American Airlines 2009 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2009 American Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 111

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111

58
2. Special Charges and Restructuring Activities
As a result of the revenue environment, high fuel prices and the Company’s restructuring activities, including its
capacity reductions, the Company has recorded a number of charges during the last few years. In 2008 and
2009, the Company announced capacity reductions due to unprecedented high fuel costs at that time and the
other challenges facing the industry. In connection with these capacity reductions, the Company incurred special
charges related to aircraft, employee reductions and certain other charges.
Aircraft Charges
As part of these capacity reductions, the Company grounded its leased Airbus A300 aircraft prior to lease
expiration. In 2009, the Company incurred approximately $94 million in net present value of future lease
payments and lease return costs related to the grounding of the leased Airbus A300 fleet. The Company
estimates that virtually all of these charges will result in future cash expenditures. Further, the Company also
wrote down its owned Airbus A300 aircraft and related inventory to estimated salvage value in the fourth quarter
of 2009, resulting in a non-cash expense of $20 million. All Airbus A300 aircraft are permanently retired as of
December 31, 2009.
In the fourth quarter of 2009, due to the continuing severe downturn in the global economy and weakness in the
regional jet aircraft market, the Company’s plan to sell certain of its Embraer RJ-135 aircraft was no longer
feasible at the amount for which these aircraft had been valued. Consequently, the Company reclassified these
aircraft from held for sale to held for use, tested them for impairment and concluded the carrying values of certain
of its Embraer RJ-135 aircraft were no longer recoverable. Therefore, during the fourth quarter of 2009, the
Company recorded an impairment charge of $42 million to write these aircraft down to their estimated fair values.
In addition, these aircraft will now resume depreciation prospectively. In determining the fair values of these
aircraft, the Company considered recent transactions for sales of similar aircraft and the value of the underlying
engines. No portion of the impairment charge will result in future cash expenditures.
Employee Charges
In conjunction with the capacity reductions announced in 2008, the Company reduced its workforce
commensurate with the announced system-wide capacity reductions. This reduction in workforce was
accomplished through various measures, including voluntary programs, part-time work schedules, furloughs in
accordance with collective bargaining agreements, and other reductions.
The following table summarizes the components of the Company’s special charges, the remaining accruals for
these charges and the capacity reduction related charges (in millions) as of December 31, 2009:
Aircraft
Charges
Facility
Exit Costs
Employee
Charges
Other
Total
Remaining accrual at
January 1, 2007
$ 128
$ 19
$ -
$ -
$ 147
Restructuring charges
63
-
-
-
63
Non-cash charges
(53)
-
-
-
(53)
Payments
(12)
(1)
-
-
(13)
Remaining accrual at
December 31, 2007
$ 126
$ 18
$ -
$ -
$ 144
Capacity reduction charges
1,117
-
71
25
1,213
Non-cash charges
(1,103)
-
-
(25)
(1,128)
Adjustments
1
(2)
-
-
(1)
Payments
(31)
-
(55)
-
(86)
Remaining accrual at
December 31, 2008
$ 110
$ 16
$ 16
$ -
$ 142
Capacity reduction charges
164
7
-
-
171
Non-cash charges
(68)
-
-
-
(68)
Adjustments
(2)
-
-
-
(2)
Payments
(49)
(3)
(16)
-
(68)
Remaining accrual at
December 31, 2009
$ 155
$ 20
$ -
$ -
$ 175
Cash outlays related to the accruals for aircraft charges and facility exit costs will occur through 2017 and 2018,
respectively.