American Airlines 2010 Annual Report Download - page 13

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ITEM 1A. RISK FACTORS
Our ability to become profitable and our ability to continue to fund our obligations on an ongoing basis will depend
on a number of risk factors, many of which are largely beyond our control.
As a result of significant losses in recent years, our financial condition has been materially weakened.
We incurred significant losses in recent years, which has materially weakened our financial condition. We lost
$893 million in 2005, $781 million in 2004, $1.2 billion in 2003, $3.5 billion in 2002 and $1.8 billion in 2001.
Although we earned a profit of $456 million in 2007 and $189 million in 2006, we lost $2.1 billion in 2008 (which
included a $1.2 billion impairment charge), and, primarily as a result of very weak demand for air travel driven by
the severe downturn in the global economy, we lost $1.5 billion in 2009 and $471 million in 2010. Because of our
weakened financial condition, we are vulnerable both to the impact of unexpected events (such as terrorist
attacks) and to deterioration of the operating environment (such as a significant increase in jet fuel prices or
significant increased competition).
The severe global economic downturn resulted in very weak demand for air travel and lower investment
asset returns, which has had and could continue to have a significant negative impact on us.
Although demand for air travel has improved as the global economy continues to recover from the recent severe
downturn, demand continues to be weak by historical standards. We began to experience weakening demand
late in 2008, and this weakness continued into 2010. We reduced capacity in 2008, and in the first half of 2009 we
announced additional reductions to our capacity plan. In connection with these capacity reductions, the Company
incurred special charges related to aircraft, employee reductions and certain other charges. Demand for air travel
may weaken if the global economy does not continue to recover. No assurance can be given that capacity
adjustments or other steps we may take in response to changes in demand will be successful. Capacity
reductions or other steps might result in additional special charges in the future. Further, other carriers may make
capacity adjustments which may reduce the expected benefits of any steps we may take to respond to changes in
demand. Industry-wide capacity may increase to the extent the economy continues to recover from the global
recession. If industry capacity increases, and if consumer demand does not continue to pace those increases,
we, and the airline industry as a whole, could be negatively impacted.
The economic downturn has resulted in broadly lower investment asset returns and values. Our pension assets
suffered a material decrease in value in 2008 related to broader stock market declines, which resulted in higher
pension expense in 2009 and 2010 and will result in higher pension expense and higher required contributions in
future years. In addition, under certain circumstances, we may be required to maintain cash reserves under our
credit card processing agreements and to post cash collateral on fuel hedging contracts. These issues individually
or collectively may have a material adverse impact on our liquidity. Also, disruptions in the capital markets and
other sources of funding may make it impossible for us to obtain necessary additional funding or make the cost of
that funding prohibitive.
We face numerous challenges as we seek to maintain sufficient liquidity, and we will need to raise
substantial additional funds. We may not be able to raise those funds, or to do so on acceptable terms.
In the next several years, we have significant debt, lease and other obligations, including significant pension
funding obligations. We also expect to make substantial capital expenditures during that time. For example, in
2011, we will be required to make approximately $2.5 billion of principal payments on long-term debt and capital
leases, and we expect to spend approximately $1.6 billion on capital expenditures, including aircraft
commitments. In addition, in 2011, we are required to contribute approximately $520 million to our pension plans.
Moreover, the global economic downturn, rising fuel prices, the potential obligation to post reserves under credit
card processing agreements and the potential obligation to post cash collateral on fuel hedging contracts, among
other things, have negatively impacted, and may in the future negatively impact, our liquidity. To meet our
commitments and to maintain sufficient liquidity as we continue to implement our revenue enhancement and cost
reduction initiatives, we will need continued access to substantial additional funding. Moreover, while we have
arranged financings that, subject to certain terms and conditions (including, in the case of financing arrangements
covering a significant number of aircraft, a condition that, at the time of borrowing, we have a certain amount of
unrestricted cash and short term investments), cover all of our aircraft delivery commitments through 2011, we will
continue to need to raise substantial additional funds to meet our commitments.