Total
Level 1
Level 2
Level 3
Short term investments 1
$
2,916
$
1,411
$
1,505
-
Restricted cash and short-term investments 1
459
453
6
-
Fuel derivative contracts, net liability 1
(528
)
-
(528
)
-
Total
$
2,847
$
1,864
$
983
$
-
1 Unrealized gains or losses on short-term investments, restricted cash and short-term investments and derivatives
designated as hedges are recorded in Accumulated other comprehensive income (loss) at each measurement
date.
In 2007, the Company sold its interests in ARINC, Incorporated (ARINC), a military and aviation communications
company, previously recorded as a component of other assets. The Company received $192 million in proceeds
for its interest in ARINC, $138 million of which was recognized as a gain. The gain on the sale of the Company’s
interest in ARINC is included in Miscellaneous-net in the accompanying consolidated statement of operations.
4. Commitments, Contingencies and Guarantees
During 2008, the Company continued its fleet renewal strategy as it entered into amendments to its purchase
agreement with the Boeing Company. Giving effect to the amendments and considering the impact of delays
caused by the recent machinist strike at Boeing, the Company is now committed to take delivery of a total of 29
737-800 aircraft in 2009, 39 737-800 aircraft in 2010 and eight 737-800 aircraft in 2011. In addition to these
aircraft, the Company has firm commitments for eleven 737-800 aircraft and seven Boeing 777 aircraft scheduled
to be delivered in 2013 - 2016. Under the Boeing 737-800 and Boeing 777-200 aircraft 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. Any incremental firm aircraft
orders will increase the Company’s commitments.
American has granted Boeing a security interest in American’s purchase deposits with Boeing. The Company’s
purchase deposits totaled $671 million and $239 million at December 31, 2008 and 2007, respectively.
In October of 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.
On December 18, 2007, the European Commission issued a Statement of Objection (“SO”) against 26 airlines,
including the Company. The SO alleges that these carriers participated in a conspiracy to set surcharges on
cargo shipments in violation of EU law. The SO states that, in the event that the allegations in the SO are
affirmed, the Commission will impose fines against the Company. The Company intends to vigorously contest the
allegations and findings in the SO under EU laws, and it intends to cooperate fully with all other pending
investigations. Based on the information to date, the Company has not recorded any reserve for this exposure for
the year ended December 31, 2008. In the event that the SO is affirmed or other investigations uncover violations
of the U.S. antitrust laws or the competition laws of some other jurisdiction, or if the Company were named and
found liable in any litigation based on these allegations, such findings and related legal proceedings could have a
material adverse impact on the Company.
The Company has contracts related to facility construction or improvement projects, primarily at airport locations.
The contractual obligations related to these projects totaled approximately $57 million as of December 31, 2008.
The Company expects to make payments of $45 million and $6 million in 2009 and 2010, respectively. In addition,
the Company has an information technology support related contract that requires minimum annual payments of
$150 million through 2013.